[2023] KETAT 142 (KLR)

ICEA Lion Life Assurance Ltd v Commissioner of Domestic Taxes (Tax Appeal 463 of 2022) [2023] KETAT 142 (KLR) (17 March 2023) (Judgment)

Neutral citation: [2023] KETAT 142 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 463 of 2022

E.N Wafula, Vice Chair, Cynthia B. Mayaka, Grace Mukuha, Jephthah Njagi & AK Kiprotich, Members

March 17, 2023

Between

ICEA Lion Life Assurance Ltd

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company incorporated in Kenya whose core business is provision of financial services and products such as insurance, pensions, investment and trusts.

2. The Respondent is a principal officer appointed pursuant to Section 13 of the Kenya Revenue Authority Act, (Act No 2 of 1995) herein referred to the Kenya Revenue Authority Act ('KRA Act') and the Kenya Revenue Authority is empowered to enforce and administer provisions of written laws set out in Section 5 as read together with the First Schedule of the KRA Act, among them the Value Added Tax Act (No 35 of 2013).

3. Vide a letter dated September 28, 2018, the Respondent issued an assessment to the Appellant demanding a total of Kshs 828,857,568. 00 comprising of principal taxes of Kshs 468,622,517. 00 and penalties and interest of Kshs 360,235,051. 00

4. This assessment arose out of the Respondent’s review of the Appellant's operations for the period January 2014 to December 2017 covering Withholding Tax (WHT), Pay as You Earn (PAYE) and Value Added Tax (VAT).

5. In the review, the Respondent also found that the Appellant had charged WHT tax at the rate of 10% on Tied Life Agents’ earnings instead of charging PAYE. The Respondent also found that the Appellant had sold a building to the Jomo Kenyatta University of Agriculture and Technology ('JKUAT') but failed to account for VAT on the sale of the property.

6. The Appellant objected to the Respondent's assessment vide a letter dated October 25, 2018 and the Respondent issued an objection decision via a letter dated December 27, 2018 amending its assessment to Kshs 696,318,590. 00. This new assessment comprised of principal tax of Kshs 464,212,393,00 penalties of Kshs 23,210,620. 00 and interest of Kshs 208,895,577. 00.

7. Dissatisfied with the objection decision, the Appellant filed an appeal at the Tribunal on January 25, 2019 (TAT Appeal Case No 52 of 2019) and subsequently applied for resolution of the dispute under the Kenya Revenue Authority's Alternative Dispute Resolution framework on June 21, 2019.

8. Following various ADR discussions, the Appellant and the Respondent signed an ADR Agreement on September 30, 2019.

9. Based on the terms of the ADR Agreement, the Appellant proceeded to pay the agreed principal tax liability of Kshs 347,017,754. 00 in five (5) monthly installments of Kshs 57,836,292. 00 each and fully settled the entire principal tax liability.

10. As per the ADR Agreement, the Appellant applied for waiver of penalties and interest arising from the assessment, amounting to Kshs 142,678,371. 00.

11. One of the issues discussed at the ADR forum was the VAT assessment on the sale of property by the Appellant to JKUAT wherein the Respondent asserted that VAT of Kshs 296,000,000. 00 was due and payable since the transaction did not qualify as a transfer of a business as a going concern hence was not VAT zero-rated. The Appellant on its part held the view that the transaction qualified as a transfer of a business as a going concern hence VAT zero rated as per the provisions of Paragraph 7, Part A of the Second Schedule to the VAT Act, 2013. The Appellant however agreed to pay the VAT arising on a Without Prejudice basis.

12. Prior to the dispute and settlement referenced above, JKUAT had requested for a private ruling on the transaction and the Respondent had issued a ruling dated September 4, 2017 stating that the transaction qualified as a transfer of a business as a going concern hence VAT zero-rated as per the provisions of Paragraph 7, Part A of the Second Schedule to the VAT Act 2013.

13. On June 24, 2020, the Respondent wrote to the Appellant, once again giving guidance on the tax treatment of the transaction and re-affirmed its position as per the ruling to JKUAT of September 4, 2017 that the transaction qualified as a transfer of a business as a going concern hence VAT zero-rated.

14. At the point of receipt of the letter of June 24, 2020, the Appellant had made payments in settlement of the tax VAT liability as per the ADR Agreement. The Appellant, therefore, on August 26, 2020 wrote to the Respondent asking that the Kshs 296,000,000. 00 paid as VAT on the transaction be treated as taxes paid in error and refunded to it.

15. After several reminders by the Appellant, the Respondent issued a letter on November 18, 2021 in which it retracted from the position taken in the letter of June 24, 2020 now stating that the transaction was not a transfer of a business as a going concern hence was subject to VAT at the standard rate (16%) andthe amount paid of Kshs 296,000,000. 00 was not tax paid in error.

16. In the same letter, the Respondent stated that interest on the transaction had accumulated to Kshs 121,700,325. 00 inspite of the fact that the Appellant had applied for waiver of penalties and interest.

17. The Appellant was aggrieved by the Respondent's rejection of its application for refund of taxes as contained in the letter of November 18, 2021 and objected to the decision vide a notice of objection dated December 17, 2021.

18. The Respondent issued its objection decision on March 25, 2022 where it upheld its decision to reject the Appellant's application for refund of the Kshs 296,000,000. 00 as taxes paid in error.

