[2023] KETAT 902 (KLR)

Kariuki v Commissioner of Domestic Taxes (Tribunal Appeal 836 of 2022) [2023] KETAT 902 (KLR) (10 November 2023) (Judgment)

Neutral citation: [2023] KETAT 902 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal 836 of 2022

Grace Mukuha, Chair, E Komolo, Jephthah Njagi, T Vikiru & G Ogaga, Members

November 10, 2023

Between

David Waruiru Kariuki

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a registered taxpayer operating his business in Nyahururu town.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 460 Laws of Kenya (KRAAct). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. Under Section 5(2) of the Act with respect to the performance of its function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act for the purposes of assessing, collecting, and accounting for all revenues in accordance with those laws.

3. On 15th November 2019, the Respondent issued to the Appellant additional assessments of Value Added Tax (VAT).

4. On 12th November 2021, the Appellant filed his objection to the assessments via the Respondent’s iTax system and was issued with five acknowledgement receipts.

5. On 7th December 2021, the Respondent wrote to the Appellant asking him to provide reasons for objecting late together with the relevant supporting documents within 7 days.

6. On 24th March 2022, the Appellant submitted the requested information.

7. On 25th March 2022, the Respondent accepted the Appellant’s request to file an objection out of time. In addition, the Respondent requested the Appellant to provide supporting documents to the late objection.

8. The Respondent claimed that as the Appellant did not reply to the email of 25th March 2022, it discharged its mandate on 12th April 2022 by issuing a letter rejecting the application for extension of time to lodge an objection for additional VAT assessment and confirmed the VAT assessment of Kshs. 4,962,319. 88.

9. The Appellant, dissatisfied with the decision of the Respondent, filed its Notice of Appeal on 8th August 2022.

The Appeal 10. The Appeal is premised on the Memorandum of Appeal dated 8th July 2022 and filed on 11th August 2022 raising the following grounds: -(a)The Respondent did not validate the objection to the tax decision contrary to the Tax Regulations 2015 even after the Appellant forwarded the requisite documentation of the invoices and objection acknowledgement receipts.(b)On 23rd March 2022, the Appellant supplied the purchase documents to the Respondent on the scope of VAT invoices queried which had led to the inconsistencies. The Respondent did not examine the purchase documents to be able to come up with a proper tax decision.(c)The procedure adopted and conditions set by the Respondent were arbitrarily complex to deny the Appellant right to inputs claimed for the purchased items admitted by the iTax system as genuinely purchased supplies from VAT registered taxpayers.(d)The Appellant provided all the necessary scanned purchase invoices to the Respondent for validating the purchase invoices as claimed in the returns for the months of January 2018, March 2018, April 2018 and May 2018 which the Respondent acknowledged receipt of on 23rd March 2022. The objection was properly supported by the Appellant as per the Tax Regulations 2015. (e)The VAT returns for the period had credits. January 2018 had a credit of Kshs. 5,563,970. 00, February 2018 had a credit balance of Kshs. 5,574,740. 15, March had a credit balance of Kshs. 5,622,424. 00, April had a credit balance of Kshs. 5,675,140. 64 while May had a credit balance of Kshs. 5,649,989. 00. The Respondent failed to adjust the VAT tax balances of the Appellant by disregarding the already existing credits genuinely claimed.

Appellant's case 11. The Appellant’s case is premised on the Statement of Facts filed on 11th August 2022.

12. The Appellant averred that the Respondent did not validate the objection to the tax decision contrary to the Tax Regulations 2015 even after the Appellant forwarded the requisite documents and invoices.

13. That objections application acknowledgement receipts KRA2012121321179, KRA202121321365, KRA202121321476, KRA202121321571 and KRA202121321637 were acknowledged but rejected on the basis of late objection application even after an agreeable ground had been reached.

14. That the purchase documents were not examined to arrive at the right tax position and that the assessed tax was wrong as it was arrived at without scrutiny of the purchase invoices as per the VAT Act.

15. The Appellant averred that the late objection application acceptance by Respondent on 25th March 2022 after an agreeable ground on dealing with the tax matter in dispute validated the late objection and it would have been prudent for the Respondent to deal with the objection and give a tax decision according to the Tax Regulations 2015.

16. That the procedure adopted and conditions set by the Respondent were arbitrarily complex to deny the Appellant the right to inputs claimed for the purchased items admitted by the Respondent’s iTax system as genuine supplies from VAT registered taxpayers.

