[2024] KETAT 944 (KLR)

Kamahuha Limited v Commissioner of Domestic Taxes (Tax Appeal 444 of 2023) [2024] KETAT 944 (KLR) (19 July 2024) (Judgment)

Neutral citation: [2024] KETAT 944 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 444 of 2023

RM Mutuma, Chair, B Gitari, M Makau, AM Diriye & EN Njeru, Members

July 19, 2024

Between

Kamahuha Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a Limited Liability Company duly incorporated in Kenya under the Companies Act. Its main form of business is in trading of beverage products in wholesale and retail.

2. The Respondent is established under the Kenya Revenue Authority Act, Cap 469 Laws of Kenya. The Kenya Revenue Authority (“KRA”) is an agency of the Government of Kenya for assessing, collecting, and accounting for all revenue.

3. The Respondent’s iTax system detected inconsistency between invoices declared by the Appellant and their suppliers for the months of December 2017, March, April, and May 2018 and issued additional assessments for VAT via iTax to the Appellant for Kshs 627,535. 44, Kshs 751,242. 05, Kshs 1,803,717. 94, Kshs 1,091,556. 99 respectively.

4. The Appellant lodged an Objection to the additional assessments via iTax on 23rd May 2023 with supporting documents which was partially allowed by the Respondent in its Objection Decision dated 19th July 2023.

5. Dissatisfied with the Objection Decision, the Appellant filed a Notice of Appeal dated 21st July 2023 and filed on 31st July 2023.

The Appeal 6. The Appeal is premised on the following grounds listed in the Memorandum of Appeal dated and filed on 31st July 2023: -a.The Commissioner by invalidating the Appellant’s Objection acted irrationally, unreasonably and in blatant violation of the Principles of fair hearing; and,b.The Commissioner erred in law in disallowing valid invoices and shifting the evidential burden of proof to the Appellant.

The Appellant’s Case 7. The Appellant’s case was premised on the following documents; -a.Statement of Facts dated and filed on 31st July 2023 together with the document attached thereto;b.Supplementary Statement of Facts dated 25th March 2024 and filed on 27th March 2024 wherein the Appellant stated as hereunder; and,c.Written submissions date and filed 15th May 2024.

8. It stated that its grounds for Objection were that:a.The failure of suppliers to declare sales or under declare sales was not sufficient reason to invalidate a purchase;b.The VAA system has its own inherent flaws capable of rejecting a valid invoice; and,c.The Appellant has proof of purchase of all the invalidated invoices.

9. The Appellant stated that on 19th July 2023, the Respondent allowed the Notice of Objection partially and rejected it partially which forms the basis of the Appeal herein.

10. It contended that prior to the Objection, the Respondent had issued Agency Notices dated 7th March 2022 which Notices were removed by mutual consent vide TAT Misc. App No 133/2022.

11. In its Supplementary Statement of Facts dated and filed on 27th March 2024, the Appellant stated as hereunder.

12. The Appellant submitted that the Respondent’s flawed VAA system rejected valid invoices issued by registered taxpayers and issued a VAT Assessment of Kshs 4,274,050 because the Appellant’s suppliers had either failed to declare their sales or lumped up their sales, a fault that is not attributable to the Appellant.

13. It argued that instead of following up with the said suppliers, the Respondent rejected all the invoices claimed and issued by the Appellant with Assessment Notices followed by Agency Notices and thus the Respondent operated under the misguided assumption that it does not need to exercise diligence and accountability while issuing assessments due to its flawed interpretation of Section 56 (1) of the Tax Procedures Act that it gives the Respondent the license to issue any assessment, however ridiculous, for the Appellant to disprove.

14. It cited Section 31 of the Tax Procedures Act and contended that the discretion granted by the Respondent should be exercised judiciously, fair and not arbitrary. It added that before issuing an assessment, the Respondent should have satisfied itself of the correctness of the information available to it.

15. It stated that contrary to the Respondent’s allegations, the Commissioner did not ask for any invoices, proof of payment or clarification before issuing the Assessments instead, the VAA auto generated the assessments.

16. It reiterated that it was able to prove at the Objection Review stage that the Respondent had no basis for rejecting the invoices and over 80% of the rejected invoices were allowed therefore, there was no basis for invalidating them.

