[2023] KETAT 572 (KLR)

Mak Performance Systems Limited v Commissioner of Domestic Taxes (Tax Appeal 1220 of 2022) [2023] KETAT 572 (KLR) (Civ) (19 October 2023) (Judgment)

Neutral citation: [2023] KETAT 572 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tax Appeal 1220 of 2022

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

October 19, 2023

Between

Mak Performance Systems Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company duly incorporated in Kenya. The Appellant’s business is premised in Nairobi and involves tendering and general supplies.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and the Kenya Revenue 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. On 19th January, 2022, the Appellant was assessed for additional Value Added Tax for the month of December, 2020 in the sum of Kshs. 4,827,335. 63.

4. Dissatisfied with the said assessment the Appellant on 7th July 2022, lodged an objection against the assessment.

5. On 19th July, 2022, the Respondent wrote to the Appellant seeking for evidence for the late objection since the Appellant had alleged that he was out of the Country. The Appellant was asked to provide the evidence by 20th July 2022.

6. On 21st July 2022, the Respondent issued a decision rejecting the application for extension of time to lodge a notice of objection.

7. The Respondent declared the objection invalid and confirmed the assessment of the sum of Kshs. 3,219,488. 22 being principal sum of additional VAT along with the resultant penalties and interest.

8. The Respondent deemed the assessed amounts as due and owing and therefore proceeded to issue agency notices.

9. Aggrieved by the actions of the Respondent, the Appellant filed the instant Appeal via a Notice of Appeal dated 18th October 2022 and filed on the same date.

The Appeal 10. The Appeal is premised on the Memorandum of Appeal filed on 18th October 2022 raising the following grounds: -a.That the Respondent erred in fact and in law in issuing estimated VAT assessments for the month of December 2020. b.That the said additional assessment taxes amounting to Kshs. 4,827,335. 63 are unfounded, excessive and not based on any facts or law.c.That the Respondent erred in fact and in law by issuing agency notice to the Appellant's bank without first issuing the Appellant with a demand and/or an objection decision.

The Appellant’s Case. 11. The Appellant’s case was premised on its Statement of Facts filed on 18th October 2022 together with the attachments thereto.

12. The Appellant averred that on 11th October, 2022 it was notified by its bank that its account had been restricted by the Respondent and that it could not draw or honor any obligations from the account.

13. That through its director, it reached out to the Respondent and was informed that the application for late objection had been denied, and a confirmation issued.

14. That on the same day, the director visited the Respondent's offices and was served with a correspondence dated 21st July 2022, which notified the Appellant that its application for extension of time to lodge a notice of objection had been denied.

15. That the said decision was served upon the Appellant by the Respondent outside of the statutory timelines thereby locking it out from filing an appeal within the time allowed under the law.

16. That further, the Appellant is Constitutionally protected and its right to privacy protected by the Bank that was issued with the Agency Order owing to the fiduciary trust placed on it as custodians of its financial property.

17. That the Appellant is not in any way indebted to the Respondent as per the tax decision it arrived at.

Appellant’s prayers. 18. The Appellant prayed to the Tribunal to vacate the tax decision made by the Respondent on 21st July 2022.

The Respondent’s Case 19. The Respondent premised its case on the following documents:-a.The Respondent’s Statement of Facts dated 22nd November 2022 and filed on the same date.b.The Respondent’s Written Submissions dated 15th May 2023 and filed on 16th May 2023.

20. In response to the Appeal, the Respondent averred that Section 13 (6) of the Tax Appeals Tribunals (TAT) Act, states that: -“The appellant shall, unless the Tribunal orders otherwise, be limited to the grounds stated in the appeal or documents to which the decision relates. "

21. That therefore, since ground 1 & 2 of the Memorandum of Appeal, do no relate to the Respondent's decision dated 21st July 2022, the Tribunal cannot be invited to determine the merits of the assessment as the decision was an invalidation of the objection by the Respondent, as per the provisions of Section 56(3) of the Tax Procedures Act (TPA) and Section 13(6) of the TAT Act.

