[2023] KETAT 175 (KLR)

Mount Kenya Breweries Limited v Commissioner of Domestic Taxes (Appeal 591 of 2021) [2023] KETAT 175 (KLR) (Civ) (10 February 2023) (Judgment)

Neutral citation: [2023] KETAT 175 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 591 of 2021

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, Jephthah Njagi & AK Kiprotich, Members

February 10, 2023

Between

Mount Kenya Breweries Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The appellant is a company incorporated in Kenya with its headquarters in Nairobi and engaged in the business of manufacture of spirits and allied products.

2. The respondent is a principal officer appointed under and in accordance with section 13 of the Kenya Revenue Authority Act, and the Kenya Revenue Authority is an agency 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. On April 9, 2021, the respondent’s team visited the appellant’s factory whereof the appellant’s factory was put under seal and a notice of summon to appear before the respondent, on April 14, 2021 at Times Tower 17th floor, was issued.

4. On April 14, 2021 the appellant appeared before the respondent alongside its tax agents. During the meeting the respondent handed over to the appellant a notice of intention to suspend the appellant’s excise licence dated April 12, 2021.

5. On April 20, 2021, a letter of response to the intention to suspend the appellant’s licence was submitted to the respondent addressing the allegations raised by the respondent vide a letter dated April 12, 2021.

6. On April 26, 2021 the respondent suspended the appellant’s excise licence.

7. On May 10, 2021, the appellant received a tax demand letter captioned “ demand notice for tax in arrears” dated May 6, 2021 demanding for payment of taxes amounting to Kshs 934,816,934. 00, inclusive of penalties and interest, in respect of excise, value added tax (VAT) and income tax.

8. On June 9, 2021 the appellant submitted a detailed response to the tax demand.

9. Between June 7, 2021 and June 18, 2021 (both dates included) the respondent issued additional assessments in respect of excise, VAT and income tax amounting to Kshs 705,073,664. 00, inclusive of penalties and interest.

10. On July 6, 2021, the appellant filed objections against the additional tax assessments via the iTax platform whereof the grounds of objection were outlined in detail vide a letter dated July 6, 2021. The aforementioned letter of objection as well as the objection acknowledgement notices issued via iTax were shared with the respondent via email on July 6, 2021.

11. On September 6, 2021, the respondent issued its objection decision via email to the appellant’s objections, rejecting them and confirming the additional assessments.

12. On September 10, 2021, the respondent shared another objection decision via email dated September 10, 2021 and directed the appellant to ignore the objection decision earlier shared on the September 6, 2021.

13. On September 23, 2021 the appellant being dissatisfied with the objection decision filed a notice of appeal with the tribunal and served the respondent.

