[2024] KETAT 611 (KLR)

Jihan Freighters Limited v Commissioner of Domestic Taxes (Appeal E293 of 2023) [2024] KETAT 611 (KLR) (Civ) (19 April 2024) (Judgment)

Neutral citation: [2024] KETAT 611 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal E293 of 2023

Grace Mukuha, Chair, Jephthah Njagi, E Komolo, W Ongeti & G Ogaga, Members

April 19, 2024

Between

Jihan Freighters Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company incorporated in Kenya.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and KRA is charged with the responsibility of among others, assessment, collection, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Respondent undertook an investigation on the VAT purchase claims of the Appellant for the period between October 2020 and April 2021.

4. On 22nd October 2021, the Respondent issued a demand notice for Kshs. 5,923,328. 00 for the period under review.

5. On 8th December 2021, the Appellant was issued with an assessment for additional VAT for Kshs. 5,923,328. 00.

6. The Appellant, being dissatisfied with the assessment, lodged a notice of objection dated 14th March 2022.

7. On 11th April 2022, the Respondent wrote to the Appellant directing it to make an application for extension of time to file a notice of objection out of time.

8. On 25th May 2022, the Respondent vide an email requested the Appellant to validate its notice of objection so as to comply with the provisions of Section 51(3) of the Tax Procedures Act 2015.

9. The Respondent invalidated the objection and confirmed the assessment vide a letter dated 5th August 2022.

10. Aggrieved by the confirmation of the assessment, the Appellant filed this Appeal on 12th April 2023 after applying and receiving leave from the Tribunal to file the Appeal out of time.

The Appeal 11. The Appeal is premised on the Memorandum of Appeal dated 6th April 2023 and filed on 12th April 2023 raising the following three grounds: -a.That the Respondent erred in law and the fact by wrongfully disallowing VAT inputs which were declared in the returns for the period under review.b.That the Respondent fell in error by not taking into consideration the supporting documents provided by the taxpayer.c.That the Respondent erred in law and fact by ignoring additional information and explanation provided in course of independent review.

Appellant’s Case 12. The Appellant’s case was premised on the Appellant’s Statement of Facts dated 6th April 2023 and filed on 12th April 2023 together with documents attached thereto.

13. The Appellant averred that the Respondent carried out an audit covering the period January 2019 to December 2020 focusing on VAT.

14. That on 30th December 2022, the Respondent issued a tax assessment of Kshs. 6,014,304. 52 with the findings for the years 2019 to 2020.

15. That on 14th March 2022 the Appellant issued a notice of objection and provided its analysis with supporting documents.

16. That the Appellant presented all the documents to support the objection which are still with the Respondent.

17. That from the explanation and visits to the Respondent, the Appellant observed that the Respondent ignored the Appellant’s documents and denied it “fair hearing.”

18. That the Respondent’s demand for VAT as per Respondent’s objection decision has no basis in fact or in law and the entire assessment was arbitrary and unjust.

Appellant’s Prayers 19. The Appellant made the following prayers to the Tribunal: -a.That this Appeal be allowed.b.That the Tribunal sets aside the Respondent’s confirmation of assessment dated 5th August 2022.

Respondent’s Case 20. The Respondent’s case was premised on the following documents:-a.The Respondent’s Statement of Facts dated and filed on 26th May 2023 together with the documents attached thereto.b.The Respondent’s Written Submissions dated 6th December 2023 and filed on 23rd January 2024.

21. The Respondent averred that it undertook an investigation on the purchase claims of the Appellant for the period between October 2020 and April 2021.

22. That the investigation was meant to establish the authenticity of duplicate invoice claims with a view to disallowing the double claims.

