[2023] KETAT 306 (KLR)

Mulama v Kenya Revenue Authority (Appeal 301 of 2022) [2023] KETAT 306 (KLR) (Civ) (12 May 2023) (Judgment)

Neutral citation: [2023] KETAT 306 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 301 of 2022

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

May 12, 2023

Between

Francis Kadima Mulama

Appellant

and

Kenya Revenue Authority

Respondent

Judgment

1. The appellant is a resident of mombasa county in the republic of Kenya where in the operates the law firm of Kadima and co. Advocates.

2. The respondent is a statutory body established under the Kenya Revenue Authority Act, with the mandate of assessing, collecting and accounting of all tax revenue on behalf of the Government of Kenya, and to administer and enforce the tax statutes set out in the schedule to the Act.

3. The Appellant was on November 5, 2021 issued with a notice of intention to carry out a verification on the Appellant’s operations to confirm his compliance with the various tax laws.

4. The Respondent undertook a compliance check on the Appellant’s tax affairs on several occasions and reported finding non-compliance- with the provisions of the VAT Act, Income Tax Act and the Tax Procedures Act for the periods December 2019, December 2020, February 2021 and March 2021.

5. The Respondent on 6th December 2021 issued the Appellant with an amended assessment for VAT for the period December 2019, December 2020, February 2021, and March 2021.

6. The Appellant objected to the assessment on 5th January 2022, on the grounds that the Respondent based its assessments on estimated VAT and unrelated to the actual tax periods.

7. The Respondent invalidated the Objection on 21st February 2022 on the basis that the Appellant had not submitted the required relevant documents to support the Objection.

8. The Appellant being dissatisfied with the decision of the Respondent preferred this Appeal.

The Appeal 9. The Appellant filed his Memorandum of Appeal on 23rd March 2022 and set out the following grounds of appeal ;i.That the Respondent erred in law and fact by failing to consider that the Appellant made valid VAT returns and that the use of Withholding tax to compute VAT output amounted to double taxation.ii.That the Respondent erred in law and fact by failing to involve the Appellant in any tax audit in for the years 2018, 2019, 2020, and 2021.

10. By reason of the grounds aforesaid, the Appellant prayed that the Respondent’s Invalidation decision dated 21st February 2022 be struck out it its entirety, and allow the Appeal with costs, and other remedies the Tribunal may deem just and reasonable.

The Appellant’s Case 11. The Appellant has set out its case on the Memorandum of Appeal and the Statement of Facts both filed on 23rd March 2022,

12. The Appellant stated that the Respondent issued the Assessments dated 6th December 2021 for the period 1st December 2019 to 31st December 2019, 1st December 2020 to 31st December 2020, 1st January 2021 to 31st January 2021, 1st February 2021 to 28th February 2021, 1st March 2021 to 31st March 2021 for Kshs 3,594,462. 00

13. The Appellant averred that the Respondent on 21st February 2022 wrote to him indicating that it had rejected its objection since it was invalidly lodged. Consequently the Respondent issued the Appellant with another demand notice dated 22nd February 2022.

14. The Appellant also stated that on 5th January 2022 the Respondent issued an Agency Notice to the Appellant’s debtor under Section 42 of the TPA in enforcement of the alleged taxes due amounting to Kshs 12,089,259. 00 without notice to the Appellant to the Appellant’s detriment. The Appellant enquired in vain as why and on what basis or tax head the Respondent issued the agency notices, and this led the Appellant to confirm that the taxes demanded by the Respondent were not certain.

15. The Appellant contended that the Respondent’s various demands were against the principal of certainty as to tax demands.

16. The Appellant also asserted that the Respondent failed to involve him in any tax audits for years 2018, 2019, 2020, and 2021.

17. The Appellant also stated that he was prevented from filing tax returns within time due to challenges and devastating effects of Covid -19 pandemic that created disruptions all over the world resulting in penalties and interest.

18. By reason of the foregoing, the Appellant prayed the Appeal herein be allowed, and the Respondent’s Invalidation decision be set aside.

The Respondent’s Case 19. The Respondent has set out its response on the Statement of Facts filed on 9th May 2022, and the Written Submissions filed on 26th January 2023.

20. The Respondent stated that it reiterated the contents of the Objection decision wherein it clearly brought out that the Objection was not in compliance with section 51(3) of the Tax Procedures Act, which Section provides as follows:-“(3)A notice of objection shall be treated as validly lodged by a taxpayer under Section ( 2) if – (c ) all the relevant documents relating to the objection have been submitted.”