The Appeal 14. The appeal is premised on the following grounds as stated in the appellant’s memorandum of appeal dated and filed September 27, 2021 .Additional excise assessments –Kshs 324,074,991. 72a.The respondent erred in law and fact in raising additional excise assessments on a basis other than the actual quantities of production and deliveries made for the tax periods in dispute. The actual quantities produced and delivered during the tax period in dispute amounted to 1,699,279 litres as outlined in its annexure II(a) of the objection letter dated July 6, 2021 lodged with the respondent on the July 6, 2021. b.The respondent erred in law and fact by raising additional excise assessments without undertaking a review of audit to ascertain the actual production and deliveries made for the tax periods in dispute, thus arriving at an erroneous excise position for those periods. The raising of additional assessments without specifications on how the alleged quantities of production and deliveries were arrived at is not only vague and ambiguous, but also very broad, unduly burdensome, oppressive, and impossible to comprehend.c.The respondent erred in fact in issuing the additional excise assessments on the basis that were vague and ambiguous, that could only prompt wild speculations regarding the basis used in arriving at the alleged quantities of production and deliveries made during the tax periods in dispute. The respondent did not provide the appellant with clear and unambiguous details on how the alleged quantities of production and deliveries that triggered the additional excise assessments were arrived at, but instead opted to unjustifiably pluck figures from the air and impose them on the appellant with no comprehensible or justifiable basis.d.The respondent erred in law and fact by issuing additional excise assessments prematurely without giving the appellant sufficient time to respond to the allegations raised in the demand notice for the excise of Kshs 508,760,117 originally alleged to be in arrears. Although the demand notice was dated May 6, 2021, it was not received by the appellant until May 10, 2021. The demand notice never specified the timelines within which to respond to the allegations raised therein thus the appellant prudently assumed that 30 days would be acceptable to respond to the allegations as is the case with additional assessment notices. Indeed, the appellant submitted a detailed response to the demand notice together with the requisite support within 30 days on June 9, 2021 but the respondent had already commenced issuing additional assessments 2 days earlier on June 7, 2021. e.The respondent erred in fact by failing and/ ignoring to take into consideration the appellant’s rebuttal grounds captured in the letter dated June 9, 2021 addressing the allegations raised in the demand notice dated May 6, 2021, thus issuing additional excise assessments on a basis devoid of reasonable degree of impartiality. Indeed, the respondent neither requested for nor described the documents and/ or information it required to aid in making the decision on whether to validate or invalidate the tax demand notice issued, thus resulting to the erroneous issuance of the tax demand notice which undoubtedly propagated unfair administrative action by condemning the appellant unheard, the appellant nevertheless responded to the respondent’s allegations in the best way possible under the circumstances.f.The respondent erred in law and fact by failing and/ ignoring to appreciate the self-assessment declarations made by the appellant via the iTax platform, whereof these declarations are in the respondent’s possession and readily accessible from the iTax database. The respondent’s action of disregarding the information within its custody culminating into the erroneous and irregular additional excise assessments is not only oppressive and unduly burdensome but also unnecessarily expensive since the burden of accessing such information via the iTax platform is substantially the same or less for the respondent as is for the appellant.g.That consequent to the above grounds, the respondent erred in law and in fact by upholding and confirming the additional excise assessments not withstanding the fact that the appellant, via self-assessment returns, duly declared and accounted for excise liability in full based on the actual production and deliveries made for the tax periods in dispute.h.That the respondent erred in law and in fact by rendering the objection decision outside the statutory timelines provided under the law. The objection having been filed with the respondent on July 6, 2021, the respondent n was obligated to render the objection decision by September 5, 2021. However, not only was the objection decision communicated late via email dated September 6, 2021 but the respondent via email dated September 10, 2021 shared another objection decision earlier shared on September 6, 2021. Additional VAT assessments – Kshs 131,530,400. 02i.That the respondent erred in law and fact in raising additional VAT assessments on basis other than actual value of sales made. The actual value of sales made for VAT purposes during the tax periods in dispute wasKshs 548,145,804 as outlined in the appellant’s annexure II(b) of the objection letter dated July 6, 2021 lodged with the respondent on July 6, 2021. j.That the respondent erred in fact by raising additional VAT assessments without undertaking a review or audit to ascertain the actual value of sales made for the tax periods under dispute thus arriving at an erroneous VAT position for those periods. The raising of additional assessments without specifications on how the alleged value of sales was arrived at is not only vague and ambiguous, but also overly broad, unduly burdensome, oppressive and impossible to comprehend.k.That respondent erred in fact in issuing additional VAT assessments on the basis that were vague and ambiguous, that could only prompt wild speculations on the basis used in arriving at the alleged value sales. The respondent did not provide the appellant with clear and unambiguous details on how the alleged value of sales that triggered the additional VAT assessments were arrived at but instead opted to unjustifiably pluck figures from the air and impose them on the appellant with no comprehensible and justifiable basis.l.That the respondent erred in law and fact by issuing additional VAT assessment prematurely without- giving the appellant sufficient time to respond to the allegations raised in the demand notice for the VAT ofKshs 152,481,940 originally alleged to be in arrears. Although the demand notice was dated May 6, 2021, it was not received by the appellant until May 10, 2021. The demand notice never specified the timelines within which to respond to the allegations raised therein, thus the appellant prudently assumed that 30 days would be acceptable to respond to the allegations as is the case with additional assessment notices. Indeed, the appellant submitted a detailed response to the demand notice together with requisite support within 30 days on June 9, 2021 but the respondent had already commenced issuing additional assessments 2 days earlier on the June 7, 2021. m.That the respondent erred in fact by failing and/ or ignoring to take into consideration the appellant’s rebuttal grounds captured in the letter date June 9, 2021 addressing the allegations raised in the demand notice dated May 6, 2021, thus