19. Aggrieved by the objection decision the Appellant filed a Notice of Appeal on April 22, 2022.

The Appeal 20. The Appeal is premised on the following grounds stated in the Memorandum of Appeal dated May 6, 2022 and filed on May 9, 2022: -a.That the Respondent erred in law and fact in rejecting the Appellant’s Application for refund of Kshs 296,000,000. 00 as VAT paid in error on transfer of a commercial building to Jomo Kenyatta University of Agriculture and Technology by disowning its own advice to the Appellant of June 24, 2020 and an earlier ruling of September 4, 2017 that the sale of the commercial building was zero-rated thereby thwarting the Appellant's legitimate expectation and violating its right to fair administrative action.b.That the Respondent erred in law and fact by rejecting the Appellant’s application for refund of the Kshs 296,000,000. 00 paid as VAT on transfer of a commercial building, on the basis that its letter dated June 24, 2020 is not binding on the Respondent since the Appellant did not apply for a private ruling under sections 65 to 67 of the Tax Procedures Act.c.That the Respondent erred in law and in fact by rejecting the Appellant’s application for refund of VAT of Kshs 296,000,000. 00 on grounds that the ADR Agreement signed between the parties on September 30, 2019 was binding between the parties and in so doing failed to appreciate that it had by its own action vitiated the terms of the ADR Agreement through its advice of June 24, 2020 and was therefore estopped from enforcing the terms of the ADR Agreement.d.That the Respondent erred in law and fact by failing to appreciate the basis and import of Section 30 of the VAT Act and thereby rejecting the Appellant’s application for refund of taxes paid in error, which application was based on the Respondent’s own advice to the Appellant that VAT was not payable on the transfer of the commercial building.e.That the Respondent erred in law and fact by rejecting the Appellant’s application for refund of Kshs 296,000,000. 00 as VAT paid in error on grounds that the transfer of the commercial building was not VAT zero- rated since JKUAT was not registered for VAT and in so doing contradicted its own private ruling issued on September 4, 2017.

Appellant’s Case 21. The Appellant’s case is also premised on the Appellant’s Statement of Facts dated May 6, 2022 and filed on May 9, 2022 together with the documents attached thereto and the Appellant’s written submissions dated September 5, 2022 and filed on September 7, 2022 together with the authorities attached thereto.

22. In the Statement of Facts, the Appellant expounds on the five grounds of appeal as follows: -a.The Respondent erred in law and in fact in rejecting the Appellant's Application for refund of Kshs 296,000,000. 00 as VAT paid in error on transfer of a commercial building to JKUAT by disowning its own advice to the Appellant of June 24, 2020 and the ruling of September 4, 2017 that the sale of the commercial building was zero-rated thereby thwarting the Appellant's legitimate expectation and violating its right to fair administrative action.

23. The Appellant avers that it received a letter dated June 24, 2020 from the Respondent which stated that the sale of its building to JKUAT was a transfer of a business as a going concern which was anchored under Paragraph 7 of the Second Schedule to the VAT Act 2013 hence VAT zero rated.

24. That through the letter, the Respondent also re-confirmed its position as communicated through a ruling issued to JKUAT vide a letter dated September 4, 2017 wherein the Respondent had given a similar position that the transaction was a transfer of a business as a going concern hence zero-rated.

25. That at the time of receiving the Respondent's letter of June 24, 2020, the Appellant had already made payment of VAT of Kshs 296,000,000. 00 on the sale of the building to JKUAT. The import of the Respondent's letter of June 24, 2020 was that the Respondent had established that VAT was not payable at the rate of 16% on the sale of the building to JKUAT. The implication of this was:a.There never existed an obligation for the Appellant to charge or account for VAT at the rate of 16% on the sale of the building to JKUAT;b.The sale of the building was zero-rated for VAT purposes and the Appellant was required to account for it as such ab initio;c.The VAT demand by the Respondent at the rate of 16% on account of sale of the building to JKUAT was erroneous;d.The VAT payment made by the Appellant on account of sale of the building to JKUAT at the rate of 16% under the auspices of the ADR proceedings was erroneous having regard to the fact that VAT was not applicable at the standard rate ab initio; ande.The Appellant is due a refund of the VAT amount erroneously paid at the rate of 16%, that is Kshs 296,000,000. 00.

26. The Appellant avers that the Respondent's letter of June 24, 2020 amounted to a decision issued by an administrative body that was no less the tax administration authority mandated to interpret tax laws. The letter was clear that it had been issued upon considering the transaction in question, the parties involved and the applicable law.

27. The Appellant thus avers that the letter gave rise to an expectation that following the Respondent's interrogation of its ruling of September 4, 2017, the transaction in question and the applicable tax laws.

28. That the Appellant’s expectation arising from the letter of June 24, 2020 arose legitimately and based on it, the Respondent induced the Appellant to believe that it was entitled as per the provisions of Section 30 of the VAT Act, to a refund of taxes paid in error and on August 26, 2020. The Appellant applied to have the tax paid of Kshs 296,000,000. 00 refunded.

29. That after several reminders, the Respondent replied to the Appellant's request for refund of taxes paid in error through a letter of November 18, 2021 in which it retracted from the position as communicated in the letter of June 24, 2020 and the initial ruling of September 4, 2017 and stated that the VAT amount paid of Kshs 296,000,000. 00 was not tax paid in error.

30. The Appellant avers that having rightfully relied on the letter by the Respondent and proceeded to claim its refund, the Respondent's decision of November 18, 2021 and the objection decision of March 25, 2022, amount to violation of the Appellant's legitimate expectation.

31. The Appellant avers that by the time the Respondent issued its letter rejecting the application for refund of November 18, 2021, the Appellant's legitimate expectation had not only accrued, but the Appellant had proceeded, based on the inducement by the Respondent, to enforce its legal entitlement accruing therefrom by making an application for refund of the VAT amount of Kshs 296,000,000. 00 which had been paid in error.

32. The Appellant avers that Article 47 of the Constitution of Kenya, 2010 requires that an administrative body such as the Respondent mandated to administer tax laws within the country, to act fairly, reasonably, predictably, and justly.