19. The Respondent submitted that the Appellant failed to provide documents in support of the Objection despite several requests and reminders and it was the Appellant’s own actions that led to the invalidation of the Objection on 21st February 2021. The Respondent asserted that contrary to the Appellant’s contention that he was not given sufficient time to avail the documents the Appellant has conveniently failed in the instant Appeal to avail the invoices for the Respondent’s consideration.

20. The Respondent submitted that in regard to the foregoing, Section 56(1) of the TPA provides as follows;“In any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

19. The Respondent stated that the Appellant was involved in the process leading to the assessment as follows:a.The Appellant was notified through a notice given on 5th November 2021 under Section 58 and 59 of the TPA of an intention to carry out verification of his tax obligations.b.The Respondent stated that it identified the following tax gaps during the verification exercise; The total sales declared in 2019 income tax is Kshs 7,869,554 but failed to declare the sales for VAT purposes and instead filed Nil returns. The income was thus charged to VAT and assessed on the taxpayer.

The taxpayer had withheld VAT sales of Kshs- 12,102,200. 00 for the year 2020 but had failed to declare the same for VAT purpose instead filing Nil returns.

The Appellant had claimed input VAT on fuel expenses of Kshs 168,470. 95 for the period February 2021 and the same was disallowed on the basis that it was not related to the taxable supplies made to IEBC.

The Appellant had claimed input VAT on fuel expenses of Kshs 239,014. 77 for the period March 2021 and the same was disallowed on the basis that it was not related to the Taxable supplies made to KPLC.c.The Appellant objected to the additional Assessments on 5th January 2022 via iTax. The Appellant only uploaded an objection letter on iTax portal without providing supporting documents in support of the grounds of objection.

19. The Respondent stated that on several occasions including the 11th January 2022, it sent several correspondences to the Appellant to provide documents to support his objection and further averred that the Appellant despite all the indulgence granted refused or declined to provide documents or information to support his objection. From the correspondence, the Appellant was sent a request to submit a valid objection on 11th January 2022, 2nd February 2022, and 17th February 2022.

20. The Respondent contended that in view of the foregoing facts, it follows that the Appellant was involved in the assessment processes but only opted to ignore the Respondent or provide the documents and the assertion that he was not involved was only an afterthought.

21. The Respondent also contended that the Appellant has further failed to attach the documents that would support his case or validate his objection, even in the Appeal herein, noting that the Memorandum of Appeal and Statement of Facts to the substantive appeal is not supported by any documents, and remain averments which are not supported.

22. The Respondent asserted that the Appellant has in this Appeal failed to explain the disallowed VAT claim and has opted to rather be general instead of providing specific analysis explaining which document was not considered and comparing it with the disallowed claim and further explain why the sales in the income tax returns should not be relied upon. The reason for the inconsistency has remained unexplained and the Appellant has failed to discharge the burden of showing what was not considered despite being given time to avail the documents for the Respondent’s consideration.

23. The Respondent submitted that according to Section 24 of the TPA,“A person required to submit a tax return under a tax law shall submit the return in the approved form and in the manner prescribed by the Commissioner”However, the Respondent stated that the Appellant’s returns were not submitted according in the prescribed form thus the reason for the assessment.

19. The Respondent submitted that in view of the foregoing, the Appellant failed to discharge the burden of proof. Section 56(1) of the TPA places the responsibility on the Appellant to disprove the Objection decision, having not attempted to discharge the said burden the Respondent’s Assessment was proper in law.

20. By reason of the foregoing the Respondent prayed that the Appellant’s Appeal be dismissed with costs.

Issues for Determination 19. The Tribunal having carefully reviewed the pleadings filed and the submissions made by the parties is of the considered view that the Appeal herein distils two issues for determination;i.Whether the Respondent’s Invalidation decision dated 21st February 2022 was proper in law; andii.Whether the Respondent was justified in issuing the subject Assessment against the Respondent.

Analysis and Determination i. Whether the Respondent’s invalidation decision dated 21st February 2022 was proper in law. 19. The dispute precipitating this Appeal was brought about by the Respondent’s Notice of Invalidation dated 21st February 2022, which invalidated the Appellant’s Objection notice dated 5th January 2022, thus confirming the Respondent’s Assessment dated6th December 2021.

20. The Respondent argued that it invalidated the Appellant’s notice of objection for failure to support the same with the required documentation in spite of repeated requests to do so.

