[2024] KETAT 264 (KLR)

Kalee Limited v Commissioner of Domestic Taxes (Appeal E160 of 2023) [2024] KETAT 264 (KLR) (Civ) (23 February 2024) (Judgment)

Neutral citation: [2024] KETAT 264 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal E160 of 2023

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

February 23, 2024

Between

Kalee Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company registered under the Companies Act and is a registered taxpayer.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act. Cap 469 Laws of Kenya and 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 raised a VAT additional assessment for the period December 2017 on 19th October 2022 to which the Appellant objected on 30th January 2023. This was a late objection which the Appellant validated and on 13th February 2023 the late objection application was accepted.

4. Subsequently, on 17th March 2023, the Respondent rejected the objection application and issued an objection decision confirming the assessment.

5. Being dissatisfied with the Respondent's decision, the Appellant instituted this Appeal by lodging its Notice of Appeal filed on 12th April 2023.

The Appeal 6. In its Memorandum of Appeal dated 17th April 2023 and filed on 24th April 2023 the Appellant’s Appeal is premised on the following grounds:-a.That the Respondent confirmed the assessments without due regard to explanations and information provided, thereby failing to appreciate all issues presented and raised by the Appellant.b.That the Respondent failed to observe the VAT Act which provides that services imported or supplied to donor agencies, international and regional organizations with diplomatic accreditation to Kenya are zero rated.c.That the confirmed assessments were based on mere comparison of the Appellant’s business with taxpayers of similar business and not on the law.d.That the VAT Act 2012, 2013, and 2016 are clear that burial costs are VAT exempt as per Part II of the First Schedule Paragraph 6 read together with Paragraph 1 which was revised in 2021. e.That the Constitution does not discriminate Christian burial process.f.That the Respondent failed to consider burial costs for a Christian, which includes the following processes;i.Death of a Christian.ii.Transport of the body to the morgue.iii.Advertisements including casual and burial announcements.iv.Food for the mourners.v.Funeral service costs.vi.Coffin & mortuary costs.vii.Final burial costs.g.That the Respondent's argument in the tax decision to the effect that the Appellant did not provide relevant documentary evidence in support of the objection is not factual since all relevant documents were availed.

Appellant’s Case 7. The Appellant’s case also premised on its:a.Statements of Facts filed on 24th April 2023. b.Written Submissions dated and filed on 26th July 2023.

8. The Appellant averred that the Respondent raised additional assessments on 19th October 2022 to which it objected on 30th January 2023. The Respondent validated the objection on 13th February 2023.

9. The Appellant stated that the VAT additional assessment raised on 19th October 2022 for the month of December 2017 amounted to Kshs. 6,312,480. 00.

10. The Appellant averred that the Respondent engaged with the Appellant through several emails and phone calls between the dates of 14th February 2023 and 14th March 2023 whereby the Appellant provided the requested documents, some of which were physically delivered to the Respondent’s offices.

11. Consequently, the Appellant posited that the Respondent failed to consider all the explanations and information provided giving reasons contrary to facts as provided by the VAT Act, and that documents were not provided yet they were.

12. That in disregard to the above, on 17th March 2023 the Respondent confirmed the additional assessment vide objection decision letter dated 17th March 2023 and confirmation assessment notices on 22nd March 2023.

13. The Appellant argued that the Respondent using comparison to businesses of similar nature to determine whether a service is vatable or not is an error of commission since the VAT Act is the basis to determine whether a service is vatable or not.

14. The Appellant appealed against the assessment done on 19th October 2022 and the objection decision dated 17th March 2023 and further pleaded that the provisions in the VAT Act be considered and the provided documents be reviewed stating that a registered person is allowed to offer zero-rated services and exempt services as the case may be.

15. Citing Part 2 of the First Schedule to the VAT Act, the Appellant submitted that it had complied with the law by declaring and paying taxes on taxable income as required by law. It also stated that the Constitution allows for freedom of religion and culture thus subsequently, a Christian or cultural burial is allowed.