17. It maintained that the reasons for the rejected invoices were a result of due diligence and indolence on the Respondent’s part as follows:a.In December 2017, the Appellant claimed invoices on 20th and 28th December 2017 for Kshs 163,824. 82 and Kshs 410,816. 40 respectively wherein the Respondent omitted the 2 invoices and fished for Kshs 367,802. 59 from nowhere.b.Also, in December 2017, the Appellant provided and claimed invoices for Kshs 5,748,830. 96 which the Respondent reduced to Kshs 5,700,317. 18 without reason.c.In March 2018, there were two invoices issued on 6th and 27th March 2018 for Kshs 1,551,500 and 3,128,900 respectively and provided a summary of the invoices for the whole month but the Respondent missed the invoice for Kshs 3,128,900 and however much the Appellant used the same invoice number for 2 invoices, the 2 invoices were provided.d.In April 2018, there were two invoices issued on 24th and 25th April 2018 for Kshs 1,621,703. 88 and Kshs 115,044. 83 respectively and a summary of the invoices provided for the whole month wherein the Appellant made an error but the actual invoice was availed since the invoice was issued in October but services rendered in December 2018. It added that the reference was DRN 244/2018 which was claimed within statutory timelines.e.Also, in April 2018, there were 3 more invoices issued on 17th, 23rd, and 30th April 2018 for Kshs 1,470,319. 88, Kshs 167,027 and Kshs 478,501. 31 respectively but the Respondent missed the invoice for Kshs 1,470,319. 88. f.In May 2018, the Appellant claimed and availed an invoice for Kshs 2,655,013. 88 which was reduced by the commissioner to Kshs 2,429,202. 88 and another invoice claimed and availed of Kshs 969,1362. 26 which was reduced by the commissioner to Kshs 969,176. 07. g.It conceded that the invoice from Postal Corporation was erroneously claimed and is ready to pay the taxes immediately.

18. It contended that this Appeal would have been avoided had the Respondent agreed to engage in ADR as the issues herein were reconciliation of invoices.

19. The Appellant submitted that the Respondent’s flawed VAA system rejected valid invoices issued by registered taxpayers and issued a VAT Assessment of Kshs 4,274,050 because the Appellant’s suppliers had either failed to declare their sales or lumped up their sales, a fault that is not attributable to the Appellant.

20. It argued that instead of following up with the said suppliers, the Respondent rejected all the invoices claimed and issued by the Appellant with Assessment Notices followed by Agency Notices and thus the Respondent operated under the misguided assumption that it does not need to exercise diligence and accountability while issuing assessments due to its flawed interpretation of Section 56 (1) of the Tax Procedures Act that it gives the Respondent the license to issue any assessment, however ridiculous, for the Appellant to disprove.

21. It cited Section 31 of the Tax Procedures Act and reiterated that the discretion granted by the Respondent should be exercised judiciously, fair and not arbitrary. It added that before issuing an assessment, the Respondent should have satisfied itself of the correctness of the information available to it.

22. It cited the case of Mbuthia Macharia v Annah Mutua & Another [2017] eKLR and argued that by producing the invoices issued by a registered person (within the meaning of VAT), it discharged its legal burden of proof and thus it is incumbent on the Respondent to disprove the same.

23. It further argued that where the Respondent claims that an invoice is overclaimed, they need to support such an allegation with evidence by summoning the person issuing the invoice to confirm the correct amount since it has the power to do so. It added that demanding that the taxpayer writes or hunts down all the suppliers to confirm the supply is shifting its evidential burden.

The Appellant’s prayers. 24. The Appellant prayed for the Tribunal to give orders that:a.The Objection Decision dated 19th March 2023 be set aside; and,b.Costs of this Appeal be awarded to the Appellant.

The Respondent’s Case 25. The Respondent’s case is premised on its;a.Statement of Facts dated 18th September 2023 and filed on 19th September 2023 together with the documents attached thereto; and,b.Written submissions dated and file on 22nd March 2024.

26. It stated that it did not invalidate the Appellant’s Objection but partially allowed the Appellant’s Objection, partially rejecting it as documents were not availed to the Respondent to disprove the assessments and where documents were availed, the dame indicated that the Appellant had over claimed the invoice amounts. It added that it provided the Appellant with a schedule of invoices disallowed and gave reasons for the disallowance.

27. It relied on Section 51 (8) of the Tax Procedures Act and averred that it acted in good faith and within the confines of the law when considering the Appellant’s Objection since it is mandated by law to allow a taxpayer’s Objection in whole or in part.

28. It cited Section 43 of the VAT Act and Section 23 (1) of the Tax Procedures Act and contended that the Appellant had an obligation to keep records which could be used to determine its tax liability by the Respondent and where the Appellant failed to do so, it could not allege that the decision of the Respondent was incorrect.

29. It cited Section 56 (1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act and contended that the burden fell on the taxpayer to prove that a tax decision is incorrect and the burden ultimately rests on the taxpayer to prove that the Respondent’s Decision is wrong.

30. It relied on the case of Commissioner of Investigations and Enforcement v Sangyung Enterprises (K) Limited (Income Tax Appeal E056 of 2020) [2022] KEHC 59 (KLR) and stated that the Appellant’s claim as laid out in the Appeal is unfounded, unsupported by evidence and without any colour of the law.

