[2024] KETAT 15 (KLR)

Kairu v Commissioner of Domestic Taxes (Tribunal Appeal 1060 of 2022) [2024] KETAT 15 (KLR) (26 January 2024) (Judgment)

Neutral citation: [2024] KETAT 15 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal 1060 of 2022

Grace Mukuha, Chair, E Komolo, Jephthah Njagi, T Vikiru & G Ogaga, Members

January 26, 2024

Between

Joel Maina Kairu

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a registered taxpayer and was the County Executive for Roads, Public Works and Transport in Nakuru County in 2013.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 of the laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. Under Section 5(2) of the Act with respect to the performance of its function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act for the purposes of assessing, collecting, and accounting for all revenues in accordance with those laws.

3. On 4th September 2013, Egerton University appointed the Appellant to be the project manager to oversee the completion of student hostels at the University. The letter of appointment indicated that the Appellant would “be paid an allowance of Kshs. 22,000” for every visit and a mileage allowance at the Automobile Association of Kenya (AA), rates.

4. In 2014, the Appellant completed the assignment and invoiced the University for Kshs. 3,796,506. 48 vide a letter dated 8th December 2014.

5. On 18th March 2015, the Appellant sent a reminder to the University regarding his invoice.

6. On 17th September 2015, the University paid the Appellant Kshs. 2,272,850. 00 and deducted Kshs. 163,643. 00 as withholding tax and issued a withholding tax certificate.

7. On 8th March 2018, the Respondent issued a VAT Assessment Order for Kshs. 578,426. 47 inclusive of interest.

8. On 18th July 2018, the Appellant objected to the assessment on iTax and received an acknowledgement receipt.

9. On 12th September 2018, the Respondent issued its objection decision.

10. On 22nd September 2022, the Respondent issued a confirmation assessment notice.

11. On 23rd September 2022, the Appellant issued a Notice of intention to Appeal via the iTax system and filed the formal Notice of Appeal with the Tribunal on 27th September 2022.

The Appeal 12. The Appeal is premised on the Memorandum of Appeal dated 26th September 2022 and filed on 27th September 2022 raising the following grounds: -a.That the Respondent erred in its decision to issue the Appellant with additional tax assessment.b.That the Commissioner made an assessment for the period of September 2016 for Kshs 523,656. 00 based on a withholding made for monies (Kshs. 3,796,506. 48), received from Egerton University.c.That on the 18th March 2015, the above taxpayer made a request for the reimbursement for the amounts which covered for the monies that had been used for the oversight of the project for Egerton University.d.That the above monies were perceived to be income as demonstrated by a letter made by the above taxpayer explaining the reason and the extent of the monies paid.e.The withholding tax made for VAT that prompted the assessment was made in error by Egerton University.

Appellant’s Case 13. The Appellant’s case is premised on the Statement of Facts filed on 27th September 2022.

14. The Appellant averred that the Respondent erred in assessments of VAT for the period of September 2016.

15. That the Respondent charged additional assessment on 8th March 2018.

16. That the taxpayer objected to the assessment on 18th July 2018.

17. That the grounds of objection and appeal were that the assessments were based on monies that were reimbursed to the taxpayer who at the time was the County Executive in the Ministry of Public Works and Transport in the County Government of Nakuru, for the oversight of the construction of students hostels at Egerton University.

18. That the Commissioner confirmed the assessment on 12th September 2018 manually.

19. That the taxpayer did not receive communication up to when the same was confirmed online on the 22nd September 2022.

20. That the taxpayer gave a notice of intention to appeal on 23rd September 2022.

Appellant’s Prayers. 21. The Appellant made the following prayers to the Tribunal: -a.To remove the VAT tax obligation.b.To cancel the VAT withholding made which was in error.c.To vacate the assessment that was made based on the above reasons.

Respondent’s Case 22. The Respondent’s case is premised on the following documents filed with the Tribunal:a.The Respondent’s Statement of Facts dated 13th January 2023 and filed on 16th January 2023 together with the documents attached thereto.b.The Respondent’s written submissions dated 29th March 2023 and filed on the same date.

23. The Respondent averred that it raised an assessment on 8th March 2018 based on un-declared withholding certificate.

24. That the Appellant objected to the assessment on 18th July 2018.

25. The Respondent averred that it issued its findings vide the objection decision on VAT assessment dated 12th September 2018.

26. That the Appellant being dissatisfied with the Respondent’s decision filed the Appeal before the Tribunal on 27th September 2022.

27. The Respondent submitted that the Appellant was a nil filer for the period 2016 despite having chargeable sales.

28. The Respondent averred that monies payable to County Governments or the National Government are governed under the Public Finance Act which specifically states the accounts the monies are to be paid into.

29. That the Appellant did not satisfy the Commissioner that the payment falls within the exception provided for under Section 13(5) of the VAT Act.

