[2023] KETAT 518 (KLR)

Melcotich Limited v Commissioner of Domestic Taxes (Tax Appeal 616 of 2022) [2023] KETAT 518 (KLR) (Civ) (19 October 2023) (Judgment)

Neutral citation: [2023] KETAT 518 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tax Appeal 616 of 2022

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

October 19, 2023

Between

Melcotich Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya with its principal activity being trading in general contractor and supplies.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya revenue Authority Act, 1995. 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 & 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 dispute in this Appeal ascended when the Respondent issued the Appellant with an additional assessment dated the 28th March 2021 on VAT for the period April 2021 amounting to Kshs 873,777. 28.

4. The Appellant disputed the Respondent’s findings and lodged its notice of objection to the additional assessment on 28th November 2021.

5. The Respondent, upon receipt of the Appellant’s notice of objection, vide the email of 9th December 2021 requested the Appellant to provide the relevant documentation in support of the Objection.

6. The Appellant acknowledged receipt of the email aforestated on the 14th December 2021, however, failed to provide the documents requested, subsequently the Respondent issued an invalidation notice to the Appellant’s objection on the 12th January 2022.

7. Thereafter, the Appellant on the 14th January 2022, forwarded part of the documents requested by the Respondent, however, the Respondent alleged not to have received the documents and made an enquiry vide the email dated 17th January 2022, which elicited no response from the Appellant.

8. The Appellant having failed to provide the requested documents, the Respondent proceeded and issued an objection decision dated 30th March 2022.

9. The Appellant being aggrieved by the objection decision issued by the Respondent, lodged its Notice of Appeal on the 14th June 2022.

The Appeal 10. The Appellant’s Memorandum of Appeal dated 27th May 2022 and filed on the 14th June 2022 is premised on the following grounds, that;a.The income relied upon to raise the additional assessment was already declared in the amended return for the month of November 2021. b.The Withholding VAT credit was not utilized when raising the additional assessment as well as in filing the said November returns as no VAT Withholding certificate was generated by the withholder on iTax.

Appellant’s Case 11. The Appellant’s case is premised on the herein under filed documents before the Tribunal;a.The Appellant’s Statement of Facts dated 27th May 2022 and filed on the 14th June 2022 together with the document attached thereto.b.The Appellant’s written submissions filed on the 14th March 2023.

12. That the Appellant stated that it had all the documents to support that the income relied upon had already been declared in a subsequent VAT return.

13. That the Appellant stated that it has all the bank statements and receipts as proof of payment in the period under review.

14. That the Appellant averred that it disputed the Respondent’s additional assessment and lodged its objection on iTax.

15. That the Respondent, based on its comparative analysis between the bank statements, invoices and VAT returns provided by the Appellant in support of its objection, revealed that the Appellant had earned income from the listed customers and duly declared in their VAT return for the month of November 2021.

16. That the Appellant averred that the Respondent noted that the Appellant provided all the requisite documents in support its objection and which clearly indicated that the said earned income was duly declared as had been shown from the documents provided.

17. That the Appellant asserted that, upon determination by the Respondent that the Appellant was unable to support its assertion that the initial invoices issued to the County and which the Respondent had relied on to issue the additional assessment had been cancelled and reissued afresh for onward payment by the customer, the Respondent went ahead and issued its objection decision on grounds of some missing documentation.

18. That the Appellant in its view raised the following issues for determination by the Tribunal;a.Whether the Respondent would rely on cancelled invoices not paid to raise additional assessments whereas the documents provided showed that the invoices were issued afresh, income earned and the same duly declared in the Appellant’s returns for November 2021 return as stipulated in the VAT Act.b.The Respondent contends that the income declared in the November 2021 return, be removed from the return and be declared in the month of April 2021 when the invoices were allegedly issued although the Appellant clearly demonstrated that the invoices were cancelled and not paid by the County due to lack of funds (sic).c.Whether the Appellant would utilize the withholding VAT credit in filing their VAT return in the absence of a Withholding VAT certificate which ought to be generated from the Respondent’s iTax platform and which was not generated although all documentation provided show the Withholding VAT had been deducted and no withholding certificate was issued on the same due to integration problems on the Respondent’s iTax platform.1. The Appellant submitted that, it is trite law that for an objection to be validly lodged, the Appellant must support its ground objection by adducing sufficient and relevant documents.2. That the Appellant, as required by law, provided proper documented records to support it grounds of objection as enshrined under Section 51 (3) of the Tax Procedures Act, the Appellant stated that it met the above requirement and which therefore is not in dispute.3. That it was the Appellant’s considered view that the issue in dispute was not whether the income was declared or not, in fact it was indeed declared. However, the bone of contention is as to whether in compliance with Section 35 of the VAT Act on the point of declaring was met.4. That the Appellant stated that the income was indeed correctly declared since it properly reconciled with the provided bank statements and which bank statements were provided, clearly show that there was no income received in the month of April which the Respondent raised the additional assessment on. Rather, the income relied upon by the Respondent was received and duly declared in the VAT return of the month of November 2021. 5.That the Appellant submitted that the Respondent relied on the date when the invoices were first issued without regard as to whether the invoices were later cancelled and not paid. This is clearly shown from the bank statements provided.6. That the Appellant submitted that the process of claiming input tax for VAT purposes, is a continuous process especially for the construction sector as projects could be ongoing for a long time without necessarily receiving any payment during the period. This is also essentially due to the strict timelines put for claiming input tax.7. That the Appellant submitted that there is sufficient proof in its Statement of Facts that the Respondent failed to make proper reference to the documents provided in arriving at its objection decision.8. The Appellant submitted that the Respondent failed to take into consideration all the supporting documentation provided in confirming the additional assessment therefore led the issuing of a wrong decision by the Respondent.9. In fortifying it position as submitted the Appellant relied on the following case;a.Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR.

