[2024] KETAT 1671 (KLR)

Jayesh Autospares Distributors Limited v Commissioner for Domestic Taxes (Tax Appeal E788 of 2023) [2024] KETAT 1671 (KLR) (Commercial and Tax) (21 November 2024) (Judgment)

Neutral citation: [2024] KETAT 1671 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal E788 of 2023

CA Muga, Chair, BK Terer, EN Njeru, E Ng'ang'a & SS Ololchike, Members

November 21, 2024

Between

Jayesh Autospares Distributors Limited

Appellant

and

Commissioner for Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited company whose principal activity is general sale and supply.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws (hereinafter referred to as “ Act”). Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Kenya Revenue Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Respondent conducted a VAT audit against the Appellant's operations for the period between January 2018 and May 2018 and issued additional assessments vide a letter dated 15th November 2019. The assessments covered the months of January, February, March, April and May 2018 amounting to Kshs 4,431,459. 17.

4. The Appellant challenged the assessments vide its notice of objection dated 28th November 2019. The parties corresponded on the assessments several times and eventually the Respondent confirmed the assessments on 9th March 2023.

5. Being dissatisfied by the decision, the Appellant lodged this appeal vide notice of appeal dated 6th November 2023 and filed on 8th November 2023.

The Appeal 6. The Appeal is premised on the Memorandum of Appeal dated 6th November 2023 and filed on 8th November 2023 wherein the Appellant raised the following grounds:a.That the Respondent erred in fact and in law in failing to appreciate the timelines set out in the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”).b.That the Respondent erred in law and fact in failing to consider the issues of evidence raised by the appellant and employing the wrong analysis in coming up with its determination in the objection decision dated 9th March 2023. c.That the Respondent erred in law and fact in upholding the assessment on VAT against the Appellant for the diverse periods of January to May 2018. d.That the Respondent erred in law and fact in disregarding the Appellant's grounds of objection lodged on 28th November, 2019 in its entirety in objection to the assessments for the period of January to May 2018 without giving it due regards to the grounds raised thereto.e.That the Respondent erred in law and fact by failing to take into account the amendments required to be adjusted to reflect the true financial position of the Appellant and the actual tax payable.f.That the Respondent erred in law and fact by failing to exercise his mandate keenly hence jeopardizing the rights of the Appellant herein.

Appellant’s Case 7. In support of its Appeal, the Appellant relied on its Statement of Facts dated 6th November 2023 and filed on 8th November 2023. The Appellant did not file written submissions.

8. According to the Appellant, the Respondent issued Additional assessments on 15th November 2019 disallowing VAT inputs of the Appellant. This arose after a series of electronic mails where the Respondent alleged that the said input VAT were not declared as sales by the respective suppliers.

9. The Appellant filed a letter of objection dated 28th November 2019. It stated that its tax agent had a series of physical meetings to resolve the issue by giving all the required documentations including invoices and proof of payments.

10. The Appellant stated that after the lapse of the 60 days in which the Respondent was supposed to have issued an objection decision, none was forthcoming until 9th of March 2023 when the Applicant received electronic mails to which were attached notices of assessment confirmation. The Appellant alleged that it is yet to receive any decision to date.

11. It was the Appellant’s case that the Respondent did not issue an objection decision within the specified time as contained in the TPA and issued notices of confirmed assessment almost three years after the objection was lodged.

12. The Appellant also alleged that the Respondent did not put into consideration all the documents provided by the Appellant.

13. The Appellant further alleged that the Respondent has not provided reasons for why the objection application was fully rejected.

Appellant’s Prayers 14. The Appellant sought the following reliefs:a.That this Appeal be allowed;b.That the Tribunal be pleased to set aside notices of assessments dated 9th March 2023; andc.That the costs of this case be in the cause.

Respondent’s Case 15. The Respondent’s case is premised on its Statement of facts dated 5th February 2024 and filed 7th February 2024. The Respondent filed its written submissions dated on 26th June 2024 on filed on 17th July 2024 and the same were adopted by the Tribunal on 11th September, 2024.

16. The Respondent pleaded that it conducted a VAT audit against the Appellant's operations for the period between January 2018 and May 2018 and issued additional assessments on 15th November 2019. The Respondent averred that the respective suppliers did not declare the sales therefore the Respondent disallowed the input VAT claimed. The VAT assessments amounted to Kshs 4,431,459. 17.

17. According to the Respondent, whereas the Appellant challenged the assessments vide a notice of objection dated 28th November 2019, the Appellant did not validate its objection as required under section 51(3) of the TPA prompting the Respondent to write to the Appellant requesting it to avail supporting documents.

18. It is the Respondent’s case that despite being requested to avail documents, the Appellant failed to support the notice of objection. Consequently, the Respondent proceeded to confirm the assessments vide confirmation of assessments dated 9th March 2023. This resulted to the Appellant lodging the Appeal.

19. It is the Respondent’s case that Section 24 and 28 of the TPA allows a tax payer to file returns but further provides that the Commissioner is not bound by the information provided therein and can assess the tax liability based on any other available information.

20. The Respondent averred that the impugned assessments were made pursuant to section 31 of the TPA, which empowers the Commissioner to make assessments according to the information available to him and best judgment in ensuring that the Appellant is only liable for the correct tax.

21. The Respondent averred that the Appellant did not submit requisite documents in support of their notice of objection and that the Appellant has not attached any electronic mails showing that it provided these documents for review by the Respondent.

