[2024] KETAT 49 (KLR)

Morgan Air and Seafreight Logistics Kenya Limited v Commissioner of Domestic Taxes (Tax Appeal 1190 of 2022) [2024] KETAT 49 (KLR) (26 January 2024) (Judgment)

Neutral citation: [2024] KETAT 49 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1190 of 2022

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

January 26, 2024

Between

Morgan Air and Seafreight Logistics Kenya Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The appellant is a private limited liability Company incorporated in Kenya under the Companies Act. Its main form of business is handling cargo.

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 appellant made applications for VAT refund claims totaling Kes 21,414,409. 00 on various dates for a zero-rated supply of logistics customers based outside Kenya.

4. Within the period May 20, 2022 and June 15, 2022, the respondent rejected the refund claims for the appellant being precluded from payments made on behalf of the principal as an agent.

5. The appellant raised an objection to the assessment dated June 17, 2022 and subsequently an objection which was rejected by the respondent who confirmed the decision to reject the refund claims.

6. Being dissatisfied with the objection decision, the appellant filed a notice of appeal dated and filed on September 29, 2022.

The Appeal 7. The appeal is premised on the following grounds listed in the memorandum of appeal dated October 13, 2022 and filed on October 14, 2022: -a.The respondent erred in fact in its objection decision by rejecting the appellant’s refund application purportedly on failure by the appellant to furnish it with the documentation in support of the refund claim when the respondent had been provided with the requisite information.b.The respondent erred in law and fact in its objection decision by upholding its refund rejection decisions which had rejected the appellant’s refund claims for the sum of Kes 21,414,409. 00 on a misguided basis that the appellant had incurred the input VAT, subject to the refund claims, as an agent of its non-resident customers.c.The respondent was misdirected both in fact and in law in rejecting the appellant’s VAT refund claims for October 2020 which had arisen from excess input tax incurred from making zero-rated supplies.

The appellant’s Case 8. The appellant’s case was premised on its;a.Statement of facts dated October 13, 2022 and filed on October 14, 2022. b.Witness statements of Judyth Lusuli dated, signed and filed January 20, 2023 and subsequently adopted on oath as evidence in chief on September 6, 2023. c.Written submissions dated September 13, 2023 and filed on September 14, 2023. d.Supplementary submissions filed on October 6, 2023.

9. The appellant stated that contrary to the respondent’s assertions, it provided the respondent with documents as requested via an email dated August 25, 2022 upon Ms. Mercy Kawira, the respondent’s officer who conducted the meeting held on August 22, 2022.

10. It reiterated that it provided the respondent with the requisite information well before the objection decision was issued therefore the respondent had sufficient time within which to issue the objection decision after considering the information provided failure to which the Tribunal should find such indolence and inaction on the respondent’s part was unfair and prejudicial to the appellant.

11. It contended that it sought clarification from the respondent on several occasions about the nature of the respondent’s request for further information than the ones already provided but the respondent failed to respond to the appellant’s emails.

12. It asserted that the respondent cannot claim that the appellant declined to furnish it with the information sought on May 9, 2022 via email when the respondent failed to respond to the emails from the appellant seeking clarification connecting to the same.

13. It relied on section 13 of the KRA Act and the case of Republicv Commissioner for Income Tax & Another Ex Parte Stockman Rozen (K) Ltd [2015] eKLR and averred that the respondent ought to exercise its discretionary powers to enforce the law reasonably and fairly.

14. The appellant contended that it does not act as an agent to any of its customers per the contracts it entered into with said customers. It added that as part of the transportation services offered to its customers, it guarantees its suppliers that it will fill the space with the contracted airlines, and in the event the space is not filled up, the appellant will pay for the guaranteed space to its suppliers.

15. It reiterated that its contracts stipulate that the appellant would bear all the risks associated with operating the business therefore indicating that the appellant is the sole owner of the airfreight capacity which is sold to customers at market rates.

16. The appellant stated that the nature of the agreement with its customers is that of service orders/quotes for the services ordered after which it issues invoices to its customers depending on the terms and conditions of the service orders/ quotes based on the fee amount agreed. It added that the consideration received by the appellant for the services rendered is the market value rate as agreed by the parties.

17. It cited section 13 (1) of the VAT Act and asserted that the expenses it incurred are part of its costs of sales and it does not receive any reimbursement from its customers for any of the costs incurred but earns consideration for the services rendered.