Appellant’s Prayers 28. The Appellant made the following prayers to the Tribunal, that;i.It sets aside the Objection Decision and directs the Respondent to amend the assessment as per the VAT Act.ii.It directs the Respondent to amend the assessment as per returns and accounts as applicable.

Respondent’s Case 29. The Respondent’s case is premised on the herein under filed documents before the Tribunal;a.The Respondent’s Statement of Facts dated 10th July 2022 and filed on 18th July 2022 together with all the documents attached thereto.b.The Respondent’s written submissions dated 17th February 2022 and filed on 21st March 2022.

30. The Respondent stated that it picked the transactions as declared in the IFMIS as supply to Bomet County and State Department of Devolution and noted that the Appellant was yet to settle outstanding taxes due and owing from transactions declared but not paid. That the taxes were for the period June 2020, November 2020 and April 2021 amounting to Kshs 1,747,677. 72.

31. That the Respondent stated that upon completion of the analysis, the Respondent issued an assessment notice dated 28th October 2021 on VAT for the month of April 2021, with the principal tax liability of Kshs 873,777. 23.

32. The Respondent stated that the Appellant objected vide the Notice of Objection on 20th November 2021, to which the Respondent contacted the Appellant on 9th December 2021 requesting the Appellant to provide documents in support of the objection.

33. That the Appellant on 14th December 2021 acknowledged receipt of the Respondent’s email aforementioned, however, as stated by the Respondent, the Appellant did not furnish any documents. That consequently, on 12th January 2022, the Respondent issued an invalidation notice to the Appellant.

34. The Respondent averred that the invalidation notice was send to the Appellant on the 13th January 2022, as a result whereof, the Appellant send an email forwarding the bank statements to the Respondent, which documents the Respondent stated that it had not received all the documents indicated to have been send.

35. The Respondent stated that, it made a request for the documents to be furnished by the Appellant, which documents were never send nor did the Appellant respond to the request.

36. The Respondent submitted that the Appellant having failed to provide the documents as is provided for under Section 51 (3) (a to c) of the TPA, it proceeded to issue an objection decision on 30th March 2022.

37. The Respondent submitted that Section 24 of the Tax Procedures Act, 2015 allows a taxpayer to submit tax returns in the approved form and manner prescribed by the Respondent, but it is not bound by the information provided therein and can assess for additional taxes based on any other available information.

38. The Respondent further submitted that it relied on the available information that it had as well as the Commissioner’s best judgement as provided for in Section 31 (1) of the Tax Procedures Act.

39. The Respondent reiterated that the Appellant failed to provide the supporting documents to support its case more specifically, the Appellant failed to provide schedules to show that the schedule of its employees, the amount of money they earned as well as being able to demonstrate that they had reached the threshold for payment of PAYE.

40. The Respondent submitted that it identified three issues for determination, namely;a.Whether the VAT assessment issued on 28th October 2021 was justified?b.Whether the Appellant lodged a proper & valid notice of objection?c.Whether the Respondent’s notice of objection invalidation issued on 12th January 2022 is valid?

41. The Respondent submitted that the Appellant had offered taxable goods/supply, therefore pursuant to Section 5 of the VAT Act, the Appellant was duty bound to account for and settle the taxes due.

42. The Respondent relied on Section 12 of the VAT Act, which outlines the time of supply of taxable services/goods. The Respondent reiterated that upon the earlier of the four (4) circumstances provided under the above Section, then VAT shall be payable on or before the 20th day of the preceding month.

43. The Respondent submitted that in this Appeal, the Appellant’s suppliers were not exempt from accounting the taxes despite claiming for the same. That whereas the Appellant argues that the Respondent did not consider its withholding VAT credit when raising additional assessment, it is the Respondent’s submissions that the Bomet County and the State Department of Devolution, had a duty when paying for the services offered to withhold payment at 6% and to issue the Appellant with a Withholding Certificate.

