[2023] KETAT 860 (KLR)

Minua Commercial Agencies v Commissioner of Domestic Taxes (Tribunal Appeal 1241 of 2022) [2023] KETAT 860 (KLR) (24 November 2023) (Judgment)

Neutral citation: [2023] KETAT 860 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal 1241 of 2022

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

November 24, 2023

Between

Minua Commercial Agencies

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a partnership business operating in Njoro in the County of Nakuru. The Appellant’s business is supply of agricultural products and real estate.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act and the Kenya Revenue Authority is responsible for the administration and enforcement of various revenue laws among them Income Tax Act and VAT Act.

3. On 28th December 2021, the Respondent issued the Appellant with an additional VAT assessment for the period January 2016 to December 2016.

4. On 26th January 2022, the Appellant lodged an objection to the additional VAT assessment for the period December 2016.

5. The Appellant received an objection application acknowledgment receipt on the same date via the iTax system.

6. On 25th March 2022, the Respondent issued an objection decision confirming the VAT assessment for the period December 2016.

7. On 31st March 2022, the Appellant received a confirmation assessment notice on the iTax system.

8. Aggrieved by the Respondent’s objection decision of 25th March 2022, the Appellant commenced the Appeal herein by filing the Notice of Appeal dated 21st October 2022.

9. The Appellant was granted leave by the Tribunal to file the Appeal out of time in respect to the two objection decisions on 4th November 2022.

The Appeal 10. The Appeal is premised on the Memorandum of Appeal filed on 27th October 2022 raising the following grounds: -a.That, the Commissioner of Domestic Taxes erred in law and in fact on confirming the VAT assessment vide letter of 25thMarch 2022, yet the assessment resulting to the confirmation was without a basis and grounded on any material facts and evidence.b.That, the Commissioner of Domestic Taxes erred in law and in fact on confirming the VAT assessments without reviewing all the material evidence presented to him by the taxpayer.c.That the Commissioner erred in law and fact in confirming the assessments on the basis that the Appellant only supplied baled hay to customers yet the Appellant supplied other non vatable products that included;i.Organic manureii.Wheat strawsiii.Maizeiv.Beansv.Sale of propertyd.That the Commissioner of Domestic Taxes erred in law in issuing the objection decision in respect of Assessment Number KRA202019257750 for the period 1st January 2017 to 31st December 2017 out of time (60 days). The decision was issued after 173 days.

Appellant’s Case 11. The Appellant’s case is also premised on its Statement of Facts filed on 27th October 2022.

12. The Appellant averred that the assessment orders totaling Kshs. 12,231,693. 00 were issued as follows:DATE ASSESSMENT NO PERIOD PRINCIPAL PENALTY INTEREST TOTAL

28/12/2021 KRA202122804632 01/12/2016 - 31/12/2016 3,653,053. 76 730,610. 75 2,214,207. 13 6,597,871. 64

26/10/2020 KRA202019257750 01/12/2017- 31/12/2017 4,179,203. 04 0 1,454,598. 90 5,633,802. 00

TOTALS 7,832,256. 80 730,610. 75 3,668,806. 03 12,231,673. 64

13. That upon receipt of the assessment orders the taxpayer lodged objections which were acknowledged as follows:DATE OF OBJECTION ASSESSMET NO PERIOD ACKNOWLEDGENMENTNO OBJECTEDAMOUNT TYPE OF OBJECTION

26/01/2022 KRA202122804632 01/12/2016 - 31/12/2016 KRA202201207826 4,383,664. 51 NORMAL

08/09/2021 KRA202019257750 01/12/2017-31/12/2017 KRA202118612526 4,179,203. 04 LATE

TOTALS 8,562,867. 55

14. That in support of the objections, the following records were availed to the Respondent.a.Bank statementsb.Purchase ordersc.Sales invoicesd.Delivery notes.

15. The Appellant submitted that the documents were reviewed by the Respondent and the previous agent but the findings were not shared with the taxpayer before the assessments were confirmed.

16. That the objection decisions and confirmation notices were issued as follows:DATE of confirmation Confirming Notice No PERIOD ACKNOWLEDGEMENT NO OBJECTED AMOUNT STATUS

25/03/2022 31/03/2022 KRA202204347908 01/12/2016 - 31/12/2016 KRA202201207826 4,383,664. 51 Reject

28/02/2022 27/06/2022 KRA202211590265 01/12/2017-31/12/2017 KRA202118612526 4,179,203. 04 Reject

TOTALS 8,562,867. 55

17. That the reason for confirming the assessments was a finding that the taxpayer supplied baled hay, which was a vatable good to various customers during the year.

