[2024] KETAT 1091 (KLR)

Kenya Bonded Warehouse Company v Commissioner of Domestic Taxes (Tax Appeal E470 of 2023) [2024] KETAT 1091 (KLR) (19 July 2024) (Judgment)

Neutral citation: [2024] KETAT 1091 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E470 of 2023

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, T Vikiru & AK Kiprotich, Members

July 19, 2024

Between

Kenya Bonded Warehouse Company

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a bonded warehouse facility and a registered taxpayer.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and the 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 issued a tax demand vide a letter dated 13th August 2020.

4. The Appellant lodged an objection on 20th August, 2020

5. The Appellant issued reviewed assessments through correspondences dated 20th August, 2020 and 1st October, 2020.

6. The Respondent issued the Appellant with other tax assessments on i-Tax based on the preliminary findings and other outstanding issues. The assessments were generated on 10th February, 2023

7. The Appellant objected to the assessments raised vide a letter dated 15th March, 2023 and an iTax objection dated 17th March, 2023.

8. The Appellant being dissatisfied with the Commissioner’s decision filed a Notice of Appeal dated 31st July, 2023 and filed on 14th August, 2023.

The Appeal 9. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal filed on 14th August, 2023:i.The Respondent erred in law in issuing Value Added Tax (VAT)additional assessments for the three months.ii.The Respondent erred in law in giving the decision and not taking into consideration the reconciliation and explanations given by the Appellant via letter dated 20th August, 2020. iii.The Respondent disregarded all reconciliations, communication and explanation given and proceeded to issue VAT additional assessments online after a period of 26 months.iv.The Respondent erred in law in issuing the demand letter for tax in arrears before raising assessments.

Appellant’s Case 10. The Appellant’s case is premised on the following documents:i.The Appellant’s Statement of Facts dated and filed on 14th August, 2023 together with the documents attached thereto.ii.The Appellant’s written submissions dated 22nd February, 2024 and filed on 6th March, 2024.

11. That the Respondent issued a tax investigation letter dated 5th June, 2020 which was delivered to the Appellant’s offices on 14th July, 2020.

12. That the documents were provided to the Respondent on 20th August, 2020.

13. That after going through all the documents, the Respondent issued its letter of assessment and called it “objection decision on confirmation" on 17th November, 2020.

14. That the Appellant then responded giving all explanations required on 7th December, 2020.

15. That the Respondent issued the above quoted Value Added Tax additional assessments for the three months on 10th February, 2023 after a period of 26 months from the date of last communication.

16. That valid objection applications were lodged and objection acknowledgement receipt numbers KRA202302888545,KRA202302889142 and KRA202302889396 all dated 28th February, 2023 were issued.

17. That the Appellant’s communication of 7th December 2020 clearly informed the Respondent that if it wanted the Appellant to appeal, the Respondent should issue the objection decision on iTax. That it is surprising to note that the Respondent did not do anything on iTax until after a period of 26 months. That in the absence of receiving any iTax communication, the Appellant assumed that the Respondent had accepted the Appellant’s response and changed its objection decision.

18. That on 6th July, 2023, a letter was written by the Respondent confirming the additional VAT assessments and disregarding all the information in the Appellant’s letter of 7th December ,2020 where the explanations and reconciliations were provided.

19. That no further queries were raised as regards to VAT returns for the three (3) months in question hence the need to accept the Value Added Tax returns as they are.

Appellant’s Prayers 20. The Appellant prayed for orders that the Tribunal considers the facts stated and to order the Respondent to withdraw the Value Added Tax additional assessments.

Respondent’s Case 21. The Respondent’s case is premised on its Statement of Facts dated 13th September, 2023 and filed on 14th September, 2023 together with the documents attached thereto.

22. That the Respondent profiled the Appellant following a sector analysis by its Intelligence, Strategic Operations, Investigation and Enforcement Department on the operation of bonded warehouses. That the intelligence was based on discrepancies between income declared per annual returns and the income as analysed from bank statements.

23. That subsequently, the Respondent carried out preliminary investigations into the affairs of the Appellant for the period 2015 - 2018 to confirm the veracity of the information received. That the scope of the investigation covered the tax periods between January 2014 and December 2018, to which the Respondent's investigation team conducted banking analysis and reconciliation to determine income. Further the team made comparison of turnover between financial statements and VAT3 returns.

