[2024] KETAT 885 (KLR)

Legacy Hotel and Suites Limited v Kenya Revenue Authority (Tax Appeal 1579 of 2022) [2024] KETAT 885 (KLR) (28 June 2024) (Judgment)

Neutral citation: [2024] KETAT 885 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1579 of 2022

CA Muga, Chair, BK Terer, D.K Ngala, GA Kashindi & SS Ololchike, Members

June 28, 2024

Between

The Legacy Hotel And Suites Limited

Appellant

and

Kenya Revenue Authority

Respondent

Judgment

1. The Appellant is a limited liability company duly incorporated and registered in Kenya under the Companies Act. It is also a registered taxpayer within the Republic of Kenya.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. 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 assessed the Appellant’s filed VAT returns for the period December 2019 and concluded that there was unpaid VAT of Kshs. 2,080,826. 08. This was as a result of the Appellant’s failure to declare its entire income for value added tax (VAT) and income tax purposes. The Respondent noted that variances existed between the income tax turnovers and the VAT turnovers in the period under review.

4. Consequently, on 16th June 2022 the Respondent raised additional automated VAT assessments for the period of December 2019. The Appellant then lodged an objection to the said assessment on i-Tax on 29th August 2022. The Respondent vide its objection decision dated 5th October 2022, invalidated the Appellant’s objection on grounds that the Appellant failed to avail the documents in support of its objection.

5. Being dissatisfied with the Respondent’s objection decision, the Appellant lodged its notice of appeal on 30th November 2022.

The Appeal 6. The following grounds of the appeal are as premised on the Appellant’s Memorandum of Appeal dated 14th December 2022 and filed on 28th December 2022:a.According to the laws of Kenya, Value Added Tax Act , CAP 476 of Kenya’s Laws (hereinafter ‘VAT Act’) revised edition 2018 First Schedule Part I of exempt goods Part II services No. 14, conference services gives allowance to both participants and the whole relieve provided the institution was conducting learning education services.b.The VAT exemption was to be applied to the full amount of income for the year.c.The Appellant used the same VAT Act to request that the paid amount be refunded.

The Appellant’s Case 7. The Appeal is anchored on the Appellant’s Statement of Facts lodged with the Memorandum of Appeal on 28th December 2022.

8. The Appellant contended that the assessment was purely based on its 2019 return which was believed to be a variance but the exemption should be applied.

9. It stated that the tax which was believed to be true was paid but the Appellant requests that the same should be refunded together with the tax earlier paid.

10. In conclusion, the Appellant prayed that this Tribunal would:a.Accept this valid appeal and allow case to be referred to the original station for an amicable settlement under ADR; andb.The total taxes plus interest and penalties be vacated

Respondent’s Case 11. The Respondent opposed the instant appeal vide its Statement of Facts dated 24th January 2023 and filed on 26th January 2023 wherein it averred that:

12. It assessed the Appellant’s filed VAT returns for the period December 2019 and established unpaid VAT of Kshs. 2,080,826. 08.

13. It observed that the Appellant had not declared its entire income for VAT and income tax purposes. Variances existed between the income tax and the VAT turnovers in the period under review.

14. Consequently, on the 16th June 2022 it raised additional automated VAT assessments for the period of December 2019 and on 29th August 2022, the Appellant lodged a late objection to the additional VAT assessments on i-Tax.

15. The Appellant failed to avail the documents in support of its late objection and the objection was invalidated vide a notice dated 5th October 2022.

16. The Appellant being dissatisfied with the invalidation notice appealed at the Tax Appeals Tribunal vide a Memorandum of Appeal dated 28th December 2022.

17. It asserted that at the hearing of this appeal it will raise a preliminary objection opposing the appeal herein for being filed out of time.

18. Section 24 of the Tax Procedures Act, CAP 469B of Kenya’s Laws (hereinafter “TPA”) allows a taxpayer to submit a tax return in the approved form and manner prescribed by the Respondent but it is not bound by the information provided therein and may assess the taxpayers’ liability based on any other available information.

19. The Appellant herein filed self-assessment and has presented before the Tribunal copies of sales invoices for conference services issue by the business in the period in question.

20. The Appellant offered hospitality services in the period under review and cannot claim to have been offering learning education services.

21. The objection decision dated 5th October 2022 was proper, and the Appellant’s Appeal herein should be dismissed with costs.

22. It is guided by Section 56(1) of the TPA which provides as follows:“in any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

23. It prayed that this Tribunal would:i.Uphold its objection decision dated 5th October 2022 as proper and in conformity with the provisions of the law; andii.That this Appeal be dismissed with costs to it as the same was devoid of any merit.