Appellant’s Prayers 18. The Appellant prayed that the Tribunal: -a.Sets aside the Commissioner’s assessment totaling Kshs. 5,633,802. 00 and accordingly annul the objection decisions.b.Orders the Respondent to charge VAT on the sale of hay in 2016 Kshs. 1,492,370. 00 being the only item chargeable to VAT.c.Orders the lifting of the agency notices issued to the taxpayer’s bankers:

Respondent’s Case 19. The Respondent’s case is premised on the following documents filed with the Tribunal:-a.The Respondent’s Statement of Facts dated 22nd November 2022 and filed on the same date together with the documents attached thereto.b.The Respondent’s Written Submissions dated 5th June 2023 and filed on 6th June 2023 together with the authorities attached thereto.

20. In response to ground one in the Memorandum of Appeal, the Respondent averred that the decision to arrive at the assessments was justified and had basis in law as required under the Tax Procedures Act, 2015.

21. That the additional VAT assessments in question were raised after the Respondent noted that the Appellant's Income tax and VAT declarations exhibited a variance of Kshs. 26,120,021. 20.

22. That the Respondent proceeded to issue an additional assessment charging the variance to VAT. That the Respondent also noted that the Appellant was not declaring VAT on the supplies made in the periods under review despite having a VAT obligation.

23. The Respondent contended that it was not bound by the Appellant's returns or self - assessment and it is empowered to vary the assessments using any available information in the Respondent's possession. That Section 24(2) of the Tax Procedures Act states that:-“The Commissioner shall not be bound by a tax return or information provided by, or on behalf of a taxpayer and the Commissioner may assess a taxpayer's tax liability using any information available to the Commissioner."

24. The Respondent averred that Section 31 of the Tax Procedures Act empowers the Respondent to make alterations or additions to original assessments from available information for a reporting period based on the Commissioner’s best judgement. This Section provides that:-“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 a taxpayer for a reporting period to ensure that-a.In the case of a deficit carried forward the Income Tax Act (Cap 470), the taxpayer is assessed in respect of the correct amount of the deficit carried forward for the reporting period.b.In the case of an excess amount of input tax under the Value Added Tax Act, 2013 (No 35 of 2013), the tax payer is assessed in respect of the correct amount of the excess input tax carried forward for the reporting period; orc.In any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates."

25. In response to the second ground on the Memorandum of Appeal, the Respondent averred that the Appellant did not discharge its burden of proof as stipulated under Section 56 of the Tax Procedures Act.

26. That Section 56(1) of the TPA places the burden on the taxpayer to proof that a tax decision is incorrect. That the Section states: -“In any proceedings under this Part, the burden shall be on the Appellant to prove that a tax decision is incorrect."

27. The Respondent averred that Section 62 of the Value Added Tax places the burden on the taxpayer to proof that the goods or services are exempt from payment of tax.

28. The Respondent averred that during the objection review stage, the Appellant furnished it with copies of bank statements and sale invoices. That whereas the bank statements did not indicate the nature of supplies made, the sale invoices only illustrated the supply of baled hay to the various customers.

29. The Respondent averred that the Appellant did not furnish the Respondent with any other documents to demonstrate supply of goods other than baled hay in the periods under review.

30. The Respondent averred that the Appellant did not discharge the burden of proving that it supplied other non-vatable products other than baled hay contrary to Section 56 of the Tax Procedures Act and Section 62 of the Value Added Tax.

31. The Respondent averred that the Appellant supplied baled hay to various customers such as Ngongongeri Farm, Farmers Choice, Malewa Gorge and Githunguri Dairies. That the repealed VAT Act Cap 476 classified hay amongst other items as exempt from VAT. The VAT Act 2013 did not list hay or items of tariff numbers 1214. 10. 00 and 1214. 90 under exempt goods until the enactment of the Finance Act number 10 of 2018.

32. The Respondent averred that during the period under review, the VAT Act classified hay as a vatable good.

33. The Respondent averred that the Appellant was supplying hay which is vatable and the Commissioner was right in confirming the VAT assessments.

34. The Respondent submitted that the only issue for determination by the Tribunal is whether the Respondent’s assessment was justified.

35. The Respondent submitted that the decision to arrive at the assessments was justified and had basis in law as required under the Tax Procedures Act, 2015.