23. That upon analysis of invoices from the Appellant and 3rd party sources (suppliers), the Respondent established that the Appellant had made double and in other cases multiple claims of purchase invoices relating to VAT during the period under review. The unsupported purchases claims were computed and disallowed as below:-VATMonth Purchase amount before Tax Purchase amount verified Duplicate purchases DisallowedVAT on duplicates

YEAR 2020

Oct 4. 528,744 2,648,987 1,879,757 263,166

Nov 6,222,170 2,057,414 4,067,761 569,487

Dec 8,092,769 3,565,778 4,403,260 616,456

YEAR 2021

Jan 8,817,296 1,161,537 7,655,759 1,224,921

Feb 10,128,942 4,151,869 5,977,072 956,332

March 9,755,828 2,638,112 7,076,371 1,132,219

April 7,254,671 7,254,671 1,160,747

Total 54,800. 420 16,223,689 38,314,650 5,923,328

24. That the Appellant availed some physical copies of invoices in support of the purchases claimed. That the Appellant alleged that the double or multiple claims could have been occasioned by negligence on the part of its iTax officers since most of its suppliers were regular, offering almost similar goods and services on a monthly basis.

25. That although the Appellant acknowledged the existence of multiple claims, it blamed it on a purported system error, alleging the claims could have been a consequence of the system picking the last invoice number when initiating a new PIN.

26. That the Appellant was to amend its VAT returns to disallow the duplicated purchase claims amounting to Kshs. 38,411. 650. 00 and pay additional VAT of Kshs. 5,923,328. 00 arising thereto but failed to do so.

27. That on 22nd October 2021, the Respondent issued a demand notice for Kshs. 5,923,328. 00 for the period under review.

28. That on 8th December, 2021, the Appellant was issued with an assessment for additional VAT for Kshs. 5,923,328. 00.

29. That the basis of the aforementioned assessment was hinged on Section 31 of the Tax Procedures Act which gives the Respondent leeway to issue additional assessments based on the available information and “best judgement”.

30. That the Appellant being dissatisfied with the assessment, lodged a late notice of objection dated 14th March 2022.

31. That upon receipt of the said objection, the Respondent vide a letter dated 11th April 2022 wrote to the Appellant directing it to make an application for extension of time to file the notice of objection out of time.

32. That on 25th May 2022, the Respondent vide an email requested the Appellant to validate its notice of objection so as to comply with the provisions of Section 51(3) of the Tax Procedures Act 2015.

33. That particularly, the Appellant was required to provide reasons for late objection and furnish statutorily required documents in support of the objection failure to which its objection would be invalidated.

34. That in the absence of any action from the Appellant, the Respondent proceeded to invalidate the objection and confirm the assessment vide a letter dated 5th August 2022.

35. The Respondent submitted that the following should be the issues for determination in this Appeal:-a.Whether the Appellant lodged a valid late objection;b.Whether the Assessment is proper in law.

36. The Respondent submitted that it relied on Section 51(7) of the Tax Procedures Act 2015 which provides as follows: -“The Commissioner may allow an application for the extension of time to file a notice of objection if-(a)the Appellant was prevented from lodging the notice of objection within the period specified in subsection (2) because of an absence from Kenya, sickness or other reasonable cause; and(b)the Appellant did not unreasonably-delay in-lodging the notice-of objection.”

37. The Respondent submitted that the Appellant lodged the notice of objection beyond the statutorily prescribed timelines. That as a matter of fact, the assessment was issued on 8th December 2021 whilst the notice of objection was lodged on 14th March 2022, which was two (2) months and six (6) days late.

38. That the period within which a notice of objection should be lodged is prescribed under the provisions of Section 51(2) of the TPA which states thus:“A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.”

39. That the above notwithstanding. the Appellant can make an application to the Commissioner for extension of time within which to lodge a notice of objection. That the Appellant must demonstrate the reasons that occasioned such delay.

40. The Respondent averred that the Appellant was requested vide the letter dated 11th April 2022 to file an application to lodge the notice of objection beyond the statutory timelines.

41. That despite the foregoing. the Appellant failed/refused to file the application forcing the Respondent to confirm the assessment.

42. The Respondent submitted that the Appeal is incompetent as the Respondent did not render an objection decision under Section 51(8) of the Tax Procedures Act but invalidated the Appellant's objection decision for non-compliance with Section 51(3), (6) and (7) of the Tax Procedures Act.

43. The Respondent further averred that there is no appealable decision for which an appeal can lie before the Tribunal.

44. That the Appellant alleged negligence on part of its tax officers who made multiple claims of purchase invoices since most of its suppliers were regular. offering almost similar goods/services on a monthly basis. That this is contrary to Section 16(8) of the Tax Procedures Act which states:-“This section does not relieve a taxpayer from performing any obligation imposed on a taxpayer under a tax law that the tax representative of the taxpayer has failed to perform.”