Parties’ Written Submissions 24. The Appeal was canvassed by way of written submissions. The Respondent’s submissions dated 12th July, 2023 were filed on 13th July 2023. The Appellant did not file any written submissions and it was directed by the Tribunal on 28th November, 2023, that its case would proceed on the basis of its pleadings.

25. The Respondent submitted that the Appellant had presented to this Tribunal copies of sales invoices for conference services issued in the course of business in the period in question in support of the assertion that it hired out conference facilities to different groups and organizations which qualify as provision of educational services that are exempt. It contended that the Appellant is not registered as an educational institution by the Ministry of Education, and it had failed to furnish the Respondent with its business registration documents which would demonstrate the nature of the Appellant’s business and taxation thereof.

26. It referred to the provisions of Sections 51(3) and (8) of the TPA and stated that in instant appeal, the Appellant had not challenged the additional assessment on grounds that the Respondent failed to review the documents submitted since it never submitted all the documentation required to support its objection. To this end, the Respondent relied on the case of Commissioner of Domestic Taxes v Structural International Kenya Ltd (Income Tax Appeal No. E089 of 2020) [2021] KEHC 152 (KLR).“For the avoidance of doubt, the Tribunal is reminded that in matters where the issue is supply of goods, be it for VAT purposes or Corporation Tax, the burden is always on the trader/taxpayer to show that, the documentation set out in the statute and in which he relies on arose out of a commercial transaction. Period. If additional documents, which would be reasonably expected to be in his possession is requested for to verify the alleged transactions, he should produce the same to the Commissioner. That is what is expected of a keen and diligent trader.”

27. The Respondent further submitted that since the Appellant had not presented any evidence to show that its assessment was incorrect, erroneous or excessive, the Appellant did not discharge its burden of proof.

28. The Respondent cited the cases of Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR. The Respondent further cited the provisions of Section 56 of the TPA and Section 30 of the Tax Appeals Tribunal Act, CAP 469A of Kenya’s Laws (hereinafter “TATA”) which places the burden of proof upon the taxpayer and further submitted that in the absence of supporting documents, the variance noted between the income tax and VAT turnovers for 2019 was taxable as the Appellant failed to declare all taxable supplies made in 2019 in their VAT returns.

29. The Respondent contended that the documents and literature provided did not provide any additional information that would have led to the change in assessment regarding errors in the Appellant’s profit and loss account.

Issues For Determination 30. The Tribunal having considered the parties’ pleadings, documents, witness statements and submissions, is of the view that this matter distils into two (2) issues for determination and the same are as follows:i.Whether the Appeal is properly before the Tribunal; andii.Whether the Appellant has discharged its burden of proof.

Analysis And Findings 31. The Tribunal wishes to analyse the issues as herein-under:(i)Whether the appeal is properly before the Tribunal

31. The Tribunal notes that the procedure for objecting to an assessment made by the Respondent is provided for under the TPA. Section 51(12) of the TPA provides as follows:“A person who is dissatisfied with the decision of the Commissioner under subsection (11) may appeal to the Tribunal within thirty days after being notified of the decision.”

32. The Tribunal notes that accordingly, any taxpayer who is dissatisfied with the Commissioner’s decision may lodge an appeal with the Tribunal within thirty days after being notified of the said decision. It is noteworthy that the Appellant was notified of the Respondent’s decision confirming its additional assessments and invalidating the Appellant’s objection on 5th October 2022. From the record, it is evident that the Appeal herein was filed on 28th December 2022 approximately eighty-four (84) days after the Respondent issued its decision.

33. Section 13 (3) and (4) of the TAT mandates the Tribunal to extend time within which to lodge an appeal against the decision of the Commissioner. It states that: -(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.”

34. In this case, there is no evidence that the Appellant sought for extension of time within which to file a Notice of Appeal against the Respondent’s decision and/or that leave was granted to the Appellant by this Tribunal to file its Appeal out of time. This leads to the logical conclusion that the instant Appeal has been filed out of time, therefore the Tribunal finds that the Appeal is not properly before it.

35. Consequently, the Tribunal shall not delve into the second issue as the same has been rendered moot.

Final Decision 36. The upshot of the foregoing is that the Appeal fails. Consequently, the Tribunal makes the following orders:a.This Appeal is hereby struck out.b.The Respondent’s objection decision dated 5th October, 2022 is hereby upheld.c.Each party to bear its own costs.

37. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 28TH DAY OF JUNE 2024. …………………..……………….CHRISTINE A. MUGACHAIRPERSON………………………. …………….……………..BONIFACE K. TERER DELILAH K. NGALAMEMBER MEMBER………………………… ………………………….GEORGE KASHINDI OLOLCHIKE S. SPENCERMEMBER MEMBER