[2024] KETAT 742 (KLR)

Keystone Wood Preservation Company Limited v Commissioner of Domestic Taxes (Tax Appeal 303 of 2023) [2024] KETAT 742 (KLR) (9 May 2024) (Judgment)

Neutral citation: [2024] KETAT 742 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 303 of 2023

RM Mutuma, Chair, EN Njeru, M Makau, B Gitari & AM Diriye, Members

May 9, 2024

Between

Keystone Wood Preservation Company Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a Corporate entity duly incorporated under the Kenya's Companies Act of 2015 and specializes in selling treated electricity poles, with significance dealings involving two Government entities: The Rural Electrification and Renewable Energy Corporation (REREC) and the Kenya Power and Lighting Company (KPLC).

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act and the Authority is a Government Agency responsible for assessing, collecting, and managing all revenues owed to the Government in accordance with Kenyan laws.

3. After conducting an audit whose preliminary findings were shared with the Appellant in a letter dated 23rd June 2022, the Respondent raised additional assessments lodged on the iTax platform of the Appellant on 6th October 2022.

4. The Appellant Objected to the assessments on 1st November 2022 and requested for an independent review of the Objection in a letter 29th November 2022 to which the Respondent gave its Objection decision on 13th February 2023.

5. Dissatisfied with the Respondent’s Objection decision, the Appellant lodged this Appeal.

The Appeal 6. The Appeal as contained in the Memorandum of Appeal dated 4th April 2023 and filed on 19th April 2023 is premised on the following grounds of appeal:-a.Failing to render Objection decision within sixty (60) days as prescribed in Section 51 (11) of the Tax Procedure Act, 2015. b.Failure to provide reason and justification for the impugned decisions contrary to Sections 49 and 51 (10) of the Tax Procedure Act, 2015. c.The Respondent violated the Appellant's right to access critical information contrary to Article 35 of Constitution of Kenya, 2010 and Section 5 of the Access to Information Act.d.Deliberate failure to take into consideration the totality of the reasons given by the Appellant in its Objection to the initial assessment.e.The Respondent violated Article 47 of the Constitution and Section 4 of the Fair Administrative Action Act by failing to act impartially, lawfully, procedurally and give reasons for its actions.f.The Respondent knew too well and ought to have known that its administrative action as depicted in the decisions was certainly going to adversely affect the rights or fundamental freedoms of the Appellant but failed to-i.Act lawfully;ii.Give prior and adequate notice of the nature and reasons for the administrative action;iii.Give the Appellant an opportunity to be heard by an impartial and independent team;g.The Respondent being a Government agency, acted in blatant ignorance and violation of National Values and Principles of Governance as envisaged in Article 10 of the Constitution which includes, the rule of law, human rights, integrity, accountability and good governance.h.Deliberate Violation of the Taxpayer's Charter.

The Appellant’s Case 7. The Appellant set out its case on its;a.Statement of Facts dated 4th May 2023 and filed on 19th May 2023; andb.Written submissions dated 1st March 2024 and filed on 5th May 2023c.Witness statement of Hani Yego dated and signed on 20th November 2023. d.Witness statement of Gilbert Koech dated and signed 20th November 2023.

8. The Appellant submitted two issues for determination as follows;a.Was the Objection decision dated subject of this Appeal rendered within the prescribed statutory timelineb.Whether the Respondent violated the rights of the Appellant and Taxpayers chatter

a. Was the Objection decision dated subject of this Appeal rendered within the prescribed statutory timeline 9. The Appellant submitted that the facts of this case began on 3rd December 2021 when the Appellant received a letter from the Respondent under Section 59 of the Tax Procedure Act, 2015.

10. The Appellant submitted that on various dates between 24th January 2022 and 7th June 2022, it supplied the Respondent with a bundle of documents to aid the intended audit.

11. The Appellant stated that the Respondent issued it with Preliminary Findings of the audit and subsequently on 6th October 2022 raised various assessments to which it Objected and received Objection Application Acknowledgment Numbers as follows on its iTax Platform as tabulated below:Assessment Order Number Objection Acknowledge Number Objected Amount Status as at the time of lodging the appeal

KRA202216959787 KRA202218023632 47,278,272. 87 Partially accepted

KRA202216954512 KRA202218024897 25,215,079 Was awaiting Response

KRA202217010126 KRA202218025358 2,681,766. 73 Fully accepted

KRA202216932280 KRA202218024061 2,319,891. 00 Awaiting response

KRA202216999024 KRA202218025748 201,397 Awaiting response

12. The Appellant stated that on 11th March 2023, the Respondent made an Objection decision vide Assessment Numbers KRA202216959787 and with respect to Objection KRA202218023632, One Hundred and Four (104) days after its objection notice.