21. In the Respondent’s invalidation decision to the Appellant dated 21st February 2022, the Respondent writes ;“I refer to our request to you to submit a valid Objection as per the provisions of section 51(3) of the Tax Procedures Act, 2015, via our email on 25th January 2022, 2nd February 2022, and 17th February 2022. We note with regret that you have failed to provide the requested documents for review.The provisions of Section 51(3) (c) of the Tax Procedures Act, 2015, states that for an objection to be valid all the relevant documents relating to the objection should be submitted.Based on the above …we hereby notify you that you do not have a valid objection and the tax as assessed remains due and payable.”

19. This Tribunal has had the benefit of perusing the referred correspondence and is satisfied that indeed the Appellant was severally requested by the Respondent to furnish it with specified records to support his notice of objection, amongst others; bank statements from the year 2019 to 2021, purchases invoices used to claim VAT input for the period February 2021 and March 2021, explanation/documents as to why the income amounting to Kshs 7,869,554. 00 for the year 2019 were undeclared for VAT, a schedule showing how respective withholding VAT certificates for the year 2020 amounting to Kshs 12,102,200. 00 were declared for VAT. Any other relevant documents to support the Objection. However there is no evidence on record from the Appellant to prove that the requested documents were submitted, or of supporting his objection by any other means, leaving the Tribunal to conclude that indeed the Appellant did not support his objection notice as required by law.

20. According to section 51 (3) (c )in regard to validity of a notice of objection;“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if –(a)…(b)…(c)all the relevant documents relating to the objection have been submitted.”

37. It is noteworthy that the Appellant did not also support his Statement of Facts with the said supporting documents to support his grounds of Appeal.

38. Section 56 (1) provides for the burden of proof in proceedings under the TPA, as thus;“In any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

37. Generally, pursuant to this provision, the taxpayer has the burden of proof in any tax controversy. The taxpayer must demonstrate that the Respondent‘s assessment is incorrect. The taxpayer has a significantly higher burden. The taxpayer must prove the assessment is incorrect.In the case of Kenya Revenue Authority -vs- Man Diesel & Turbo Se, Kenya (2021) eKLR, the court stated;“The shifting of the burden of proof in tax disputes flow from the presumption of correctness which attaches to the Commissioner’s Assessments or determinations of deficiency. The Commissioner’s determination of tax deficiencies are presumptively correct. Although the presumption created by the above provisions is not evidence in itself, the presumption remains until the taxpayer produces competent and relevant evidence to support his position”.

19. In so far as the law under the provisions of Sections 51 and 56 of the TPA places on the Appellant the burden of supporting the Objection notice, and proving the Respondent’s assessment is incorrect, such burden has to be adequately discharged in order for the Appellant to be granted any relief. Failure to do so is fatal to the Appellant’s Appeal.

20. Therefore, having established that the Appellant failed to provide the requested documentation to the Respondent in support of its objection, or to prove the Respondent’s assessment incorrect, the Tribunal comes to the conclusion that the Appellant’s notice of objection failed to comply with the provisions of section 51 (3) (c) of the TPA, and the Respondent was therefore justified in invalidating the said objection Notice.

ii. Whether the Respondent was justified in issuing the subject Assessment against the Appellant. 19. The Tribunal having found that the Respondent was justified in invalidating the Appellant’s objection notice, and having made a determination that the invalidation decision was proper in law, this second issue becomes moot, and the Tribunal will dispense with substantive consideration of the same for lack of jurisdiction.

20. In view of the foregoing the Tribunal finds and holds that the Respondent was justified in invalidating the Appellant’s notice of objection Notice dated 5th January 2022, and determines that its invalidation decision dated 21st February 2022 was proper in law.

Final Decision 19. The upshot of the foregoing is that the Appeal lacks merit and the Tribunal accordingly proceeds to make the following Orders:-a.The Appeal be and is hereby dismissed.b.The Respondent’s Invalidation decision dated 21st February 2022 be and is hereby upheld.c.Each party to bear its own costs.

19. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 12TH DAY OF MAY, 2023. .................................ROBERT M.MUTUMACHAIRPERSON...........................RODNEY O.OLUOCHMEMBER...............................ELISHAH N. NJERUMEMBER...........................DELILAH K. NGALAMEMBER.............................EDWIN K. CHELUGETMEMBERJUDGMENT- APPEAL NO. 301 OF 2022 FRANCIS KADIMA MULAMA –VERSUS- KENYA REVENUE AUTHORITY PG 5 OF 5