18. The appellant quoted section 13 (5) of the VAT Act and averred that all costs and taxes incurred by it are its costs and do not form disbursements paid on behalf of the customers thus all costs incurred in making a supply including incidental costs qualify to be included in the value of the supply for VAT purposes.

19. It relied on the following authorities:-a.The case of Kennedy v De Trafford[1987] A.C. 180 at 188b.Bowstead & Reynolds on Agency (Twenty-first edition) at pages 2 & 3c.The case of Garnac Grain Co. Inc. v H.M.F. Faure & Fairclough Ltd [1967] 2 All ER 353; andd.Black’s Law Dictionary (sixth Edition)’s definition of Agency at page 62.

20. The appellant maintained that the relation between itself and its customers does not qualify as a principal/agent relationship as a key characteristic of the agency relationship is that the agent has the power to bind the principal should a contract be entered with third parties, and the appellant’s service quotes for the services ordered do not grant it the power to bind its customers should it enter third party obligations.

21. It further relied on the cases of Local Production Kenya Limited v Commissioner of Domestic Taxes and TAT No. 381 of 2018 Farab International Fze v Commissioner of Domestic Taxes and asserted that the respondent cannot redraft the contracts between the appellant and its customers to impose a non-existing agency relationship. It added that in an agency, the agent usually provides disbursements or costs incurred on behalf of the principal which costs are usually excluded from the value of supplies but in the instant case, the appellant does not maintain a separate schedule of costs incurred on behalf of third parties as all costs incurred belong to the appellant.

22. The appellant stated that the VAT refund claim lodged was valid because it supplies various logistics and handling services relating to the exportation of perishable cargo and other general goods to be consumed outside Kenya to its non-resident customers located outside the Country.

23. The appellant cited section 2 of the VAT Act’s definition of exported services and reiterated that its services qualify as exported services by dint of being provided for use and consumption outside Kenya to the various non-resident customers based outside Kenya.

24. It reiterated that it made zero-rated supplies for October 2020 because of the services it offers its customers and the declaration of zero-rated supplies made in its VAT returns amounting to Kes 321,820,132. 00 resulting in the claim for input VAT of Kes 1,332,268. 00.

25. It relied on the case of Commissioner of Domestic Taxes v Total Touch Cargo Holland [2018] eKLR and stated that the High Court's decision that the handling, palletizing, and exportation services are taxable at zero percent ought to hold as a binding precedent in the instant appeal.

26. It cited the case of Panalpina Airflo Ltd v Commissioner of Domestic Taxes [2019] eKLR and urged the Tribunal to find that the services provided by the appellant to its non-resident customers amount to an export of services and thus subject to VAT at a zero rate.

27. On whether it is permissible in law for the respondent to reject the appellant’s refund application purportedly on failure by the appellant to furnish it with the documentation in support of the refund claim when, the respondent had been provided with requisite information, the appellant conceded that the request for information on August 15, 2022 and the meeting of August 22, 2022 referenced in the objection decision took place and that it provided the respondent with the documents requested vide an email dated August 25, 2022.

28. It submitted that the respondent never sought any clarification or further information from it after receiving the documentation leading the appellant to believe that it had provided all the information required thus the appellant was shocked at the respondent’s averment in its objection decision declining the objection on a failure to provide documentation sought.

29. It asserted that in May 2022, the respondent requested similar information which was not clear necessitating the appellant to request clarification from the respondent but the respondent defaulted leaving the appellant in limbo as to how to proceed.

30. It contended that there were no contracts between the appellant and the suppliers for the appellant to supply on behalf of the supplier as the appellant is not an agent of its supplier or any other party to the transactions. It added that it only provided the block space agreement with the transportation companies.

31. It asserted that it provided samples of zero-rated sales invoices which also reflect that its customers were outside the Country showing that it does not offer any taxable sales to local companies, and bank statements proving payment of the zero-rated sales.

32. It relied on articles 20 and 47 of the Constitutionof Kenya and submitted that the objection decision being anchored on the allegation of failure to provide the information requested denies the appellant the right to a fair hearing.

33. It relied on the case of Gideon Omare v Machakos University [2020] eKLR and submitted that the decision rendered by the respondent was neither intelligible nor inadequate as the appellant was unable to fathom the respondent’s reason for rejecting the refund claims since the information requested was provided.