36. That the Appellant was issued with additional tax assessments on the basis that subject to the VAT Act, 2013 hay was classified as a taxable good. It was a departure from the previous position which classified hay as exempt.

37. That in fulfilling its mandate, the Respondent is not bound by the tax returns of the Appellant. That the Respondent may assess a taxpayer's tax liability using any information available to the Respondent.

38. The Respondent submitted that it used the availed information and best judgement to come up with the assessment. That without availing the records requested, the Appellant cannot claim that the assessments are wrong without adducing evidence which is the very documents it has refused and/ or failed to avail.

39. The Respondent submitted that Section 62 of the Value Added Tax places the burden on the Taxpayer to proof that the goods or services are exempt from payment of tax.

40. The Respondent submitted that the Appellant furnished it with copies of bank statements and sale invoices. The documents supplied were not relevant for the reason that whereas the bank statements did not indicate the nature of supplies made, the sales invoices only illustrated the supply of baled hay to the various customers.

41. The Respondent submitted that the Appellant did not furnish the Respondent with any other documents to demonstrate supply of goods other than baled hay in the periods under review.

42. The Respondent submitted that the Appellant did not avail documents in opposition of the assessments but only made assertions with no evidence. The Appellant failed to discharge its burden by adducing evidence. That the Court in Alfred Kioko Muteti v Timothy Miheso & another [2015] eKLR held that: -''A party can only discharge its burden upon adducing evidence. Merely making pleadings is not enough. "In reaching its findings, the Court stated that:" Thus, the burden of proof lies on the party who would fail if no evidence at all were given by either party .... Pleadings are not evidence."

43. The Respondent submitted that it applied the provisions of VAT Act 2013 correctly. That where any goods have not been expressly classified as exempt and/ or zero-rated, the same is deemed as taxable.

44. The Respondent submitted that from the period of the enactment of the aforementioned Act to the amendment through the Finance Act, No. 10 of 2018, baled hay was taxable.

Respondent’s Prayers 45. The Respondent made the following prayers to the Tribunal:-a.That the Respondent’s objection decision be upheld as proper and in conformity with the provisions of the Law.b.That this Appeal be dismissed with costs to the Respondent as it is without merit.

Issues For Determination 46. The Tribunal has considered the facts of the matter and the submissions made by the parties, and identified the following to be the issues for determination in this matter: -a.Whether the Appellant’s objection was allowed by the operation of the law.b.Whether the Respondent’s VAT assessment was justified.

Analysis And Findings 47. Having identified the issues that fell for its determination, the Tribunal proceeded to analyze them as hereunder.

48. The genesis of this dispute is the additional VAT assessment issued by the Respondent to the Appellant on 28th December 2021 for the period January 2016 to December 2016.

49. The Appellant received an objection application acknowledgment receipt on the same date via the iTax system.

50. The Respondent issued an objection decision confirming the VAT assessment for the period December 2016 on 25th March 2022.

51. The Respondent also issued a confirmation assessment on 31st March 2022 via the iTax system.

52. Aggrieved by the Respondent’s objection decision of 25th March 2022, the Appellant instituted the Appeal herein by filing the Notice of Appeal dated 21st October 2022.

53. The Appellant was granted leave by the Tribunal to file the Appeal out of time on 4th November 2022 in respect of the two objection decisions. The Notice of Appeal filed by the Appellant on 27th October 2022 however only related to the objection decision made on 25th March 2022 although the Memorandum of Appeal and Statement of Facts addressed the two objection decisions.

54. The Tribunal therefore confined itself to issues relating to the objection decision dated 25th March 2022 as the objection decision of 28th February 2022 was not included in the Notice of Appeal filed with the Tribunal on 27th October 2022.

55. In the objection decision dated 25th March 2022 which was attached to the documents of the Appellant and the Respondent, the first paragraph of the letter stated: -“Reference is made to your objection to value added tax additional assessment on 8th September 2021 through the iTax portal. We wish to communicate our decision as follows.”

56. While the letter refers to an objection filed on 8th September 2021 via iTax portal, the parties did not attach that evidence. Indeed, what the Appellant and the Respondent attached was the Objection Application Acknowledgement Receipt from the iTax system dated 26th January 2022.