17. That the Respondent’s direction on the invoices captured on the iTax platform to be validated by all suppliers’ confirmation of receiving payment would entail the Appellant to admit invoices at point of payment against the provisions of VAT Act, accrual basis of admitting invoices to cash payment.

18. That the Appellant provided all the necessary scanned purchase invoices to the Respondent for validating the purchase invoices as claimed in the returns for months of January 2018, February 2018, March 2018, April 2018 and May 2018 which the Respondent acknowledged receipt of on 23rd March 2022.

19. That the objections were properly supported by the Appellant as per the Tax Regulations 2015 by providing evidence of scanned original invoices properly claimed from suppliers. That the decision of the Respondent to overlook source documents amounts to digression of the true fact purposely to collect taxes excessively at the expense of the Appellant.

20. That the VAT returns for the period had credit balances as follows: -(a)January 2018, a credit balance Kshs. 5,563,970. (b)February, 2018, a credit balance Kshs. 5,574,740. 15. (c)March 2018, a credit balance Kshs. 5,622,424. 00. (d)April, 2018, a credit balances Kshs. 5,675,140. 64(e)May, 2018 a credit balance of Kshs. 5,649,989. 00.

21. That the Respondent failed to adjust the VAT Tax credit balances of the Appellant by disregarding the already existing credits genuinely claimed. That this was contrary to the VAT Act. That there were no VAT inputs, outputs and credit reconciliations justification by the Respondent to disallow inputs of some supplies.

22. The Appellant submitted that his objection was accepted on 23rd March, 2022 and that he forwarded documents related to assessments KRA2012121321321179, KRA2021321176, KRA202121321571, and KRA202121321637 to the Respondent. That the Respondent did not validate the objection and give a tax decision as stipulated by the Tax Procedure Act, 2015 Section 28(1-4).

23. That the Appellant provided all the necessary documents requested by the Respondent for the months of January, 2018, February, 2018, March, 2018, April, 2018 and May, 2018. That the Respondent acknowledged receipt of the said documents on 23rd March, 2022.

24. That the Respondent did not examine the documents (invoices), to be able to form a correct tax decision which would subject the taxpayer to any additional tax, interest and penalties according to the Tax Procedures Act, 2015 (TPA).

25. The Appellant submitted that the documents forwarded to the Respondent have never been examined to allow the Respondent to enforce its decision on the Appellant.

26. That it would be unfair and prejudicial to the Appellant if the Tribunal gives a decision upholding the Respondent’s action of collecting additional taxes from the Appellant when documents forwarded to the Respondent have not been examined.

27. The Appellant further submitted that he filed VAT returns for the months of January 2018 to May 2018 prior to the assessment. That he was in credit balance for all those months. That the Respondent should adjust the credits before any additional VAT tax as stipulated in the TPA Section 28 (3) which states that: -“if a registered person has submitted a self-assessment return in approved form for a tax period and the tax payer's total input tax for the period exceeds the taxpayer output tax for the period the registered person shall be treated as having made an assessment of the amount of the excess input tax for the period being the amount set out in the return.”

Appellant's Prayers. 28. The Appellant made the following prayers to the Tribunal:-(a)That this Appeal be allowed.(b)That the Tribunal sets aside the decision of the Respondent.

Respondent's Case 29. The Respondent’s case is premised on the following documents filed with the Tribunal:(a)The Respondent’s Statement of Facts dated 12th September 2022 and filed on the same date.(b)The Respondent’s written submissions dated 20th February 2023 and filed on the same date.

30. The Respondent averred that the Appellant's objection did not meet the threshold under Section 51 (3) (c) of the Tax Procedures Act. That the Appellant did not provide all documentation in support of purchases despite request by the Respondent.

31. That it was not true that the Respondent declined to review the Appellant's objection. That the Respondent reviewed partial purchase documents and requested the Appellant for outstanding documents, which the Appellant failed to provide.

32. That the law requires a taxpayer to keep records that will enable the Respondent to ascertain the tax payable and produce such records upon request by the Respondent.