issuing additional VAT assessments on a basis devoid of reasonable degree of impartiality. Indeed, the respondent neither requested for nor described the documents and/ or information it required to aid in making the decision on whether to validate or invalidate the tax demand notice issued, thus resulting to the erroneous instance of the additional VAT assessments. Despite the clear vagueness and ambiguity noted in the respondent’s demand notice issued, thus resulting to the erroneous issuance of the additional VAT assessments. Despite the clear vagueness and ambiguity noted in the respondent’s demand notice which undoubtedly propagated unfair administrative action by condemning the appellant unheard, the appellant nevertheless responded to the respondent’s allegations in the best way possible under the circumstances.n.That the respondent erred in law and fact by failing and/ or ignoring to appreciate the self-assessment declarations made by the appellant via the iTax platform, whereof these declarations are in the respondent’s possession and readily accessible from the iTax database. The respondent’s action of disregarding the information within its custody culminating into the erroneous and irregular additionalVAT assessments is not only oppressive and unduly burdensome but also unnecessarily expensive since the burden of accessing such information via the iTax platform is substantially the same for the respondent as is for the appellant.o.That consequent to the above grounds, the respondent erred in law and in fact by upholding and confirming additional VAT assessments notwithstanding the fact that the appellant, via self-assessment returns, duly declared and accounted for the VAT liability in full based on the actual value of sales made for the tax periods in dispute.p.That the respondent erred in law and fact by rendering the objection decision outside the statutory timelines provided under the law. The objection having been filed with the respondent on July 6, 2021, the respondent was obligated to render the objection decision by September 5, 2021. However, not only was the objection decision communicated late via email dated September 6, 2021 but the respondent via an email dated September 10, 2021 shared another objection decision and directed the appellant to ignore the objection decision earlier shared on September 6, 2021. Additional income tax assessments – Kshs 81,429,160. 72q.That the respondent erred in law and in fact in raising additional income tax assessments on basis other than the actual sales and/ or taxable income/ (loss) positions For the years ended December 31, 2017, 2018 and 2019. The correct income tax positions for the years in question are tax losses as follows: 2017 - Kshs 175,922,740. 00, 2018 - Kshs 324,371,443. 00 and 2019 - Kshs 367,596,329. 00. r.That the respondent erred in fact by raising additional income tax assessments without undertaking a review or audit to ascertain the actual value of sales made for the years in dispute, thus arriving at an erroneous income tax position for those years. The raising of additional assessments without specifications on how the alleged value of sales were arrived at is not only vague and ambiguous, but also very broad, unduly burdensome, oppressive, and impossible to comprehend.s.That the respondent erred in fact in issuing the additional income tax assessments on the basis that were vague and ambiguous, that could only prompt wild speculations on the basis used in arriving at the alleged value sales. The respondent did not provide the appellant with clear and unambiguous details on how the alleged value of sales that triggered the additional income tax assessments were arrived at but instead opted to unjustifiably pluck figures from the air and impose them on the appellant with no comprehensible and justifiable basis.t.The respondent erred in law and fact by issuing additional income tax assessments prematurely without giving the appellant sufficient time to respond to the allegations raised in the demand notice for the income tax of Kshs 273,574,878 originally alleged to be in arrears. Although the demand notice was dated May 6, 2021, it was not received by the appellant until May 10, 2021. The demand notice never specified the timelines within which to respond to the allegations raised therein thus the appellant prudently assumed that 30 days would be acceptable to respond to the allegations as is the case with additional assessment notices. Indeed, the appellant submitted a detailed response to the demand notice together with the requisite support within 30 days on June 9, 2021 but the respondent had already commenced issuing additional assessments 2 days earlier on June 7, 2021. u.That the respondent erred in fact by failing and/ or ignoring to take into consideration the appellant’s rebuttal grounds captured in the letter dated June 9, 2021 addressing the allegations raised in the demand notice dated May 6, 2021, thus issuing additional income tax assessments on a basis devoid of reasonable degree of impartiality. In deed the respondent neither requested for nor described the documents and/ or information it required to aid it in making the decision on whether to validate or invalidate the tax demand notice issued, thus resulting to the erroneous issuance of the additional income tax assessments. Despite the clear vagueness and ambiguity noted in the respondent’s demand notice which undoubtedly propagated unfair administrative action by condemning the appellant unheard, the appellant nevertheless responded to the respondent’s allegations in the best way possible under the circumstances.v.That the respondent erred in law and fact by failing and / ignoring to appreciate the self-assessment declarations made by the appellant via the iTax platform, whereof these declarations are in the respondent’s possession and readily accessible form the iTax database. The respondent’s action of disregarding the information within its custody culminating into the erroneous and irregular additional income tax assessments is not only oppressive and unduly cumbersome but also unnecessarily expensive since the burden of accessing such information via the iTax platform is substantially the same or less for the respondent as is for the appellant.w.That the respondent erred in law and in fact by disregarding the cumulative income tax losses in the years ended December 31, 2017, 2018 and 2019 amounting toKshs 175,922,740, Kshs 324,371,443 and Kshs 367,596,329 respectively, available for offset against taxable income arising in the respective years or future years of income.x.That consequent to the above grounds, the respondent erred in law and in fact by upholding and confirming the additional Income Tax assessments notwithstanding the fact that the appellant via self-assessment returns, duly declared the correct taxable income/ (loss) on the basis of the actual value of sales made for the years in dispute.y.That the respondent erred in law and in fact by rendering the objection decision outside the statutory timelines provided under the law. The objection having been filed with the respondent on July 6, 2021, the respondent n was obligated to render the objection decision by September 5, 2021. However, not only was the objection decision communicated late via email dated September 6, 2021 but the respondent via email dated September 10, 2021 shared another objection decision earlier shared on September 6, 2021.

