[2024] KETAT 628 (KLR)

Little Cribs Limited v Commissioner of Domestic Taxes (Tax Appeal 1580 of 2022) [2024] KETAT 628 (KLR) (5 April 2024) (Judgment)

Neutral citation: [2024] KETAT 628 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1580 of 2022

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

April 5, 2024

Between

Little Cribs Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a company registered under the Companies Act, No. 17 of 2015 of the laws of Kenya and deals in interior decoration and branding.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act 1995, CAP 469 of the laws of Kenya. Under Section 5 (1) of the Act, the Respondent 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), it is mandated to administer and enforce all provisions of the Written laws as set out in Parts 1 & 2 of the First Schedule to the Act for purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Respondent issued an additional VAT assessment dated 29th August 2022 for the period of July 2022 amounting to Kshs. 161,467. 40. The Appellant lodged an objection to the assessment on 14th September 2022.

4. The Respondent reviewed the objection application submitted by the Appellant and issued an objection decision confirming the additional assessment vide a letter dated 4th November 2022.

5. Dissatisfied with the Respondent’s decision, the Appellant lodged a Notice of Appeal dated 6th December, 2022 filed on 7th December 2022.

The Appeal 6. The Appeal is premised on the Memorandum of Appeal dated 6th December 2022 and filed on 7th December 2022 with the following grounds of appeal:i.That the Appellant has been filing all relevant tax returns on time and all liabilities there from paid in full.ii.That the Appellant received the VAT assessment orders on 29th August 2022 for the month of July 2022 due to disallowed invoices.iii.That the Appellant objected the assessments on 14th September 2022 on grounds that the Appellant can support all purchases invoices with original copies of the invoice for verification; ETR from our suppliers; proof of payment to suppliers (bank statements); and that the Appellant has Statements from suppliers to support purchases.iv.That even though the Appellant submitted additional documents as the Respondent requested for, the Respondent rejected the objection.

Appellant’s Case 7. In support of the Appeal, the Appellant filed a Statement of Facts on 7th December, 2022 wherein the Appellant averred that it received VAT assessment orders on 29th August 2022 for the month of July 2022 under assessment number KRA20221XXXX.

8. The Appellant also averred that on 14th September 2022, it made an objection to the assessment that the Respondent acknowledged under acknowledgment number KRA202216XXXX.

9. The Appellant averred that the Respondent requested it to provide additional documents to the Policy and Tax Advisory Department. The Appellant argued that it provided these documents in time. Regrettably, the Respondent rejected the objection fully through a notice of confirmation of assessment dated 9th November 2022.

10. The Appellant prayed that the Appeal herein be allowed.

Respondent’s Case 11. In response to the Appeal, the Respondent lodged its Statement of Facts dated 27th January 2023 and filed on the even date.

12. The Respondent stated that the Appellant failed to support the input VAT claimed. The Respondent averred that the additional assessment was issued in accordance with the provisions of the VAT Act based on disallowing inputs tax claims that did not meet the set criteria for deduction of input tax as provided for under the provisions of Section 17 of the Value Added Tax Act No. 35 of 2013 (hereinafter ‘VAT Act’).

13. The Respondent relied on Section 17(2) of the VAT Act which provides as follows:“If, at the time when a deduction for input tax would otherwise be allowable under subsection (1), the person does not hold the documentation referred to in subsection (3), the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentations.Provided that the input tax shall be allowable for a deduction within six months after the end of the tax period in which the supply or importation occurred.”

14. The Respondent further relied on the provisions of Section 17 (3) of the VAT Act which lists documentation that is required for deduction of input tax.

15. Further, the Respondent relied on Section 51 (8) of the Tax Procedures Act No. 29 of 2015 (hereinafter ‘TPA’) which provides that:“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.”

16. In addition, the Respondent relied on Section 59 of the TPA which provides for production of records and states as follows:‘‘Production of records1. 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.’’

17. The Respondent maintained that it requested for purchase invoices, delivery notes, proof of payment and suppliers’ statement from the Appellant but the Appellant failed to provide the documents.

18. Finally, the Respondent relied on Section 56(1) of the TPA to argue that the Appellant has the burden to prove that the decision is incorrect.

19. The Respondent prayed that the Tribunal do uphold the objection decision dated 4th November 2022 and dismiss the Appeal with costs.

Parties’ Submissions 20. Both the Appellant and Respondents were to proceed on the basis of their respective pleadings as the Respondent’s written submissions dated 21st November, 2023 and filed on 22nd November 2023 and are hereby struck out because of the failure of the Respondent to observe the timelines as ordered by the Tribunal on 26th September, 2023.

Issues for Determination 21. The Tribunal has reviewed the parties’ pleadings and documentation and is of the considered view that this Appeal distils into the following single issue for determination:-Whether the Respondent’s objection decision dated 4th November, 2022 was justified.

