[2024] KETAT 705 (KLR)

Maragwa v Commissioner of Domestic Taxes (Tax Appeal 371 of 2023) [2024] KETAT 705 (KLR) (24 May 2024) (Judgment)

Neutral citation: [2024] KETAT 705 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 371 of 2023

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

May 24, 2024

Between

Francis Waigwa Maragwa

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is an individual taxpayer carrying out the business of retail within the Republic of Kenya.

2. The Respondent is a principal officer appointed pursuant to Section 13 of the Kenya Revenue Authority Act (KRA), Act No. 2 of 1995, and KRA is empowered to enforce and administer provisions of written laws set out in Section 5 as read together with the First Schedule of the KRA Act.

3. The Respondent conducted a tax audit into the business affairs of the Appellant for the tax period 2017 to 2019.

4. On the 27th October 2022, the Respondent raised additional VAT assessments of Kshs. 1,590,894. 03 based on the variances.

5. The Appellant lodged objections to the additional VAT assessments on itax on 8th November, 2022.

6. The Respondent issued its objection decision on 5th January, 2023 confirming the assessments.

7. The Appellant aggrieved by the Respondent’s objection decision dated 5th January, 2023 lodged the Appeal herein on the 31st May, 2023.

The Appeal 8. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal filed on 31st May, 2023: -i.That the documents and full summary of the tax came late when the Appellant had already filed for the Appeal of 2019 and the letter was directed to the tax payer who is not conversant with tax matters.ii.That both VAT and income tax were all forwarded in time and no return has been late.iii.That any excessive figure in the bank statements were for the church of the tax payer since he was acting as a treasurer.

The Appellant’s Case 9. Appellant’s case is premised on the following documents before the Tribunal:i.Its Statement of Facts dated 29th May 2023 and filed on 31st May 2023. ii.Its Written Submissions dated 21st February, 2024 and filed on 23rd February, 2024.

10. The taxpayer averred that he successfully made his return for income tax, rental and VAT to date.

11. The Appellant averred that part of the assessed amount Kshs. 840,843. 54 for the year 2019 was already being handled on a separate Appeal Case No. TAT 167/2023 hence duplicated.

12. That the letter of 11th October 2022 tripled to attract variance which did not exist. That the figures of variance as reflected were school lab sales which are zero rated.

13. That the sales were repeatedly marched both for general rate and zero rated.

Appellant’s Prayers 14. The Appellant prayed that the assessed taxes be revised to nil to allow the taxpayer concentrate on current tax matters.

Respondent's Case 15. The Respondent’s case is premised on the following documents:-i.The Respondent’s Statement of Facts dated 22nd June 2023 and filed on the same date.ii.The Respondent’s written submissions dated 17th November 2023 and filed on 20th November, 2023.

16. The Respondent submitted that the Appellant is under a legal duty under Sections 24 and 28 of the Tax Procedures Act, 2015 to submit self-assessment VAT returns but the Respondent is not bound by the information contained therein and can assess the tax liability based on any other available information.

17. The Respondent submitted further that the Commissioner is empowered under Section 31 of the Tax Procedures Act, 2015 to amend self-assessments where a taxpayer has been assessed of a lesser amount and to issue additional tax assessments based on any additional available information and to the best of his judgment.

18. The Respondent averred that the additional VAT assessments were based on variances between turnover declared in the Appellant's Income tax returns and the sales declared in the VAT returns for the tax period years 2017 to 2019.

19. The Respondent averred that the Appellant objected to the additional VAT assessments on itax on 8th November 2022 and that vide an email dated 22nd December 2022, the Appellant was requested to avail the following additional documents: sales and purchases ledgers, audited accounts, church funds bookkeeping and bank statements for the period under review in support of its objection but he failed to avail the same.

20. The Respondent averred that the additional VAT assessments were confirmed vide the objection decision dated 5th January, 2023 as the Appellant failed to support his objections with documentation.

21. The Respondent averred that Sections 58 and 59 of the Tax Procedures Act, 2015 empowers the Respondent to enquire into the tax affairs of a taxpayer and examine documents to establish the tax liability. The Respondent relied on the case of Anne Wanjiku Kahwai Vs Kenya Revenue Authority & Another (2019) eKLR where the Court found that:-“In summary, I find that the Respondents were and are, entitled to carry out investigations and utilize the information obtained in the fulfilment of their statutory mandates. Further, the Respondents were and are, entitled to inform the Petitioners of the outcome of their investigations insofar as such outcome will affect the Petitioners. This would include identifying unpaid or apparently unpaid taxes, and requiring the Petitioners, by notice to appear before the 2nd Respondent to produce records and information in respect of the tax liability or for any other purposes relating to a tax law, pursuant to sections 61 and 59 of the Tax Procedures Act,"

22. The Respondent posited that the method it applied in issuing additional VAT assessments based on variances between turnover declared in the Appellant's Income tax returns and the sales declared in the VAT returns for the tax period years 2017 to 2019 was proper.