Appellant’s Case 15. The appellant’s case is premised on its statement of facts dated September 27, 2021 and filed on the same date, its written submissions dated and filed on February 14, 2022, its supplementary submissions dated and filed on March 21, 2022 and its preliminary objection dated and filed on March 15, 2022.

16. That the additional assessments in respect of excise, VAT and income tax have ostensibly been based on erroneous and excessive quantities of production and deliveries for the excise, and erroneous value of sales for VAT and income tax.

17. That the basis applied in raising the additional tax assessments ignored material facts regarding chargeability of tax under the three tax heads; excise, VAT and income tax, thus resulting to the erroneous colossal amounts raised in additional assessments.

18. That the additional excise assessments were issued in complete disregard of the legal basis upon which excise liability is determined. Excise should be determined on the basis of the actual quantities of production and deliveries.

19. That the additional assessments in respect of VAT and income tax were issued in complete disregard of the basis upon which sales value is determined. The sales value should be determined on the basis of the actual quantities sold.

20. That the additional tax assessments issued in respect of excise, VAT and income tax were inexcusably riddled with ambiguity and opaqueness, with no clear methodology on how the alleged quantities of production and deliveries for excise, and the alleged value of quantities sold forVAT and income tax, that triggered the additional tax assessment were arrived at.

21. That based on the above, the appellant appeals to the tribunal to direct the respondent to vacate the additional tax demand and lift the suspension of the excise licence of the appellant.

Appellant’s Prayers 22. The appellant prays for orders that:a.The respondent’s additional assessments be set aside as the findings and conclusions reached by the respondent are not supported by law and fact.b.The respondent be compelled to lift the suspension of the excise licence to enable the appellant resume normal business operations.

The Respondent’s Case 23. The Respondent’s case, and responses to the appeal, laid out hereunder, is premised on the following filed documents and proceedings before the tribunal: -i.The respondent’s statement of facts dated and filed on October 19, 2021 together with the documents attached thereto.ii.The respondent’s written submissions dated and filed on March 15, 2021 together with the legal authorities filed therewith.iii.The respondent’s preliminary objection dated and filed on March 15, 2022.

