[2023] KETAT 174 (KLR)

Monwalk Investment Limited v Commissioner Of Investigations & Enforcement (Tax Appeal 813 of 2021) [2023] KETAT 174 (KLR) (10 March 2023) (Judgment)

Neutral citation: [2023] KETAT 174 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 813 of 2021

E.N Wafula, Chair, Rodney Odhiambo Oluoch, Edwin K. Cheluget & Robert M. Mutuma, Members

March 10, 2023

Between

Monwalk Investment Limited

Appellant

and

Commissioner Of Investigations & Enforcement

Respondent

Judgment

BACKGROUND 1. The Appellant is a private limited company duly incorporated in Kenya under the Companies Act and is registered taxpayer. Its main business is in manufacturing alcoholic beverages.

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 collecting and receiving all tax revenue. Further, under Section 5(2) of the Act, concerning 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 Parts 1 & 2 of the First Schedule to the Act to assess, collect and account for all revenues under those laws.

3. The Respondent conducted investigations into the tax affairs of the Appellant for the years 2016 to 2020 upon receiving reports that the Appellant was involved in tax evasion by affixing counterfeit excise stamps on its products and selling them to unsuspecting customers.

4. On April 21, 2021, the Respondent issued Investigations Findings to the Appellant who replied by a letter dated July 29, 2021. The Respondent subsequently issued an assessment on August 19, 2021.

5. The Appellant objected to the assessment on August 31, 2021.

6. The Respondent issued an Objection Decision dated November 2, 2021 confirming the tax assessment of Kshs 487,921,140. 00 inclusive of penalties and interest.

7. The Appellant being dissatisfied with the Respondent’s assessment filed a Notice of Appeal dated and filed on December 1, 2021.

The Appeal 8. The Appeal is premised on the following grounds as captured in the Memorandum of Appeal dated and filed on December 14, 2021:-a.Application of imaginary selling prices in estimating the expected turnovers.b.Erroneous reconciliations for the self-assessments tax liability.c.Inter-agency tax force for control of portable drinks- (uncontrolled presidential directive)d.The Appellant further urged that the correct prices for computing taxable income be applied.

The Appellant’s Case 9. The Appellant’s case was premised on its Statement of Facts dated and filed on December 14, 2021 and the Appellants written submissions filed on July 19, 2022.

10. It stated that whereas the Respondent conducted self-assessment tax liability reconciliation alluding to a tax liability of Kshs 94,244,854. 00 for both VAT and Excise Duty and that those figures emanated from iTax ledger self- assessments, the Commissioner failed to show the makeup of the said variances.

11. It averred that since there was a gazette notice issuing a multi-agency task force to audit all alcoholic drinks, portable spirits, and illicit brews in the Kenyan market together with their manufacturers and since the uncontrolled directives was issued by the President on the matter, the Appellant has suffered losses due to the damages caused by the crackdown where it held stores pending supply on demand while the mentioned directive was executed.

12. It further averred that the crackdown was conducted by the Government and the Appellant despite being a legal entity and fully licensed to conduct the business, rushed to court for justice.

The Appellant’s prayers 13. The Appellant has prayed the Tribunal to allow its Appeal and set aside the Respondent’s Objection Decision.

The Respondent’s Case 14. The Respondent’s case is premised on its Statement of Facts dated and filed on January 13, 2022 and the Written Submissions dated and filed on July 21, 2022. On whether the Respondent applied an imaginary selling prices in estimating the expected turnovers

15. The Respondent submitted that the burden of proof is on the Appellant to demonstrate that the Respondent used imaginary selling prices as alleged and that contrary to the Appellant’s allegation that the Respondent used Kshs 408 per litre in calculating the taxes, the Respondent used Kshs 350 per litre as demonstrated in its Objection Decision.

16. It added that the basis for arriving at Kshs 350 per litre was derived from the information obtained by the Respondent during the course of the investigation including an average price from comparable businesses.On whether the Respondent applied Erroneous reconciliations of the self- assessments tax liability

17. It averred that the Appellant has not indicated the errors complained of in the Self-assessment liability. That in the absence of proof of any error, this ground should fail and that the burden of proof cannot shift to the Respondent unless the Appellant has brought documentation to suggest otherwise.