24. That the summary of the findings and explanations were communicated to the Appellant vide a letter dated 5th June, 2020 where the Respondent further requested the Appellant to provide an explanation of the discrepancies.

25. That upon receipt of the said notice, the Appellant through its tax agent responded via email on 15th July, 2020 acknowledging the letter.

26. That following issuance of the notice of findings and failure of the Appellant to respond to the same, the Respondent issued a tax demand vide a letter dated 13th August, 2020 confirming tax liability of the Appellant amounting to Kshs. 182,233,388. 00.

27. That in response, the Appellant issued its objection vide a letter dated 20th August, 2020 disputing the tax assessments raised by the Respondent.

28. That upon review of the reconciliation in the Appellant's correspondence dated 20th August, 2020 and 1st October, 2020, the Respondent issued its objection decision confirming tax assessments on the following grounds;i.The reconciliation includes both deposits of partners and partnership, which is incorrect as the two entities are distinct from each other in tax law and therefore their tax matters should be separated.ii.Fixed deposits and savings amounts should be removed from the reconciliation as they do not arise from the day-to-day business transactions.iii.Donations were disallowed as the Appellant did not provide supporting evidence.iv.The Appellant failed to explain the source of the funds in the fixed deposit accounts.

29. That the Respondent issued the appellant with tax assessments on i-Tax based on the preliminary findings and other outstanding issues on 10th February, 2023.

30. That the Appellant objected to the assessments raised vide a letter dated 15th March, 2023 and iTax objection dated 17th March, 2023.

31. That subsequently, the Respondent vide a letter dated 6th July 2023, informed the Appellant that it had already issued its decision with regards to the objection in the objection decision dated 17th November, 2020 and therefore the same cannot be reviewed again. The Respondent further explained that the assessments were raised on iTax to effect the manual decision.

32. That contrary to the Appellant's contention that the Respondent erred in issuing the decision without taking into consideration the explanations given by the Appellant, the Respondent stated that the assessments and objections were issued in accordance with the provisions of the Tax Procedures Act.

33. The Respondent averred that the Appellant was informed of the assessment pursuant to the provisions of Section 29 of the Tax Procedures Act which provides that;“(2)The Commissioner shall notify in writing a taxpayer assessed under subsection (1) of the assessment and the Commissioner shall specify-(a)the amount assessed as tax or the amount of a deficit or excess of input tax carried forward, as the case may be;(b)the amount assessed as late submission penalty and any late payment penalty payable in respect of the tax, deficit or excess input tax assessed;(c)the amount of any late payment interest payable in respect of the tax assessed;(d)the reporting period to which the assessment relates;(e)the due date for payment of the tax, penalty, and interest being a date that is not less than 30 days from the date of service of the notice; and(e)the manner of objecting to the assessment.”

34. The Respondent further averred that it relied on the provisions of Section 51 of the Tax Procedures Act as relates to the provision on the issuance of the objection decision as follows;“(8)Where a notice of objection has been validly lodged within time, the Commissioner shall consider the objection and decide either to allow the objection in whole or in part, or disallow it, and Commissioner's decision shall be referred to as an "objection decision".(9)The Commissioner shall notify in writing the taxpayer of the objection decision and shall take all necessary steps to give effect to the decision, including, in the case of an objection to an assessment, making an amended assessment.(10)An objection decision shall include a statement of findings on the material facts and the reasons for the decision.(11)The Commissioner shall make the objection decision within sixty days from the date of receipt of-(a)the notice of objection; or(b)any further information the Commissioner may require from the taxpayer, failure to which the objection shall be deemed to be allowed.”

35. The Respondent stated that the assessments reflected on the iTax system gave effect to the manual assessments and objection issued on 17th November, 2020. That the same was communicated to the Appellant vide the letter dated 6th July, 2023 issued by the Respondent.

36. The Respondent averred that the Appellant's appeal should not be entertained as the same has been filed before this Tribunal outside the timelines set under Section 13 of the Tax Appeals Tribunal Act. That the provision states that;“(1)A notice of appeal to the Tribunal shall-(a)be in writing;(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.”

37. From the foregoing, the Respondent maintained that it followed the provisions of the Tax Procedures Act to the letter in issuing the objection decision and that the same should be found proper in law.