34. It cited the case of Republic v Commissioner for Income Tax &anotherexparte Stockman Rozen (K) Ltd [2015] and contended that the respondent’s discretionary power to enforce and administer provisions of written laws ought to be exercised or performed reasonably and fairly.

35. It further quoted the decision in the case of Keroche Industries Limited v Kenya Revenue Authority & 5others Nairobi HCMA No 743 of 2006 [2007] KLR 240 and contended that the respondent’s request to provide further evidence in the form of supporting documentation gave the appellant a legitimate expectation that the documents will be analyzed in support of the objection, an action that was not done.

36. On whether the respondent erred in finding in its rejection decision of acknowledgment No KRA2022016142503 for February 2021 that the appellant had incurred the input VAT, as an agent of its non-resident customers, when there was no principal-agency relationship, the appellant submitted that it does not act as an agent of any of its customers and as a part of the transportation services offered to its customers, it guarantees its suppliers of filling up space with contracted airlines and in the event that it is unable to fill up the guaranteed spaces, it has a contractual term under the payment terms that it will nonetheless pay up for the guaranteed space to its suppliers, a fact that was not controverted by the respondent who chose not to cross-examine the appellant’s witness.

37. It posited that it is the sole owner of the airfreight capacity, enabling it to provide the exported services which are subsequently sold to customers at market-related rates given that the appellant has to pay for the guaranteed space.

38. The appellant submitted that the nature of the agreement with its customers is service orders/quotes for the services to be offered after which it issues invoices to its customers depending on the terms and conditions of the service quote and amount per the service order with the consideration for the appellant for the services rendered being as agreed at a market-related rate.

39. The appellant cited section 13 (1) and (5) of the VAT Act and asserted that the expenses incurred by it are part of its cost of sales and it does not receive any reimbursement from its customers for any of the costs incurred but earns consideration for services rendered.

40. It reiterated that all costs and taxes incurred by the appellant are its own and not reimbursed by its customers or any other person thus all costs incurred in making a supply including incidental costs such as capital expenditure, administrative and other overhead expenditure qualify to be included in the value of the supply for VAT purposes.

41. It cited the case of Kennedy v De Trafford [1987] A.C. 180 at 188; Bowstead & Reynolds on Agency’s definition of Agency at page 2 and 3; Black’s Law Dictionary (sixth Edition)’s definition of agency at page 62; and the case of Garnac Grain Co. Inc v H.M Faure & Fair Dough Ltd and Bunge Corporation (1967) 2 All E.R. 353 and submitted that it is not an agent neither is there an existence of an agent-principal relationship between it and its customers as an agency relationship requires the consent of the principal and the agent which must be given either expressly or by implication from their words and conduct.

42. It relied on the cases of Local Production Kenya Limited v Commissioner of Domestic Taxes; and Tax Appeal No. 381 of 2018 Farab International Fze v Commissioner of Domestic Taxes in asserting that the service orders/quotes for the exported services offered to its customers do not grant it the power to bind its customers should it enter into third party obligation as evidenced by the nature of the appellant’s relationships and block space agreements.

43. It argued that by dint of being provided for use and consumption outside Kenya to the various non-resident customers based outside Kenya, its services qualify as exported services in line with the provisions of section 2 of the VAT Act 2013 definition of an exported service.

44. On whether it was permissible in law for the respondent to reject the refund claim for October 2020 vide its rejection decision of acknowledgment number KRA2022066141751 when it was apparent that the appellant’s services were zero-rated under the VAT Act 2013, the appellant cited the cases of Commissioner of Domestic Taxes v Total Touch Cargo Holland [2018] eKLR and Panalpina Airflo Limited v Commissioner of Domestic Taxes [2019] eKLR and submitted that the facts in the case mirror the facts in the instant Appeal thus, relying on the doctrine of stare decisis, the same position must apply.

45. It asserted that the VAT refund claim lodged was valid in law and supported in fact as the appellant supplies various logistics and handling services relating to the exportation of perishable cargo to non-resident customers located and to be consumed outside the Country and the services qualify as exported services, thus zero-rated for October 2020 as evidenced by the appellant’s VAT return for October 2020 and in accordance with the provisions of paragraph 20 of the Second Schedule to the VAT Act.

46. The appellant asserted that it was properly guided in claiming for refund as provided under section 17 (5) of the VAT Act as by providing services for the transportation of goods to a place outside Kenya, it classified its supply as zero-rated and proceeded to lodge a VAT refund claim per the law.