13. The Appellant averred that in exercise of its rights under the law, it made a formal request for an independent review of its Objections by an independent team separate from the one that conducted the audit/ assessment.

14. The Appellant averred that the Respondent failed to address to the critical question of impartiality and independence in a letter dated 6th December 2022.

15. The Appellant averred that numerous efforts to have the matter addressed lawfully and within the existing factual framework failed as officers of the Respondent actively and vigorously engaged in extortion and outright demand for bribes to make the "problem" go away. It even says it has recordings!!!

16. The Appellant claimed that it wrote to the Respondent demanding issuance of a Tax Compliance Certificate, however, a day later it received a backdated Objection decision which was forwarded to its email address

17. The Appellant stated that whereas the email that forwarded the Objection decision noted that the decision had been allegedly sent to the Appellant earlier, it received no such communication and the Objection decision has never been served on it by the Respondent and therefore requests that Respondent be put to strict proof.

18. The Appellant averred that the Respondent suspended its operations on 11th April 2023 due to the tax dispute herein and having failed to procure requisite documentation including Tax Compliance Certificate to enable it competitively engage in the tendering process of two major government entities.

19. The Appellant stated that there were only two customers during the period under review, namely; Kenya Power and Lightening Company and Rural Electrification Authority to whom it supplied electric poles and sold to no any other party.

c. Whether the Respondent violated the rights of the Appellant and Taxpayers chatter 20. The Appellant stated that it called two witnesses who testified on oath. The Appellant also stated that it produced pictures of raw poles in the treatment yard that were not considered by the Respondent.

The Appellant’s Prayers 21. The Appellant prayed that this Tribunal grants the Appellant the following orders, that;a.The Appeal herein be allowed.b.The Respondent Objection decision dated 13th February 2023 be and is hereby set aside.c.The Respondent be barred and or stopped from demanding any taxes arising from the disputed assessments and impugned tax decision.c.The Respondent be compelled to issue Appellant with Tax Compliance Certificate in so far as the taxes being appealed from are concerned.d.The costs of this Appeal.e.Any other remedies that the Honourable Tribunal deems just and reasonable

The Respondent’s Case 22. The Respondent has set out its case on;a.Its Statement of Facts dated 17th May 2023 and filed on 22th May 2023 together with the documents attached thereto; and,b.Written submissions dated 13st March 2024 and filed on 16th May 2023.

23. The Respondent submitted on three issues for determination as follows;a.Whether the Respondent failed to provide reasons and justification for its decisions:b.Whether the Respondent violated the Appellant's right to access to information guaranteed under Article 35 of the Constitution of Kenya, 2010 and Section 5 of the Access to Information Act:c.Whether the Respondent acted in violation of national values and principles of governance enshrined in Article 10 of the Constitution of Kenya, 2010;

b. Whether the Respondent failed to provide reasons and justification for its decisions 24. The Respondent submitted that the Objection decision dated 13th February, 2023 was issued within the confines of the law and in consideration of the quantum of records as availed by the Appellant, and it clearly set out the reasons for each assessment after consideration of the documents availed by the Appellant.

25. The Respondent stated that upon reviewing the records submitted, it informed the Appellant reasons for its decision as follows;a.The review of the closing stock was found that the Appellant had understated the closing stock amounting to Kshs. 2,860,143. 00;b.The amount assessed as late submission penalty and late payment penalty payable respect of the tax deficit or excess input tax assessed;c.The amount of any late payment interest payable of the tax assessed;d.The reporting period to which the assessed relates;e.The due date for payment tax, penalty, and interest being a date that is not less than thirty (30) days from the date of service of the notice; and,f.The manner of objecting to the assessment.

26. The Respondent submitted that it considered all the available information from the documents availed by the Appellant and its findings were limited to the information availed by the Appellant.

27. The Respondent contended that it acted within the confines of the law and relied on Section 51 (9) and (10) which puts the burden of proof on the taxpayer that a tax decision is incorrect. It also relied on Section 24 (2) of the Tax Procedure Act which states that the Commissioner shall not be bound by a tax return or information provided by, or on behalf of the taxpayer and the Commissioner may asses a taxpayer’s tax liability using any information available to the Commissioner.

28. The Respondent stated that the Appellant has not discharged the burden of proof that the tax decision herein is incorrect as required under Section 56 (1) of the Tax Procedure Act and under Section 107 of the Evidence Act.