22. That the Respondent did not render an objection decision since no valid objection was lodged and the Tribunal cannot therefore make a decision on the issues touching on the merit of the assessment. That the decision of the Respondent was restricted to the fact that the Appellant was unable to provide justifiable reasons for the late objection contrary to Section 51 (7) of the TPA.

23. That it was not in dispute that the Appellant failed to lodge an objection to the Appellant's assessment within 30 days of being notified of the decision as required by Section 51 of the TPA.

24. That the Appellant subsequently lodged an objection to the decision on 7th July 2022, being 138 days past the deadline on the grounds that the Appellant was out of the Country. That the Respondent sought evidence of the same on 19th July 2022, and the objection was declared invalid since the Appellant was not able to adduce any evidence to support the claim of having been out of the country.

25. The Respondent submitted that the Appellant bore the burden to prove that the additional assessments were excessive and from the documents adduced in support of its Appeal, the same is not evident and therefore the Appellant has failed to discharge this burden as required by Section 56 (1) of the TPA and Section 30 of the TAT Act.

26. That on the question of the agency notice, the same was equally proper andvalidly issued. That Section 42 of the TPA allows the Commissioner to collect taxes from a person owing money to the taxpayer by way of agency notices.

27. That in absence of a valid objection to the assessment raised on 19th January 2022, the taxes assessed at Kshs. 4,827,325. 63 were valid and still owing to the Respondent.

28. That the Respondent was well within the law to issue the said agency notices and in any event, the agency notices dated 26th September 2022 were lifted by the Tribunal vide its order issued on 28th October 2022.

29. The Respondent averred that this Appeal is unmeritorious on the basis that the additional VAT assessments were proper and duly anchored in law as there was no valid objection to the said assessments and the Respondent was well within the law to institute the enforcement measures against taxes owing and due to the Respondent.

30. The Respondent submitted that the following should be the issues for determination in this matter: -a.Whether the Appellant's notice of objection is valid.b.Whether the Respondent's decision to invalidate the objection is unfounded or excessive.

31. The Respondent submitted that the Appeal contravenes the provisions of Section 56 (3) of the Tax Procedures Act and Section 13 (6) of the Tax Appeals Tribunal in that the Appellant has set forth in grounds 1 & 2 of the Memorandum of Appeal, issues that do not relate to the Respondent's decision of 21st July 2022.

32. That Section 56(3) of the TPA provides that: -“In an appeal by a taxpayer to the Tribunal, High Court or Court of Appeal in relation to an appealable decision, the taxpayer shall rely only on the grounds stated in the objection to which the decision relates unless the Tribunal or Court allows the person to add new grounds".

33. That Section 13(6) of the TAT Act provides that: -“The appellant shall, unless the Tribunal orders otherwise, be limited to the grounds stated in the appeal or documents to which the decision relates.”

34. The Respondent submitted that the Appeal herein sought to challenge the decision of the Respondent that are not part of the decision of the Respondent. That parties cannot introduce new grounds at Appeal such as in the present instance and accordingly the Tribunal ought not to consider the same at this stage.

35. The Respondent submitted that the right of appeal under the TPA is not absolute. That it is conditional on the Appellant lodging a valid objection within the statutory period of 30 days after being notified of the decision in line with the provisions of Section 51(2) of the Tax Procedures Act.

36. That it is not in dispute that the Appellant was assessed for additional VAT on 19th January 2022 in the sum of Kshs. 4,827,335. 63. That the Appellant failed to lodge an objection within 30 days and instead took 138 days and filed an application for late objection on account that the Appellant was out of the country.

37. That the Respondent sought for evidence of the same but the Appellant did not validate the objection and thereafter the Respondent issued the notice of invalidation that is the subject of this Appeal.