33. The Respondent issued a ruling to JKUAT way back on September 4, 2017 stating clearly that the transaction was VAT zero-rated. On the other hand, it continued pursuing the Appellant for VAT on the same transaction leading to the Appellant entering into an ADR agreement to settle the taxes on a without prejudice basis.b.The Respondent erred in law and fact by rejecting the Appellant's application for refund of the Kshs 296,000,000. 00 paid as VAT on transfer of a commercial building, on the basis that its letter dated June 24, 2020 is'not binding on the Respondent since the Appellant did not apply for a private ruling under sections 65 to 67 of the Tax Procedures Act.'

34. The Appellant avers that Section 65 read together with Section 67 of the TPA provides the Commissioner with a mandate to issue private rulings setting out the Commissioner's interpretation of tax law in relation to a transaction.

35. That as per the provision of Section 67(3) of the TPA a ruling issued by the Respondent qualifies as such a private ruling if:a.The taxpayer to whom it is addressed is identified;b.The relevant tax law is referred to in the private ruling;c.The transaction to which the ruling relates is identified;d.The commissioner states any assumptions on which the ruling is based.

36. The Appellant avers that the Respondent issued a private ruling on September 4, 2017 to JKUAT. This ruling was reaffirmed in the letter of June 24, 2020 to the Appellant and the Respondent gave reasons for reaffirming its earlier ruling. This gave rise to the Appellant entitlement to rely on the private ruling.

37. That both letters of September 4, 2017 and June 24, 2020, identified the taxpayers that were addressed, were clear on the tax law that the Respondent sought to address, and were clear on the transaction they related to.

38. That this ruling of September 4, 2017 is still in force, was affirmed by the letter of June 24, 2020 and is applicable to the transaction until legally withdrawn.

39. The Appellant avers that even the refund decision of November 18, 2021, did not formally withdraw the ruling of September 4, 2017 or that of June 24, 2020 and even then, the Appellant avers, such withdrawal cannot be after it had relied on the ruling to enforce its entitlement under the provision of VAT Act to claim taxes paid in error.

40. That having unequivocally relied on and affirmed the provisions of the private ruling issued to JKUAT to guide the Appellant on the tax treatment of the Appellant's affairs, the Respondent cannot now allege that the Appellant could not rely on the private ruling since it was not the person making an application for the private ruling. The Respondent opened up the content of the private ruling to the Appellant entitling the Appellant to treat the sale of the building to JKUAT as guided in the letter of June 24, 2020.

41. That the Appellant is of the view that it would be absurd to expect JKUAT to proceed on the basis of the position expressed in the private ruling while at the same time expecting the Appellant to proceed otherwise yet the private ruling was issued in respect of a transaction to which the only parties were JKUAT and the Appellant.

42. The Appellant avers that the Respondent was comfortable with its rulings of September 4, 2017 and the letter June 24, 2020 until the Appellant claimed a refund.c.The Respondent erred in law and in fact by rejecting the Appellant's application for refund of VAT of Kshs 296,000,000. 00 on grounds that the ADR Agreement signed between the parties on September 30, 2019 was binding between the parties and in so doing failed to appreciate that it had by its own action vitiated the terms of the ADR Agreement through its advice'of June 24, 2020 and was therefore estopped from enforcing the terms of the ADR Agreement.'

43. The Appellant avers that it is not in dispute that a settlement Agreement was entered into between the Appellant and the Respondent on September 30, 2019 in which the Appellant agreed to pay VAT amounting to Kshs 296,000,000. 00 on account of sale of a building to JKUAT on a without prejudice basis.

44. That thereafter the Appellant received the letter of June 24, 2020 which communicated the position that the VAT of Kshs 296,000,000. 00 was not payable as the transaction was VAT zero rated.

45. The Appellant avers that the letter of June 24, 2020 set out the correct position in law that the sale of the building to JKUAT was not a standard rated supply but was instead a zero-rated supply ab initio. This revelation implied that the ADR Agreement which informed payment of VAT of Kshs 296,000,000. 00 by the Appellant was concluded on the basis of a mutual mistake of law. A mutual mistake of law is a misapprehension of the law by parties who suppose that they knew and understood it, substantially making the same mistake as to the law.

46. That a mutual mistake of law is one of the vitiating factors of a contract which in this case is the ADR agreement and the consent drawn therefrom.

47. The Appellant avers that since the ADR agreement and the consent drawn therefrom stand vitiated, the Respondent is estopped from relying on the same terms of the ADR Agreement and the consent drawn therefrom.c.The Respondent erred in law and fact by failing to appreciate the basis and import of section 30 of the VAT Act and thereby rejecting the Appellant's 'application for refund of taxes paid in error, which Application was based on the Respondent's own advice to the Appellant that VAT was not payable on the transfer of the commercial building.'

48. The Appellant avers that Section 30 of the VAT Act provides for refund of taxes paid in error. It states:'Where, in respect of any supply, tax has been paid in error, the Commissioner shall, except as otherwise provided by the regulations, refund such tax:Provided that no refund shall be made under this section unless a claim in respect· thereof is lodged within twelve months from the date the tax became due and payable.'

49. That Section 30 provides that upon application for a refund for taxes paid in error the Commissioner shall refund those taxes paid in error.

50. The Appellant avers that the Respondent erred in rejecting its application for refund and failed to consider the import of Section 30 to the VAT Act and the mandate emanating from the provision.

51. The Appellant avers that the taxes paid regarding the transaction were paid in error as per the Respondent's ruling to JKUAT and the confirmation letter dated June 24, 2020. Hence the taxes ought to be refunded as per Section 30 of the VAT Act.

52. The Appellant avers that Section 30 of the VAT Act provides no limitation as to the nature of errors that warrant an application for a VAT refund. An error is an error regardless of the form or manner in which it arose.

53. The Appellant avers that based on the Respondent's letter of June 24, 2020and the ruling to JKUAT of September 4, 2017, VAT was paid in error as the transaction between the Appellant and JKUAT was zero-rated for VAT purposes.

