[2023] KETAT 1001 (KLR)

Kamargut Hardware v Commissioner of Domestic Taxes (Appeal 727 of 2022) [2023] KETAT 1001 (KLR) (Civ) (6 October 2023) (Judgment)

Neutral citation: [2023] KETAT 1001 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 727 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, E Ng'ang'a, AK Kiprotich & B Gitari, Members

October 6, 2023

Between

Kamargut Hardware

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company incorporated in Kenya. Its primary business is construction.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and the Kenya Revenue Authority 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 carried out a review of the Appellant’s returns on iTax and discovered inconsistencies between the returns filed by the Appellant’s suppliers and invoices claimed by the company for the year 2018. The Respondent also unearthed a variance between the sales declared in the Appellant’s VAT returns and the sales declared in the Corporation tax return totaling to Kshs 9,843,198.

4. As a result, the Respondent raised additional assessments on 18th February 2022 and 28th March 2023 for VAT in the sum of Kshs 591,559. 00 and income tax for Kshs 4,222,039. 00 for the year of income 2018.

5. The Appellant aggrieved by the Respondent’s assessments objected to the entire assessments vide its notice of objection dated 27th April 2023 via iTax, which objection was acknowledged on the same day.

6. The Respondent requested for documents in line with the objection lodged through emails for delivery notes, purchase invoices, supplier statements and bank statements.

7. Upon review of the documents provided by the Appellant, the Respondent issued an objection decision on 27th June 2021 dismissing the Appellant’s objection and affirming the assessment.

8. The Appellant being aggrieved by the Respondent’s objection decision lodged its Notice of Appeal with the Tribunal together with Memorandum of appeal and the Appellant’s Statement of Facts filed on 14th July 2022.

The Appeal 9. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal filed on 14th July 2023. a.That Respondent erred in law and fact in issuing an invalid objection decision contrary Section 51(9) and (10) of the Tax Procedures Act;b.Respondent erred in law and fact by unreasonably and unfairly demanding for tax contrary to Articles 210 and 201(b)(i) of the Constitution of Kenya 2010c.That Respondent erred in law and fact by eliminating certainty as an integral ingredient in the rule of law as stated to be the lifeline of business and business plans;d.That Respondent’s actions are contrary to legitimate expectations on the operations of the taxpayer as per the VAT Act and the Constitution of Kenya.

Appellant’s Case 10. The Appellant’s case is premised on the following document:-a.The Appellant’s Statement of Facts filed on 14th July 2022 together with the documents attached thereto.b.The table below tabulating VAT Analysis for the period January to December 2018 as shown below;Months AmountExcl VAT Zero/ExemptedSales TOTAL

KSHS KSHS KSHS

January 1,093,821. 00 1,093,821. 00

February 3,733. 00 3,733. 00

March 17,068. 00 17,068. 00

April 1,962,333. 00 1,962,333. 00

May 6,552. 00 9,843,198. 00 9,849,750. 00

June 1,037,932. 00 1,037,932. 00

July 2,097,117. 00 2,097,117. 00

August 70,043. 00 70,043. 00

September 5,983. 00 5,983. 00

October 288,803. 00 288,803. 00

November 10,706. 00 10,706. 00

December 4,523,916. 00 4,523,916. 00

Total 11,118,007. 00 9,843,198. 00 20,961,205. 00

11. That the chronology of events is undisputed by either party. That however according to the Appellant, the variances picked by the Respondent, as shown in the table above, were because of an error committed during the filing of the company’s VAT returns. That the template used in populating the return contained zero-rated sale declarations of Kshs 9,843,198. 00 belonging to a different taxpayer, being Siana-Agro Suppliers Limited.

12. The Appellant avers that it demonstrated the same to the Respondent, but the explanation was disregarded.

Appellant’s Prayers 13. The Appellant Prays that:-a.The Respondent objection decision is invalid, incorrect unfair, time barred and failed to meet the legitimate expectations of the taxpayer as per Article 47 of the Kenya Constitution 2010, and Article 201(b)(i), 2010b.The Appellant has disputed the additional tax and has made an application to the Tribunal to have the matter arbitrated through ADR Committee dispute resolution process to ensure equity for both parties.c.The Appellant Objection be upheld and the Respondent demand and confirmation be quashed entirely.d.The Respondent’s demand for additional taxes and confirmation of additional assessment be struck out entirely.e.That the Respondent’s actions be declared arbitrary, capricious, subjective, unfair and contrary to the fair administrative of justice and to the legitimate expectations of the Appellant.f.That the Respondent and its agent be estopped from demanding or taking further action or steps to ensure recovery of the alleged principal tax, penalties and interests.

Respondent’s Case 14. The Respondent’s case is premised on the documents set out hereunder-;a.The Respondent’s Statement of Facts dated 19th October, 2022 and filed on the same date.b.The Respondent’s written submissions dated 4th January, 2023 and filed on 7th March, 2023

15. The Respondent stated that, it carried out a review of the Appellant’s returns on iTax and discovered inconsistencies between the returns filed by the Appellant’s suppliers and invoices claimed by the company for the year 2018. The Respondent also unearthed a variance between the sales declared in the Appellant’s VAT returns and the sales declared in the Corporation tax return totaling to Kshs 9,843,198. 00

16. That as a result, the Respondent raised additional assessments on 18th February 2022 and 28th March 2023 for VAT in the sum of Kshs 591,559. 00 and income tax for Kshs 4,222,039. 00

17. That the Appellant aggrieved by the Respondent’s assessments objected to the entire assessments vide its notice of objection dated 27th April 2023 via iTax, which objection was acknowledged on the same day.