38. The Respondent submitted that in absence of a valid objection, there is no decision that can form the basis of an appeal.

39. The Respondent relied on the case of Transfix Limited -Vs- Commissioner Of Domestic Taxes: Misc. No. 178 Of 2022, where the Tribunal opined that in the absence of valid objection by a taxpayer:-“.....there was no decision issued by the Commissioner that could possibly form a basis for an appeal before the Tribunal.....ln the circumstances the Tribunal finds that there is no conceivable appeal with merit that could be possibly filed by the Applicant for appropriate determination by the Tribunal."

40. The Respondent also relied on the case of Manchester Outfitters Limited Vs Commissioner of Domestic Taxes; Tat No 721 Of 2021, where the Tribunal when faced with the same question held that: -"It is now settled that the Taxpayer must comply with Section 51(3) of the TPA for validation of an objection that could crystallize in an objection decision, which leads to an appealable decision before the Tribunal.The notice of objection was lodged on 29th September 2020 against an assessment dated 15th November 2019. This fact has not been challenged by the Appellant by providing relevant document to contravene the same meaning that the Appellant did not comply with both Section 51(2) & (3) of the TPA.Having concluded that there was no valid objection, it follows that there is no valid Appeal as there is no Appealable decision to anchor this Appeal. The Appeal is thus not meritorious and must fail in this limb. "

41. The Respondent further submitted that Section 51(7) of the TPA states that;-“The Commissioner shall consider and may allow an application under section if-a.The taxpayer was prevented from lodging the notice of objection within the period specified in sub section (2) because of an absence from Kenya, sickness. or other reasonable cause; andb.The taxpayer did not unreasonably delay in lodging the notice objection."

42. The Respondent submitted that the Appellant filed a late objectio. n on the ground that the director was out of the Country. That it is trite law that he who alleges must prove as per Section 107 of the Evidence Act. That the Appellant failed to adduce any evidence to confirm that its director was out of the Country as alleged.

43. The Respondent submitted that it provided the email requesting the Appellant to provide evidence of being out of the Country to the Tribunal. That the Appellant failed to respond to the email which informed the invalidation of its objection.

44. The Respondent further submitted that the TPA creates a burden of proof for a taxpayer who alleges that the assessments were excessive or improper in line with the provisions of Section 56 (1) of the said Act as read with Section 30 of the TAT Act.

45. The Respondent also relied on the case of Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya[2021] eKLR where the court opined as follows on the Appellant's burden and standard of proof in tax disputes; -“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. If the taxpayer comes forward with such evidence, the presumption vanishes and the case must be decided upon the evidence presented, with the burden of proof on the taxpayer.

46. The court then proceeded to state (Man Diesel & Turbo Se) (supra), that:-“the taxpayer in such cases generally possesses the objective evidence. Certainly, with the exception of filed returns and information provided by the taxpayer, the Revenue Authority is in a poor position to establish an affirmative case ... Placing the burden of proof in tax cases on the taxpayer reflects the unique nature of the tax system."

47. The Respondent submitted that the Appellant has failed to discharge this burden. That there is no material placed before the Tribunal to support this assertion that the Respondent erred in invalidating the Appellant's objection on the grounds of being out of the Country. That there is even no evidence to support the assertion that the Respondent's assessments was erroneous and excessive.

48. The Respondent submitted that the Appellant was asked to support its objection with documentation as per its email of 19th July 2022, but the Appellant chose not to validate its objection and the Respondent had no choice but to make the decision of 21st July 2022 invalidating the same.

49. The Respondent submitted that having invalidated the Appellant's objection, there was no valid objection against the Respondent's assessment, therefore the taxes remained owing and the Respondent was entitled to enforce collection measures such as the agency notices issued.

50. That the Respondent was therefore well within the law to issue the said notices, notwithstanding the fact that the Tribunal has already lifted the agency notices vide its order of 28th October 2022.