54. The Appellant thus avers that it was entitled to claim a refund of Kshs 296,000,000. 00 as tax paid in error pursuant to Section 30 and having regard to the Respondent's letters of June 24, 2020 and September 4, 2017. e.The Respondent erred in law and fact by rejecting the Appellant's Application for refund of Kshs 296,000,000. 00 as VAT paid in error on grounds that the transfer of the commercial building was not VAT zero- rated since JKUAT was not registered for VAT and in so doing contradicted its own private ruling issued on September 4, 2017.

55. The Appellant avers that the Respondent in its letter of November 18, 2021 and the objection decision of March 25, 2022, rejected the Appellant's application for refund of taxes on grounds that the transaction was not transfer of a business as a going concern since JKUAT was not registered at the time.

56. The Appellant avers that the Respondent has the mandate under the Kenya Revenue Authority Act, to administer and enforce all tax laws. This includes communicating tax positions to taxpayers in various forms and providing interpretations on tax laws through different channels, including issuing private rulings.

57. That on September 4, 2017, the Respondent, in execution of its mandate, issued a private ruling to JKUAT stating that the sale of building transaction between the Appellant and JKUAT was a zero-rated supply under paragraph 7, Part A of the Second Schedule to the VAT Act, 2013.

58. That on December 27, 2018, the Respondent issued a letter to the Appellant communicating that the transaction between the Appellant and JKUAT was not zero rated on the basis that JKUAT was not registered for VAT.

59. That further, on June 24, 2020, the Respondent wrote to the Appellant giving guidance on the tax treatment of the transaction reaffirming the Respondent's position expressed in the private ruling of September 4, 2017 to JKUAT that the transaction qualified as a transfer of a business as a going concern hence VAT zero-rated. The letter of June 24, 2020 was specifically addressed to the Appellant, and it therefore entitled the Appellant to rely on the private ruling issued to JKUAT.

60. That having issued the letter of June 24, 2020 advising the Appellant to rely on the private ruling issued to JKUAT, the Respondent by implication rescinded its previous position expressed in the letter dated December 27, 2018 that the transaction was standard rated. The Appellant relied on the letter of June 24, 2020 which drew its strength from the Respondent's private ruling of September 4, 2017 advising the Appellant that the sale of the building transaction qualified as a zero-rated supply.

61. That based on the letter of June 24, 2020, the Respo• ndent is estopped from revisiting the issue of the registration status of JKUAT seeing that the private ruling issued by the Respondent on September 4, 2017 has never been withdrawn as provided for under the TPA. That the issue of the VAT registration status of JKUAT thus became moot once the Respondent advised the Appellant that the sale of the building to JKUAT was a zero-rated supply by expressly re-affirming the Respondent's interpretation of the law contained in the private ruling issued to JKUAT. As regards the Appellant's VAT refund that is in dispute, JKUAT's VAT registration status is a non-issue in light of the fact that the private ruling issued to JKUAT remains valid.

62. The Appellant avers that the TPA, 2015 clearly stipulates the procedure that the Respondent ought to follow should it wish to withdraw a private ruling. This notwithstanding, the Respondent has never withdrawn the private ruling dated September 4, 2017.

63. That the Respondent cannot use its objection decision to challenge the merits or demerits of a private ruling that it procedurally issued nor can it challenge the Appellant's reliance on the position expressed in the private ruling.

64. In its submissions, the Appellant has indicated that the following should be the issues for determination by the Tribunal:-a.Whether the Respondent by disowning its own advice to the Appellant dated June 24, 2020 and earlier ruling of September 4, 2017 stating that the sale of the commercial building was zero-rated thwarted the Appellant's legitimate expectation and violating its right to fair administrative action.b.Whether the letter dated June 24, 2020 is not binding on the Respondent since the Appellant did not apply for a private ruling under Sections 65 to 67 of the Tax Procedures Act, 2015. c.Whether the Respondent vitiated the terms of the ADR Agreement by its advice of June 24, 2020 and therefore estopped from relying on the ADR Agreement.d.Whether the fact that JKUAT was not registered for VAT, as the Respondent alleges, allows the Respondent to deny the benefit of zero- rating on the transaction.e.Whether by virtue of the provision of Section 30 of the VAT Act (now repealed), the Appellant was entitled to a refund of Kshs 296,000,000. 00 as taxes paid in error.

a.Whether the Respondent by disowning its own advice to the Appellant dated June 24, 2020 and earlier ruling of September 4, 2017 stating that the sale of the commercial building was zero-rated, thwarted the Appellant's legitimate expectation and violating its right to fair administrative action.

65. The Appellant submitted that the Respondent's letter of June 24, 2020 amounted to a decision issued by an administrative body. That body was no less than the tax administration authority mandated to interpret tax laws.

66. That the letter inevitably gave rise to an expectation that following the Respondent's interrogation of its ruling of September 4, 2017, the transaction in question and the applicable tax laws.

67. That the Appellants' expectation arising from the letter of June 24, 2020, arose legitimately and based on it, the Respondent induced the Appellant to believe that it was entitled as per the provisions of Section 30 of the VAT Act to a refund of taxes paid in error and on August 26, 2020, the Appellant applied to have the tax paid of Kshs 296,000,000. 00 refunded.

68. That having rightfully relied on the letter by the Respondent, the Appellant proceeded to claim its refund, the Respondent's decision of November 18, 2021 and the objection decision of March 25, 2022, amount to violation of the Appellant's legitimate expectation.