16. The Appellant submitted that the remains of the dead must be disposed off by the living who will be notified through death and casual announcements making them services leading to the disposition of the remains of the dead.

17. The Appellant alleged that due to the bulky nature of documents the parties agreed to the sample of 100 documents, but the Appellant provided more than 400 documents for review therefore the Respondent’s allegation that the documents were not provided is untrue.

Appellant’s prayers 18. The Appellant prayed that the Tribunal: -a.Allows the Appeal.b.Annuls the additional assessments.

Respondent’s Case 19. The Respondent’s case is premised on its:a.Statement of Facts dated on 2nd May 2023 and filed on 9th May 2023. b.Written submissions dated 13th September 2023 and filed on 15th September 2023.

20. The Respondent averred that in making the additional assessment and confirming the same, it relied on the information available to it. Consequently, the Appellant objected on the basis that the additional assessment was erroneous and excessive, that the Respondent had demanded VAT on supplies that are not taxable at the general rate, and that services offered are funeral and casual announcements which are exempt, and supplies made to privileged bodies Media Focus on Africa Foundation and National Aids Control Council, are zero-rated.

21. The Respondent observed that burial and cremation services are exempt from VAT. However, the Respondent did not concur with the Appellant’s opinion that funeral announcements are part of burial services. The Respondent explained that burial services refer to any service offered or provided in connection with the final disposition, memorialization, internment, entombment, or inurnment of human remains or cremated remains.

22. The Respondent alleged that the Appellant failed to provide copies of invoices relating to funeral and casual announcements as well as exemption certificates for supplies made to Media Focus on Africa and the National Aids Control Council.

23. The Respondent posed that the VAT Act provides for zero-rating of goods and services imported or supplied to donor agencies, international and regional organizations with diplomatic accreditation, or bilateral or multilateral agreements with Kenya.

24. That the said organizations are eligible to apply for exemption. However, since the Appellant failed to provide copies of the exemption certificates relating to these supplies, the Respondent confirmed the assessment.

25. On whether the advertisement including casual and burial announcements is tax exempt, the Respondent submitted that the Appellant’s business involved media services which include advertisement services. The Respondent argued that advertising is a service therefore subject and chargeable to VAT. The Respondent relied on Section 2 of the VAT Act on the supply of services which provides that:-“Supply of service means anything that is not the supply of goods or money includinga.The performance of service for another personb.The grant, assignment or surrender of any right;c.The making available of any facility or advantage ord.The toleration of any situation or refraining from the doing of any act.”

26. The Respondent submitted that it was evident from the schedule that only burial and cremation services have been mentioned and not advertisements. Further, it postulated that lawmakers could have named them death and burial services if they intended to exempt all services procured upon death.

Respondent’s Prayers 27. The Respondent prayed to the Tribunal that:a.Its decision together with penalties and interest be found to be due and payable.b.This appeal be dismissed with costs to the Respondent.

Issues for Determination 28. Having carefully considered the material placed before it by both parties, the Tribunal is of the view that the same distil into the following issues for its determination:a.Whether burial announcements are burial services for tax purposes.b.Whether the Respondent erred in raising additional VAT assessments on sales to privileged bodies.

Analysis And Findings 29. It is to these issues that the Tribunal will turn to analyse as follows:

a. Whether burial announcements are burial services for tax purposes. 30. The Appellant argued that the Respondent failed to consider burial costs for a Christian, which includes the following processes;a.Death of a Christian.b.Transport of the body to the morgue.c.Advertisements including casual and burial announcements.d.Food for the mourners.e.Funeral service costs.f.Coffin & mortuary costs.g.Final burial costs.

31. The Respondent observed that burial and cremation services are exempt from VAT. However, it did not concur with the Appellant’s opinion that funeral announcements are part of burial services. The Respondent explained that burial services refer to any service offered or provided in connection with the final disposition, memorialization, internment, entombment, or inurnment of human remains or cremated remains.