Respondent’s prayers. 51. The Respondent prayed that the Tribunal:-c.Upholds the Respondent’s decision as proper and in conformity with the provisions of the law.d.That this Appeal be dismissed with costs to the Respondent as the same is devoid of any merit.

Issue For Determination 52. The Tribunal, having reviewed the Memorandum of Appeal, Statements of Facts filed by both parties, and the Respondent’s written submissions, identified the following issue for determination:-Whether the Respondent erred in rejecting the Appellant’s application to file an objection late.

Analysis And Findings 53. The genesis of the dispute before the Tribunal is the refusal by the Respondent to grant the Appellant extension of time to lodge a notice of objection to the VAT additional assessment of Kshs. 4,827,335. 63 for the month of December 2020.

54. The decision to decline to grant the application for extension of time to file a Notice of Objection was communicated to the Appellant vide a letter dated 21st July 2022.

55. The Tribunal notes that both the Appellant and the Respondent do not dispute the chronology of events and dates leading to the rejection of the application for extension of time to file a notice of objection to VAT additional assessment.

56. The Respondent submitted that it was not in dispute that the Appellant failed to lodge an objection to the Respondent’s assessment within 30 days of being notified of the decision as required by Section 51 of the TPA.

57. That the Appellant subsequently lodged an objection to the decision on 7th July, 2022, being 138 days later on the grounds that its director was out of the Country.

58. The Respondent submitted that on 19th July 2022 it sought evidence that the Appellant was unable to object to the assessment because its director was out of the Country.

59. The Respondent submitted that the Appellant did not provide evidence to prove that the director was out of the Country and the objection was therefore declared invalid.

60. The applicable law on late objection application is found in Section 51 (6), (7) and (7A) of the TPA, which speaks to extension of time to file late objection as follows: -“(6)A taxpayer may apply in writing to the Commissioner for an extension of time to lodge a notice of objection(7)The Commissioner shall consider and allow an application under subsection (6) if–a.the taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of absence from Kenya, sickness, or other reasonable cause; andb.the taxpayer did not unreasonably delay in lodging the notice of objection.(7A)The Commissioner shall notify the taxpayer of the decision made under subsection (7) within fourteen days after receipt of the application.”

61. The above laws place the obligation to make an application for late objection and provide reasons thereto on the Appellant.

62. Section 56 (1) of the TPA reinforces this obligation as follows: -“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect’.

63. The Respondent submitted that it requested the Appellant to provide reasons and evidence for its late objection application. The Respondent submitted to the Tribunal the email requesting the Appellant to provide evidence of being outside the Country.

64. The Tribunal further notes that the Appellant did not provide any evidence to support its application for late objection and did not address this issue in its pleadings.

65. The Tribunal reiterates its decision in TAT No. 55 of 2018 Boleyn International Ltd vs Commissioner of Investigations and Enforcement, where the Tribunal held as follows:“We find that the Appellant’s at all times bore the burden of proving that the Respondent’s decisions and investigations were wrong. The Tribunal is guided by the provisions of section 56(1) of the Tax Procedures Act, 2015, which states: In any proceedings under this part, the burden shall be on the tax payer to prove that a tax decision is incorrect.”

66. The Tribunal finds that the Appellant has not discharged its burden of proof that would have triggered the Respondent to allow its late objection application as required by Section 30 of the TAT Act. Consequently, the Respondent did not err in rejecting the Appellant’s application to file a late objection.

67. From the analysis above, the Tribunal holds that this Appeal is without merit and therefore fails.

Final Decision 68. Consequently, the Tribunal makes the following Orders: -a.The Appeal be and is hereby dismissed.b.Each party to bear its own costs.

69. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF OCTOBER, 2023GRACE MUKUHA..................... CHAIRPERSONTIMOTHY VIKIRU ..................MEMBERJEPHTHAH NJAGI................... MEMBERGLORIA A. OGAGA.................... MEMBER