[2025] KETAT 10 (KLR)

Kamwanjo Enterprises Limited v Commissioner of Domestic Taxes (Tax Appeal E282 of 2024) [2025] KETAT 10 (KLR) (17 January 2025) (Judgment)

Neutral citation: [2025] KETAT 10 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E282 of 2024

CA Muga, Chair, BK Terer, EN Njeru, E Ng'ang'a & SS Ololchike, Members

January 17, 2025

Between

Kamwanjo Enterprises Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a private limited Company incorporated in Kenya under the Company's Act and whose principal activity is wholesale of solid, liquid and gaseous fuels and related products. The Appellant runs two petrol stations namely Rubis Makutano and Rubis Kimathi road.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws (hereinafter “the Act”). Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Respondent conducted a review exercise into the Appellant’s tax affairs for the period 2016-2022. The review revealed that the taxpayer had under-declared sales noting variances between the sales as per VAT returned and banking. Consequently, the Respondent raised additional assessments in relation to VAT for the year of Income 2016-2022 through a letter dated 10th November 2023.

4. On 11th December, 2023 the Appellant filed a late objection against the entire assessments. The Respondent through an electronic mail dated 9th January 2024 allowed the late notice of objection.

5. Upon consideration of the objection, the Respondent issued objection decision dated 31st January 2024 wherein the Respondent fully rejected the notice of objection and demanded payment of total taxes of Kshs 6,270,927. 74.

6. The Appellant being dissatisfied with the Respondent’s objection decision, filed the instant Appeal through the notice of Appeal dated 5th March 2024 and filed on 8th March 2024.

The Appeal 7. The Appellant lodged memorandum of appeal dated 3rd March 2024 and filed on 8th March 2024 raising the following grounds of Appeal:a.That the Respondent erred in law and facts by raising an assessment using assumptions and by using figures and amounts only known to him as they did not arise from the principal documents provided as envisioned by Value Added Tax Act, CAP 476 of the Laws of Kenya (hereinafter “VAT Act”) and documents provided in line with section 23 and 59 the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”).b.That the Appellant complied with the request to provide all documents in line with section 23 and 59 of the TPA. Despite the provision, the Respondent failed to take into consideration and relied on mere "arithmetical calculations'’ which had no reference to sales declared or any documents provided.c.That the assumptions made by the Respondent which he relied in raising the assessment do not find refuge in any tax law and were mere arithmetical calculations in clear violation of sections 17(1)(3), Section 42(1) and Section 43 (2a) of the VAT Act.d.That the Respondent erred by not taking into consideration the stock adjustment promotional sales and did not reconcile the stock levels so as to use the calculations to infer that there was under declared sales.e.That the Respondent erred by bringing to tax items contained in the supplier statement such as branding, uniform, marketing fees, discounts and other agreed charges, such figures are not procured for sale thus cannot generate taxable income, to this end the assessment issued contain non-taxable items thus erroneous.f.That the Respondent misdirected itself in both law and facts by failing to take into account the explanation and submission of the taxpayer.g.That the Respondent erred in law and facts by disregarding the prices by the regulator in accordance with Energy Act, CAP 314 of the Laws of Kenya (hereinafter “EA”) which mandates the Energy Regulatory Commission (hereinafter “ERC”) with determining both the wholesale and retail price of fuel commodities. It is worth noting that in determining prices includes the tax aspect. The assessment violates the prices set by the Act by charging VAT on non-vatable commodities that determines the final pump price.

Appellant’s Case 8. The Appellant filed its statement of facts on 8th March 2024 in support of the Appeal wherein it stated that it has two outlets in Makutano and in Narumoru.

9. The Appellant stated that on 10th November 2023, the Respondent issued it with a tax assessment for VAT of Kshs 6,217,330. 00 relating to the period 1st December 2022 to 31st December 2022 and that on 11th December 2023 it lodged an objection to the assessment.

10. The Appellant averred that the VAT tax assessments were based on assumption and arithmetical calculations as opposed to accounting principles and well laid tax procedures for computing tax liabilities. According to the Appellant, the VAT assessment did not take into consideration the nature of commodity traded and that it is a regulated commodity by virtue of the provisions of the EA and that the pump price is changed every month as directed by Energy and Petroleum Regulatory Authority (hereinafter “EPRA”).

11. The Appellant stated that the amount contained in the assessment as ‘expected sales’ are incorrect as the only recognised price for the commodity is the gazetted prices by EPRA the body mandated to set the prices thus any other prices imposed on the commodity is illegal.

12. It was the Appellant’s case that the Respondent failed to utilise the raw data provided to arrive at the correct price of the commodity at the time of assessment as well as arriving at the correct stocks. It averred that the documents provided were dip stick readings and gazette notice from EPRA communicating different pump/commodity price for the time under review.