47. The appellant reiterated that it does not only deal with zero-rated supplies but also the transportation of goods from Kenya to places outside of Kenya accounts for more than 90% of sales thus, per section 7 of the VAT Act 2013, the appellant was rightly guided in seeking and claiming all the input tax incurred in the supply of the zero-rated supplies.

48. It submitted that it had annexed sample invoices to demonstrate that its customers were located outside Kenya and as such, it is in the business of offering services in connection with the exportation of goods outside Kenya which services include handling, clearing, and palletizing of goods.

49. It reiterated that clause 14 of the General Terms and Conditions of MAGMA Agreement provides the role of the appellant which is the handling of goods for its customers.

50. It argued that the MAGMA agreement was entered into between the appellant and MAGMA and not between the appellant and its customers with the transaction in question being between the appellant and its customers. It reiterated that the respondent has not provided any agreement between the appellant and its customers proving that there was a principal-agent relationship between the appellant and its customers. It added that MAGMA is not the appellant’s customer but supplies services to the appellant and per the doctrine of privity of contract, the phrase referring to the appellant as a “freight forwarding agent” in the MAGMA agreement cannot be relied on to insinuate an agent-principal relationship between the appellant and its customers.

51. It relied on the Kennedy case (supra) and the Garnac Grain Co. Inc. case (supra) to contend that the words “freight forwarding agents” were used loosely and in the business sense as in the appellant’s business practice and cannot be claimed to be creating an agency with an undisclosed principal.

52. It reiterated that Article 13. 1 of the MAGMA Agreement does not appoint the appellant as an agent to its customers as the use of the comma after the words “in accepting the terms of this agreement it,” and the word or demonstrates that the appellant is providing a warranty that it is either the person who owns or is entitled to possession of the cargo or is the agent of the person who owns the cargo or has the authority of the person who owns the cargo.

53. It added that the option applicable to it was that it took possession of goods that would then be delivered to its customers and not an agent. It added that the use of the word “or” in the clause means that the appellant could be any of the persons listed.

54. It argued that article 16 of the Magma Agreement confirms that the appellant offers services for the exportation of goods i.e. the handling and clearing of goods.

55. The appellant maintained that no customer owns space and that the entire space is owned by the appellant who then chooses whom to sell to as seen in the Block Space Agreements and in the event the spaces are not sold out to capacity, the appellant pays for the said unutilised capacity.

56. It submitted that it takes the risks and responsibilities attendant to the goods as confirmed by the respondent’s submissions. It argued that an agent cannot assume risk on behalf of its principal and the appellant offers services in connection with the transportation of goods outside Kenya (exportation) as admitted by the respondent in its submissions.

57. The appellant asserted that it has never at any given time alleged or claimed to be a transporter. Instead, it offers services in connection with the transportation of goods outside Kenya (exportation) i.e. clearing, handling, and vacuum cooling.

58. It contended that as the jurisdiction of the Tribunal is limited to the reasons stated in the objection decision filed herein that the appellant has appealed against and which form the basis of the Appeal, there was no reference to the issue of transportation by the respondent in the objection decision thus the definition of transportation and whether the appellant is a transporter is non-consequential.

59. It reiterated that it facilitates transportation by blocking the space on the aircraft and providing the services in connection with transporting goods originating from Kenya to a place outside Kenya per Paragraph 20 of the 2nd Schedule to the VAT Act.

60. The appellant confirmed that it offers logistics solutions in connection with the transportation of goods for transportation outside Kenya per Paragraph 20 of the 2nd Schedule to the VAT Act and contrary to the respondent's assertions, the appellant does not undertake these services as an agent but in its own capacity to the extent that it acquires the block spaces and offers the same to its customers at market rate issuing invoices.

61. It averred that the consumers of the appellant’s services issued in connection with the transportation of goods originating from Kenya are all located outside Kenya as in the instance of the invoice dated November 8, 2020 issued to Roseportal BV, a company located at Liege in Belgium.

62. The appellant asserted that it supplies various logistics and handling services relating to the exportation of perishable cargo to its non-resident customers located outside Kenya and consumed outside Kenya per section 2 of the VAT Act defining an exported service and Paragraph 20 of the 2nd Schedule to the VAT Act.

