[2023] KETAT 299 (KLR)

Ison Technologies Kenya Limited v Commissioner of Domestic Taxes (Appeal 117 of 2022) [2023] KETAT 299 (KLR) (Commercial and Tax) (12 May 2023) (Judgment)

Neutral citation: [2023] KETAT 299 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Appeal 117 of 2022

E.N Wafula, Chair, RM Mutuma, RO Oluoch & EK Cheluget, Members

May 12, 2023

Between

Ison Technologies Kenya Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited liability company incorporated in Kenya and deals in computer consultancy and computer facilities management activities.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the Act, the Kenya Revenue Authority (the Authority) is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Actwith respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 & 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenue in accordance with those laws.

3. The Respondent conducted an audit on the Respondent’s input tax claims for the period of May 2018. The Respondent discovered inconsistencies in the claims as per the Appellant’s invoices and those of its suppliers.

4. Notices were sent to the Appellant to amend the VAT returns to eliminate the inconsistencies but the Appellant did not. An assessment was therefore issued on the inconsistent invoices to the taxpayer.

5. The Appellant’s VAT input tax claim was for a sum of Kshs 968,465. 00. The sum of Kshs 44,788. 00 was allowed while the sum of Kshs 923,676. 00 was disallowed for lack of supporting documents.

6. The Appellant being dissatisfied with the assessment objected to the same by filing the Objection dated November 27, 2019.

7. The Respondent on the July 17, 2020 issued an Objection decision confirming the assessment on rejection of the input VAT of Kshs 923,676. 00.

8. The Appellant being aggrieved by the Objection decision has appealed to this Tribunal by filing a Notice of Appeal dated January 28, 2022.

The Appeal 9. The Appellant filed a Memorandum of Appeal dated the January 28, 2022 and filed on the February 4, 2022 in which it raised the following grounds of Appeal:-i.The Respondent erred in law and fact by failing to consider the provided original and copies of bank statements, supplier statements, invoices, receipts, credit notes and other documentary evidence in compliance with Section 17(3) of the VAT Act.ii.The Respondent erred in law and fact by failing to disclose to the Appellant which invoices were accepted and which were not contrary to Sections 49 & 51(10) of the TPA.iii.The Respondent dismissed the Appellant’s claim casually without giving material facts, reasoning and findings thereof.iv.The Objection decision was not timely as the Appellant thought that the matter would be resolved sooner.v.The Respondent refused to review the availed documentary evidence.vi.Such further grounds as may be adduced with leave of the Tribunal.

Appellant’s Case 10. The Appellant’s case is premised on the Appellant’s Statement of Facts dated the January 28, 2022 and filed on the February 4, 2022 and the Written Submissions dated September 6, 2022 and filed on the September 9, 2022.

11. The Appellant stated that it was assessed on Input tax claim of Kshs 968,464. 00 and the amount allowed was Kshs 44,788. 00

12. That the Respondent did not consider its invoices fully and does not understand why the amount of Kshs 44,788. 00 was allowed while the amount of Kshs 923,676. 00 was disallowed. That the reason given that the Appellant’s invoices availed had no verifiable prove does not hold as no specific invoices were pinpointed.

13. That the nondisclosure is contrary to Section 49 of the TPA. That the Respondent should have asked the Appellant to explain/clarify the invoices it thought were not clear.

14. That the Respondent failed/refused to determine the matter in time, and the Objection decision is fatally defective and contravenes Section 17(3) VAT Act, and Section 49 & 51(10) of TPA. It does not disclose; the material facts, reasoning on those material facts, a statement of findings and reasons for the decision.

15. The Appellant stated there can never be a blanket rejection of documents without particularizing which one were allowed and which ones were disallowed and for what reasons. It stated that up to date, the Appellant is not aware of the invoices allowed and those disallowed and therefore cannot determine why a certain amount was allowed and another was not.

16. That the Respondent never sought for further documents from the Appellant to clarify any pending issue, and therefore this amounted to being condemned unheard.

The Respondent’s Case 17. The Respondent opposed the Appeal by filing the Statement of Facts dated March 4, 2022 and filed on even date and the written Submissions dated August 16, 2022 and filed on even date.

18. The Respondent stated that it assessed the Appellant based on the inconsistencies on the VAT input claim based on invoices by the Appellant and its suppliers. That the Appellant’s invoices were separated while those of the suppliers were lumped.

19. It stated that the invoice numbers as well as the amounts did not match and that some suppliers did not declare some sales made to the Appellant.

20. The Respondent stated that it clearly indicated in a schedule all the documents that it required in order to enable it to make a decision on the objection.

21. That the Appellant did not avail the supportive documents required upon request such as invoices, proof of payment, supplier confirmation and supplier statements hence the claim was disallowed.

22. That the claim was disallowed as per the list of invoices attached and that the Objection decision was made in accordance with the provision of TPA.

23. It stated that the Respondent relied on the information that was available to the Respondent and made the decision pursuant to the best judgment under Sections 31 & 17 of the TPA.