18. It quoted Section 56(1) of the Tax Procedures Act 2015 to contend that the burden of proof is on the Appellant to demonstrate that the Respondent used imaginary selling prices.

19. It cited the case of Digital Box Limited v Commissioner of Domestic Taxes (TAT No 115 of 2017) and relied on the case of Alfred Kioko Muteti v Timothy Miheso & Another [2015] eKLR where the court held:'Thus, the burden of proof lies on the party who would fail if no evidence at all were given by either party.'On whether the Appellant has demonstrated that it suffered losses from the crackdown by the inter-agency taskforce for control of portable drinks.

20. The Respondent argued that despite the Appellant’s allegations that it suffered losses as a result of the crackdown by the inter-agency task force for control of portable drinks, it has failed to provide proof of how much was lost and the extent of the loss.

21. It cited Section 30 of the Tax Appeals Tribunal Act and urged the Tribunal to be guided by the Black’s Law Dictionary, (9thEdition, 2009) on the definition of standard of proof which states: 'as the degree or level of proof demanded in a specific case in order for a party to succeed.' It further quoted the definition in the Halsbury’s Laws of England 4thEdition, Volume 17, Paragraphs 13 and 14.

22. It relied on the case of Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR where it was held:-'The import of the above provisions is that the party with the obligation of persuasion (what Wigmore termed the risk of non- persuasion) is said to bear the burden of proof. The flip side of the foregoing is the effect of non-persuasion on a party with the burden of proof which is that the particular issue at stake in the litigation will be decided against him/her. Generally, the taxpayer has the burden of proof in any tax controversy. The taxpayer must demonstrate that the commissioner's assessment is incorrect. The taxpayer has a significantly higher burden. The taxpayer must prove the assessment is incorrect.'

On whether the Notice of Appeal lodged is invalid. 23. The Respondent submitted that the current Appeal is not in compliance with Section 52(2) of the Tax Procedures Act, 2015 which requires the Appellant to pay the taxes not in dispute (self-assessed) before appealing against an objection decision.

24. It relied on the following authorities:a.Section 52(2) of the Tax Procedures Act- 'A notice of appeal to the Tribunal relating to an assessment shall be valid if the taxpayer has paid the tax not in dispute or entered into an arrangement with theCommissioner to pay the tax not in dispute under the assessment at the time of lodging the notice.'b.Hewlett Packard East Africa Ltd v Commissioner of Domestic Taxes [2019] eKLR - 'In the end it follows that this Court having determined that the Appellant’s appeal was not in compliance with Section 52 (2) of Tax Procedure Act grounds Nos 1, 2 and 3 of this appeal are dismissed. They are dismissed because the appeal before the Tribunal was incompetent in view of Section 52 (2) of the Tax Procedure Act and having been incompetent no appeal can lie on those grounds before this Court.'c.TAT No 164 of 2018,Mobius Motors (K) Ltd vCommissioner of Domestic Taxes - 'The Tribunal in the circumstances finds that the Appeal is incompetent and unsustainable in law as the Notice of Appeal was lodged by the Appellant in complete disregard of the mandatory provisions of Section 52(2) of the Tax Procedures Act, 2015. The part payments made on the part of the Appellant were subsequent to the filing of the Notice of Appeal and there is absolutely no arrangement in place as regards to the payment even of the outstanding balance of the tax not in dispute.'d.TAT No 153 of 2016, Sea Submarine Communications Ltd v Commissioner of Domestic Taxes.1. It argued that no appeal process could be sustained where the Notice of Appeal was invalid. It added that the Appellant filed tax returns consistently but failed to pay the taxes by the due date upon filing and that an analysis of the Appellant’s ledger shows that they have failed to pay Kshs 13,689,711. 00 and Kshs 80,555,143. 00 for VAT and Excise Duty, respectively, for the period 2017 to 2020. 2.It submitted that the Appellant has failed to pay the undisputed taxes this far thus the Appeal is improperly lodged.

