[2023] KETAT 985 (KLR)

Mazeras Kenya Epz Limited v Commissioner of Domestic Taxes (Tax Appeal 827 of 2022) [2023] KETAT 985 (KLR) (15 September 2023) (Judgment)

Neutral citation: [2023] KETAT 985 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 827 of 2022

RM Mutuma, Chair, W Ongeti, M Makau, EN Njeru & BK Terer, Members

September 15, 2023

Between

Mazeras Kenya Epz Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company and licensed under the Export Processing Zone Act (hereinafter referred to as “the EPZA”), Kenya, whose principle business activity is investing in property.

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 general administration of tax revenue, on behalf of the Government of Kenya.

3. The Respondent raised additional assessments via a letter dated 18th October 2021 to the Appellant on a property transaction.

4. On 22nd October 2021 the Appellant replied to the Respondent’s demand letter explaining the transaction and that it was exempted from stamp duty.

5. On 11th January 2022 the Respondent issued a demand notice for tax in arrears. The Appellant objected to the assessments on 13th January 2022. On 22nd June 2022, the Respondent issued an objection decision confirming its assessment.

6. On receiving the objection decision and being aggrieved by the same, the Appellant lodged its Notice of Appeal dated the 22nd July, 2022.

The Appeal 7. The Appellant in its Memorandum of Appeal dated 5th August 2022 and filed on 8th August 2022, premised its appeal on the grounds that; -i.The Respondent erred in law by the wrongful interpretation of Section 29(2)(e) of the Export Processing Zone Act Cap 517 (EPZ Act) which exempts stamp duty on the execution of instruments that relate to the business activities of an Export Processing Zone Enterprise.ii.The Respondent erred in law by failing to consider the provisions of Section 117 of the Stamp Duty Act that grants an exemption from stamp duty on all instruments related to the licenses of business activities of an export processing zone enterprise.iii.The Respondent erred in law by wrongly interpreting the contextual or purposive reading of both statutes Stamp Duty Act Cap 480 and the EPZ Act Cap 517, which must remain faithful to the actual wording of the statute.iv.The Respondent erred in failing to provide the statute in which it is relying on rendering a decision that negated a cultivated legitimate expectation, making such a decision in bad faith contrary to the Fair Administrative Actions Act Cap 4 of 2015.

The Appellant’s Case 8. The Appellant has set out its case premised on the hereunder filed documents:i.The Appellant’s Statement of Facts dated 5th August 2022 and filed on 8th August 2022 together with the documents attached thereto.ii.The Appellant’s written submissions dated 6th April 2023 and filed on 12th April 2023.

9. The Appellant stated that the Respondent failed to correctly interpret the provisions of the EPZA and Stamp Duty Act wrongfully imposing stamp duty on a transaction that is exempt from stamp duty.

10. The Appellant cited Sections 2 and 29 (2) (e) of the EPZA and averred that it qualifies as an EPZ enterprise having applied to EPZA and obtained its EPZ license.

11. The Appellant cited Sections 2, 17 (3), and 117 (j) of the Stamp Duty Act and stated that the sale of land will fall under Section 117(j) of the Stamp Duty Act upon establishing to the collector that the transfer document falls under the definition of Section 117 (j).

12. The Appellant relied on the case of Cape Brandy Syndicate vs. Inland Revenue Commissioner [1921] 1KB 64 where the court held that; -“In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.”

13. Further, the Appellant relied on the case of Republic vs. Kenya Revenue Authority & Another ex Parte Fontana Limited [2014] where the learned judge stated as follows:-“In a taxing Act one has to look merely at what is clearly stated. There is no room for any intendment. There is no equity about tax. There is no presumption as to tax.”

14. The Appellant maintained that the Respondent’s decision contravenes Section 4 of the Fair Administrative Actions Act for rendering an unlawful and unfair decision, and also contravenes Section 29 (2) (e) of the EPZA and Section 117 (j) of the Stamp Duty Act for violating a cultivated legitimate expectation.

15. The Appellant contended that it presented the transfer instrument to the Respondent for the assessment of stamp duty who assessed the instrument and deemed it exempt due to the provisions of Sections 29 (2) (e) of the EPZA and Section 117 (j) of the Stamp Duty Act creating a natural expectation that no stamp duty was due.