24. That on April 9, 2021, information was received that the appellant was affixing their products with counterfeit excise stamps within its factory premises.

25. That a team of enforcement officers was therefore constituted to confirm the following:i.To establish whether the company was operating without the presence of DTED officers.ii.To establish if the seal was intact and or tampered with.iii.To check and confirm the sources of stamps and ethanol.iv.The authenticity of excise stamps.

26. That the team visited the factory premises of the appellant and by the time they were gaining entry, the manufacturer had produced a total of 16,600 bottles all of which had been affixed with counterfeit excise stamps.

27. That the team further established that a roll of excise stamps (approximate 15,000 pieces of excise stamps) that was in use in its stamps applicator machine was counterfeit.

28. That it was established that the manufacturer had engaged in tax fraud as evidenced by counterfeit excise stamps that were found in its factory together with the records obtained as the time of the visit.

29. That after the above findings:i.A total of 16,600 bottles of sparkler vodka 250ml were seized for bearing counterfeit excise stamps.ii.Production documents were seized through an inventory.iii.An FH Truck KCC 432 H was also impounded and all deposited at Wilson Airport warehouse.iv.The factory premise was sealed vide seals Nos 0042391, 0042387, 0190354, 0190353 and 0190351.

30. That a notice of intention to suspend the excise licence was done on April 12, 2021 and the manufacturer was given seven (7) days to show cause why the licence should not be suspended.

31. That a response was received from the appellant dated April 19, 2021 but did not give enough grounds to deter the respondent from suspending the excise licence.

32. That a suspension notice was issued on April 26, 2021 after the lapse of the 7 days.

33. That it was thereafter established that the manufacturer engaged in tax fraud as evidenced by:i.Counterfeit excise stamps that were found in its factory.ii.Analysis of its production records obtained at the time of the visit.iii.Reconciliation of the stamps issued and the records of the raw materials procured by the manufacturer.iv.Previous default in making payment despite signing a payment plan dated October 23, 2019.

34. That through the analysis conducted afterwards, the taxes due were established and a demand issued on September 6, 2021 amounting to Kshs 324,074,991. 72,Kshs 131,530,400. 02, Kshs 81,429,160. 72 for excise duty, VAT and income tax,respectively. The appellant consequently objected to which the respondent issued an objection decision confirming the said assessment.

35. That the assessment dated May 6, 2021 is valid and should be upheld by the tribunal.

36. That section 5 of the Excise Duty Act 2015 (EDA) provides as follows:(1)Subject to this Act, a tax, to be known as excise duty, shall be charged in accordance with the provisions of this Act on –(a)excisable goods manufactured in Kenya by a licenced manufacturer;”

37. That the appellant has a statutorily imposed obligation to pay excise duty on the manufactured liquor. Investigations conducted by the respondent however revealed that the appellant was evading payment of taxes rightfully due from it by fraudulently conducting its business.

38. That the appellant had counterfeit stamp and records obtained from the factory premises also revealed fraud on the part of the appellant.

39. That to that end regulation 30(1)(e) of the Excise Duty (Excisable Goods Management System)Regulations provides:“A person shall not be found in possession of an excise stamp printed, made or in any way acquired without the authority of the commissioner.”

40. Further, that regulation 30(1)(g) of these regulations provides that:“A person shall not eb found in possession of, convey, distribute, sell, offer for sale or by way of trade expose excisable goods affixed with counterfeit excise stamps.”

41. That with the above provisions of law in mind, the appellant was clearly in violation of the EDA and the attendant regulations.

42. That this realisation led the respondent to suspend the appellant’s licence in accordance with section 23(4) of the EDA which provides as follows:-(4)Despite any other provision of this Act, the commissioner may suspend a licence, without notice, where the licencee-a.has engaged in tax fraud;b.has been found in possession of, or using, counterfeit stamps on excisable goods;c.has been found in possession of goods bearing counterfeit stamps, or;d.has violated any regulations relating to health and safety, standards or packaging of goods.”