63. It argued that considering the nature of the services it offers its customers, it made zero-rated supplies in its VAT return for October 2020.

64. The appellant submitted that the Total Touch case is pertinent to the instant case as the business of the taxpayer in the Total Touch case was to provide transport and handling services for its customers from Kenya to Europe as part of a group of companies incorporated as a subsidiary in Kenya to provide the service of blocking airspace in aircraft and cooling services to the parent company in holland.

65. It added that the facts in the Total Touch case are strikingly similar to the case herein to the extent that the appellant offers the services of handling, clearing and palletizing goods which is the preparation for export services and purchases the block space agreements which are then offered to its customers at market rate.

66. It submitted that the principles emanating from the Total Touch case are fully applicable to this case and the Tribunal is bound to rely on them guided by the doctrine of stare decisis.

67. The appellant contended that it is offering the services in connection with the transportation of goods outside Kenya which services are so intrinsically interwoven that they form part of transportation services thus the case of Panalpina Airflo (supra) is applicable in this case.

68. It posited that the appellant is offering services similar to those offered in the Panalpina case to the extent that it offers handling, clearing, and palletizing thus, the court’s decision in the Panalpina Airflo case in establishing whether services have been exported outside Kenya the guiding factor should be the location of the consumer of the services, not the place where the services are performed.

69. It submitted that in its memorandum of appeal, statement of facts, and submissions, the appellant has been demonstrating the errors and shortcomings in the respondent’s decision and the respondent’s submission on this issue lacks anchorage in fact and thus ought not be sustained by the Tribunal in light of the appellant’s pleadings, submissions and the rejoinder submissions.

The appellant’s prayers. 70. The appellant prayed that the Tribunal finds for the appellant’s case and order that: -a.The appeal be upheld;b.The respondent erred in finding that the appellant had not submitted the requested information and therefore be pleased to set aside the objection decision dated 30th August 2022 predicated on this basis.c.The appellant incurred input tax as a principal and not as an agent as the requested information and the objection decision dated 30th August 2022 be set aside.d.The appellant is entitled to a refund totaling Kes 21,414,409. 00 under the provisions of section 17 of the VAT Act;e.The appellant’s VAT refund claims for October 2022 of Kes 1,332,268. 00 arising from excess input tax incurred from making zero-rated supplies are valid and refundable.f.The appellant be paid the excess input VAT of Kes 21,414,409. 00 within 30 days or such a period of time as the Tribunal deems fit;g.Any other consequential order as is deemed just and reasonable; andh.Costs of and incidental to this Appeal be awarded to the appellant.

The respondent’s Case 71. The respondent’s case is premised on its;a.Statement of Facts dated and filed on November 2, 2022. b.Written submissions dated and filed on September 20, 2023.

72. The respondent cited section 56 (1) of the Tax Procedures Act and stated that the appellant did not provide sufficient supporting evidence and the appellant cannot dictate to the respondent the documents that it will require to execute its mandate.

73. The respondent averred there was a request for documentation and various meetings were held where documents were requested but the same was never produced within the 60 days thus limiting the respondent’s ability to look into the objection.

74. The respondent reiterated that documentation to support the objection was not given therefore the objection was not allowed.

75. It averred that the appellant’s contention that its consideration for services rendered was calculated as the sum of costs incurred in delivering the service means that the customer procuring the services incurred the costs directly as it had to reimburse and further pay for the services rendered through the mark-up thus the person really bearing the burden of the tax is not the appellant but the customer.

76. The respondent stated that the supply, though made by the appellant, was made on behalf of the customer, and input VAT claimed was reimbursements and were not costs met by the appellant as the goods did not belong to the appellant.

77. It quoted section 13 (5) of the VAT Tax Act and averred that the appellant issues tax invoice, the supply is made to the customer who should have the benefit of having its input VAT deducted. It added that the input claimed is not included as the taxable value of the appellant’s supply on the grounds that it is a cost met by the customer.

78. It reiterated that the matter quoted by the appellant in its Appeal can be directly differentiated from the matter at hand as the issue of mark-up cost was not a factor.

79. On whether the logistics services offered by the appellant are zero-rated, the respondent relied on the case of Francis Otile v Uganda Motors Kampala HCCS No. 210 of 1989 and submitted that the Tribunal should consider the provided documents to ascertain the true nature of the services offered by the appellant and not decide based on the explanation advanced.