16. The Appellant averred that revoking this position is a clear breach of legitimate expectation and quoted De Smith, Woolf & Jowell “Judicial Review of Administrative Action” 6th Edition Sweet & Maxwell at Page 609“A legitimate expectation arises where a person responsible for taking a decision has induced in someone a reasonable expectation that he will receive or retain a benefit of advantage. It is a basic principle of fairness that legitimate expectations ought not to be thwarted. The protection of legitimate expectations is at the root of the constitutional principle of the rule of law, which requires predictability and certainty in government’s dealings with the public.”

17. The Appellant further quoted the case of The Kenya Revenue Authority vs. Export Trading Company Ltd [2022] and stated that it is unfair and against the natural expectation for the Respondent to issue a decision that directly negates and contravenes a legitimate expectation created under the law and by its own actions.

18. The Appellant also relied on the case of Doody vs. The Home Secretary of State [1993] 1 ALLER 151 where it was held that:-“Where an Act of Parliament confers administrative power there is a presumption that it will be exercised in a manner which is fair”

19. The Appellant relied on the case of Kenya Revenue Authority vs. Export Trading Company Ltd KESC 31 (KLR) where it was held that:-“The emerging principles may be succinctly set out as follows:a.there had to be an express, clear, and unambiguous promise given by a public authority;b.the expectation itself had to be reasonable;c.the representation had to be one which it was competent and lawful for the decision-maker to make; andd.there cannot be a legitimate expectation against clear provisions of the law or the Constitution.”

20. The Appellant cited Sections 2 and 17 of the Stamp Duty Act and argued that it sought the collector’s opinion on whether the transfer was chargeable with any duty and the amount and supplied the Respondent with a counterpart of the transfer to the Respondent as evidence who informed the Appellant that the transfer was exempt from stamp duty.

21. The Appellant submitted that by affixing the exemption stamp to the transfer, the Respondent gave the impression that the transfer was exempt which impression the Appellant relied on to proceed with the transaction without paying stamp duty.

22. The Appellant further cited the case of Kenya Revenue Authority vs. Export Trading Company Ltd where it was held:“We must agree with the Court of Appeal that a legitimate expectation arose since the appellant failed to collect duty at the applicable rate, having applied the rate of 35% in their Tradex Simba system. It is also incomprehensible how the appellant, four years after the assessment of duty, demanded for payment of extra duty when it sat on its laurels having itself assessed the duty payable. This act is unreasonable for the reason that, first, it is totally irrational and unreasonable to require the respondent to carry the burden of being aware of any mistakes made by the Tradex Simba system, a system run by the appellant. Second, it is also incomprehensible how the respondent should be made to suffer the consequences of the actions of the appellant of failing to input the correct rate in a system it had full control over. This line of reasoning is, with respect, misguided. It misses the point that judicial review is not concerned with the merits of the case but the decision-making process…To our minds, the appellant did indeed give indication that the respondent had already paid all taxes due to it.

23. The Appellant submitted that the Respondent purported to punish the Appellant for a mistake that the Respondent has claimed it made and the Respondent became functus officio after exercising its powers under Section 17 (3) of the Stamp Duty Act and could not lawfully exercise the same power again.

24. The Appellant also relied on the case of Raila Odinga and 2 others vs. Independent Electoral & Boundaries Commission & 3 Others [2013] eKLR where the court stated as follows:“The functus officio doctrine is one of the mechanisms by means of which the law gives expression to the principle of finality. According to this doctrine, a person who is vested with adjudicative or decision-making powers may, as a general rule, exercise those powers only once in relation to the same matter.… The [principle] is that once such a decision has been given, it is (subject to any right of appeal to a superior body or functionary) final and conclusive. Such a decision cannot be revoked or varied by the decision-maker.”

25. The Appellant cited Section 51 (11) of the Tax Procedures Act 2015 and submitted that it lodged its notice of objection on 19th January 2022 within the sixty days for the Objection Decision to be issued lapsing on 20th March 2022 giving the Respondent the reasonable expectation that the Respondent had allowed the Objection in its entirety.