43. The respondent states that the suspension of the excise licences was done after it was conclusively established that the appellant had breached the provisions of the EDA as read together with the regulations.

44. The respondent states that the respondent is not bound by a tax return as section 24 of the Tax Procedures Act, 2015 (TPA) provides as follows:(2)The commissioner shall not eb 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.”

45. That notwithstanding, the respondent states that the appellant’s objection in regard to excise tax, VAT and income tax assessments was fully rejected on September 6, 2021 on the basis that the appellant did not provide sufficient supportive documents.

46. That section 51(3) of the TPA provides as follows:“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—a.the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments; andb.in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in disputec.all the relevant documents relating to the objection have been submitted.”

47. That the appellant therefore did not lodge a valid objection and the respondent being empowered by law to do so, confirmed the assessments issued to the appellant.

48. The respondent states that the burden was on the appellant to prove that the assessments issued were erroneous. The burden could only be discharged through the provision of the requisite documents to support the objection, which the appellant did not do. The appellant did not provide any evidence contrary to the basis of the respondent’s assessment.

49. That the appellant therefore failed to discharge its burden of proving that the commissioner’s assessments were made in error as provided in section 56(1) of the TPA which states that:(1)In any tax proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

50. That for the abovementioned reasons, the respondent has not had the opportunity to objectively review the appellant’s objection with regard to the assessments issued and if the honourable tribunal were to continue with the appeal, it would be akin to shifting the burden to the respondent.

51. That the respondent states that the taxes outlined in its assessment and confirmed in its objection decision were raised in conformity with the laws and the same should be upheld.

52. The respondent in its submissions raised the following issues:a.Whether the respondent’s objection dated September 2, 2022 is valid pursuant to the provision of section 51(11) of the TPA1. That the respondent’s decision to suspend the appellant’s excise licence pursuant to section 23(40 of the EDA gave rise to the issuance of additional assessments as such two procedures were therefore taking place concurrently i.e. the review of the appellant’s excise licence operations and the audit over the appellant’s tax obligations.2. That the respondent being a creature of statute is guided by the same. In the instant case, the appellant has admitted that the lapse of the sixty days would fall on September 5, 2021 or thereabout. The respondent exercised its powers under section 51(11) of the TPA aforesaid on September 2, 2021 before the lapse of the statutory timelines, it follows that the submissions that the respondent issued its objection decision out of time are not factual.3. That the respondent only clarified on the September 10, 2021 that the initial objection had wrong dates at notes i.4. That the respondent urges the tribunal to find that the respondent’s objection decision of September 2, 2021 meets the provisions of section 51 of theTPA.5. That notwithstanding the above, the appellant alleges that the objection decision was received five (5) days after the statutory period. It noted that the 6oth day was September 5, 2021 which fell on a Sunday, so the respondent’s objection decision should have been issued and delivered latest Friday September 3, 2021. The decision was issued on September 2, 2021, if at all there was a delay, the same was not inordinate nor had the appellant suffered prejudice. The delay if at all there was any, was not a serious affront of the appellant’s right to fair administrative action protected by article 47 of the Constitution as observed in Utalii Transport Company limited 3 others v NIC Bank Limited another(20140 eKLR.b.Whether the respondent’s additional assessments and objection decision are valid in view of the appellant’s breach of section 23(4) of the Excise Duty Act.

58. That in the instant appeal there is no dispute that the appellant is in the business of manufacture of alcoholic beverages which are excisable goods within the meaning of part I of the 1st schedule of the EDA.

59. That the domestic taxes enforcement division of the respondent is mandated through intelligence and compliance checks in ensuring that excisable goods being offered for sale in the market have genuine excise stamps and taxes have been paid for.

60. That the team visited the factory premises of the appellant around April 9, 2021 and by the time they were gaining entry, the manufacturer had produced a total of 16,600 bottles all of which had been affixed with counterfeit excise stamps.

61. That after the above findings, a total of 16,600 bottles of sparkler vodka 250ml were seized for bearing counterfeit excise stamps, production documents were seized through an inventory, an FH Truck KCC 432 H was also impounded and all deposited at Wilson Airport warehouse and the factory premise was sealed vide seals Nos 0042391, 0042387, 0190354, 0190353 and 0190351.