33. That Sections 58 and 59 of Tax Procedures Act 2015 provides as herender:-“58. Power to inspect goods, records, etc(1)Notwithstanding anything to the contrary in any written law, an authorized officer may inquire into the affairs of a person under any tax law, and shall at all times have full and free access to all lands, buildings, places to inspect all goods, equipment, devices and records, whether in the custody or control of a public officer, or of a body corporate or of any other person, and may make extracts from or copies of those records.(2)An officer acting under subsection (1) may require the owner or employee, or a representative of the owner of the business, to give him all assistance and to answer all questions relating to the inquiry.59. Production of records(1)For the purposes of obtaining full information in respect of the tax liability of any person or class of persons, or for any other purposes relating to a tax law, the Commissioner or an authorized officer may require any person, by notice in writing, to-(a)produce for examination, at such time and place as may be specified in the notice, any documents (including in electronic format) that are in the person's custody or under the person's control relating to the tax liability of any person:”

34. The Respondent averred that Section 24 of the TPAallows a taxpayer to file returns but further provides that the Commissioner is not bound by the information provided therein and can assess the tax liability based on any other available information.

35. That the Appellant's grounds of appeal do not hold water at all. That the Respondent could not peruse and rely on information/documents that were not provided by the Appellant at the objection stage.

36. The Respondent averred that the VAT Actprovides the documents a taxpayer is supposed to provide to support input VAT claim thus it is not true that the Respondent adopted a complex procedure to deny the Appellant his right to the input VAT claim.

37. That Section 31 of the TPA empowers the Commissioner to amend an original return to reflect the correct tax payable in respect of the reporting period to which the original assessment relates based on the available information and the Commissioner's best judgement.

38. The Respondent averred that the Appellant claimed input VAT and failed to produce supporting documents contrary to Sections 17 and 42 of the VAT Act, 2013 as read with Paragraphs 7 and 9 of the Value Added Tax Act Regulations, 2017.

39. The Respondent relied on the High Court of Kenya case in Ericsson Kenya Limited v Attorney General & 3 others [2014] eKLR where the Court concurred with the position above where Justice Majanja stated:“The Court is not concerned with whether the petitioner is entitled to the amount but whether the process afforded was one that complied with the dictates of Article 47 of the Constitution. In considering the circumstances, it is important to recall that the fact that a taxpayer has lodged a refund claim in accordance with the VAT Act and regulations does not discharge the respondents from the responsibility of examining the claim and confirming that it meets the requirements of the law. The Commissioner, when processing the claim, is not merely a conveyor belt performing a perfunctory exercise. He is required to examine and verify the claim and where irregularities, fraud or other deficiencies are discovered draw the petitioner's attention to them. The Commissioner is also entitled to call for further information, if necessary, to satisfy himself that the claim meets the legal threshold for payment. Ultimately, the Commissioner is entitled to reject a VAT refund claim by giving written reasons which would entitle the taxpayer to appeal or challenge the decision."

40. The Respondent averred that the Appellant cannot therefore compel the Respondent to perform a duty that it does not have the power to act upon. That the Respondent's hands are tied to abiding with the provisions of the VAT Act.

41. The Respondent also relied on the High Court case of Tata Chemicals Magadi Limited v Commissioner of Domestic Taxes(Large Taxpayers) [2014] eKLR where Justice Majanja concurred with this position where he opined that: -“In my view, as long as the claim is lodged within the time limited and proper documentation is submitted and the claim is verified, the respondent has a duty to pay the claim."

42. The Respondent invited the Tribunal to appreciate the Respondent's efforts requesting the Appellant to provide documents in support of the disallowed input VAT in vain. That further the Respondent allowed the Appellant's late objection and considered the purchase documents provided with the late objection.

43. That since the Appellant did not provide copies of the disallowed invoices for each of the suppliers at the objection stage, the Respondent could not be able to ascertain whether the said suppliers have declared and paid the output VAT.

44. That the law on the burden of proving the correctness or otherwise of a tax assessment is glaring. That the Tax Procedures Act in Section 56 also places the burden of proof in tax disputes on the Appellant. It states as follows: -“(1)In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

45. The Respondent averred that in addition, Section 30 of the Tax Appeals Tribunal Act provides that: -“In a proceeding before the Tribunal the appellant has the burden of proving -(a)Where the 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;"

46. The Respondent submitted that in the case of Tumaini Distributors Company (K) Limited v Commissioner of Domestic Taxes [2020] eKLR, the learned judge in holding that the burden of disproving a tax assessment by the Commissioner lay with a taxpayer held:-“Having appraised the record, I find that the conclusions of the Commissioner and the Tribunal in respect of the assessments appealed against were in accordance with the evidence and material available to the Commissioner. The appellant did not discharge its burden of showing that the tax decision was wrong or incorrect ...”