30. That the payment made to the Appellant did not fall within the definition of the term reimbursement.

31. The Respondent submitted that the only issue for determination should be: -Whether the assessment and decision are valid and should be upheld by the Tribunal.

32. The Respondent submitted that Section 51 (3) (a) of the Tax Procedures Act (TPA) states that an objection shall be treated as valid where all the relevant documents relating to the objection have been submitted.“51. Objection to tax decision

2. 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.

3. A notice of objection shall be treated as validly lodged by a taxpayer 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 taxpayer has paid the entire amount of tax due under the assessment that is not in dispute.”

33. The Respondent submitted that the objection decision issued was accurate based on the fact that no evidence and no precise grounds were provided by the Appellant. That in light of sharing the findings with the Appellant, the Respondent submitted that the Appellant was accorded adequate opportunity to defend his position.

34. That the Tax Procedures Act empowers the Respondent to carry out assessment based on the information available. The Respondent averred that the assessment was issued based on lack of sufficient information. That Section 24 of the TPA provides that: -“(1)A person required to submit a tax return under a tax law shall submit the return in the approved form and in the manner prescribed by the Commissioner.(2)The Commissioner shall not be bound by a tax return or information provided by, or on behalf of, a taxpayer and the Commissioner might assess a taxpayer's tax liability using any information available to the Commissioner.”

35. The Respondent submitted that the Tax Procedures Act places the onus of proof in tax objections on the taxpayer who in this case failed to avail evidence that would support a contrary assessment or that would have guided the Respondent at arriving to a different objection decision. That Section 56(1) of the TPA provides that: -“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

36. The Respondent submitted that the Appellant also alleged in his pleadings that the said tax charge arose from a service he offered as a public servant to Egerton University and which was supposed to be reimbursement of costs incurred during the performance of the task and that it should not attract VAT charges.

37. The Respondent submitted that on the above, the Appellant did not provide evidence nor documents to satisfy the Commissioner to accept his objection.

38. The Respondent submitted that the assessments were correctly issued. That the Appellant did not provide any evidence that would have altered the assessment.

39. That the Tax Procedures Act places the onus of proof in tax objections on the taxpayer who in this case failed to avail evidence that would support a contrary assessment or that would have guided the Respondent at arriving to a different objection decision.

40. The Respondent submitted that the assessment was made based on the only available information and the best judgement by the Respondent. That the Tax Procedures Act empowers the Respondent to ask for production of such documents vide issuance of a notice as deemed necessary in determination of tax liability. That Section 59 of the TPA provides that:“(1)(1) For the purpose of obtaining full information in respect of the income of a person or class of persons, the Commissioner may, by notice in writing, require, in the case of the income of a person, that person or any other person, and in the case of a class of persons, any person -(a)to produce for examination by the Commissioner at the time and place specified in the notice, any accounts, books of account, and other documents which the Commissioner may consider necessary; and the Commissioner may inspect such accounts, books of accounts or other documents and may take copies of any entries therein.”

41. The Respondent submitted that Section 29 of the Tax Procedures Act empowers the Respondent to carry out assessment based on the information available. That the Section provides: -“(1)Where a taxpayer has failed to submit a tax return for a reporting period in accordance with the provisions of a tax law, the Commissioner may, based on such information as may be available and to the best of his or her judgement, make an assessment (referred to as a "default assessment”).”

42. The Respondent relied on the case of Boleyn International Limited versus Commissioner of Investigations & Enforcement (Tax Appeal Tribunal No 55 of 2019) where, the Appellant failed to provide documents and the Tribunal held that there was no conceivable way the Respondent would have considered the objection as the same did not place itself within the parameters of Section 51 (3) of the Tax Procedures Act.

Respondent’s Prayers. 43. The Respondent prayed that the Tribunal finds that: -a.The outstanding tax arrears are due and payable by the Appellant.b.The confirmed assessments were proper in law.c.That the Appeal be dismissed with costs to the Respondent.

Issues For Determination 44. The Tribunal has considered the facts of the matter and the submissions made by the parties, and identified the following to be the issues for determination in this matter: -a.Whether the Appellant’s objection was allowed by the operation of the law.b.Whether the Respondent erred in fact and in law in confirming the VAT assessments of the Appellant.

Analysis And Findings 45. Having identified the issues that fell for its determination, the Tribunal proceeded to analyze them as hereunder.

46. The genesis of this Appeal is the VAT Assessment Order for Kshs. 578,426. 47 inclusive of interest issued by the Respondent to the Appellant on 18th March 2018.

47. The Appellant objected to this assessment on 18th July 2018 through the iTax system and received an acknowledgement receipt.

48. The Respondent indicated that it issued its objection decision on 12th September 2018.

49. Four years later on 22nd September, the Respondent issued a confirmation assessment on iTax platform.

50. The Appellant objected to this confirmation of assessment on 23rd September and filed this Appeal on 27th September 2022.