26. The Appellant submitted that the Respondent’s demand dated 11th January 2022 detailed taxes payable expressly stating that the interest it was claiming was zero.

27. The Appellant cited Section 51 (8) of the Tax Procedures Act 2015 and reiterated that it could only respond to issues raised in the demand which is the principal tax and a penalty but the Respondent added interest on its objection decision and that it did not have the power to extend the scope of a demand for taxes.

28. The Appellant relied on the case of Republic vs. Anti-Counterfeit Agency Exparte Caroline Mangala t/a Hair Works Saloon [2019] eKLR where it stated:“In all these senses, bad faith describes the exercise of delegated authority that is illegal and renders the consequential act void. And in all these senses bad faith must be proven by evidence of illegal conduct, adequate to support the finding of fact… Bad faith can be inferred where there is a deliberate breach of due process or where the decision maker appears to have been influenced by irrelevant considerations.”

29. The Appellant argued that the Respondent can only revoke or amend its own decision when empowered by a specific provision of the law and revocation outside of statute being ultra vires and the Respondent did not provide a basis for its revocation of an exemption lawfully granted.

30. The Appellant cited Section 79 of the Tax Procedures Act and the case of Republic vs. Advocates Disciplinary Tribunal Ex Parte Apollo Mboya [2019] eKLR where it was held as follows:“...no error can be said to be apparent on the face of the record if it is not manifest or self-evident and requires an examination or argument to establish it…”

31. The Appellant submitted that the Respondent did not cite the mistake as the basis for its decision neither did it provide reasons for the demand in its letter dated 11th January 2022 and it does not have the power to introduce novel reasons/justifications in an objection decision.

32. The Appellant maintained that the Respondent’s attempt to revoke the exemption was unlawful and done in bad faith as the Respondent was aware that it had all the relevant facts at the time it made the decision, had not demonstrated any wrongdoing on the Appellant’s part, failed to state the provision of the law that empowers it to revoke its exemption without the Appellant being at fault, failed to provide reasons for the revocation in its initial demand and introduced new reasons in its objection decision contrary to Section 58 of the Tax Procedures Act.

33. The Appellant cited Sections 21 and 22 of the EPZA and submitted that since the law empowers it to own or lease the land or buildings it seeks to operate from and since it engages in the business of leasing, sub-leasing or selling land or buildings to other EPZ enterprises at a fee, the transfer of the subject property was relevant and crucial to its business as an EPZ developer because its license was contingent on its leasing or purchasing that parcel of land and it is a permitted revenue source.

34. The Appellant also cited Section 19 (2A) and 19 (3) of the EPZA and maintained that it was issued with an EPZ licence on 27th July 2016 specifying that it was authorized to carry out its EPZ activities at LR No. 1043/111/54. It added that EPZ issued three subsequent licences authorizing it to carry out its EPZ activities on the same parcel of land.

35. The Appellant reiterated that since the Respondent was consulted before issuing each licence, it is deemed to have known before 27th July 2016 that the parcel of land was the only premises at which the Appellant was authorized to carry out its EPZ activities from which it informed the Respondent’s decision to exempt the transfer in 2017 only for it to awake from its slumber four years later to demand the tax it exempted.

36. The Appellant cited Sections 2 and 29 (2) (e) of the EPZA and submitted that it was an EPZ developer and was issued with licences to that effect and having purchased the property to meet the licensing requirements of the EPZA and to enable it to carry out the leasing, the transfer was executed in relation to its activities as an EPZ enterprise thus exempt from stamp duty.

37. The Appellant cited Section 42 (9) of the Tax Procedures Act and the case of Total Kenya Limited vs. Kenya Revenue Authority; Barclays Bank of Kenya Limited & 2 Others (supra) and submitted that no copy of the agency notices was served on it and the burden of proving service of agency notices on the Appellant lies on the Respondent as per the case of Stephen Boro Gitiha vs. Nicholas Ruthiru Gatoto & 2 Others [2017] eKLR.

The Appellant’s Prayers 38. Pursuant to the aforementioned the Appellant made the following prayers to the Tribunal;a.That the Tribunal allow this Appeal.

