[2024] KETAT 350 (KLR)

Kamau & another v Commissioner of Domestic Taxes (Tax Appeal 1333 of 2022) [2024] KETAT 350 (KLR) (23 February 2024) (Judgment)

Neutral citation: [2024] KETAT 350 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1333 of 2022

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

February 23, 2024

Between

Josiah Macharia Kamau

1st Appellant

Mellabourne General Construction & Supplies Ltd

2nd Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The 1st Appellant is the director of the 2nd Appellant, a limited liability company based in Nakuru and its main activity is general construction work.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and the Kenya Railways Authourity 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 Appellant had two tax obligations namely Income tax and VAT and according to the information on iTax, the 2nd Appellant was registered for income tax on 16th May 2003 and was rolled out on iTax on 1st January 2015.

4. The investigations covered the period between 2014 to 2019 for Corporation tax and 2014 to 2019 for Value Added Tax and upon conclusion of the tax investigations, the Respondent shared the investigation findings with the Appellant via a notice dated 20th August 2021.

5. The total taxes amounted to Kshs. 5,600,486. 00 for Corporation tax and Kshs. 3,512,334 for VAT and the Appellant was issued with Assessment Orders dated 25th February 2022 and 31st May 2022, respectively.

6. The Appellants did not object to the assessments and no objection decision or confirmation of assessments was given.

7. The Appellant was thereafter charged with criminal charges and decided to appeal against both the criminal charges and the assessment amount by filing the Appeal on 9th November 2022.

The Appeal 8. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal dated 14th November 2022 and filed on 15th November 2022:a.The Respondent erred in charging the 1st Appellant who though a director, was not active in the day to day affairs of the 2nd Appellant.b.That the 2nd Appellant’s operations were run by one Joseph Francis Maingi Muraya who by the time of charging the 1st Appellant had passed on.c.That the period of assessment 2014-2015, as laid out in Counts 1 & 2 contravenes the provisions of Section 23(1) (c) of the Tax Procedure Act No. 29 of 2015. d.That the Respondent based its claim on Counts 3 – 6 on bank statements.e.That the Respondent did not factor in the withholding tax element when computing the figures which is mandatory when payments are made by institutions.f.That the income arrived at does not tally with the ledgers held by the Respondent.

The Appellant’s Case 9. The Appellant’s case is premised on the Statement of Facts dated 14th November 2022 and filed on 15th November 2022.

10. The Appellants averred that the Respondent used the 2nd Appellant’s filed income tax returns, VAT monthly returns and bank statements to issue an amended assessment notice on both Income tax and VAT giving rise to additional tax of Kshs. 5,600,486. 00 and Kshs. 3,512,334. 00, respectively, covering the periods 2014, 2015, 2016 and 2017.

11. That the said assessments were sent on 20th August 2021, by which time the Company's operations had stalled and one of its director’s, Joseph Francis Maingi Muraya had died.

12. That the notice of amended assessment of 20th August 2021 requested for response and supporting documents which the deceased could not provide, and the facts were unknown to the 1st Appellant.

13. That the Appellants came to know of the claim when the 1st Appellant was called to the Eldoret Station Offices to be told that he was being charged with tax evasion, a fact that was not true as evasion has to be a deliberate action by the accused.

14. That the Appellant’s wish to object to the charges that were preferred against the 1st Appellant on 2nd March 2022 as he was not directly involved in the operations of the 2nd Appellant, whose managing/shareholder is deceased. That the other directors were minors at the time of incorporation.

15. The Appellant further raised objections to the amended assessment findings based on bank statements by the Respondent to arrive at the tax demanded.

16. The Appellant argued that the Respondent misapplied the law by bringing into computation the years 2014 and 2015 in total disregard to the provision of Section 31 (4 b) of the Tax Procedure Act No. 29 of 2015.

17. That the objection to the findings was not made on time as the investigations and findings were initially communicated or directed to the late director and the Appellant was only brought on board after his demise on 5th December 2020.

18. That the Respondent in its investigations ignored the withholding certificates from those institutions making payments thereby arriving at an inaccurate tax liability.

19. That the Respondent’s amended assessment was based on bank statements and tender documents, which may not necessarily convert into income.

The Respondent’s Case 20. The Respondent’s case is set on the hereunder stated documents:a.The Statement of Facts dated and filed on 3rd February 2023b.The Written Submissions dated 31st July 2023 and filed on 4th August 2023.

21. The Respondent averred that the Appeal has been filed prematurely before the Tribunal as there is no objection decision issued by the Respondent.

22. That the Appellants' Appeal as per the grounds of Appeal in the Memorandum of Appeal and Statement of Facts is an appeal against the Respondent's decision to charge them in court for various tax offences and the same should be raised at the criminal court and not at the Tribunal.

23. The Respondent contended that its notice of assessments dated 20th August 2021 and its decision to charge the Appellants for criminal offences do not constitute an appealable decision as defined by Section 3 of the Tax Procedures Act.