23. The Respondent also relied on the case of Robert Muhia Karanja Vs Commissioner of Domestic Taxes (2011) eKLR where the High Court held that:“I am satisfied that the Respondent was entitled to use the procedure he did, i.e. daily meter/shift sheets to ascertain the sales for the period 1st February - 23rd March 2002. I am also satisfied that with the Appellant failing to produce and avail to the Respondent his bank statements and receipt books, the Respondent was entitled to use his best judgment, which was to rely on the actual daily meter books to be able to ascertain the total volume of the Appellants annual sales of fuel. This I believe is in tandem with the provisions of Section 77 of the Income Tax"

24. The Respondent further relied on Tumaini Distributors Company (K) Limited v Commissioner of Domestic Taxes [2020] eKLR where it was held that:“The Commissioner clearly explained that it based its decision the statement of accounts and returns the Company had filed. The Tribunal appreciated this fact when it concluded that it was the duty of the Company to provide all the documents and that the Commissioner was entitled to rely on the self­ assessments and returns lodged by the Company in the absence of any other documents."

25. The Respondent averred that the claim that the excessive figure in the bank statements were for a church where the Appellant was acting as treasurer was unsubstantiated as there was no evidence of documentation to support the claim.

26. The Respondent submitted that the burden of proof is upon the Appellant to prove that the tax decision was incorrect or that the assessment is excessive as provided for under Section 56 of the Tax Procedures Act, 2015 and Section 30 of the Tax Appeals Tribunal Act, 2013.

27. That Section 107 (1) of the Evidence Act further provides that:-“Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist."

28. The Respondent relied on Primarosa Flowers Limited v Commissioner of Domestic Taxes [2019] eKLR, where it was held that:“In the instant appeal, I find the burden of proof that TAT Tribunal relied on extraneous factors and that the Appellant carried out multiple conversions lies with the Appellant. In the instant case, the Appellant has not produced any documentary evidence, that the currency of the transaction or export documents were in dollars or payment were received in dollars. I find the Appellant has not discharged the burden of proof to the required standard of proof"

29. The Respondent further averred that the Appeal herein was filed out of time (3 months late) without leave of the Tribunal and that the same should be struck out with costs to the Respondent.

30. That Section 13 of the Tax Appeals Tribunal Act provides as follows;“The Tribunal may, upon application in writing, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2)."

Respondent’s Prayers 31. The Respondent prayed to the Tribunal to find that:-i.That the objection decision dated 5th January, 2023 is proper in law and the same be upheld.ii.This Appeal be dismissed with costs to the Respondent as the same is without merit.

Issues For Determination 32. The Tribunal upon due consideration of the pleadings and submissions filed on the part of both parties was of the view that the issues that crystalized for its determination were as follows: -a.Whether there was a valid Appeal before the Tribunal.b.Whether the Respondent erred in its assessment of tax on the Appellant.

Analysis And Determination 33. Having identified the issues for determination, the Tribunal proceeds to analyse the same as hereunder:-

a. Whether there was a valid Appeal before the Tribunal. 34. The Respondent submitted that at the first instance it was raising a preliminary objection stating that the Appeal as filed contradicted the provisions of Section 13(1) of the Tax Appeal Tribunal Act, 2015.

35. The Respondent averred that the Appeal as filed was improper and failed to follow the procedural manner stipulated in law, the Respondent sought to have the same struck out.

36. The Appellant on his part acknowledged in his Notice of Appeal that his Appeal was out of time, however he did not seek leave of the Tribunal as required by Section 13 of the TAT Act.

37. Section 13 of the Tax Appeals Tribunal Act provides as follows regarding Appeals to the Tribunal;“Procedure for appeal(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 Tribunal, of—(a)a memorandum of appeal;(b)statements of facts; and(c)the tax decision.(3)The Tribunal may, upon application in writing, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).”(Emphasis added)

38. The disputed tax decision was issued on 5th January 2023, therefore the Appellant ought to have filed his Notice of Appeal on or before 5th February 2023. The Tribunal notes that the Appellant filed the Appeal on the 31st May 2023 which was more than 3 months late.

39. A taxpayer who defaults in lodging an Appeal within the statutory timeline has the legal remedy to seek for leave from the Tribunal to lodge the same out of time. This is provided for under Section 13 (3) and (4) of the Tax Appeal Tribunal Act, which states as follows:-“(3)The Tribunal may, upon application in writing, 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.” (Emphasis added)

40. A perusal of the Appeal documents lodged by the Appellant indicates that the Appellant acknowledged that his Appeal was late, however he did not seek for leave for the enlargement of time from the Tribunal.

41. The Tribunal is bound to uphold the strict statutory timelines provided by law to any party. The High Court in emphasizing the strict application of statutory timelines had this to say in Equity Group Holdings Limited -Vs- Commissioner of Domestic Taxes 2021 (eKLR):-“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………”

42. The Tribunal was of the view that the Appellant could not found an appeal against the tax decision out of time without applying to the Tribunal for enlargement of time. In the light of the foregoing circumstances the Appeal lodged by the Appellant is found to be invalid.

43. Having found that the Appeal is invalid, the Tribunal will not delve into the substantive issue in the Appeal as the same has been rendered moot.

Final Decision 44. Based on the foregoing analysis the Tribunal determines that the Appeal is incompetent and unsustainable in law. The Orders that accordingly recommend themselves to the Tribunal are as follows: -i.The Appeal be and is hereby struck out.ii.Each party to bear its own costs.

45. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 24TH DAY OF MAY, 2024. ERIC NYONGESA WAFULA -CHAIRMANDR RODNEY O. ODHIAMBO - MEMBERCYNTHIA B. MAYAKA - MEMBERABRAHAM K. KIPROTICH - MEMBERTIMOTHY B. VIKIRU - MEMBER