31. The Respondent cited Section 51 (3) and (4) of the Tax Procedures Act and submitted that it did not invalidate the Appellant’s Objection but partially allowed the Appellant’s Objection, partially rejecting it as documents were not availed to the Respondent to disprove the assessments and where documents were availed, the dame indicated that the Appellant had over claimed the invoice amounts. It added that it provided the Appellant with a schedule of invoices disallowed and gave reasons for the disallowance.

32. It relied on Section 51 (8) of the Tax Procedures Act and maintained that it acted in good faith and within the confines of the law when considering the Appellant’s Objection since it is mandated by law to allow a taxpayer’s Objection in whole or in part.

33. It cited Section 43 of the VAT Act and Section 23 (1) of the Tax Procedures Act and contended that the Appellant had an obligation to keep records which could be used to determine its tax liability by the Respondent and where the Appellant failed to do so, it could not allege that the decision of the Respondent was incorrect.

34. It placed further reliance on the case of Commissioner of Investigations and Enforcement v Sangyung Enterprises (K) Limited (Income Tax Appeal E056 of 2020) [2022] KEHC 59 (KLR) (supra) and asserted that the inconsistencies determined by the Commissioner are initially considered to be correct and while this presumption is not evidence on its own, it persists until a taxpayer provides sufficient and applicable evidence to support their stance and upon presenting such evidence, the presumption is invalidated and the case must be adjudicated based on the evidence provided.

35. It cited the case of Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] eKLR and submitted that all the Appellant’s documents and supporting evidence were considered by the Respondent and the Respondent partially accepted the Appellant’s Objection and partially rejected the same and where the Respondent issued a rejection it gave reasons why by way of a schedule.

36. It argued that a thorough examination of the evidence was done and thus it ensured a fair and impartial assessment of the Appellant’s Objections, avoiding any bias or undue influence in reaching its decision and the fact that there was a partial acceptance of the Objection decision speaks to this.

The Respondent’s prayers 37. The Respondent prayed for the Tribunal to order that:a.The Respondent’s confirmation of assessment be upheld;b.The taxes due and unpaid together with interest thereon be paid to the Respondent;c.The Respondent reserves the right to adduce any further and oral evidence during the hearing of the Appeal;d.This Appeal be dismissed; and,e.The Appellant be compelled to pay costs to the Respondent.

Issues For Determination 38. After perusing the Memorandum of Appeal, the parties' Statements of Facts, and submissions and gleaning through the documentation attached therewith, the Tribunal believes that the following is the main issue for determination.i.Whether the Appellant’s Appeal is properly before the Tribunal; and,ii.Whether the Respondent was justified in its decision dated 19th July 2023.

Analysis And Findings 39. The Tribunal wishes to analyse the issue as hereunder.

Whether the Appellant’s Appeal is properly before the Tribunal? 40. Before the Tribunal delves into the meat and potatoes that form the current Appeal, it has noted that a preliminary issue has arisen and shall be dealt with forthwith.

41. The Appellant, in its Statement of Facts has conceded that the invoice from Postal Corporation was erroneously claimed and is ready to pay the taxes immediately.

42. Section 52 of the Tax Procedures Act provides as follows:“(1)A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act (Cap. 469A).(2)A notice of appeal to the Tribunal relating to an assessment shall be valid if the taxpayer has paid the tax not in dispute or entered into an arrangement with the Commissioner to pay the tax not in dispute under the assessment at the time of lodging the notice.”

43. In the recent case of Commissioner of Investigations and Enforcement v Libya Oil Kenya Ltd [2024] KEHC 3624 (KLR) JWW Mong’are J, held that: -“It is trite that Tax Statutes are to be strictly interpreted and there is no room for imputing that which has not been legislated into statute by Parliament.”

44. The Tribunal observes that there is neither evidence on record of payment of the tax that is due nor evidence of the Appellant’s payment arrangements for the conceded tax by the Appellant.

45. The Tribunal therefore finds that the Appellant’s Appeal is not properly before it.

46. Consequently, the Appellant’s Appeal does not meet the legal threshold and thus is incompetent.

47. Having found as above, the Tribunal shall not avail itself to the remaining issues as they have been rendered moot.

Determination 48. The upshot to the foregoing is that the appeal is incompetent and the Tribunal consequently makes the following orders; -a.The Appeal be and is hereby struck out;b.No orders as to costs.

49. It so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF JULY 2024ROBERT M. MUTUMA - CHAIRMANBERNADETTE M. GITARI - MEMBERMUTISO MAKAU - MEMBERABDULLAHI DIRIYE - MEMBERELISHAH N. NJERU - MEMBER