24. The Respondent stated that it issued assessments to the Appellant and since the assessments were tax decisions, the Appellants were required to object to the assessments under Section 51 of the Tax Procedures Act.

25. The Respondent placed reliance on Section 52 of the Tax Procedures Act and averred that a tax decision, in this case, an assessment is not an appealable decision as defined in Section 3(1) of the Tax Procedures Act.

26. That since the Appellant failed to object to the assessments, the taxes due are undisputed and unpaid, therefore no appeal can lie before the Tribunal.

27. The Respondent contended that the High Court has already pronounced itself on the issue of procedural guidelines as enshrined in the Tax Appeals Tribunal Act. That the Appellants have a right of Appeal but that right should be exercised in view of statutory structures governing the exercise of that right.

28. The Respondent further stated that the decision(s) that the Appellants seek to challenge were issued on 25th February 2022 and 31st May 2022, respectively, and the Appeal is therefore incompetent for non-compliance with Sections 13(b) and 13(2) of the Tax Appeals Tribunal Act.

29. The Respondent further contended that the Tribunal has no jurisdiction to hear and determine the Appeal herein and therefore has no power to adjudicate on the matter.

30. The Respondent further submitted that jurisdiction is everything and where the Tribunal finds that it does not have the same, it should proceed to strike out the Appeal.

31. The Respondent in buttressing its case relied on the holdings in TAT No. 721 of 2021 (Manchester Outfitters Ltd v Commissioner of Domestic Taxes,TAT No. 43 of 2017 (Uchumi Supermarkets Ltd v Commissioner of Domestic Taxes) and Fleur Investments Ltd v Commissioner of Domestic Taxes & Another [2018]eKLR amongst others.

Respondent’s prayers 32. The Respondent prayed for the Tribunal to find that:a.The Respondent’s assessments issued on the 20th August 2021 being VAT amounting to Kshs. 9,112,820. 00 be found to be proper in law and be upheld.b.The Appeal is devoid of merit and dismiss it with costs to the Respondent.

Issues for Determination 33. The Tribunal upon consideration of all the pleadings and submissions by both parties concluded that the issues for determination are as hereunder:a.Whether the Tribunal has jurisdiction to deal with the appealb.Whether the Respondent’s assessments were justified.

Analysis and Findings 34. Having determined the issues that fall for its determination, the Tribunal proceeded to analyze them as hereunder.a.Whether the Tribunal has jurisdiction to deal with the appeal

35. The Respondent has argued in its submissions that the Tribunal does not have jurisdiction to deal with the dispute(s) in the matter as the Appeal has been prematurely brought before it.

36. The Appellant has appealed against the assessment issued against it by the Respondent on 20th August 2021 on both Corporation tax and VAT and the consequent criminal charges preferred against the Appellants on 2nd March 2022.

37. The Tax Procedures Act lays down the process a taxpayer is supposed to follow upon assessment and the same is laid down in Section 51(1) and (2) of the TPAwhich provides as follows:-“(1)A taxpayer who wishes to dispute a tax decision shall first lodge a notice of objection against that tax decision under this section before proceeding under any other written law’(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.”

38. The Appellants failed to file a notice of objection within the stipulated time as laid down in the law and therefore have no right as at this point to file an appeal. The law also provides for an avenue through which the Appellants could seek time to remedy their situation by making an application under Section 51 (6) TPAseeking extension of time to enable them file their objection out of time.

39. The Tax Appeals Tribunal Act also provides for the jurisdiction of the Tribunal in Section 3 which provides that there is established a Tribunal to be known as the Tax Appeals Tribunal to hear appeals filed against any tax decision made by the Commissioner.

40. In the present matter the Respondent had not made a decision from which the Appellants could appeal. The matter is therefore prematurely before the Tribunal. Likewise, according to Section 3 of the TATAct, the Tribunal does not have the jurisdiction to deal with the criminal matters filed against the Appellant.

41. The Tribunal observed that it is trite law that where certain procedures are provided for attaining a certain ends, then the same must be followed.

42. This was the holding 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.”

43. A similar holding was made 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 v 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 process of making an application for review upon receiving the Respondent’s decision.”

44. The Tribunal finds that it does not have the jurisdiction to deal with the matter which was filed prematurely, therefore cannot determine it in the circumstances and having so decided shall not delve into the second issue for determination as it has been rendered moot.

Final Decision 45. The upshot of the foregoing analysis is that the Appeal fails and the Tribunal accordingly proceeds to make the following Orders:-a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

46. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 23RD DAY OF FEBRUARY, 2024GRACE MUKUHA - CHAIRPERSONJEPHTHAH NJAGI - MEMBERDR ERICK KOMOLO - MEMBERGLORIA A. OGAGA - MEMBERDR WALTER J. ONGETI - MEMBER