38. The Respondent stated that pursuant to Section 56 (1) of the Tax Procedures Act, the burden of proof is on the Appellant to produce the evidence challenging the Respondent's decision to confirm the assessments which the Appellant herein has failed to discharge.

Respondent’s Prayers 39. The Respondent prayed that this Tribunal considers the Appeal and finds as follows:i.The Appeal lacks merit and be dismissed with costs.ii.The Objection decision dated 17th November, 2020 confirming tax liability be upheld.

Issues for Determination 40. The Tribunal has carefully considered the pleadings and documentation filed by both parties and is of the view that the issues for its determination are:i.Whether the Appeal before the Tribunal is validii.Whether the Respondent was justified in confirming its assessment

Analysis and Findings 41. The Tribunal having established the issues for its determination proceeds to analyse each of them separately as hereunder.

i. Whether the Appeal before the Tribunal is valid 42. The Respondent averred that the Appellant filed a late appeal to the Tribunal. It further averred that it issued the manual Objection decision on 17th November, 2020 and had communicated the same to the Appellant and the Partnership; however the Appellant filed the Appeal late.

43. The Tribunal reviewed the parties’ pleadings and established the following chronological details:i.The Respondent issued VAT assessments on 10th February, 2023. ii.The Appellant lodged objections to the assessments, acknowledged on iTax on 28th February, 2023. iii.The Respondent had issued its objection decision on 17th November, 2020. iv.The Appellant lodged its Notice of Appeal on 14th August, 2023.

44. Further, from the chronology of events as highlighted in the parties’ pleadings, it is clear to the Tribunal that there was prior correspondence between the parties as follows:i.A letter by the Respondent dated 13th August 2020 demanding taxes amounting to Kshs. 279,424,528. 00. ii.An objection decision dated 17th November, 2020 confirming a tax liability of Kshs. 279,424,528. 00

45. Section 13(1) and (2) of the Tax Appeals Tribunal Act provides as follows filing of tax appeals:“(1)A notice of appeal to the Tribunal shall—(a)be in writing;(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.(2)The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the clerk Tribunal, of—(a)a memorandum of appeal;(b)statements of facts; and(c)the tax decision.”

46. The objection decision in this matter which was produced by both parties in evidence was dated 17th November 2020. Considering that the Appeal was filed on the 14th August 2023, it is clear that the Appeal was filed late by about 2 years and 9 months. On this premise alone the Appeal was late.

47. Additionally, no evidence was presented before the Tribunal to show that the Appellant sought and obtained leave to file this Appeal out of time as is envisaged in Section 13(3) and (4) of the TAT Act which 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”

48. By using the word “shall”, Section 13(2) of the TAT Act makes it mandatory that the Appellant shall, within fourteen days from the date of filing the Notice of Appeal, submit enough copies, as may be advised by the Clerk to the Tribunal, of a Memorandum of Appeal, Statement of Facts and the tax decision. Failure to do so is fatal and can only be cured by seeking, and obtaining, leave from the Tribunal to file the appeal documents outside the stipulated time period as provided for under Section 13(3) of the TAT Act.

49. Whereas Sections 13(3) and (4) of the TAT Act provided the Appellant with the avenue for seeking enlargement of time to file appeal documents and thus regularizing the Appeal, this avenue was not exercised by the Appellant.

50. The Tribunal has previously pronounced itself on the necessity of the parties to observe due process as well as the timelines set by the law. The issue has also been determined by the courts as being one of high importance as was held in the case of Nicholas Kiptoo Arap Korir Salat vs. IEBC & 6 Others [2013] eKLR, where the court held as thus;-“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.”

51. The Tribunal further relied on the case of W.E.C. Lines Ltd vs. The Commissioner of Domestic Taxes [TAT Case No. 247 of 2020] where it was held 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”.

52. As a result of the foregoing, and to the extent that the Appellant filed a late Appeal without seeking leave of the Tribunal to file the same, the Tribunal finds that the Appeal before it is invalid.

53. The Tribunal having determined that the Appeal is invalid did not deal with the other issue raised in the matter as it had been rendered moot.

Final Decision 54. The upshot of the foregoing analysis is that the Appeal as filed is incompetent and unsustainable in law 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.

55. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF JULY, 2024. ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERDR. RODNEY O. OLUOCH - MEMBERDR. TIMOTHY B. IKIRU - MEMBERABRAHAM K. KIPROTICH - MEMBER