80. It asserted that from the contract, the appellant is subcontracted to perform some functions. It added that MAGMA is not an operator but the party that hires the aircraft and books the space in the Aircraft.

81. The respondent cited page 45 and article 13 of the MAGMA Cargo Charter Agreement with the appellant and argued that contrary to the appellant’s averment, such payments were made and the appellant cannot plead that it is not an agent of the customer while the contract expressly provides for the same.

82. It cited Article 16 of the Agreement and argued that the appellant’s responsibilities are the same as what is offered by the travel agent who helps clients to book seats only in this case, the appellant helps the customers to secure block space for the customer’s goods.

83. The respondent submitted that the true nature of the services is that of the freight forward agent of the person who is seeking to have the goods transported and whose mandate is to secure space allocated by the operator to MAGMA. It added that MAGMA is the one that actually pays the operator and not the appellant.

84. The respondent maintained that Article 8 of the Agreement states that freight forwarding is the agent, and the appellant is not the transporter but the operator per the agreement.

85. The respondent cited the appellant’s business model and maintained that the appellant is a middleman between the customer and the airline that offers the transportation services and the contract the appellant has is not with the airline but with MAGMA who is the intermediary. Further, the respondent asserted that the contract with the operator (airline) is with MAGMA and not the appellant as MAGMA only subcontracted the appellant to procure the clients for it.

86. It relied on Black’s Law Dictionary’s definition of transportation and the case of Hamann vs Finanzamt Hamburg-Eimsbüttel together with paragraphs 4, 8, 15, and 17 of the Agreement to argue that the appellant cannot purport to offer the transport service as the Agreement expressly states otherwise and the person offering the transport service is the person/carrier/operator who is causing the movement of goods and not the appellant or MAGMA who facilitate the procuring of clients.

87. The respondent further relied on the case of Troy v Eastern Company of Warehouses, and Midland Rubber Company v Robert Park Co. and contended that the appellant is not offering the transport services but is only a freight forwarding agent neither is MAGMA which has the direct contract with the operator.

88. It reiterated that the appellant only provides business for MAGMA who books the block spaces in the aircraft owned by the operators who are the ones in the business of transportation of the goods.

89. It asserted that the appellant cannot be considered by the Tribunal as the carrier/transporter while its own evidence indicates otherwise. It added that there is no evidence before the Tribunal to support the appellant’s averments.

90. The respondent relied on the cases of Motex Knitwear Limited v Gotipex Knitwear Mills Limited Nairobi (Milimani) HCCC No 834 of 2002 where the court cited approvingly the case of Autar Singh Bahra And Another v Raju Govindji, HCCC No. 548 of 1998, and the case of Trust Bank Limited v Paramount Universal Bank Limited & 2others Nairobi (Milimani) HCCS No. 1243 of 2001 to buttress its position that the appellant has failed to discharge the burden of proof contrary to section 56 (1) of the Tax Procedures Act thus the Appeal must fail on the grounds.

91. The respondent quoted the case of Troy v The Eastern Company of Warehouses and submitted that the appellant’s principal business is offering logistics solutions to its customers that enable them to get block spaces for their goods as per Paragraph 16 of the Agreement, the appellant ensures the goods of the customer are availed for transportation and is not a transporter or carrier but a transport manager.

92. The respondent submitted that the consumers of its services are individuals seeking to transport goods and the appellant acts as an intermediary between the customer and the carrier with its liabilities being very distinct in law.

93. The respondent relied on Eurosender’s difference in the roles between the carrier and the freight forwarder and submitted that while the carrier transports the cargo from one place to another, the freight forwarder organizes the entire shipping process including transport, documentation, warehousing and consolidation of goods from various customers and freight forwarders do not own vehicles themselves as they are simply transport managers like the matatu stage managers are not the drivers.

94. It reiterated that the appellant procures the customers from the block space and ensures that the goods are packaged ready for transportation and facilitates the documentation necessary for the transportation. It stated that the appellant’s mandate ends at that point and it does not take part in the actual moving of the goods.

95. The respondent submitted that while the operator (the airline) is tasked with the transportation of the goods and MAGMA secures the space in different aircraft, the appellant who has a contract with MAGMA procures clients for MAGMA and further assists the customers to place goods in a transportable manner including helping in securing the documentation just like having a travel agent book a flight for someone and organize the VISA and Passports where necessary.