45. That further. the Appellant acknowledged the existence of multiple claims, but blamed it on a purported system error, alleging that the claims could have been a consequence of the system picking the last invoice number when initiating a new pin.

46. The Respondent averred that the Appellant however failed to prove that indeed the multiple/double claims were as a result of the system error.

47. The Respondent relied on the following provisions of Section 109 of the Evidence Act:-“The burden of proof as to any particular fact lies on the person who wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person."

48. That the Respondent vide an email dated 25th May 2022, requested the Appellant to avail documents in support of its objection.

49. The Respondent submitted that save for the late notice of objection and some physical copies of invoices. no other document was adduced in support of the late objection application lodged by the Appellant.

50. The Respondent submitted that the Appellant did not satisfy the criteria set out under the provisions of Section 51(7) of the Tax Procedures Act.

51. The Respondent also relied on the provisions of Section 51(3) of the Tax Procedures Act 2015 which provides thus:“A notice of objection shall be treated as validly lodged by a Appellant under subsection (2) if –a.the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments; andb.in relation to an objection to an assessment, the Appellant has paid the entire amount of tax due under the assessment that is not in dispute(c)all the relevant documents relating to the objection have been submitted.”

52. The Respondent submitted that the Appellant did not provide the requisite documents and therefore failed to validate its objection. As such, the Respondent acted within the law by invalidating the Appellant’s objection and confirming the assessment.

53. The Respondent further submitted that the Appellant contravened Section 17(1) of the VAT Act by claiming the same invoice more than once. That the Appellant failed to prove its position with supporting documents and evidence.

54. The Respondent further submitted that pursuant to Section 56 of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, the burden of proof lies on the Appellant to demonstrate that the Respondent’s assessment is either erroneous or excessive. That this burden was never discharged by the Appellant as no documentary evidence was availed to the Respondent to enable it render a decision.

55. The Respondent submitted that it is noteworthy that no supporting documents or reconciliations have been availed by the Appellant to the Tribunal.

56. The Respondent submitted that the Appellant was given an opportunity to amend the VAT return for the period under review to reflect the actual position and to disallow duplicated purchase claims amounting to Kshs. 38,414,650. 00 and pay the additional VAT of Kshs. 5,923,328. 00 but failed to do so.

57. That the decision of the Respondent was supported by the law and the evidence available showing that the Appellant had claimed invoices in its VAT returns more than once.

Respondent’s Prayers 58. The Respondent prayed that: -a.That this Appeal be dismissed with costs to the Respondent as the same is devoid of merit,b.That the confirmation of assessment dated 5th August 2022 be upheld.

Issue for Determination 59. The Tribunal has carefully studied the pleadings and documentation filed by both parties and is of the respectful view that the issue that calls for its determination is as follows:-

Whether there is a valid Appeal before the Tribunal. Analysis And Findings 60. Having identified the issue that calls for its determination the Tribunal proceeded to analyze it as hereunder.

61. The genesis of this dispute is the investigation carried out by the Respondent on the VAT purchase claims of the Appellant for the period October 2020 to April 2021.

62. The Respondent averred that the investigations revealed that the Appellant had made double and in other cases multiple, claims of input VAT using the same invoices. The Respondent gave a table outlining the seven months affected by those claims during the period under review.

63. Although the Appellant admitted existence of multiple claims, it blamed it on a purported system error or its own officers in keying in the information.

64. The Respondent averred that it requested the Appellant to amend its VAT returns to disallow the duplicated purchases amounting to Kshs. 38,411,650. 00 and pay the additional VAT of Kshs. 5,923,328. 00.

65. The Respondent averred that because the Appellant did not amend its VAT returns, it issued a demand notice on 22nd October 2021.