47. The Respondent averred that Appellant did not provide sufficient documents to support the input VAT claims. That the process of assessment and objection as provided for under the TPA was followed. That the Appellant was given an opportunity to validate his objection by providing full documentation in support but he failed to do so.

48. That Section 43 of the VAT Act, 2013 provides a requirement for a taxpayer to keep a full and true record of every transaction made for five years, and the said record be made available for inspection by the Respondent.

49. The Respondent averred that the Appellant did not demonstrate by way of evidence that it complied with Section 51(3) of the TPA which provides that: -“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if-(a)the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments;(b)in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(1); and(c)all the relevant documents relating to the objection have been submitted.”

50. That Section 93 of the TPA, makes it an offence for a person who fails to keep, retain or maintain a document that may be required to be kept, retained or maintained in accordance with a tax law without reasonable excuse during a reporting period.

Respondent’s Prayers 51. The Respondent made the following prayers to the Tribunal.(a)That the Tribunal dismisses the Appeal(b)That the Tribunal upholds the Respondent’s assessment.(c)That the Appellant pays for the costs of this Appeal.

Issues for Determination 52. The Tribunal has considered the facts of the matter and the submissions made by the parties, and considers the following to be the issues for determination in this matter:(a)Whether there is a valid Appeal before the Tribunal.(b)Whether the Respondent’s assessment was valid and justifiable.

Analysis and Findings 53. Having determined the issues that fall for its determination, the Tribunal proceeds to analyse them as hereunder.

(a) Whether there is a valid Appeal before the Tribunal. 54. The genesis of this Appeal is the Respondent’s letter dated 12th April 2022 that rejected the Appellant’s application for extension of time to lodge an objection and confirmed the additional VAT assessments of Kshs. 4,962,319. 88 together with the resultant penalties and interest.

55. Aggrieved by the decision of the Respondent, the Appellant filed its Notice of Appeal on 8th August 2022.

56. The Tribunal notes that the procedure for appeal as set out in Section 13 (1) (b) of the Tax Appeals Tribunal Act (TAT Act) requires that a Notice of Appeal shall be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.

57. The Tribunal observes that the Appellant received the Respondent’s decision on 12th April 2022 but filed its Notice of Appeal on 8th August 2022, close to four months after receiving the Respondent’s decision.

58. The Tribunal further notes that the Appellant failed to apply for leave to file its Notice of Appeal out of time as required in Section 13 (3) of the TAT Act which provides as follows: -“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).”

59. The Tribunal is of the considered view that the timelines for appealing the Commissioner’s decisions are clearly set in the law, and taxpayers are liable to comply with the timelines, save for when unavoidable circumstances prevent a taxpayer from fulfilling its obligations as envisioned in Section 13 (4) of the TAT Act which states as thus:-“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.”

60. The Tribunal relies on the case ofNicholas Kiptoo Arap Korir Salat v IEBC & 6 Others[2013] eKLR, where the court held the following in respect to adherence to timeliness: -“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 ...”

61. The High Court in emphasising the strict application of statutory timelines had this to say in Equity Group Holdings Limited v Commissioner of Domestic Taxes 2021 (eKLR): -“A statutory edict is not procedural technicality. It’s a law which must be complied with. Parliament in its wisdom expressly and in mandatory terms provided ...”

62. The Tribunal is further guided by its holding 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 at Paragraph 70 while reiterating the holding in Krystalline Salt Ltd vs 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 the process of opposing an assessment by the Commissioner.”

63. Based on the foregoing, the Tribunal finds that there is no valid Appeal before it, therefore, the Tribunal does not have the jurisdiction to determine the matters raised in the Appeal.

(b). Whether the Respondent’s assessment was valid and justifiable. 64. Having determined that there is no valid Appeal before it, the Tribunal did not delve into this second issue for determination as it had been rendered moot.

Final Decision 65. The upshot of the foregoing 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.

66. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 10TH DAY OF NOVEMBER, 2023. GRACE MUKUHACHAIRPERSON.........................................................DR ERICK KOMOLOMEMBER.........................................................JEPHTHAH NJAGIMEMBER.........................................................TIMOTHY VIKIRUMEMBER.........................................................GLORIA A. OGAGAMEMBER.........................................................