29. The Respondent further stated that the position has been held by Courts of competent jurisdiction as was it stated in Kenya Revenue Authority vs. Man Diesel & Turbo Se, Kenya [2021] eKLR, wherein the Court held that:“The import of the above provisions is that the party with the obligation of persuasion (what Wigmore termed the risk of non-persuasion) is said to bear the burden of proof. The flip side of the foregoing is the effect of non-persuasion on a party with the burden of proof which is that the particular issue at stake in the litigation will be decided against him/her. Generally, the taxpayer has the burden of proof in any tax controversy. The tax payer must demonstrate that the commissioner's assessment is incorrect. The taxpayer has a significantly higher burden. The taxpayer must prove the assessment is incorrect. 32. The shifting of the burden of proof in tax disputes flows from the presumption of correctness which attaches to the Commissioner's assessments or determinations of deficiency. The commissioner's determinations of tax deficiencies are presumptively correct. Although the presumption created by the above provisions is not evidence in itself, the presumption remains until the taxpayer produces competent and relevant evidence to support his position.”

30. The Respondent asserted that the Appellant was informed of the assessment and the Objection decision as per Section 29 and Section 51 (9) and (10) of the Tax Procedure Act.

31. The Respondent further stated that the Appellant bears the burden to prove that the assessment made by the Respondent was not justified and therefore was wrong; the Appellant failed to provide evidence to the contrary therefore this ground has no merit.

b. Whether the Respondent violated the Appellant's right to access to information contrary to Article 35 of the Constitution of Kenya, 2010 and Section 5 of the Access to Information Act; 32. The Respondent averred that it did not violate the Appellant's rights enshrined under Article 35 of the Constitution of Kenya, 2010 which provides that; -“Every citizen has the right to access to –a.Information held by the State;”

33. The Respondent further averred that Section 5 of the Access to Information Act mandates public institutions to provide information held by it subject to limitations under Section 6 of the same Act.

34. The Respondent submitted that the information relied upon in making the Objection decision is that which is furnished by the Appellant which includes sales, invoices, stock analysis statements, reject records, daily sales reports, raw poles supplied statements as well as stock reconciliation analysis and therefore the Appellant fails to state clearly grounds upon which the Respondent denied access to information it furnished to it.

35. The Respondent averred that ground C of the Appellant’s Memorandum of Appeal stated that the Respondent failed to note that it had the right to access information held by the Respondent by denying the Appellant vital information including the right to know what tax to pay, reasons for the rejecting its Objection and denial of Tax Compliance Certificate.

36. The Respondent relied on the case of Anarita Karimi Njeru vs. Republic (1979) eKLR where the court set out the threshold for pleading violation of Constitutional rights in which the court held that;“a person seeking redress for violation of the Constitution should set out with reasonable degree of precision that which he complains, the provisions said to be infringed and the manner or extent in which they are alleged to be infringed or contravened.”

37. The Respondent submitted that the Appellant failed to state clearly the manner and extent in which the Respondent infringed its rights enshrined under Article 35 of the Constitution of Kenya, 2010 and Section 5 of the Access of Information Act; the same information that they furnished themselves therefore this fails.

c. Whether the Respondent acted in violation of national values and principles of governance enshrined in Article 10 of the Constitution of Kenya, 2010; 38. The Respondent stated that it upheld the Constitutional rights of the Appellant by following the procedure prescribed under the law.

39. The Respondent averred that it did not violate any provisions of the law, but issued tax decisions with thorough conscience of the laws and statues governing tax as well as the bill of rights.

40. The Respondent further submitted that the Appellant has failed to demonstrate the manner or extent with which its Constitutional rights herein were violated by the Respondent and that the Appellant only makes averments and fails to support them; averments without evidence cannot support a case.

41. The Appellant submitted that its position was appreciated in the case of CMC Aviation Ltd. vs. Cruisair Ltd. (No. 1) [1978] KLR 103; [1976-80] 1 KLR 835, in which Madan, J (as he then was) expressed himself as hereunder:“Pleadings contain the averments of the parties concerned. Until they are proved or disproved, or there is an admission of them or any of them, by the parties, they are not evidence and no decision could be founded upon them. Proof is the foundation of evidence. Evidence denotes the means by which an alleged matter of fact, the truth of which is submitted for investigation. Until their truth has been established or otherwise, they remain un-proven. Averments in no way satisfy, for example, the definition of "evidence" as anything that makes clear or obvious; ground for knowledge, indication or testimony; that which makes truth evident, or renders evident to the mind that it is truth.”

42. The Respondent contended that the Appellant has failed to discharge the burden of proof as required under Section 56 (1) of the Tax Procedures Act which places the responsibility to disprove the Objection decision upon the Appellant and having not attempted to discharge the burden, the Appellant’s Appeal on its grounds as per the Memorandum of Appeal must fail.