69. That the High Court of Kenya in Republic vs Kenya Revenue Authority Ex Parte MKopa Kenya Limited [2018] eKLR expounded on the principle of legitimate expectation as was appreciated in Keroche Industries Limited vs. Kenya Revenue Authority & 5 Others Nairobi HCMA No 743 of 2006 [2007] KLR 240which held as follows:'Legitimate expectation is based not only on ensuring that legitimate expectations by the parties are not thwarted, but on a higher public interest beneficial to all including the respondents, which is, the value or the need of holding authorities to promises and practices they have made and acted on and by so doing upholding responsible public administration. This in turn enables people affected to plan their lives with a sense of certainty, trust, reasonableness, and reasonable expectation. An abrupt change as was intended in this case, targeted at a particular company or industry is certainly abuse of power. Stated simply legitimate expectation arises for example where a member of the public as a result of a promise or other conduct expects that he will be treated in one way and the public body wishes to treat him or her in a different way Public authorities must be held to their practices and promises by the courts and the only exception is where a public authority has a sufficient overriding interest to Justify a departure from what has been previously promised. In order to ascertain whether or not the respondents decision and the intended action is an abuse of power the court has taken a fairly broad view of the major factors such as the abruptness, arbitrariness, oppressiveness and the quantum of the amount of tax imposed retrospectively and its potential to irretrievably ruin the applicant. All these are traits of abuse of power. Thus, I hold that the frustration of the applicants' legitimate expectation based on the application of tariff amounts to abuse of power.'

70. That by the time the Respondent issued its letter rejecting its application for refund on November 18, 2021, the Appellant's legitimate expectation had not only accrued, but the Appellant had proceeded, based on the inducement by the Respondent, to enforce its legal entitlement accruing therefrom by making an application for refund of the VAT amount of Kshs 296,000,000. 00 which had been paid in error.

71. The Appellant also relied on the case of the Republic vs Kenya Revenue Authority Ex Parte M-Kopa Kenya Limited where the court aptly quoted an England case, Attorney General of Hong Kong vs Ng Yuen Shiu [1983) 2 All ER 346 where the court stated that:'When a public authority has promised to follow a certain procedure, it is in the interests of good administration that it should act fairly and should implement its promise'.

72. The Appellant also relied on the High Court case of Ecobank Kenya Limited V Commissioner of Domestic Taxes [2012] eKLR pointed to the need for the Respondent to administer tax laws in a fair and predictable manner by stating as follows:-'The Appellant and other business people have a right of certainty and predictability in the applicability of conduct, rules, policies, and procedures which underlie the proper regulation of economic activities. This right necessarily militates against policies, regulations and procedures which are haphazardly resorted to by public regulatory bodies without adequate notice to those whose conduct or behavior is to be regulated. In an environment of business, that certainty and predictability is so crucial that to deny the same amounts to a denial of an economic right. Now, when such haphazard regulation affects a citizen's income the effect will be felt well beyond the comfort or discomfort of the two parties before the court. It is an issue which a court of law must tread on carefully, and where possible, restore the rights of the appellant and to reduce, as far as possible, the cascading negative impacts on all the parties associated with that income'.

bWhether the letter dated June 24, 2020 is not binding on the Respondent since the Appellant did not apply for a private ruling under sections 65 to 67 of the Tax Procedures Act, 2015.

73. The Appellant submitted that Section 65 read together with Section 67 of the Tax Procedures Act provides the Commissioner with a mandate to issue private rulings setting out the Commissioner's interpretation of tax law in relation to a transaction.

74. That guided by the provisions of Sections 65 and 67 of the Tax Procedures Act, 2015, the Appellant avers that the letter of June 24, 2020 gave the Appellant an entitlement to rely on the private ruling issued to JKUAT on September 4, 2017.

75. That this ruling of September 4, 2017 is still in force, was affirmed by the letter of June 24, 2020 and is applicable to the transaction until legally withdrawn.

76. The Appellant submitted that the Respondent’s letter of June 24, 2020 started off by referring to the Ruling of the High Court in HCC No 121 of 2017. This ruling was issued in a case between the Appellant and JKUAT in which JKUAT relying on the ruling issued on September 4, 2017 stated to the court that VAT on the transaction was at the rate of 0% rather than the standard rate of 16%. The court had then required JKUAT to obtain a letter addressed to the Appellant to that effect. That the Respondent issued the letter of June 24, 2020 to the Appellant on basis of the ruling.

77. The Appellant submitted that in the circumstances, the Appellant need not have applied for a private ruling and in any event, the Respondent issued one as directed by the Court and cannot now claim that since the Appellant did not formerly apply for a private ruling, the letter of June 24, 2020 is not binding on it. That such an argument from the Respondent is not only cheeky but mischievous.

c.Whether the Respondent vitiated the terms of the ADR Agreement through its advice of June 24, 2020 and was therefore estopped from relying on the ADR Agreement.

78. The Appellant submitted that it is not in dispute that a settlement Agreement was entered into between the Appellant and the Respondent on September 30, 2019 in which the Appellant agreed to pay VAT amounting to Kshs 296,000,000. 00 on account of sale of a building to JKUAT on a without prejudice basis.

79. The Appellant avers that since the ADR agreement and the consent drawn therefrom stand vitiated, the Respondent is estopped from relying on the same terms of the ADR Agreement and the consent drawn therefrom.

80. The Appellant submitted that the ADR agreement and the subsequent consent amounted to a mistake in law which led to the Appellant erroneously paying VAT of Kshs 296,000,000. 00. Such a mistake is curable by the provisions of Section 30 of the VAT Act which entitled the Appellant to a refund of taxes paid in error.

d.Whether the Fact That JKUAT Was Not Registered For VAT, as Alleged by The Respondent, Allows the Respondent to Deny the Benefit of Zero- Rating on the Transaction.

81. The Appellant submitted that the Respondent in its letter of November 18, 2021 and the objection decision of March 25, 2022, rejected the Appellant's application for refund of taxes on grounds that the transaction was not transfer of a business as a going concern since JKUAT was not registered for VAT purposes at the time the transaction took place.