13. It was the Appellant’s case that the Respondent failed to take note of amounts which are contained in the purpose ledgers as purchases but are not for sale thus including them in the ‘expected sale’ is unlawful as it goes against section 5 of the VAT Act. The items include branding fees, uniform fees, and system fees as well as transport charges. Further, the Appellant maintained that had the Respondent relied on the raw documents provided such as invoices it would have noticed that the non-vatable items contained and thus would have not included them in the assessment as sales.

14. The Appellant stated that by having non-vatable sales in the ‘expected sales’, the Appellant submitted that the assessment is illegal by virtue of section 15 of the VAT Act. The Appellant added that this indicates that the Respondent failed in his duty of care as expected by the taxpayer that only taxable income will be brought to tax.

15. Finally, the Appellant submitted that the Respondent erred in law and fact by using imaginary prices outside the gazetted price as well as including non-vatable items as sales thus the assessments issued is illegal and should be vacated.

Appellant’s Prayers 16. The Appellant made the following prayers:a.That the Tribunal finds that the assessments as issued contains amounts brought to tax in violation of VAT Act as they were not intended to generate vatable sales.b.That the Tribunal finds that by bringing the whole purchase to VAT, the Respondent was in violation of the EA in determining the pump prices which is subject to taxes, and thus the sales price relied on to raise assessment were erroneous and illegal.c.That the Tribunal sets aside the assessments and the objection decision dated 31st January 2024.

The Respondent’s Case 17. In response to the Appeal, the Respondent lodged a Statement of Facts dated 25th April 2024 and filed on 26th April 2024. The Respondent identified two issues for determination—first, whether the Respondent's decision was proper in law; and secondly, whether the Respondent erred by issuing the Appellant's VAT assessments in question.

18. With regard to whether the Respondent's decision was proper in law, the Respondent stated that it issued the additional assessments as provided for in Section 31 of the TPA. The Respondent stated that on 17th January 2024 parties held a working meeting at the Respondent’s offices where it was agreed that the Appellant would support its grounds of objection. Additionally, in an electronic mail correspondence dated 15th December 2023 and later on a reminder on 22nd December 2023 to the Appellant, the Respondent averred that it notified the Appellant upon lodging the objection to provide supporting documents in compliance with section 51 (3) of the TPA.

19. The Respondent averred that it requested the Appellant to avail specific additional documents in support of the lodged objection application namely:a.Dip stick reading;b.Price list, the correct closing stock;c.Copies of the invoices flagged for review;d.Evidence of payment (i.e. highlighted bank statements cash records for cash purchases); ande.Supplier confirmations (where necessary) and any other relevant documents.

20. According to the Respondent, it gave the Appellant seven (7) days to submit the mentioned documents. The Respondent alleged that the Appellant failed to submit the additional requested documents within time to enable the Respondent to review its objection and as such; it was not possible for the Respondent to materially alter the assessments issued due to the limitation of scope. In light of the foregoing, the Respondent maintained that it was justified in rejecting the Appellant’s objection and in confirmation of the assessments as issued.

21. The Respondent invoked the provisions of Section 59 (1) (a) of the TPA which empowers the Respondent to request for documents to facilitate in determining tax liability.

22. The Respondent noted that the Appellant has a responsibility to maintain records and documents that pertain to the business and avail the same for tax purposes when required to. The Respondent relied on the provisions of Section 23 (1) of the TPA and Section 54A (1) of the Income Tax Act, CAP 470 of the Laws of Kenya (hereinafter “ITA”) which mandates a taxpayer to keep records for the purpose of determining tax liability.

23. The Respondent stated that the documents requested from the Appellant should be in the Appellant's possession and readily submitted to the Respondent for review when requested. The Respondent stated that failure to comply with this led to the confirmation of the additional assessment in its entirety by the Respondent.

24. It asserted that in failing to provide the requested supporting documents, the Appellant failed to exercise its statutory burden of proof as required under section 56 (1) of the TPA therefore the Respondent's decision is justified in law. Section 56(1) of the TPA provides as follows:“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect."

25. With regard to the second issue that is; whether the Respondent erred by issuing the Appellant with VAT assessments, the Respondent stated that the review revealed that the Appellant had under declared sales for the month of December, noting variances between the sales as per VAT returned and banking.

26. The Respondent stated that it informed the Appellant of the variances vide letter dated 30th March 2023 and requested further documentation to help harmonize the variance but the Appellant only provided customer statements from Rubis Energy Kenya, which is its supplier. A review of the statement revealed variances between purchases claimed by Appellant in its annual return and the total receipts pursuant to the customer statement. It added that it communicated the variances and the intention to charge the variances to tax and issue additional assessment using closing stock reported on the Appellant's income tax return to determine sales.