The Respondent’s prayers 27. The Respondent prayed that the Honourable Tribunal:a.Upholds the Respondent’s Objection Decision dated November 2, 2020. b.This Appeal be dismissed with costs as the same is devoid of any merit.

Issues For Determination 28. Upon perusing the pleadings and the Written submissions filed by the parties, the Tribunal is of the considered view that the Appeal crystalizes into the following main issues for determination:-a.Whether the appeal is proper in law.b.Whether the Respondent’s decision dated November 2, 2020 was properly issued.

Analysis And Findings 29. The Tribunal wishes to analyses the issues separately as hereinafter:a.Whether the appeal is proper in law

30. The Respondent in this case submitted that by virtue of the Appellant not paying the tax not in dispute, having not paid the tax amount in the self- assessment which essentially is tax not in dispute, the current Appeal is invalid for being in contravention of Section 52(2) of the Tax Procedures Act and thus ought to be struck out.

31. The Appellant maintained that it had paid the requisite tax due which the Respondent did not acknowledge in its tax Assessment.

32. Section 52(2) of the Tax Procedures Act, 2015 provides as follows with regard to validity of notices of appeal:-'A notice of appeal to the Tribunal relating to an assessment shall be valid if the taxpayer has paid the tax not in dispute or entered into an arrangement with the Commissioner to pay the tax not in dispute under the assessment at the time of lodging the notice.'

33. Section 3 (e) of the Tax Procedures Act, 2015 provides as follows with regard to self assessment:-'Self-assessment' means an assessment made by a taxpayer or his representative under Section 28;

34. Section 28 of the Tax Procedures Act states that:'(1)A taxpayer who has submitted a self-assessment return in the prescribed form for a reporting period shall be treated as having made an assessment of the amount of tax payable (including a nil amount) for the reporting period to which the return relates being the amount set out in the return.2. If a taxpayer liable for income tax has submitted a self-assessment return in the prescribed form for a year of income and the taxpayer has a deficit for the year, the taxpayer shall be treated as having made an assessment of the amount of the deficit for the year being the amount set out in the return.3. If a registered person has submitted a self-assessment return in the approved form for a tax period and the taxpayer's total input tax for the period exceeds the taxpayer's output tax for the period, the registered person shall be treated as having made an assessment of the amount of the excess input tax for the period being that amount set out in the return.4. A tax return in the approved form completed and submitted electronically by a taxpayer shall be a self-assessment return despite—a.the form containing pre-entered information provided by the Commissioner; or (b) the tax payable being computed electronically as information is being entered into the form.'

35. An assessment is an evaluation which gives an estimate of one’s tax liabilities that, once filed or issued, the party that disagrees with it can challenge it. It can thus be argued that a self-assessment is an admission of tax due by the Appellant hence tax not in dispute, but this too can be challenged by the Respondent who, by the actions gleaned, seemed to have challenged the tax assessment by conducting investigations and issuing its findings.

36. It is by virtue of the Respondent issuing an assessment that the Tribunal finds the self-assessment by the Appellant obsolete as the Respondent issued an additional assessment which was further objected to by the Appellant. The Respondent cannot therefore purport to expect payment from an assessment it rejected in the first place.

37. To wit, the Tribunal finds that the argument by the Respondent that the Appellant’s self-assessment amounted to unpaid tax not in dispute is flawed and as such the Appeal is proper before the Tribunal.b.Whether the Respondent’s decision dated November 2, 2020 was properly issued

38. At the crux of the Appellant’s case are three points. The first of its arguments is that the Respondent applied imaginary selling prices in estimating the expected turnovers.

39. The Appellant argued that the Respondent failed to show the makeup of the variance between the figures from the iTax ledger self-assessments and the self- assessment tax liability reconciliation alluding to a tax liability of Kshs 94,244,854. 00 for both VAT and Excise Duty.

40. It further averred that a gazette notice issuing a multi-agency task force to audit all alcoholic drinks, portable spirits, and illicit brews in the Kenyan market together with their manufacturers issued by the President led to the Appellant suffering losses due to the damages caused by the crackdown conducted on its stores despite being a legal entity and fully licensed to conduct the business. It added that it rushed to court for justice.