Analysis and Findings 21. The Tribunal wishes to analyse the issue as hereinunder.

22. The Tribunal wishes to state that it is upon the Appellant to prove that the Respondent should not have confirmed the additional assessments.

23. The Tribunal finds concisely, that the issue in contention is whether the Appellant provided documents to warrant vacation of the additional assessments. Whereas the Appellant argued that it submitted additional documents as the Respondent requested and therefore, the Respondent ought to have vacated the additional assessments, the Respondent relied on Section 17 (2) and (3) of the VAT Act to argue that even after request, the Appellant did not provide requisite documents to warrant vacation of the additional assessments.

24. Section 17 of the VAT Act is applicable to this Appeal since the Appeal relates to input tax. Section 17(2) of the VAT Act provides as follows:‘‘If, at the time when a deduction for input tax would otherwise be allowable under subsection (1)—(a)The person does not hold the documentation referred to in subsection (3), and(b)The registered supplier has not declared the sales invoice in a return, the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation:Provided that the input tax shall be allowable for a deduction within six months after the end of the tax period in which the supply or importation occurred.’’

25. Section 17(3) of the VAT Act provides as follows:“The documentation for the purposes of subsection (2) shall be—(a)An original tax invoice issued for the supply or a certified copy;(b)A customs entry duly certified by the proper officer and a receipt for the payment of tax;(c)a customs receipt and a certificate signed by the proper officer stating the amount of tax paid, in the case of goods purchased from a customs auction; and(d)A credit note in the case of input tax deducted under section 16(2);(e)A debit note in the case of input tax deducted under section 16(5); or(f)in the case of a participant in the Open Tender System for the importation of petroleum products that have been cleared through a non-bonded facility, the custom entry showing the name and PIN of the winner of the tender and the name of the other oil marketing company participating in the tender:Provided that the input tax that may have been incurred by an oil marketing company participating in the Open Tender System before the coming into force of this provision shall be claimed within twelve months after this provision comes into force.’’

26. The Tribunal has examined the Appellant’s documents that it filed in support of this Appeal and noted that the Appellant did not file not even a single document listed under Section 17(3) of the VAT Act. This is a total breach of Rule 5 of the Tax Appeals Tribunal (Procedure) Rules, 2015 which requires that relevant documentary evidence do accompany statement of facts.

27. Rule 5 of the Tax Appeals Tribunal (Procedure) Rules, 2015 is reproduced and provides as hereunder:‘‘(1) Statement of fact signed by the appellant shall set out precisely all the facts on which the appeal is based and shall refer specifically to documentary evidence or other evidence which it is proposed to adduce at the hearing of the appeal. [emphasis ours](2)The documentary evidence referred to in paragraph (1) shall be annexed to the statement of fact.’’ [emphasis ours]

28. The Tribunal is not in a position to evaluate whether the Respondent erred in confirming additional assessments if the Appellant failed to file relevant documentary evidence as required under Section 17(3) of the VAT Act.

29. Section 30 of the Tax Appeals Tribunal Act No. 40 of 2013 provides as follows:“In a proceeding before the Tribunal, the appellant has the burden of proving— (a) Where an 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.”

30. On the other, 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.”

31. This Tribunal affirmed in the cases of Gitere Kahura Investments Ltd Appeal No. 16 of 2019 and Digital Box Limited v Commissioner of domestic investigations and Enforcement [2020] that the burden to prove that the Commissioner’s decision is wrong falls on the taxpayer. Similarly, the High Court in Darwine Wholesalers Limited v Commissioner of Investigations and Enforcement (Income Tax Appeal E051 of 2021) [2023] KEHC 23537 (KLR) held as follows:-“Under Section 59 of the TPA and Section 43 of the VAT Act the Commissioner is expressly empowered to ask for additional information to ascertain the tax chargeable. This legal position is in consonance with Sections 107 and 112 of the Evidence in that the balance of proof lies with the party with the knowledge of facts. Further Section 30 of the Tax Appeals Tribunal Act (TATA) and Section 56 of the TPA imposes the burden of proof on the tax payer to prove that an assessment was wrong or that it was excessive.”

32. The Tribunal finds that the Appellant has failed to discharge its burden of proof. The Appellant has failed to establish that the Respondent erred in confirming the additional assessments. Consequently, the Tribunal finds and holds that the Respondent’s objection decision dated 4th November, 2022 was justified.

Final Decision 33. The upshot to the foregoing is that the Appeal lacks merit and consequently, the Tribunal makes the following Orders:a.The Appeal be and is hereby dismissed.b.The objection decision dated 4th November, 2022 be and is hereby upheld.c.Each party to bear its own costs.

34. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 5TH DAY OF APRIL, 2024CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERDELILAH K. NGALA - MEMBERSPENCER S. OLOLCHIKE - MEMBERGEORGE KASHINDI - MEMBER