44. The Respondent submitted that in the absence of an amended return being lodged by the Appellant and having been demonstrated that the Appellant actually dealt with taxable supplies of which the said supplies were paid, the Respondent was justified in issuing the assessment on the taxes due and owing pursuant to the provisions of Section 29 of the Tax Procedures Act.

45. That the Respondent stated that it relied on Section 17 (3) (a) of the VAT Act which requires the Appellant to possess original tax invoices for the supply or certified copies thereof. That the Appellant has not complied with this Section to date.

46. The Respondent submitted that in issuing its decision it was also guided by the provisions of Sections 51 (3) and 51 (4) of the TPA and Section 43 (3) of the VAT Act.

47. The Respondent stated that the Appellant lodged its Notice of Appeal late without first seeking leave to do so and therefore its Appeal is invalid.

48. That the Respondent reiterated that the Appellant has failed to discharge its burden of proof in proving that the Respondent’s tax decision was incorrect as per the provisions of Section 56 (1) of the TPA.

49. The Respondent in fortifying its case relied on the following case law;a.Metcash Trading Limited v Commissioner for the South African Revenue Services andanother Case CCT 3/2000. b.Pearson v Belcher CH.M Inspector of Taxes, Tax Cases Volume 38. c.TAT No 70 of 2017 Afya X-ray Centre v Commissioner of Domestic Taxes.d.Commissioner for Majesty Revenue and Customs TC/2017/02292 Saima Khalid Appellant v The Commissioners Her Majesty’s Respondent Revenue & Customse.Cape Brandy Syndicate v Inland Revenue Commissioner [1921] 1 KB, at page 64.

Respondent’s Prayers 50. The Respondent prayed for this Tribunal, that;i.The assessment orders issued on 30th March 2022 as well as the Confirmed Assessment issued vide letter dated 12th January 2022 to taxes amounting to Kshs 873,777. 23 being VAT are valid, proper in law and to be upheld.ii.This Appeal be dismissed with costs to the Respondent as the same lack merit.

Issues For Determination 51. The Tribunal upon the careful consideration of the pleadings, Statements of Facts and submissions made by the parties respectively, was of the view that the issue that recommend themselves for its determination is;Whether there was a competent Appeal on record.

Analysis And Findings 52. The Tribunal having identified the issue for its determination proceeds to analyze the same as herein under;

53. The Respondent submitted that Appellant lodged its Notice of Appeal late, further the Appellant never sought leave of the Tribunal to lodge the same out of time.

54. The Tribunal upon perusal of the documents placed before it, noted that the Appellant indicated that the Appeal arose from the invalidation decision made on 12th January 2022. That subsequently, the Respondent issued a notice of confirmation of assessment on the 30th March 2022.

55. The Tribunal further noted that the Appeal was lodged vide the Notice of Appeal dated 27th May 2022 and filed on 14th June 2022.

56. The timelines within which any aggrieved part is to lodge an Appeal before the Tribunal is provided for under Section 13 (1) (b) of the Tax Appeals Tribunal Act, which states:―A notice of appeal to the Tribunal shall—(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.‖

57. Section 13 (3) of the Tax Appeals Tribunal Act, provides;―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).‖

58. It therefore follows that any party who wishes to lodge an Appeal beyond the period of thirty days after the appealable decision has been made, then such intended Appellant ought to seek leave of the Tribunal in writing seeking extension of time and leave to file an Appeal out of time.

59. The Tribunal upon perusal of the record, it observed that the Appellant did not present any application seeking the leave of the Tribunal to lodge the Appeal out of time.

60. The Appeal was lodged late by 123 days and therefore leave of the Tribunal is necessary.

61. In the case of Commissioner of Domestic Taxes v Lifecare International Brokers Limited [2020] eKLR, Justice D.S Majanja observed that:-―Failure to file an appeal within time and without complying with statutory conditions is not a mere technicality that can be overlooked, it goes to the competence of the appeal. Counsel for the Appellant valiantly addressed the court on why the court should validate the appeal. The issues raised are factual issues that call for the court to exercise its discretion and can only be addressed in an appropriate application which is not before the court.‖

62. The Tribunal finds that the Appeal herein was lodged beyond the statutorily prescribed period without leave of the Tribunal and is therefore incompetent and fatally defective.

Final Decision 63. The upshot to the foregoing is that the Appeal is incompetent and the Tribunal consequently makes the following Orders; -a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

64. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OCTOBER, 2023ROBERT M. MUTUMA................CHAIRPERSONMUTISO MAKAU................MEMBERELISHAH N. NJERU............MEMBERDR. WALTER ONGETI...........MEMBERBONIFACE K. TERER...........MEMBER