The Respondent’s Case 39. The Respondent’s case is premised on:i.The Respondent’s Statement of Facts dated and filed on 7th September 2022. ii.The Respondent’s written Submissions dated and filed on 13th April 2023.

40. The Respondent averred that Section 117 (1) (j) of the Stamp Duty Act would not apply to the transfer of land. It posited that the said Section states that:-“the exemption of all instruments with respect to licences of business activities of an export processing zone enterprise licenced under the Export Processing Zones Act.” Therefore, Exemption is only for instruments with respect to licenses.

41. The Respondent further averred that Section 29 (2) (e) EPZA provides for 'exemption from stamp duties on the execution of any instruments relating to the business activities of an export processing zone enterprise' Therefore it does not relate to the transfer of land as a business activity of an EPZ.

42. That Based the provisions of Section 117 (1) (j) of the Stamp Duty Act and Section 29 (2) (e) EPZ Act the Respondent found that there was no exemption available to the Appellant as the transfer related to the transfer of land and hence the assessment was confirmed.

43. The Respondent submitted that the taxes totaling Kshs. 106,327,150. 00 emanated from services that do not fall under Paragraph 1 of the Second Schedule of the VAT Act 2013.

44. It relied on Section 2 (1) of the VAT Act and the case of Commissioner of Domestic Taxes vs. Total Touch Cargo Holland [2018] eKLR where the court held:“A clear reading of this provision is that for a service to be deemed an “exported service”, it matters not whether that service was performed in Kenya or outside Kenya. The determining factor is the location where that service is to be finally used or consumed. Therefore, an exported service will be one which is provided for use or consumption outside Kenya.”

45. It further cited Section 8 of the VAT Act and the case of Sturrock Shipping (K) Limited vs. Commissioner DTD in which the Tribunal held that the charges levied by the Appellant were chargeable to VAT as they were rendered in Kenya post landing and that VAT is collectible from the Appellant and not the importers.

46. On whether the Respondent erred by rejecting refund claims totaling Kshs. 65,824,858. 00 for being claimed out of time the Respondent submitted that contrary to the provisions of Section 11 (2) (a) of the VAT Act, the Appellant failed to lodge its claim within the stipulated time thus the claim was rejected.

47. It relied on Section 30 of the Tax Appeals Tribunal Act and reiterated that the Appellant failed to discharge the duty it had under Section 56 of the Tx Procedures Act and Section 30 of the Tax Appeals Tribunal Act and the cases of Commissioner of Domestic Taxes vs. Golden Acre Limited [2021] eKLR and Sheria Sacco Limited vs. Commissioner of Domestic Taxes ML HC ITA No. 36B of 2017 [2019] eKLR where it was held as follows:“The SACCO did not meet that burden of proof.”

48. In the Australian case of Mulheim vs. Commissioner of Taxation |2013| FCAFC 115 the Full Federal Court of Australia (PFC) held:“A taxpayer must satisfy the burden of proof to successfully challenge income tax assessments. The PFC held that it is not enough for a taxpayer to simply demonstrate that the assessment issued by the Commissioner is incorrect. Rather, the onus is on the taxpayer in proving that an assessment issued by the Commissioner is excessive can only be discharged by the taxpayer by adducing positive evidence which demonstrates the taxable income on which tax ought to have been levied. That onus requires the taxpayer to positively prove his or her 'actual taxable income' and in doing so, must show that the amount of money for which tax is levied by the assessment exceeds the actual substantive liability of the taxpayer.”

49. It argued that the Appellant has failed to adequately demonstrate that the tax assessments carried out by the Respondent were incorrect and ought to be forbidden from pursuing the prayers sought.

The Respondent’s Prayers 50. The Respondent made the following prayers to the Tribunal: -i.That the objection decision dated 22nd June 2022 be upheld.ii.That the Appeal be dismissed with costs to the Respondent.

Issues For Determination 51. Gleaning through the Memorandum of Appeal, the parties’ Statements of Facts, and submissions, the Tribunal puts forth the following issue for determination:i.Whether the Tribunal is seized of jurisdiction to entertain this A8ppeal.