62. That the additional taxes were raised on the basis of an analysis undertaken afterwards. The appellant objected to the same.

63. That in Stanley Irungu v Directorate of Criminal Investigations & Kenya Revenue Authority [2021] eKLR, it was observed as below:“I find that the law allows them to seize and detail the unexcisable or unaccustomed goods namely alcohol (vodka) by virtue of regulation 32(d) of the EGMS Regulations. I further find that regulation 32(b0 of the EGMS Regulations authorises KRA to seize any vehicle that has been used to transport unexcisable or unaccustomed goods.”

64. That it is for the above reason that the EDA, 2015 and the EGMS Regulations were enacted to allow for the seizure of excisable goods affixed with counterfeit stamps and any vehicle suspected to having been used in conveying of excisable goods in respect of taxes that have not been paid as was in the instant appeal.

65. That it is the respondent’s submission that it has and continues to experience rampant counterfeiting of stamps to under collection of taxes as was in this case. That the tribunal has to be guided by rules of taxation, namely: certainty, equality, equity, legality. That it is also a constitutional imperative under article 201 (b)(i) that the burden of taxation must be shared equally.

66. That the appellant in its correspondence dated April 20, 2021 did admit that indeed there were counterfeit stamps within its premises as such the respondent’s action to levy additional taxes was valid.b.Whether there is a valid appeal before the tribunal

67. The respondent submits that the appeal before the tribunal is invalid as the appellant has not paid the undisputed taxes of Kshs 15,417,034. 00 by the time of filing its notice of appeal dated December 23, 2021. That the appellant through its agents, Wada Tax Solutions, vide the letter dated June 9, 2021 admitted to taxes of Kshs 15,417,034. 00 but has not evidenced the said payment as prescribed under the TPA.

68. That the tribunal should adopt its holding in TAT Appeal No338 of 2021, Pesalus Supplies Limited v Commissioner of Investigation & Enforcement delivered on March 11, 2022.

69. That Justice Mary Kasango in Hewlett Packard East Africa Ltd v Commissioner of Domestic Taxes [2019] eKLR pronounced on incompetency of an appeal.

70. That the time, manner and process of filing an appeal is governed by statute as it is trite law that a right of appeal is a creation of statute and its exercise is governed by statutory structures governing the exercise of that right. In this regard, the respondent relies on Nyutu Agrovet Limited v Airtel Networks Kenya Limited; Chartered Institute of arbitrators – Kenya Branch (Interested Party) SCKpet No 12 of 2016 [2019] eKLR and Patrick Kiruja Lithinji v Victor Mugira Marete MRU CA civil appeal No 48 of 2014 [2015] eKLR.

71. The respondent in its preliminary objection raised the following issues:i.That the notice of appeal dated September 23, 2021 and appeal dated September 27, 2021 is incompetent and invalid pursuant to section 52(2) of the TPA which states as follows:“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.”

Respondent’s Prayers 72. The respondent prayed that the tribunal:a.Dismiss the appeal for lack of merit.b.Uphold the respondent’s assessment and confirmed assessment dated September 2, 2021. c.Award the respondent the costs of the appeal.

Issues For Determination 73. The tribunal upon due consideration of the parties’ pleadings and the written submissions is of the considered view that the appeal raises the following issues for its determination:a.Whether there is a valid appeal before the tribunal.b.Whether the notice of objection was allowed by operation of the law.c.Whether the objection decision made by the respondent on September 6, 2021 was proper in law.d.Whether the respondent erred in fact and in law in issuing additional tax assessments.

Analysis And Determinationa.Whether there is a valid appeal before the tribunal.

74. This dispute arose from the respondent’s assessment of excise duty, VAT and income tax on the appellant’s transactions for the tax periods 2017, 2018 and 2019.

75. The appellant contends that the additional excise assessments were issued in complete disregard of the legal basis upon which excise liability is determined. That excise duty should be determined on the basis of the actual quantities of production and deliveries.