82. That, based on the letter of June 24, 2020, the Respondent is estopped from revisiting the issue of the registration status of JKUAT seeing that the private ruling issued by the Respondent on September 4, 2017 has never been withdrawn as provided for under the TPA.

e.Whether by virtue of the provision of Section 30 of the VAT Act (now repealed) the Appellant was entitled to a refund of Kshs 296,000,000. 00 as taxes paid in error.

83. The Appellant submitted that Section 30 of the VAT Act provides an equitable position in tax law that ensures that under Kenyan tax jurisdiction only tax which is due and payable is paid. At any time if it is found that a tax was not due at the time a taxpayer paid the same, then the taxpayer is entitled to a refund.

84. That the Section does not contain any limitations or exceptions. It thus means, in line with fairness and equitable intentions thereof, any tax paid in error under whatever circumstances is refundable.

Appellant’s prayers. 85. The Appellant prays that this Tribunal be pleased to order that:a.This Appeal be allowed;b.The Respondent's objection decision dated March 25, 2022 be vacated and set aside in its entirety;c.The ADR Agreement dated September 30, 2019 and the consent drawn therefrom be deemed vitiated on the basis of mutual mistake of the law;d.The Respondent be ordered to refund Kshs 296,000,000. 00 to the Appellant as VAT paid in error and the interest and penalties accruing from the tax liability be vacated; and,e.Any other orders that the Tribunal may deem fit.

Respondent’s Case 86. The Respondent’s case is premised on the hereunder filed documents:-a.The Respondent’s Statement of Facts dated June 7, 2022 and filed on June 8, 2022 together with the documents attached thereto.b.The Respondent’s written submissions dated November 2, 2022 and filed on the same date.

87. In the Statement of Facts, it is the Respondent's position that it correctly charged VAT of Kshs 296,000,000. 00 plus interest and penalties on the sale of commercial building by the Appellant to JKUAT.

88. That the Respondent's position is informed by the fact that JKUAT was not a registered taxpayer for VAT purposes in September, 2015 which is the time the transaction took place.

89. That in obtaining the private ruling dated September 4, 2017, there was misrepresentation of facts leading the Respondent to erroneously believe that JKUAT was registered for VAT at the time of the transaction in question.

90. That the private ruling to JKUAT dated September 4, 2017 having been obtained after misrepresentation of facts is not binding on the Respondent.

91. That further, a private ruling is exclusively binding to the applicant and the Commissioner. The Appellant cannot therefore rely on a private ruling issued to another party.

92. That the Appellant has never made an application for a private ruling under Section 65 of the Tax Procedures Act (TPA), on this transaction. That the procedure for application and processing of a private ruling is prescribed under Sections 65 to 67 of the TPA. That the Respondent's letter dated June 24, 2020 was therefore not a binding private ruling.

93. That in issuing the letter dated June 24, 2020, the Respondent relied on the misrepresented facts in issuing the private ruling to JKUAT.

94. That further, the Appellant was aware from the onset that the transaction in question was subject to VAT as exhibited by the sale agreement between itself and JKUAT. That in clause 14. 1 of the said Sale Agreement, the parties agreed on who was responsible to pay VAT.

95. That at the ADR, it was correctly confirmed that the transaction was chargeable to VAT and this convinced the Appellant to concede and pay. That the ADR agreement signed on September 30, 2019 bound the parties and is sacrosanct. That the parties freely participated in and consented to the terms agreed on.

96. That the letter by the Respondent to the Appellant dated June 24, 2020 relied on the facts that had been previously misrepresented by JKUAT since the buyer (JKUAT), was not registered for VAT at the time of the transaction.

97. That Paragraph 7 of the Second Schedule (Part A) (now deleted), was clear and prescribed zero rating on the transfer of a business as a going concern by a registered person to another registered person.

98. That the Respondent’s decision was fair and consistent with the law. That VAT on sale of a commercial building is supported by operation of VAT law. That failure to tax the transaction would amount to a distortion that would impact on competitiveness of the property market.

99. That the Appellant is in blatant abuse of the process of this Tribunal since the entire dispute was compromised by consent in TAT No 52 of 2019 and therefore the Tribunal is functus officio upon adopting the order as its decision.

100. That the Appellant ought to have filed an Appeal or an application for review and or to set aside the consent dated on November 21, 2019 which was adopted and recorded as judgement of the Tribunal on January 15, 2020 instead of filing this Appeal.

101. In its submissions, the Respondent indicated that the following are the issues for determination and proceeded to submit on each of them.a.Whether the Respondent erroneously demanded VAT of Kshs 296,000,000. 00 on transfer of a commercial building by the Appellant.b.Whether the Respondent's letter dated June 24, 2020 and ruling dated September 4, 2017 created legitimate expectation on the part of the Appellant.c.Whether the instant appeal offends the doctrine of res judicatad.Whether the Tax Appeals Tribunal is functus officio.

a.Whether the Respondent erroneously demanded VAT of Kshs 296,000,000. 00 on transfer of a commercial building by the Appellant to JKUAT.

102. It is the Respondent's position that it correctly charged VAT of Kshs 296,000,000. 00 plus interest and penalties on the sale of commercial building by the Appellant to JKUAT.

103. That JKUAT registered for VAT on January 12, 2016. That the transfer of the commercial building leading to the VAT demand took place in September 2015. At that time, JKUAT was not registered for VAT and the transaction did not qualify to be a transfer of business as a going concern.

104. The Respondent submitted that what was sold as at September 2015 was a commercial building chargeable to VAT as per Section 5 of the VAT Act 2013.

105. The Respondent submitted that it is worth noting that the Appellant has never made an application for a private ruling under Section 65 of the Tax Procedures Act (TPA) on this transaction. The procedure for application and processing of a private ruling is prescribed under Sections 65 to 67 of the TPA. The Respondent's letter dated June 24, 2020 was therefore not a binding private ruling.

b.Whether the Respondent's letter dated June 24, 2020 and the ruling dated September 4, 2017 created legitimate expectation on the part of the Appellant.

