[2024] KETAT 1010 (KLR)

Midoti Engineering Group Ltd v Commissioner of Domestic Taxes (Tax Appeal 317 of 2023) [2024] KETAT 1010 (KLR) (19 July 2024) (Judgment)

Neutral citation: [2024] KETAT 1010 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 317 of 2023

RM Mutuma, Chair, M Makau, EN Njeru, B Gitari & AM Diriye, Members

July 19, 2024

Between

Midoti Engineering Group Ltd

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a private limited liability company incorporated under the Companies Act and its core business is that it deals with construction of buildings.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, the 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. The Respondent issued the Appellant with a return review in a letter dated 18th August 2022 advising it to take advantage of the Voluntary Tax Disclosure Program and declare any undisclosed sales and/or amend returns. Consequently, the Respondent raised VAT additional assessment dated 15th September 2022, for the period December 2020 and 2021 amounting to Kshs. 1,637,063. 00.

4. The Appellant lodged a late Notice of Objection to the assessments on 8th November 2022 and 21st December 2020. Following consideration of the objection, the Respondent rendered its Objection Decision on 4th January 2023 disallowing the objection.

5. Dissatisfied by the Respondent’s decision, the Appellant filed this Appeal vide the Notice of Appeal dated and filed on 25th April 2023 and filed on 26th April 2023.

The Appeal 6. The Appeal is based on the Memorandum of Appeal dated 25th April 2023 and filed on 26th April 2023 which raised the following grounds of appeal:a.That the Respondent erred in computing VAT that had already been declared in the previous months which constitutes double taxation; and,b.That the Respondent erred in issuing erroneous, irrational and unreasonable assessments given the circumstances.

The Appellant’s Case 7. In support of the Appeal, the Appellant relied on its Statement of Facts dated 25th April 2023 filed on 26th April 2023 together with the documents attached thereto.

8. The Appellant disputed additional assessment on Value Added Tax (VAT) for the two months of December 2020 and December 2021 respectively.

9. According to the Appellant, the total VAT demanded by the Respondent is Kshs. 1,637,063. 00. 00 which was arrived at due to the Respondents action of computing VAT twice for the two months. Aggrieved by the decision, the Appellant objected on 8th November 2022 after which, the Respondent issued an Objection Decision on the 4 January 2023 disallowing the objection.

10. The Appellant then filed a motion to the Honourable Tribunal seeking extension of time to file an appeal under TAT Misc. Application No. 40 of 2023. The Tribunal allowed the application on the 14th April 2023.

11. The Appellant wished to challenge the Respondent’s decision to issue the demand dated 22nd February, 2023 by demanding VAT that had already been declared and paid for in the previous months.

12. Further, the Appellant challenged the Respondent’s decision of adding interest and penalties to the principal amounts charged.

Appellant’s Prayers 13. The Appellant prayed for the following reliefs:a.That the Honourable Tribunal be pleased to allow this Appeal;b.That the Honourable Tribunal be pleased to set aside the decision of the Respondent issued at Thika on the 4th January 2023 and refer the matter to the Commissioner for reconsideration in accordance with any directions or recommendations;c.That the Honourable Tribunal be pleased to grant any further orders it deems fit; andd.That the costs of the Appeal be granted to the Appellant.

The Respondent’s Case 14. The Respondent’s case is premised on its;a.Statement of Facts dated 31st May 2023 and filed on 2nd June 2023 together with documents attached thereto; and,b.Written submissions dated and filed 30th January 2024.

15. The Respondent stated that the Appellant was issued with a return review letter dated 18th August 2022 advising it to take advantage of the Voluntary Tax Disclosure Program and declare any undisclosed sales and/or amend returns. However, the Appellant was non-responsive therefore, on 15th September 2022, the Respondent raised VAT additional assessment for the period December 2020 and 2021 amounting to Kshs. 1,637,063. 00 to which the Appellant objected.

16. The Respondent alleged that it wrote to the Appellant via email dated 3rd January 2023, informing it that the objection was not validly lodged and requested it to provide supporting documentation to validate its objection as per the provisions of Section 51 (3) (c) of the Tax Procedures Act. However, the Appellant failed to provide all requisite documents. Consequently, the Respondent rendered the Objection Decision on 4th January 2023 disallowing the objection.

17. The Respondent stated that whereas 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, the Respondent is not bound by the information provided therein and can assess for additional taxes based on any other available information.

18. The Respondent stated that the Appellant having been granted leave to file the objection out of time, it lodged an invalid objection as the objection was not supported by all relevant documents contrary to Section 51 (3) (c) of the Tax Procedures Act. The Respondent vide email wrote to the Appellant on 3rd January 2023, informing it that the objection was not validly lodged and requested the Appellant to provide supporting documentation to validate objection. The Respondent asserted that the Appellant did not comply.

19. The Respondent relied on Section 59 of the Tax Procedures Act 2015 which requires the Appellant to provide records to enable the Respondent determine its tax liability. The Respondent stated that the Appellant failed to avail such documents/records for examination constraining the Respondent to confirm the additional assessments.

20. The Respondent also relied on Section 56 of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act which provide that the burden of proof lies on the Appellant to demonstrate that it has discharged its tax liability. The Respondent averred that this burden was never discharged as no documentary evidence was availed to the Respondent to enable it render a meritorious decision in the circumstances.