51. In his Statement of Facts, the Appellant stated that he “did not receive communication up to when the same was confirmed online on 22nd September 2022. ”

52. The Tribunal notes that this evidence of the Appellant was not controverted by the Respondent.

53. Further the Respondent did not indicate to the Tribunal how the objection decision dated 12th September 2018 was communicated to the Appellant who claimed not to have been aware of the decision of the Respondent until four years later when he received the confirmation of assessment on the iTax system on 22nd September 2022.

54. The Tribunal notes that if the Respondent had actually issued the objection decision to the Respondent on 12th September 2018, then it would not have been necessary to issue a confirmation of assessment four years later as all that the Respondent needed to do was to demand payment based on the objection decision.

55. The Tribunal further notes that the said objection decision stated that:-“We hereby give you notice that the assessment is confirmed as we are not prepared to amend in accordance with your objection.”

56. The Tribunal did not get an answer on why the assessment confirmed on 12th September 2018 was once again being confirmed again four years later on 22nd September 2022.

57. In view of the above the Tribunal finds that the valid decision made by the Respondent is the confirmation of assessment notice issued on the iTax system by the Respondent on 22nd September 2022 as there is no evidence of the objection decision dated 12th September 2018 having been served on the Appellant.

58. The Tribunal notes that Section 51(11) of the TPA states that:-“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 taxpayer.Failure to which the objection shall be deemed to be allowed.”

59. The Tribunal notes that the Appellant objected to the VAT assessment on 18th July 2018 and received an objection application acknowledgement receipt on the iTax system on the same date.

60. The Respondent communicated its decision on the 22nd September 2022. This was more than 4 years after the Appellant lodged his objection to the Respondent.

61. The Tribunal has pronounced itself on the need to adhere to statutory timelines. In TAT 127 of 2020, BIC East Africa Ltd vs Commissioner of Customs & Border Control, the Tribunal held that;“Additionally, the Tribunal finds the Respondent's late response to the review application to be in gross violation of Section 229 (5) of the EACCMA 2004 which stipulates that the where the Respondent had not communicated his or her decision within the specified time of 30 days, the review application shall be deemed to have been allowed by the Respondent. To contextualize this, as of 7th June 2019 the Appellant's review application was deemed allowed meaning that it had not tax liability in the eyes of the law. It also meant that the Appellant was well within its right to apply for a refund of the taxes paid earlier under protest. Our resolve in this regard is further cemented in light of the fact that Section 229 (4) & (5) of the EACCMA are cushioned in mandatory terms, hence the Respondent was not allowed to extend the same timelines. (See Associated Battery Manufacturers limited versus Respondent of Customs Services (TAT Appeal No 1 of 2015).

62. The Courts have also emphasized the need to be bound by the statutory timelines. In the case of Republic v Commissioner of Domestic Taxes Ex Parte Fleur Investments Limited [2020] eKLR the Honorable Judge John M. Mativo held that:“I find backing in Republic v Commissioner of Customs Services Ex-Parte Unilever Kenya Limited in which the court stated that if the Commissioner does not render a decision within the stipulated period, the objection is deemed as allowed by operation of the law. The act requires that where the Commissioner has not made an objection within 60 days from the date the tax payer lodged the notice of objection, the decision objection shall be allowed. This means that the issues that the tax payer had raised in the objection will be accepted.”

63. This position was also emphasized in the case of Nicholas Kiptoo Arap Korir Salat v IEBC & 6 Others [2013] eKLR, where the court held that: -“This Court, indeed all courts, must never provide succor and cover to parties who exhibit scant respect for rules and timelines. Those rules and timelines serve to make the process of judicial adjudication and determination fair, just, certain and even-handed. Courts cannot aid in the bending or circumventing of rules and a shifting of goal posts for, while it may seem to aid one side, it unfairly harms the innocent party who strives to abide by the rules. I apprehend that it is in the even-handed and dispassionate application of rules that courts give assurance that there is a clear method in the manner in which things are done so that outcomes can be anticipated with a measure of confidence, certainty and clarity where issues of rules and their application are concerned…”

64. The Tribunal finds that the objection made by the Appellant on 18th July 2018 was allowed by operation of the law and the Respondent’s decision conveyed via iTax on 22nd September 2022 is not valid as it was made outside the statutory timelines.

65. Having found that the objection by the Appellants was allowed by operation of the law, the Tribunal did not delve into the other issue that fell for its determination as it was rendered moot.

Final Decision 66. The upshot of the foregoing is that the Appeal is merited and consequently the Tribunal makes the following Orders: -a.The Appeal be and is hereby allowed.b.The Respondent’s decision communicated to the Appellant on 22nd September 2022 be and is hereby set aside.c.Each party to bear its own costs.

67. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF JANUARY, 2024. GRACE MUKUHACHAIRPERSONDR ERICK KOMOLO JEPHTHAH NJAGI MEMBER MEMBERTIMOTHY VIKIRU GLORIA A. OGAGA MEMBER MEMBER