41. The Respondent reiterated that the burden of proof is on the Appellant to demonstrate that the Respondent used imaginary selling prices. It added that it did not use Kshs 408 per litre in calculating the taxes but Kshs 350 per litre which was derived from the information obtained during the course of the investigation, including an average price from comparable businesses.

42. The Respondent further argued that despite the Appellant’s allegations that it suffered losses as a result of the crackdown by the inter-agency task force for control of portable drinks, it has failed to avail proof of how much was lost and the extent of the loss.

43. It averred that the Appellant has not indicated the errors complained of in the self-assessment liability and that the burden of proof cannot shift to the Respondent unless the Appellant has brought documentation to suggest otherwise.

44. Section 30 of the Tax Appeals Tribunal Act provides as follows with regard to the burden of proof:-'In a proceeding before the Tribunal, the appellant has the burden of proving— (a) where an appeal relates to an assessment, that theassessment is excessive; or (b) in any other case, that the tax decision should not have been made or should have been made differently.'

45. Section 38 of the Tax Appeals Tribunal Act states as follows:'In any proceedings, whether criminal or civil, under this Act— (a) other than upon an appeal, a certificate from the Commissioner stating that any amount is due from any person by way of tax, or other liability under this Act, shall be conclusive evidence that the amount is due and payable from that person; (b) the burden of proving that any tax has been paid or that any goods or services are exempt from payment of tax shall lie on the person liable to pay the tax or claiming that the tax has been paid or that the goods or services are exempt from payment of tax; and (c) a statement by the Commissioner that a person is registered or is not registered under this Act, shall be conclusive evidence of the fact unless that person proves the contrary.'

46. Section 62 of the Value Added Tax Act, No 35 of 2013 equally provides that:'In any civil proceedings under this Act, the burden of proving that any tax has been paid or that any goods or services are exempt from payment of tax shall lie on the person liable to pay the tax or claiming that the tax has been paid or that the goods or services are exempt from payment of tax.'

47. Additionally, Section 56 of the Tax Procedures Act states: '(1) In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.'

48. The Appellant’s averment that there was a raid on its premises which occasioned a loss on its part is proven to be consistent as there is proof that the Appellant sought redress from the Government in court, and the Government agencies of which reliefs could not have been issued without any quantifiable loss on the Appellant. It is however not clear on the Tribunal’s mind how much loss was occasioned on the Appellant’s business or how it affected its tax liability.

49. There is neither evidence adduced by the Appellant that the Respondent used imaginary figures to estimate the selling price, nor has the Appellant issued its alternative to the selling price estimated by the Respondent. The Tribunal therefore rejects this contention by the Appellant as the same is unsupported.

50. In the instant case, both parties have made mere allegations on the issue of the self-assessment liabilities without any proof or evidence tabled before the Tribunal. While The Respondent maintained that there were variances between the Appellant’s iTax ledger and the reconciliations of the Respondent, there is no indication of how the variance were arrived at by the Respondent. Even at that, by virtue of Section 38 of the Tax Appeals Tribunal Act and Section 35 of the VAT Act, it was the Appellant’s responsibility to prove that it indeed made the payments complained of, which it has not tendered. No receipts or evidence of money transfers by the Appellant to prove payments have been issued.

51. The Tribunal therefore finds that the Appellant has failed to discharge its burden of proof in this Appeal and that to that extent the Objection Decision was proper in law.

Final Decision 52. The upshot of the foregoing analysis is that the Appeal lacks merit and the Tribunal accordingly proceeds makes the following orders;-i.The Appeal be and is hereby dismissed;ii.The Objection Decision dated November 20, 2020 confirming a tax assessment of Kshs 487,921,140. 00 be and is hereby upheld;iii.Each party to bear its own costs.

53. It is so ordered.

DATED and DELIVERED at NAIROBI this 10th day of February, 2023. ERIC N. WAFULACHAIRMANRODNEY O. OLUOCHMEMBEREDWIN K. CHELUGETMEMBERROBERT M. MUTUMAMEMBER