106. The Respondent submitted that in obtaining the Private ruling dated September 4, 2017, there was misrepresentation of facts leading the Respondent to erroneously believe that JKUAT was registered for VAT at the time of the transaction in question.

107. That Section 65 (4) of the Tax Procedures Act provides that:(4)'If the taxpayer has made a complete and accurate disclosure of the transaction in relation to an application for a private ruling and the transaction has proceeded in all material respects as described in the application, the private ruling shall be binding on the Commissioner.'

108. That given that it is not in dispute that JKUAT registered for VAT on January 12, 2016, it is therefore apparent that JKUAT while applying for the aforesaid Private Ruling did not make an accurate disclosure and therefore the resultant private ruling to JKUAT dated September 4, 2017 was not binding to the Respondent.

109. The Respondent submitted that legitimate expectation cannot be created in instances where a private ruling and or any decision made by a public officer is inconsistent with the law. That in the Supreme Court of Kenya in the case of Communications Commission of Kenya & 5 Others vs. Royal Media Services Limited & 5 Others [2014] eKLRthe learned justices while discussing the principle of legitimate expectation had the following to say at paragraph 269 of their judgement:-'(269)the emerging principles may be succinctly set out as follows:a.There must be an express, clear and unambiguous promise given by a public authority;b.The expectation itself must be reasonable;c.The representation must be one which it was competent and lawful for the decision-maker to make; andd.There cannot be a legitimate expectation against clear provisions of the law or the Constitution.'

110. That in paragraph 301, the learned justices of Supreme Court while disagreeing with the majority decision of the Court of Appeal and upholding the minority decision held as follows:-'In this context, it is clear that the Court of Appeal's order, that the 1st, 2nd and 3rd respondents be granted a BSD licence without undergoing the procurement process, lacks a foundation in law. There cannot be a legitimate expectation for a grant of a licence by the 1st appellant without adherence to statutory or constitutional provisions. It has been held in several persuasive authorities, R v Devon County Council, ex parte Bake1 & Another[1995) 1 All ER73; R v Durham County Council, ex parte Curtis & Another· [1992] 158 LG Rev R 241 (CA) and R v DPP ex parte Kebilene [1993) 3 WLR972, that no legitimate expectation can override clear statutory provisions. The Appellate Court’s decision, thus, stood in contradiction to article 227 of the Constitution, and Section 27(1) of the Public Procurement and Disposal Act. With due respect, there was no lawful basis for the orders that the 1st, 2nd and 3rd respondents be granted a BSD licence as a matter of right.'

111. The Respondent submitted that if the Tribunal were to allow this Appeal by setting aside the taxes imposed, then such determination would be contrary to Article 209 as read with Article 210 of the Constitution of Kenya that gives the National Government power to impose, waive and vary taxes in Kenya.

112. That Article 210 (1) of the Constitution provides that, 'no tax or licensing fee may be imposed, waived or varied except as provided by legislation.'

113. That the transfer of a commercial property attracts VAT in Kenya. The Appellant transferred a commercial property and as a result of the transfer, VAT of Kshs 296,000,000. 00 was assessed. These are taxes that have accrued according to the law and nobody other than the national government has the power to waive and or vary the said tax.

114. That for avoidance of doubt, the Respondent had no power to vary the said taxes and therefore whatever representation it made (if at all), could not create legitimate expectation. That in the Communications Commission of Kenya & 5 Others vs Royal Media Services Limited & 5 Others [2014] eKLR (supra) the Court held that for legitimate expectation to be created, 'the representation must be one which it was competent and lawful for the decision maker to make: and there cannot be a legitimate expectation against clear provisions of the law or the Constitution.'

115. That based on this provision of the Constitution and the Supreme Court decision, the Appellant's argument that it had legitimate expectation arising from the letter of June 24, 2020 that it would be refunded taxes was misplaced as there cannot be legitimate expectation that overrides the law.

c.Whether the instant appeal offends the doctrine of res judicata

116. The Respondent submitted that the principal of res judicata is found in Section 7 of the Civil Procedure Act which provides that:'No court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, in a court competent to try such subsequent suit or the suit in which such issue has been subsequently raised and has been heard and finally decided by such court'

117. That in the case of The Independent Electoral and Boundaries Commission v Maina Kiai & 5 Others, Nairobi CA Civil Appeal No 105 of 2017 ([2017] eKLR), the Court of Appeal held that:'Thus, for the bar of res judicata to be effectively raised and upheld on account of a former suit, the following elements must be satisfied, as they are rendered not in disjunctive but conjunctive terms;a)The suit or issue was directly and substantially in issue in the former suit.b)That former suit was between the same parties or parties under whom they or any of them claim. c) Those parties were litigating under the same title.d)The issue was heard and finally determined in the former suit.e)The court that formerly heard and determined the suit was competent to try the subsequent suit or the suit in which the issue is raised.'

118. The Respondent submitted that the instant appeal is replica of TAT No 52 of 2019. That the parties are the same, the issue in dispute is the same. TAT 52 of 2019 was heard and finally determined by a consent order dated November 21, 2019 and the same being adopted as an order of the Tribunal on January 15, 2020.

119. That being the case therefore, the Respondent submitted that the instant Appeal offends the doctrine of res judicata and as such should be dismissed with costs.

b)Whether the Tribunal is functus officio

120. The Respondent submitted that the Tribunal became functus officio the moment it adopted a consent in TAT No 52 of 2019 as its order and as such it lacks jurisdiction to hear and determine this matter.