32. The Court of Appeal in its judgment in Civil Appeal No. E692 Of 2023, Joseph Ontweka, Elisha Ontweka, Stanley Ontweka, and David Ontweka V. Zipporah Masese Ondieki stated that: -“burial disputes are not simplistic… As a plethora of cases all over the world have demonstrated, these disputes have been with us throughout history and unless death abandons humankind (for we cannot abandon death), they will continue being part of matters that courtroom Daniels are called upon to decide upon.”

33. It is therefore not surprising that the Tribunal is being called upon to decide upon a tax dispute related to burial. More particularly in this dispute that seeks to determine whether burial announcements form part of burial services.

34. In the extant matter, it is not in dispute that burial services are exempt from VAT. The dispute is about what constitutes burial services as argued by both parties.

35. The Tribunal is of the considered view that such a multicultural, multifaceted practice rife with different rites may be interpreted widely and variedly. Perhaps future legislation may be necessary to be more succinct.

36. This notwithstanding, it is the interpretation of the Tribunal that the law in exempting burial and cremation services from VAT as captured in Paragraph 6 of Part II of the First Schedule to the VAT Act 2013 did not envision all services on the entire value chain from time of death to actual disposition of the body. To do so would be to open a plethora of exempt services that are carried out mostly by different Service Providers after the death given the diversity of culture, religion, and social status that manifest in Kenya.

37. In this regard, the Tribunal is of the considered view that burial entails the lowering of the dead body into a grave. It is the interment or entombment of the dead person’s body. It is the actual disposition of the dead person. Therefore, burial services would entail these services that relate to this process. Black’s Law Dictionary defines “burial” as:“The act of burying a deceased person, sepulture, interment, act of depositing a dead body in the earth, in a tomb or vault, or in the water; the act of interring the human dead.”

38. The Tribunal further notes that Section 13 (1) and (5) of the VAT Act states that;“(1)Subject to this Act, the taxable value of a supply, including a supply of imported services, shall be— (a) the consideration for the supply; or (b) if the supplier and recipient are related, the open market value of the supply….…(5) In calculating the value of any services for the purposes of subsection (1), there shall be included any incidental costs incurred by the supplier of the services in the course of making the supply to the client: Provided that, if the Commissioner is satisfied that the supplier has merely made a disbursement to a third party as an agent of his client, then such disbursement shall be excluded from the taxable value.”

39. In the extant case, the Tribunal observes that the Appellant provided burial announcement services and not burial services. Indeed, the Appellant submitted that the remains of the dead must be disposed of by the living who will be notified through death and casual announcements making them services leading to the disposition of the remains of the dead.

40. From the Appellant’s submissions, the Tribunal notes that the two services are distinct and are rendered by two different parties; the Appellant and those being notified through death and casual announcements to do the actual disposition.

41. The Tribunal therefore finds that the Respondent did not err in raising additional VAT assessment for burial announcements.

b. Whether the Respondent erred in raising additional VAT assessments on sales to privileged bodies 42. The Tribunal did not analyse this matter having been spent by way of the partial consent dated 26th September 2023 entered into by the parties and filed with the Tribunal on the 28th September 2023. The partial consent was adopted as partial Judgment by the Tribunal on 30th October 2023.

Final Decision 43. The upshot of the above findings is that the Appeal, save for the Partial Judgment entered on the 30th October, 2023, lacks merit and the Tribunal accordingly proceeds to make the following Orders:-a.The Appeal be and is hereby dismissed.b.Each party to bear its own costs.

44. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 23RD DAY OF FEBRUARY, 2024GRACE MUKUHACHAIRPERSONDR. WALTER ONGETI DR. ERICK KOMOLOMEMBER MEMBERGLORIA A. OGAGA JEPHTHAH NJAGIMEMBER MEMBER