27. The Respondent further stated that the Appellant requested for additional time to review stock data (dipstick readings) and respond accordingly. Despite the time given, the Appellant did not respond therefore, the Respondent issued the assessment.

28. Whereas the Appellant contended that the Respondent failed to take into consideration the stock adjustment, promotional sales and did not reconcile the tax levels so as to use the calculations to infer that there was under declared sales, the Respondent stated that it considered all the information and documents in making its decision further the Appellant's assertions are mere allegations since the Appellant has not provided any documentation to support this position thus the Appeal should fall on this ground.

29. Whereas the Appellant stated in its grounds of appeal that the Respondent erred by bringing tax on non- taxable items like branding fees, marketing fees, uniform fees, system fees making the assessment issued erroneous, the Respondent stated that the Appellant did not provide any supporting document or schedule items as agreed on 17th January 2024 during a working meeting held at the Respondent’s offices. Therefore, the Respondent argued that this ground of appeal remains a mere allegation for lack of evidence to support the same.

30. The Respondent relied on Section 17 of the VAT Act which provides that a taxpayer has to provide documentary evidence to support input VAT. The Respondent averred that the Appellant failed to adduce evidence to justify the variances between the sales as per VAT returned and banking thereby failed to meet the threshold set in Section 56(1) of the TPA therefore, the Respondent was justified in raising additional VAT on the Appellant.

31. Whereas the Appellant contended that in determining the so called Expected Sales the Respondent did not consider that the price of the commodity varied as per EPRA guidelines in different months, the Respondent stated that it acknowledged this, however the Respondent requested the Appellant during working meeting to furnish the Respondent with the price schedule to support the position but the Appellant did not provide any records and as such the Respondent decision is justified.

32. The Respondent contended the Appellant’s claim that it included the Transportation and wastage allowance that is given at 0. 16 per litre, asserting that this amount was not included in calculating final price of the commodity, which was inclusive of tax.

33. The Respondent maintained that the Appellant did not provide any documents to support this assertion. The Respondent also maintained that the Appellant’s pleadings as laid out in its memorandum of appeal and Statement of Facts were unfounded in law were not supported by evidence and as such, the Tribunal ought to dismiss the same.

Respondent’s prayers 34. The Respondent prayed that the Respondents objection decision dated 31st January 2024 be upheld; and that the Appeal be dismissed with costs to the Respondent as the same is without merit.

Issues for Determination 35. The Tribunal having carefully evaluated parties’ pleadings, it is of the view that the following two issues call for its determination:a.Whether the appeal is valid.b.Whether Respondent erred in confirming the assessment.

Analysis and Findings 36. Having established two issues for determination, the Tribunal will proceed to analyse them as hereinunder:a.Whether the appeal is valid.

37. The Respondent issued its objection decision through a letter dated 31st January 2024. The Appellant being dissatisfied with the Respondent’s decision, filed the instant Appeal through the notice of appeal dated 5th March 2024 and filed on 8th March 2024. The time for filing the appeal raises the issue as to whether the Appeal is valid.

38. Section 13 (1) of the Tax Appeal Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”) provides for procedure for appeals:‘‘13. Procedure for appeal(1)A notice of appeal to the Tribunal shall—(a)Be in writing or through electronic means;(b)Be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.’’

39. The Tribunal’s view is that whereas the TATA provides that the appeal has to be filed within 30 days, the TATA also recognizes that taxpayers for some reason may be unable to comply with the timeline under section 13(1) of the Act. Consequently, the Act has provisions regarding enlargement of time. In particular, Section 13(3) and (4) of TATA provide as follows:‘‘(3)The Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).(4)An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period.’’

40. The Tribunal has canvassed the documents on record and notes that there is no record that indicates any Application made by the Appellant under section 13(3) of TATA seeking leave to file the appeal out of time nor is there on record anything to indicate that the Appellant obtained leave to file the appeal out of time under section 13(4) of TATA.

41. In County Executive of Kisumu v County Government of Kisumu & 8 others (Civil Application 3 of 2016) [2017] KESC 16 (KLR) the Supreme held as follows regarding filing appeals out of time without leave:‘‘We are in total agreement with the respondent that an appeal filed in this Court out of time without leave of this Court is irregular and this Court will not invoke such ‘novel’ principles as urged by applicant so as to validate that petition and deem it as properly filed.’’

42. Consequently, the Tribunal finds and holds that the Appeal is invalid and ought to be struck out and having established the foregoing, the Tribunal finds it moot to delve into the second issue.

Final Decision 43. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is invalid and makes the following Orders:a.The Appeal be and is hereby struck out.b.Each party to bear its own cost.

44. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 17TH DAY OF JANUARY, 2025. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A - - MEMBEROLOLCHIKE S. SPENCER - MEMBER