121. That in Telkom Kenya Ltd vs. John Ochanda (suing on his behalf and on behalf of 996 Former Employees of Telkom Kenya Ltd), the Court of Appeal held as follows on the functus officio doctrine-'Functus officio is an enduring principle of law that prevents the re-opening of a matter before a court that rendered the final decision thereon. The general rule that final decision of a court cannot be re opened derives from the decision of the English Court of Appeal in re St Nazarire Co, (1879),12 Ch D 88. The basis for it was that the power to rehear was transferred by the Judicature Acts of the appellate division. The rule applied only after the formal judgment had been drawn up, issued and entered, and was subject to two exceptions.'

122. The Respondent submitted that the Supreme Court of Kenya in the case of Raila Odinga & 2 Others vs Independent Electoral & Boundaries Commission & 3 Others [2013] eKLR, cited with approval an excerpt from an article by Daniel Malan Pretorius entitled, 'The origins of the Functus Officio Doctrine, with Special Reference to its Application in Administrative Law' (2005) 122SALJ832 which reads:'The functus officio doctrine is one of the mechanisms by means of which the law gives expression to the principle of finality. According to this doctrine, a person who is vested with adjudicative or decision making powers may, as a general rule, exercise those powers only once in relation to the same matter. The (principle) is that once such a decision has been given, it is (subject to any right of appeal to superior body or functionary), final and conclusive. Such a decision cannot be reviewed or varied by the decision maker,'

123. The Respondent submitted that based on the above Supreme Court ruling, the only avenue that remained open for the Appellant was either an Appeal or an application for review and/or to set aside the consent dated November 21, 2019 which was adopted and recorded as Judgement of this Tribunal.

Respondent’s prayers. 124. The Respondent prays that: -a.The Appeal be dismissed for lack of merit.b.The Respondent’s decision contained in its letter dated March 25, 2022 be upheld.c.The Respondent be awarded the costs of the Appeal.

Issues For Determination. 125. The Tribunal having carefully studied the pleadings and documentation of both parties is of the respectful view that, that the issues that call for its determination are as follows: -a.Whether this Appeal offends the doctrine of res judicata.b.Whether the Tribunal is functus officio.c.Whether the Respondent’s letter dated June 24, 2020 and the ruling dated September 4, 2017 created legitimate expectation on part of the Appellant.

Analysis And Findings.Whether this Appeal offends the doctrine of res judicata. 126. The Respondent submitted that the Appeal is res judicata on the basis of the fact that the tax dispute is similar to the dispute in TAT No 52 of 2019 between the same parties and which dispute has since been determined.

127. The Respondent submitted that the Tribunal should be guided by case of The Independent Electoral and Boundaries Commission vs Maina Kiai & 5 others, Nairobi CA Civil Appeal No 105 of 2017 ([2017] eKLR) where the Court of Appeal held that:-'Thus, for the bar of res judicata to be effectively raised and upheld on account of a former suit, the following elements must be satisfied, as they are rendered not in disjunctive but conjunctive terms;a)The suit or issue was directly and substantially in issue in the former suit.b)That former suit was between the same parties or parties under whom they or any of them claim.c)Those parties were litigating under the same title. d) The issue was heard and finally determined in the former suit.e)The court that formerly heard and determined the was competent to try the subsequent suit or the suit in which the issue is raised.'The Court explained the role of the doctrine thus: 'The rule or doctrine of res judicata serves the salutary aim of bringing finality to litigation and affords parties closure and respite from the spectre of being vexed, haunted and hounded by issues and suits that have already been determined by a competent court. It is designed as a pragmatic and commonsensical protection against wastage of time and resources in and endless round of litigation at the behest of intrepid pleaders hoping, by a multiplicity of suits and fora, to obtain at last, outcomes favourable to themselves. Without it, there would be no end to litigation, and the judicial process would be rendered a noisome nuisance and brought to disrepute or calumny. The foundations of res judicata thus rests in the public interest for swift, sure and certain justice.'

128. The Respondent submitted that the Appeal before the Tribunal is a replica of TAT No 52 of 2019. That the parties are the same, the issue in dispute is the same. That TAT 52 of 2019 was heard and finally determined by a consent dated November 21, 2019 and the same being adopted as a Judgement of this Tribunal on January 15, 2020.

129. The Respondent thus submitted that this Appeal offends the doctrine of res judicata and should therefore be dismissed with costs.

130. The Tribunal has had the benefit of reviewing both the ADR agreement executed between the parties on the September 30, 2019 and the Consent dated November 21, 2019 that was filed in TAT 52 of 2019 on January 11, 2020. It is clear to the Tribunal that the issue of the VAT payable in respect of the sale of the property to JKUAT by the Appellant was a subject of discussion during the foregoing ADR negotiations and formed part of the tax dispute settled by the consent endorsed as a Judgement in TAT 52 of 2019.

131. In the circumstances, the Tribunal finds that the issue of the VAT payable in respect of the sale of the property to JKUAT was determined with finality by the Consent executed by the parties on November 21, 2019 and endorsed as a Judgement of the Tribunal in TAT 52 on January 15, 2020. This Appeal to that extent offends the doctrine of res judicata and is unsustainable in law.

132. In the view of the Tribunal, the only option that would otherwise have been available to the Appellant in addressing the issue of refund for the tax it deems to have paid in error would have been to either seek for the review or setting aside of the Judgement entered in TAT 52 of 2019.

133. Having determined that the Appeal is res judicata, the Tribunal did not delve into the other issues that fell for its determination as they had been rendered moot.

Final Decision 134. The upshot of the foregoing is that this Appeal is incompetent and unsustainable in law and the Tribunal accordingly proceeds to make the following Orders:-a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

135. It is so ordered.

DATED and DELIVERED at NAIROBI this 17th day of March, 2023……………………………ERIC N. WAFULACHAIRMAN……………………………CYNTHIA B. MAYAKAMEMBER……………………………GRACE MUKUHAMEMBER……………………………JEPHTHAH NJAGIMEMBER……………………………ABRAHAM K. KIPROTICHMEMBER