76. The appellant further contended that the additional assessments in respect of VATand income tax were issued in complete disregard of the basis upon which sales value is determined. That the sales value should be determined on the basis of the actual quantities sold.

77. The appellant averred that the respondent issued its objection decision outside the statutory timelines.

78. The respondent, on its part, averred that it fully rejected the appellant’s objection on the basis that the appellant did not provide sufficient supporting documents. In this regard, the respondent argued that the appellant did not lodge a valid objection.

79. The respondent further averred, in its preliminary objection, that the appeal by the appellant is defective to the extent that the appellant did not settle the tax not in dispute as envisaged under section 52(2) of the TPA.

80. The tribunal extensively reviewed all documents submitted by the parties and established that between June 7, 2021 and June 18, 2021 (both dates included) the respondent issued additional assessments in respect of excise, VAT and income tax amounting to Kshs 705,073,664. 00, inclusive of penalties and interest.

81. The Tribunal has further established that on July 6, 2021, the appellant filed objections against the additional tax assessments via the iTax platform whereof the grounds of objection were outlined in detail vide a letter dated July 6, 2021. The aforementioned letter of objection as well as the objection acknowledgement notices issued via iTax were shared with the respondent via email on July 6, 2021.

82. It is notable that in its objection letter, the appellant objected in totality to the tax assessments amounting to Kshs 705,073, 664. 00. Therefore, the allegation that the appellant did not settle tax not in dispute as raised in the respondent’s preliminary objection is unfounded.

83. The tribunal therefore finds that the appeal before it is a valid appeal.b.Whether the notice of objection was allowed by operation of the law

84. The Tribunal having analysed the chronology of events in this dispute has established that the respondent issued its objection decision on September 10, 2021, sixty-six (66) days after the submission of an objection by the appellant. In this regard, the tribunal further notes that in response to the appellant’s objection dated July 6, 2021, the respondent issued an objection decision dated “September 2, 2021” and that this was supposedly received by the appellant on September 6, 2021 and that the same was re-send by the respondent on September 10, 2021 with guidance to the appellant to disregard the 6th September objection decision.

85. The tribunal relies on section 51(11) of the TPA that states as follows regarding timelines for the issuance of an objection decision:“Where the commissioner has not made an objection decision within sixty days from the date that the taxpayer lodged a notice of the objection, the objection shall be allowed.”

86. The tribunal refers to the case of Republic v Kenya Revenue Authority Ex Parte Mkopa Kenya Limited [2018] eKLR where Justice Odunga stated, inter alia, that:“In my view since there is no format for making an objection, what is required is the substance rather than the form. What the law frowns at is an objection that is framed in such an ambiguous manner as not to be certain whether the tax payer is seeking further particulars or indulgence to enable it pay the taxes demanded. In this case the applicant had clearly made what was in substance an objection as envisioned under section 51 of the Tax procedures Act, 2015. Accordingly, the respondent was required to make a decision in respect thereof within sixty (60) days under section 51(11) of the said Act. As the respondent defaulted in making a termination thereon within the prescribed time, the said objection was deemed to have been allowed.” (emphasis added)The Tribunal associates itself with the views of the High Court in the foregoing decision.

87. It then follows that the tribunal, guided by the above provision of the law as well as the case above, concludes that the objection by the appellant was allowed by operation of the law within the meaning of section 51(11) of the TPA.

88. Having entered the above finding, the Tribunal did not discuss the other issues set out namely: whether the objection decision made by the respondent on September 10, 2021 was proper in law and whether the respondent erred in fact and in law in issuing additional tax assessments, as they had been rendered moot.

Final Decision 89. In view of the foregoing analysis the Tribunal finds the appeal to be merited and accordingly proceeds to make the following orders:-a.The appeal be and is hereby allowed.b.The respondent’s objection decision issued on September 10, 2021 be and is hereby set aside.c.Each party to bear its own costs.

90. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 10TH DAY OF FEBRUARY, 2023. ERIC N. WAFULACHAIRMAN.............CYNTHIA B. MAYAKAMEMBER................GRACE MUKUHAMEMBER................JEPHTHAH NJAGIMEMBER................ABRAHAM K. KIPROTICHMEMBER