18. That upon review of the documents provided by the Appellant, the Respondent issued an objection decision dated 27th June 2021 dismissing the Appellant’s objection and affirming the assessment.

19. The Respondent raised the following issues for determination: -a.Whether the Respondent erred in law and fact by demanding tax that are unreasonable and unfair as per article 210 and 201 of the constitutionb.Whether the Respondent erred in law and fact by elimination certainty as an integral ingredient of the rule of law as stated to be the lifeline of business and business plansc.Whether the Respondents Actions are contrary to legitimate expectation on operation of taxpayer as per VAT Act

20. The Respondent submitted that the assessment were correctly issued and conform to the Value Added Tax Act. That the Appellant did not provide any evidence that would have altered the assessment. That the Tax Procedures Act-TPA places the onus of proof in tax objections on the tax payer 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 decision

21. The Respondent cited Section 56(1) of the Tax Procedures Act which places the onus of proof of the correctness of a tax decision upon the taxpayer.

22. The Respondent further submitted that the Appellant lodged the objection on 27th June 2021 on itax, the same was received and acknowledged however the same was treated as invalidly lodged as it did not have grounds for objection. That TPA empowers the Respondent to notify a party where an objection as lodged is invalid and the Appellant was notified and requested to provide documents as requested.

23. The Respondent cited Section 51(3) (c) of the Tax Procedures Act which provides that:-“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if –a.–b.–c.All the relevant documents relating to the objection have been submitted.”

24. The Respondent relied on the decision of the Tribunal in TAT No. 70 of 2017 AFYa XRay Centre Limited V Commissioner of Domestic Taxes.

25. The Respondent submitted that the Tax Procedure Act empowers the Respondent to carry out assessment based on the information available. The Respondent states that the assessment was issued based on information provided pursuant to section 24 of the Tax Procedure Act

26. The Respondent submitted the Appellant bears the burden of proving that the objection decision and the finding of the investigations were erroneous. It relied on Section 56(1) of the Tax Procedure Act, that the tax payer 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 decision.

27. The Respondent reiterated that the assessments were correctly issued and conform to the Income Tax Act. That the Appellant did not provide any evidence that would have altered the assessment.

Respondent’s Prayers 28. The Respondent prays that the Honourable Tribunal finds that:-a.The Respondent’s objection decision be upheldb.The outstanding tax arrears of Ksh. 4,813,598. 00 for VAT and Income tax are due and payable by the Appellant.c.The confirmed assessments issued are proper in law.

Issues For Determination 29. The Tribunal upon due consideration of the pleadings of the parties is of the considered view that the issue falling for determination is:a.Whether the Appellant discharged its burden to prove that the objection decision was incorrect.

Analysis And Findings 30. The Tribunal having determined the issue for determination as stated above proceeds to deal with the same as hereunder.

31. Section 30 of the Tax Appeals Tribunal Act (TAT Act) places the burden of proof on the taxpayer to submit all the necessary documentation to support its case. Its states as follows:“In a proceeding before the Tribunal, the appellant has the burden of proving—(a)where an appeal relates to an assessment, that the assessment is excessive; or(b)in any other case, that the tax decision should not have been made or should have been made differently.”

32. The fact that the burden of proof in tax cases rest with the Applant was affirmed in Alfred Kioko Muteti vs. Timothy Miheso & Another [2015] eKLR where the court stated that:“Thus, the burden of proof lies on the party who would fail if no evidence at all were given by either party…. Pleadings are not evidence, and it is not enough to plead particulars of negligence and make no attempt in one’s testimony in court to demonstrate by way of evidence how the accident occurred and how the 1st defendant was to blame for the said accident. It is trite law that he who alleges must prove and that burden does not shift to the adverse party even if the case proceeds by way of formal proof and or undefended.”

33. The Appellant was thus behoved to prove that the objection decision issued by the Respondent was not correct and or justified. However, the Appellant did not present evidence to support the objection against the VAT demand of Kshs 591,559. 00.

34. Similarly, no source documents were provided as proof of the allegation that indeed the income tax variance of Kshs 9,843,198. 00 was attributable to an erroneous declaration of income attributable to Siana-Agro Suppliers Limited.

35. Nevertheless, The Tribunal have reviewed the information presented before it, particularly the tax decision and the Appellant’s analysis of its monthly revenue for the year 2018. The following issues are of note:a.The Appellant’s analysis of its revenue ties to the Respondent’s figures in its assessment;b.The Appellant had no zero-rated sales, but for the month of May 2018 in which the alleged error occurred.c.The income tax variance picked by the Respondent tallies with the error highlighted by the Appellant.d.The value of the revenue for May 2018 is unusually higher than the revenues declared in other months, which may, if the error is genuine, result in excessive taxation on the part of the taxpayer.

36. From the analysis of the documents presented by the Appellant, The Tribunal is not satisfied that the Appellant discharged its burden of proof in this matter.

Final Decision 37. In view of the foregoing analysis, the Tribunal finds that the Appeal has no merit and The Tribunal accordingly makes the following Orders:a.The Appeal be and is hereby dismissedb.The Respondent’s objection decision dated 27th April 2023 be and is hereby allowedc.Each Party to bear its own costs.

38. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 6TH DAY OF OCTOBER, 2023ERIC NYONGESA WAFULACHAIRMANCYNTHIA B. MAYAKA DR. RODNEY OLUOCHMEMBER MEMBEREUNICE NGANGA ABRAHAM K. KIPROTICHMEMBER MEMBERBERNADETTE GITARIMEMBER