ANALYSIS AND FINDINGS 52. The Tribunal wishes to analyze the issue as herein-under.

i.Whether the Tribunal is seized of jurisdiction to entertain this Appeal. 53. This Appeal arose from the Respondent’s objection decision dated where the Respondent confirmed an assessment for stamp duty relating to the transfer of a parcel of land within the EPZ by the Appellant.

54. Whereas the Respondent submitted extensively on the issue of an assessment on VAT, the Tribunal upon perusal of the pleading on record, noted that neither was the issue of the Respondent having assessed the Appellant on VAT had not been pleaded by the Respondent, nor was there an assessment on VAT in the objection decision. It is trite law that, parties are bound by their pleadings, this Tribunal shall therefore not delve into the issue of VAT as it has no nexus to the proceedings herein.

55. The said assessment is governed under the Stamp Duty Act Cap 480 the Laws of Kenya. Under Section 2 of the Stamp Duty Act “Duty” and “Stamp Duty” means any stamp duty for the time being chargeable by any written law.

56. The Stamp Duty the Respondent sought to collect from the Appellant is chargeable under Section 5 of the Stamp Duty Act which states that:“Subject to the provisions of, and to the exemptions contained in, this Act and any other written law, every instrument specified in the Schedule, wheresoever executed, which relates to property situated, or to any matter or thing done or to be done, in Kenya, shall be chargeable with the stamp duty specified in that Schedule….”

57. Further, Section of 18 (1) of the Stamp Duty Act provides in relation to appeals pursuant to dissatisfaction with the assessment of the collector of Stamp Duty:“Any person who is dissatisfied with the assessment of the collector may, within thirty days after the date of the assessment, and on payment of duty in conformity therewith, or on securing the duty to the satisfaction of the collector, appeal against the assessment to the High Court, and may for that purpose require the Collector to state and sign a case, setting out the question upon which his opinion was required, and the assessment made by him…”

58. The Tribunal notes that the Appeal herein relates to an assessment of stamp duty by the collector and any such Appeal may only be lodged with the High Court.

59. The Tribunal observed that in its objection decision, the Respondent advised the Appellant to;“..if dissatisfied may appeal this decision to the tax appeals Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act, 2013”.

60. Section 12 of the Tax Appeals Tribunal Act, provides for appeals to the Tribunal as follows:“A person who disputes the decision of the Commissioner on any matter arising under the provisions of any tax law may, subject to the provisions of the relevant tax law, upon giving notice in writing to the Commissioner, appeal to the Tribunal”

61. Additionally, Section 2 of the Tax Procedures Act defines tax laws as follows:“tax law” means—(a)this Act;(b)the Income Tax Act, Value Added Tax Act, and Excise Duty Act, the Miscellaneous Fees and Levies Act, 2016; and(c)any Regulations or other subsidiary legislation made under this Act or the Income Tax Act, Value Added Tax Act, Excise Duty Act, and the Miscellaneous Fees and Levies Act, 2016;”

62. The Tribunal notes that the Stamp Duty Act is not a tax law as defined under Section 2 of the Tax Procedures Act and therefore any appeal(s) of the Collector’s decisions are not appealable decisions as envisaged under the Tax Appeals Tribunal Act and the Tax Procedures Act.

63. Invariably so, in the instant Appeal and pursuant to the provisions of Section 18 of the Stamp Duty Act, any appeal(s) emanating from the assessment of the Collector of the Stamp Duty are competently entertained before the High Court and the mode of recovery of such duties and penalties by the Collector from the payer of such duties is provided for under Section 29 of the Stamp Duty Act as civil debts recoverable summarily.

64. The Tribunal therefore finds that it is not seized of the jurisdiction to entertain this Appeal and the Tribunal must at this point down its tools.

Final Decision 65. Based on the foregoing analysis, the Tribunal finds that the Appeal is incompetent and accordingly proceeds to make the following Orders;-a.The Appeal be and is hereby struck out.b.Each Party to bear its own costs.

66. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 15TH DAY OF SEPTEMBER 2023. ROBERT M. MUTUMA - CHAIRPERSONDR. WALTER ONGETI - MEMBERMUTISO MAKAU - MEMBERELISHAH N. NJERU - MEMBERBONIFACE K. TERER - MEMBER