21. Further, the Respondent averred that it considered all documents and information provided by the Appellant and acted to the best of its judgment in arriving at the Objection Decision as per Section 31 (1) of the Tax Procedures Act which provides that,(1)Subject to this section, the Commissioner may amend an assessment (referred to in this section as the ‘original assessment’) by making alterations or additions, from the available information and to the best of the Commissioner's judgement, to the original assessment of an Appellant for a reporting period.’’

22. Finally, the Respondent alleged that the documents annexed in the Appellant’s Memorandum of Appeal and Statement of Facts have been presented before the Tribunal in the first instance and the Respondent has not had an opportunity to review the same.

23. In further opposition of the Appeal, the Respondent submitted that the issues for determination were;i.Whether the Appeal has a basis in law; and,ii.Whether the additional assessment was justified.

24. On whether the Appeal has a basis in law, the Respondent submitted that this Appeal contravenes Section 13 2 (c) of the Tax Appeal Tribunals Act in that the Appellant failed to submit and or annex a copy of the tax decision as obligated by the provisions of Section 13 (2) (c). The aforementioned sections provide, that.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.’’

25. On whether the additional assessment was justified, the Respondent submitted that it is at liberty to make assessments based on information available to it in accordance to Section 24 (2) of the Tax Procedures Act. The Respondent also submitted that Section 31 of the Tax Procedures Act empowers it to make alterations or additions to original assessments from available information for a reporting period based on the Commissioner’s best judgement.

26. According to the Respondent, it wrote to the Appellant via emails dated 13th & 14th November 2022, 13th, 19th and 29th December 2022 and 3rd January 2023 informing the Appellant that the objection was not validly lodged and requested them to provide supporting documentation to validate their objection as per the provisions of Section 51 (3) (c) of the Tax Procedures Act but the Appellant failed to provide the documents. Therefore, the Respondent submitted that its decision is justified.

27. The Respondent submitted that the Appellant did not discharge its burden of proof under Section 56 (1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act. The Respondent cited Ushindi Exporters Limited vs. Commissioner of Investigation and Enforcement (Tax Appeals Tribunal No 7 of 2015) in which the Tribunal held that:“The burden of proving that the tax assessment is excessive or should have been made differently never shifts to the Respondent and is placed squarely on the Appellant as Section 30 (a) and (b) of the Tax Appeals Tribunal Act states,a.Where an appeal related to an assessment, that the assessment is excessive; orb.In any other case, that the tax decision should not have been made or should have been made differently. By purporting to shift the burden of proving that the tax assessment against it was incorrect or should have been different the Appellant failed in discharging the burden, placed upon it by law.”

28. Therefore, the Respondent submitted that the Appellant did not discharge its burden of proving that the assessment was erroneous and the Commissioner was right in confirming the assessment.

Respondents Prayers 29. Based on the above grounds, the Respondent prayed that the Tribunal be pleased to;a.That this Appeal be dismissed with costs to the Respondent as the same offends the mandatory rules of procedure is fatally defective and devoid of merit; and,b.The Respondent’s Objection Decision dated 4th January 2023, be deemed as proper and in conformity with the provisions of the law.

Issues for Determination 30. The Tribunal having considered the Memorandum of Appeal, the parties’ Statements of Facts, and submissions, puts forth the following issue for determination:

Whether the Respondent’s Objection Decision issued on 4th January 2023 was justified. Analysis And Findings 31. The Tribunal wishes to analyse the issues as hereunder.

32. The Appellant being aggrieved with the Respondent’s Objection issued on 4th January 2023 challenged the decision arguing that the VAT therein had already been declared and paid for in the previous months.

33. The Respondent on its part, sought from the Appellant documentary evidence to show that it had indeed declared and paid for the said taxes.

34. In its Objection Decision, the Respondent maintained that the Appellant neither responded to the Independent Review team which has requested from the Appellant to provide supporting documents nor has the Appellant responded at the compliance check stage on the same request.

35. Upon perusal of the documents provided by the parties to the Appeal, the Tribunal observed that the Appellant has not provided documents relevant to support its Appeal demonstrating that the Respondent’s decision was incorrect or ought to have been made differently as complicated under Section 30 of the Tax Appeals Tribunal Act.

36. Section 30 of the Tax Appeals Tribunal Act, 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.”

37. The inference drawable from the above provision of the law is that the Appellant ought to demonstrate by way of evidence that the Respondent’s decision was erroneous, and this the Appellant has failed to do.

38. The Tribunal therefore persuaded to upset the Respondent’s decision of 4th January 2023 and finds that the Respondent was justified in the making of the said decision.

Final Determination 39. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is unmerited and consequently makes the following orders; -a.The Appeal be and is hereby dismissed;b.The Respondent’s Objection Decision issued on 4th January 2023 be and is upheld; and,c.Each party to bear its own cost.

40. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF JULY 2024. ROBERT M. MUTUMA - CHAIRPERSONMUTISO MAKAU - MEMBERELISHA N. NJERU - MEMBERBERNADETTE M. GITARI - MEMBERABDULLAHI DIRIYE - MEMBER