The Respondent’s Prayers 43. The Respondent prayed that this Tribunal finds:a.The Respondent Objection decision dated 13th February, 2023 be upheld.b.The Parties be amenable to out of Court settlement.c.This Appeal be dismissed with costs.

Issues For Determination 44. The Tribunal having considered the Memorandum of Appeal, the parties’ Statements of Facts and submissions concludes that there are two issues that calls for its determination as follows:a.Was the Respondent’s Objection Decision dated 13th February was issued within the required statutory timeline.b.Whether the Respondent violated any of the Appellant’s rights under any written law as a taxpayer.

Analysis And Findings 45. The Tribunal shall proceed to analyze the same as herein under;a.Was the Respondent’s Objection Decision dated 13th February wasissued within the required statutory timeline.

46. The dispute herein arose following an audit that culminated in the Respondent issuing an additional tax assessment lodged in the Appellant’s iTax portal of the Appellant on 6th October 2022.

47. The Respondent’s argument was that the Appellant undisclosed its sales and underreported its income for the period 2018 to 2020 and when pressed failed to provide sufficient supporting documentations to permit vacation of the additional assessments.

48. The Tribunal notes that Appellant Objected to the aforementioned assessments in a letter dated 1st November 2022 and the Respondent issued its Objection decision on 13th February 2023. This discloses that there are about 104 days difference between when the Respondent issued its Objection decision and when the Appellant lodged its Objection.

49. An Objection decision ought to be issued within sixty days from the date a notice of objection is lodged as provided for under Section 51 (11) of the Tax Procedures Act, which Section stated;“The Commissioner shall make the objection decision within sixty days from the date of receipt of—a.the notice of objection; orb.any further information the Commissioner may require from the taxpayer, failure to which the objection shall be deemed to be allowed.”

50. The Tribunal further notes that the law also provides that, if the Respondent requests for further information and the Appellant provides the same, the time of the sixty days within which an Objection decision is to be made is reset. This is provided for under Section 51 (11) (b) of the TPA (now amended) which stated;“(b)any further information the Commissioner may require from the taxpayer, failure to which the objection shall be deemed to be allowed.”

51. The Tribunal notes that the Respondent requested for additional information and acknowledged receiving some information, the last of which was on 6th December 2022 before issuing the Objection decision on 13th February 2023.

52. It follows that the Respondent was obligated in law to make its Objection decision within a period of sixty days of the receipt of the notice of objection or any further information or documents from the Appellant.

53. The Tribunal notes that in the instant Appeal, the Respondent was supposed to make its Objection decision within sixty days from the 6th of December 2022 which is the date it last received the additional information. It is however, clear that the Respondent issued its Objection decision on 13th February 2023. This is 69 days after receiving the additional information it had requested, which was beyond the statutory timelines.

54. Flowing from the above, the Tribunal finds that the Appellant’s Objection was allowed by operation of the law based on the Respondent’s failure to issue an Objection decision with the statutory period of 60 days.

55. The Tribunal is guided by the case of Cape Brandy Syndicate vs. Inland Revenue Commissioners [1921] K.B 64 where it was observed that;“In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used…... if a person sought to be taxed comes within the letter of the law, he must be taxed. However great the hardship may appear to the judicial mind may be. On the other hand, if the crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be.”

56. The Tribunal is further guided by the case of Equity Group Holdings Limited vs. Commissioner of Domestic Taxes (Civil Appeal E069 & E025 of 2020) [2021] KEHC 25 (KLR) (Commercial and Tax), where the court held that:-“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 the consequences of failing to render a decision within 60 days. The Objection is deemed to be allowed. That being the law, the appellant’s Objection stood allowed as a matter of law the moment the Commissioner of Domestic Taxes failed to render his decision within the 60 days. This being the correct legal position, it is my finding that the 1st appeal succeeds”.

57. Consequently, the Tribunal finds that the Respondent’s Objection decision dated 13th February 2023 as null and void as the Appellant’s Objection had already been allowed by operation of the law.

Final Decision 58. The Tribunal finds that the Appeal has merit and accordingly proceeds to make the following Orders:i.The Appeal be and is hereby allowed.ii.The Respondent’s Objection decision dated 13th February 2023 is hereby set aside.iii.Each party to bear its own costs.

59. It’s so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF MAY, 2024. ROBERT M. MUTUMA - CHAIRPERSONELISHAH N. NJERU - MEMBERMUTISO MAKAU - MEMBERBERNADETTE M. GITARI - MEMBERMOHAMED A. DIRIYE. - MEMBER