96. It relied on paragraph 20 of the second schedule to the VAT Act and maintained that the appellant as per the agreement is evidently a freight forward agent as described in the agreement under paragraphs 15 and 16 which are not zero-rated.

97. The respondent asserted that the services rendered by the appellant are not transportation of goods, the freight forwarders as the appellant are simply transport managers who assist the customers to get the block spaces in the aircraft. It added that the carriers/operators offer the service of moving the goods which is the transportation of goods that are zero-rated.

98. On whether the principle of stare decisis applies, the respondent cited the cases of Commissioner of Domestic Taxes v Total Touch Cargo Holland Income Tax Appeal No. 17 of 2013 and TAT Appeal No. 149 of 2016 Panalpina Airflo Limited v Commissioner of Domestic Taxes relied on by the appellant together with the case of Ernst & Young LLP v Capital Markets Authority &another [2017] eKLR in which the case of R v Norelec. co was referred to by the court and submitted that the issues under consideration in those cases are very distinct from the matter in the current appeal thus the Tribunal is not bound by those decisions.

99. It reiterated that the issue in the Total Touch Cargo case was whether the services were exportable services to be taxed in the location of the final consumer and the issue in the Panalpina Airflo case was whether exported services but in the instant case, the issue is on the services offered by Freight Forward Agent being transportation services.

100. On whether the decision issued failed to identify the shortcomings in the Objection, the respondent relied on section 51 (10) of the Tax Procedures Act and submitted that it had divided its objection decision into different sections which were the basis of the refund decision, the grounds of Objection, the statement of findings, and the respondent’s decision with each section providing a detailed explanation.

101. It further relied on the statements by Sir Charles Newbold and argued that the decision was made in line with the Applicable law.

The respondent’s prayers 102. The respondent prayed for the Tribunal to:a.Uphold the objection decision dated August 30, 2022 disallowing the refund claims; andb.Dismiss the Appeal with costs.

Issues for Determination 103. After perusing the Memorandum of Appeal and parties' Statements of Facts, and witness statements, together with their submissions and documentation attached therewith, the Tribunal believes that the following as the main issues for determination:a.Whether the respondent’s Objection dated August 30, 2022 was validly issued.b.Whether the respondent’s Objection dated August 30, 2022 was justified.

Analysis and Findings 104. The Tribunal wishes to analyze the issues as hereinunder.

a. Whether the respondent’s Objection dated 30th August 2022 was validly issued. 105. The appellant lodged its notice of objection on the June 17, 2022 objecting to the respondent’s refund rejection notice. The appellant proceeded to provide documents via an email dated August 25, 2022 upon the request by Ms. Mercy Kawira, the respondent’s officer with whom a meeting was conducted the on August 22, 2022.

106. The respondent subsequently issued the objection decision on August 30, 2022.

107. With regard to the issuance of a valid objection decision the respondent ought to be guided by section 51 (11) of the Tax Procedures Act; provides as follows:-“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 tax payer, failure to which the objection shall be deemed to be allowed.”

108. Accordingly, the Tribunal notes that the respondent was required to render its objection decision on or before the August 16, 2022, unless where by that date time had been extended by the provision of further documents it had requested from the appellant.

109. The Tribunal observes that indeed the respondent did request for further documents in the meeting of August 22, 2022, which were provided on the August 25, 2022. However, by this time the appellant’s objection had already been deemed allowed by operation of the law pursuant to the provisions of section 51 (11) (b) of the TPA (supra).

110. It is the finding of the Tribunal that the appellant’s objection notice was allowed by operation of the law after the August 16, 2022 by failure of the respondent to render an objection decision.

111. Having found as above, the Tribunal sees no value to delve into an analysis of the second issue for determination as the same has been rendered moot.

Final Decision 112. The upshot to the foregoing is that the Appeal is merited and the Tribunal consequently makes the following Orders;-i.The appeal be and is hereby allowed.ii.The respondent’s objection decision issued August 30, 2022 be and is hereby set aside.iii.The respondent to process the appellant’s refund applications within ninety (90) days of the date of delivery of this Judgment.iv.Each party to bear its own costs.

113. It is so orders.

DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF JANUARY, 2024. ROBERT M. MUTUMA - CHAIRPERSONDR. WALTER ONGETI - MEMBERMUTISO MAKAU - MEMBERELISHAH N. NJERU - MEMBERBONIFACE K. TERER - MEMBER