22. The Respondent stated that it is empowered by Section 59 (1) of the TPA to request for production of records to ascertain tax liability of a taxpayer. The Respondent further averred that for a notice of objection to be considered valid, it has to be accompanied by all the relevant documents as provided for under section 51(3) (c) of the TPA. Apart from that, the Respondent further stated that the Appellant has an obligation to keep documents that enable their tax liability to be readily ascertained. The foregoing is enshrined under the provisions of section 23 of the TPA.

23. The Respondent also stated that the Appellant did not discharge its burden of proof as required under section 56 of the TPA. The Respondent reiterated that the burden of proving that the assessments were erroneous lies with the Appellant as provided by Section 30 of the Tax Appeals Tribunal Act , CAP 469A of the Laws of Kenya (hereinafter “TATA”) and the same has not been satisfied.

24. The Respondent submitted that it made assessments according to the information available and based on best judgment, which was in accordance with the provisions of section 31 of the TPA. The Respondent also relied on the case of Digital Box Ltd Vs Commissioner of Investigation and Enforcement (2019) eKLR, and Nick Kikalos and Helen Kikalos V United States of America No. 2:98 CV618. 313 F. SUPP.2D 876 (2003) to argue that the Respondent is empowered to use available information to assess a taxpayer if a taxpayer fails to provide required information.

25. The Respondent submitted that the Appellant filed an invalid objection in that the Appellant failed to file required supporting documents. The Respondent cited the provisions of section 51(3) of the TPA, which mandates all taxpayers to file documentary evidence. In the case of Hasus EnergyLimited V Commissioner of Domestic Taxes TAT Appeal No. 291 of 2021 where it was held that a notice of objection can only be considered to be validly lodged when it meets all the conditions under section 51(3) of the TPA.

26. Finally, the Respondent submitted that the Appellant failed to discharge its burden of proof, which according to the Respondent is contrary to section 56(1) of the TPA. In the case of Kenya Revenue Authority v Mandiesel & Turbose,Kenya [2021] eKLR, Tumaini DistributorsCompany (K) Limited V Commissioner of Domestic Taxes [2020] eKLR and Lumat Company Limited v Commissioner investments and Enforcement TAT NO 348 of 2023 to support the position that the taxpayer bears the burden to prove that the Respondent’s decision is incorrect.

Respondent’s prayers 27. The Respondent prayed for the following reliefs:a.That the Appeal be dismissed with costs to it as the same is devoid of merit;b.That the confirmation of assessments dated 9th March 2023 be upheld and taxes therein be deemed due and collectible;c.That the Appellant be directed to provide documents in support of their notice of objection within fourteen (14) days and the Respondent to issue an objection within sixty (60) days thereafter.

Issues For Determination 28. The Tribunal having considered the parties’ pleadings, documents and submissions, put forth the following issues for determination:i.Whether the Respondent’s confirmation notice dated 9th March 2023 is statutorily time barred.ii.Whether the Respondent erred in invalidating the Appellant’s notice of objection.

Analysis And Findings 29. The Tribunal wishes to analyse the issues as hereunder.

Whether the Respondent’s confirmation notice dated 9th March 2023 is statutorily time barred. 30. The Tribunal notes that there is no dispute that the Respondent issued additional assessments on 15th November 2019. The fact that the Appellant filed a letter of objection dated 28th November 2019 is also not disputed. THe fact the Respondent confirmed the assessments vide confirmation of assessments dated 9th March 2023 was also not in dispute. The Appellant is grievance is that the confirmation was made beyond 60-day statutory timeframe as provided under the TPA.

31. The Tribunal notes that the law subsisting at the time of the assessment on 15th November, 2019 provided as follows:‘’(11)The Commissioner shall make the objection decision within sixty days from the date of receipt of— (a) the notice of objection; or(b)any further information the Commissioner may require from the taxpayer, failure to which the objection shall be deemed to be allowed.’’

32. The Tribunal also notes that the Appellant filed its objection on 28th November 2019 and that the Respondent confirmed the assessments vide confirmation of assessments dated 9th March 2023. It is evident that the decision by the Respondent was issued beyond the 60 days’ time limit set by the statute. The issuance of the confirmation of assessment was carried out contrary to the provisions of the law. The Respondent argued that it invalidated the Appellant’s objection on grounds that the notice of objection did not meet the requirements under section 51(3) of the TPA. However, the Respondent did not provide evidence to demonstrate the action it took once it formed an opinion that the notice of objection was invalid.

33. The Tribunal notes the following provisions of Section 51(4) of the TPA which subsisted at the time of the issuance of the assessment:‘‘(4)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.’’

34. The Tribunal notes that Section 51(4) of the TPA employed the use of terms, ‘shall immediately,’ and ‘in writing.’ There is no evidence on record to indicate that the Respondent fulfilled its mandate under section 51(4) of the TPA. The Tribunal further notes the lack of evidence on record to demonstrate why the Respondent issued its decision beyond statutory time period of 60 days as set out in the TPA.

35. Consequently, the Tribunal finds and holds that the Respondent’s confirmation notice dated 9th March 2023 is statutorily time barred and that accordingly, the Appellant’s notice of objection stood allowed by operation of the law.

Final Decision 36. The upshot to the foregoing is that the Tribunal finds the Appeal meritorious and consequently makes the following Orders:a.The Appeal be and is hereby allowed.b.The Respondent’s assessments and the resultant confirmation notice dated 9th March 2023 be and are hereby set aside.c.Each party to bear its own cost.

37. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 21ST DAY OF NOVEMBER, 2024. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A - MEMBEROLOLCHIKE S. SPENCER - MEMBER