24. That the Appellant’s Objection was in fact invalid as it failed to clearly/concisely state the grounds of objection and the amendments or corrections to be made, and that the Appellant did not discharge the burden of proof under Section 56(1) of TPA.

25. The Respondent stated that its decision was justified because it had informed the Appellant that its objection was invalid and that it needed to supply the Respondent with documents to validate the objection.

26. That after being given the opportunity to defray the tax liability the Appellant failed to do so by providing the documents within the timelines given.

27. The Respondent has cited several cases including TAT No 102 0f 2018 Grace Njeri Githua Vs commissioner of Investigations and Enforcementand TAT No 55 of 2019 Boleyn international limited Vs Commissioner of Domestic Taxes.

Issues For Determination 28. The Tribunal has analyzed the pleadings and submissions of the parties and has arrived at the view that two issues fall for its determination as follows:-i.Whether the Objection Decision was validly issued; andii.Whether the Assessment was lawful and justified.

Analysis And Findings Whether the Objection Decision was validly issued. 29. The Tribunal has reviewed the bundle of documents presented to it by the parties and noted that the notice of objection was filed by the Appellant on the November 27, 2019 and the Respondent issued its Objection decision on the July 17, 2020.

30. The Respondent has argued as above stated that the Appeal was not validly lodged yet its issued an Objection decision under Section 51(8) instead of 51(4) of the TPA. The two Subsections state as follows:Subsection (4) reads as follows:-“Where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall immediately notify the taxpayer in writing that the objection has not been validly lodged”Subsection (8) reads as follows:-“Where a notice of objection has been validly lodged within time, the Commissioner shall consider the objection and decide either to allow the objection in whole or in part, or disallow it, and Commissioner's decision shall be referred to as an "objection decision".”

31. The Tribunal observed that the Respondent issued the Objection decision after reviewing the Appellant’s Objection based on the documents availed. At no time was there an invalidation of the Objection neither was there a request to validate the Objection.

32. The Respondent in its decision made an amended assessment by allowing part of the claim and disallowing part thereof. It was thus an Objection decision as envisaged under Section 51(9) of the TPA, which states;“The Commissioner shall notify in writing the taxpayer of the objection decision and shall take all necessary steps to give effect to the decision, including, in the case of an objection to an assessment, making an amended assessment.”

33. Under Section 51(11) of the TPA the Respondent is enjoined to make an Objection decision within 60 days of receipt of the Objection or information provided by the taxpayer, the subsection states as thus:-“The Commissioner shall make the Objection decision within sixty days from the date of receipt of -a.the notice of objection; orb.any further information the Commissioner may require from the tax payer,failure to which the objection shall be deemed allowed.”

34. The question that begs to be answered is whether the Respondent issued the Objection decision within the timelines as per the provisions of Section 51(11) of the TPA.

35. On the January 27, 2020 the Appellant wrote to the Respondent inquiring about the status of the notice of Objection after it had supplied the documents required.

36. Again on February 27, 2020 the Appellant wrote as follows:-“We have met today in your office to ask for progress on the above issue hoping to close it but you have asked for more time as you are still doing the checking and verification. We had provided the documents in a box file as per your letter earliest this month. Kindly confirm the same for our record.”

37. On the 4th of march 2020 the Respondent wrote back to the Appellant, and the letter stated in part;“With regard to your inquiry on status of your matter, please note that your matter is under review. We shall inform you once review is complete within 60 days from the date you availed records.”

38. In its latest letter of March 4, 2020 the Respondent confirmed that it had received the documents it wanted and it would give a decision within 60 days. It is clear that the Appellant provided the documents/information required before February 27, 2020. Should the Respondent have required other documents it should have notified the Appellant in its subsequent correspondence.

39. The 60 days would have lapsed on May 4, 2020 following the Respondent’s last correspondence, the Respondent issued the decision on July 17, 2020 which was about 150 days after the receipt of information it had requested.

40. The Objection decision was beyond the statutory timelines. The timelines created by the statute are to be adhered to as they exist for a good reason. The taxpayer should not be kept in intermission in a process of determination of tax dispute where the procedural steps are clear and unambiguous.

Whether the assessment was lawful and justified. 41. Having found in issue (i) above that the Objection decision was not validly issued, it follows that this second issue for determination is rendered moot and the Tribunal will not delve on it.

Final Decision 42. The upshot of the foregoing is that the Appeal is merited and the Tribunal accordingly proceeds to make the following Orders;i.The Appeal be and is hereby allowed.ii.The Objection decision dated July 17, 2020 be and is hereby set aside.iii.Each party shall bear its own costs.

43. Orders accordingly.

DATED AND DELIVERED AT NAIROBI ON THIS 12TH DAY OF MAY, 2023. …………………………..ERIC N. WAFULACHAIRMAN……………….…………..ROBERT M. MUTUMA……………………………MEMBERRODNEY O. OLUOCH……………………………MEMBER………….………………..EDWIN K. CHELUGET……………………………MEMBER