66. The Respondent issued an assessment to the Appellant on 8th December 2021.

67. The Appellant objected to that assessment on 14th March 2022.

68. On 11th April 2022, the Respondent wrote to the Appellant directing it to make an application for extension of time to file an objection out of time. The letter stated as follows:-“We make reference to the tax assessment issued to you on 8th December 2022 and your objection dated 14th March 2022. Based on the above dates, it clearly shows that the 30 days contemplated under Section 51(2) of the Tax Procedures Act, 2015 had lapsed as at the time of lodging the objection.As such, you are required to make application for extension of time to file a notice of objection as provided under Section 51(7), of the Tax Procedures Act, 2015. The Application and documents should be provided within 7 days from the date of this letter.”

69. The Tribunal observed that the Appellant in its Notice of Appeal stated that it appealed against the ‘decision of the Commissioner’ given on the 11th April 2022. The document which the Appellant referred to in its Notice of Appeal is not a decision, but the Respondent’s guidance to the Appellant to “make application for extension of time to file a notice of objection” that the Appellant lodged an appeal against.

70. The Respondent on the other hand submitted that the Appeal is incompetent as the Respondent did not render an objection decision under Section 51(8) of the Tax Procedures Act.

71. The Respondent further submitted that there is no appealable decision for which an appeal can lie before the Tribunal.

72. The Tribunal notes that the Tax Procedures Act, 2015 prescribes a sequence of steps the appeal process has to take. In particular Section 51(2) of TPA guides the Appellant on what it ought to do upon receiving the Respondent’s tax demand, and it states as thus:-“A taxpayer who disputes a tax decision may lodge a notice of objection against the tax decision, in writing, with the Commissioner within thirty days of being notified of the decision.’’

73. Further, Section 51(6) and (7) offer remedy to the taxpayer in case there is a delay in the lodging of the notice of objection within the statutory time allowable. The said sub-sections provide as follows:“(6)A taxpayer may apply in writing to the Commissioner for an extension of time to lodge a notice of objection.(7)The Commissioner shall consider and may allow an application under subsection (6), if –a.The taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of an absence from Kenya, sickness or other reasonable cause; andb.The taxpayer did not unreasonably delay in lodging the notice of objection.’’

74. It is this remedy that the Respondent suggested to the Appellant in the letter of 11th April 2022. But instead of following the suggested remedy, the Appellant decided to file an Appeal at the Tribunal.

75. The Tribunal notes that the procedure as prescribed in the TPA is that once the taxpayer has received the tax demand and disputes the facts, he or she ought to lodge a notice of objection within thirty days after receipt of the same. The Commissioner is then expected to review this objection and issue an objection decision within sixty days. It is upon receipt of this objection decision, and if still in dispute, can the taxpayer commence the process of lodging its appeal to the Tribunal.

76. The Tribunal further notes that the Tribunal’s jurisdiction is derived from Section 3(2) of the Tax Appeals Tribunal Act which states that:-“The Appellant shall, within fourteen days from the date of the filing the notice of appeal, submit enough copies, as may be advised by the Clerk, ofa.a memorandum of appeal;b.Statement of facts; andc.a tax decision”

77. The Tribunal notes that in the instant Appeal, there was no tax decision made and that is why none was submitted as required by Section 3(2) of the TAT Act. The Tribunal notes that it is the letter advising the Appellant to apply for extension of time to file its notice of objection that the Appellant has decided to call the “decision of the Respondent.”

78. On the need to follow that established procedures, the Tribunal is guided by its holding in the case of W.E.C. Lines Ltd v The Commissioner of Domestic Taxes [TAT Case No. 247 Of 2020] where it was held on Para. 70 and reiterating the holding in Krystalline Salt Ltd vs KRA [2019] eKLR that:“Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures”. The relevant procedure here is the process of opposing an assessment by the Commissioner.”

79. From the undisputed chronology of events, the taxpayer failed to follow due process as there was no tax decision from which its appeal would have been anchored on.

80. Having established that there is no appealable decision in this Appeal, the Tribunal makes a finding that this Appeal is incompetent and invalid. Therefore, the Tribunal has no jurisdiction to determine it.

Final Decision 81. The upshot of the above finding is that the Appeal is incompetent and proceeds to make the following Orders:-a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

82. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF APRIL, 2024. GRACE MUKUHACHAIRPERSONJEPHTHAH NJAGI DR. ERICK KOMOLO MEMBER MEMBERDR. WALTER J. ONGETI GLORIA A. OGAGAMEMBER MEMBER