57. The Appellant also attached the iTax Confirmation of Assessment Notice dated 31st March 2022.

58. According to the objection decision letter, the Respondent was making a decision on the objection dated 8th September 2021 which was filed by the Appellant on iTax portal. As indicated earlier, neither the Appellant nor the Respondent attached evidence on the objection dated 8th September 2021. Since this is the document that the Respondent used to make the decision that has been Appealed before the Tribunal, it is the one that the Tribunal will use in determining this matter.

59. Upon receipt of an objection from a taxpayer, the Tax Procedures Act in Section 51(11) states that: -“The Commissioner shall make the objection decision within sixty days from the date of receipt of-a.The notice of objection; orb.Any further information the Commissioner may require from the taxpayer.Failure to which the objection shall be deemed to be allowed.”

60. The Tribunal notes that according to the objection decision letter, the Appellant objected to the assessments on 8th September 2021 via iTax portal and the Respondent rendered its objection decision on 25th March 2022. This was over six months after the Appellant objected to the assessment and well beyond the sixty days allowed by Section 51(11) of the TPA. No evidence was tendered to indicate that the Appellant was asked to produce documents or that there was communication between the Appellant and the Respondent after the lodging of the objection on the iTax portal on 8th September 2021.

61. The Tribunal has pronounced itself on the need to adhere to statutory timelines. In TAT 127 of 2020, BIC East Africa Ltd vs Commissioner of Customs & Border Control, the Tribunal held that;“Additionally, the Tribunal finds the Respondent's late response to the review application to be in gross violation of Section 229 (5) of the EACCMA 2004 which stipulates that the where the Respondent had not communicated his or her decision within the specified time of 30 days, the review application shall be deemed to have been allowed by the Respondent. To contextualize this, as of 7th June 2019 the Appellant's review application was deemed allowed meaning that it had not tax liability in the eyes of the law. It also meant that the Appellant was well within its right to apply for a refund of the taxes paid earlier under protest. Our resolve in this regard is further cemented in light of the fact that Section 229 (4) & (5) of the EACCMA are cushioned in mandatory terms, hence the Respondent was not allowed to extend the same timelines. (See Associated Battery Manufacturers limited versus Respondent of Customs Services (TAT Appeal No 1 of 2015).

62. The Courts have also emphasized the need to be bound by the statutory timelines. In Nicholas Kiptoo Arap Korir Salat v IEBC & 6 Others [2013] eKLR, where the Court held that: -“This Court, indeed all courts, must never provide succor and cover to parties who exhibit scant respect for rules and timelines. Those rules and timelines serve to make the process of judicial adjudication and determination fair, just, certain and even-handed. Courts cannot aid in the bending or circumventing of rules and a shifting of goal posts for, while it may seem to aid one side, it unfairly harms the innocent party who strives to abide by the rules. I apprehend that it is in the even-handed and dispassionate application of rules that courts give assurance that there is a clear method in the manner in which things are done so that outcomes can be anticipated with a measure of confidence, certainty and clarity where issues of rules and their application are concerned…”

63. Further, in the case of Republic vs Commissioner of Domestic Taxes Ex Parte Fleur Investments Limited [2020] eKLR the Honorable Judge John M. Mativo held that:-“I find backing in Republic v Commissioner of Customs Services Ex-Parte Unilever Kenya Limited in which the court stated that if the Commissioner does not render a decision within the stipulated period, the objection is deemed as allowed by operation of the law. The act requires that where the Commissioner has not made an objection within 60 days from the date the tax payer lodged the notice of objection, the decision objection shall be allowed. This means that the issues that the tax payer had raised in the objection will be accepted.”

64. The Tribunal finds that the objection made by the Appellant on the iTax portal on 8th September 2021 was deemed allowed by operation of the law and the Respondent’s objection decision conveyed in the letter dated 25th March 2022 is therefore not valid.

65. Having found that the objection by the Appellant on iTax portal dated 8th September 2021 was allowed by operation of the law, the Tribunal did not delve into the other issue that fell for its determination as it was rendered moot.

Final Decision 66. The upshot of the foregoing is that the Appeal succeeds. Consequently, the Tribunal makes the following Orders: -a.The Appeal be and is hereby allowed.b.The Respondent’s objection decision dated 25th March 2022 be and is hereby set aside.c.Each party to bear its own costs.

67. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 24TH DAY OF NOVEMBER, 2023. GRACE MUKUHACHAIRPERSONDR ERICK KOMOLOMEMBERJEPHTHAH NJAGIMEMBERTIMOTHY VIKIRUMEMBERGLORIA A. OGAGAMEMBER