[2024] KETAT 1279 (KLR)

Narcol Aluminium Rolling Mills Limited v Commissioner of Legal Services and Board Co-ordination (Tax Appeal E835 of 2023) [2024] KETAT 1279 (KLR) (23 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1279 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E835 of 2023

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, AK Kiprotich & T Vikiru, Members

August 23, 2024

Between

Narcol Aluminium Rolling Mills Limited

Appellant

and

Commissioner of Legal Services and Board Co-Ordination

Respondent

Judgment

1. The Appellant is a registered taxpayer involved in the manufacture and export of aluminum kitchenware in the sub-Saharan region.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and is the Kenya Revenue Authority 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. The Tribunal issued orders directing the Appellant to object to the Respondent’s rejection of its refund claims within 30 days of a Judgment delivered on 15th September, 2023.

4. The Appellant objected as directed on 6th October, 2023.

5. The Respondent issued its response on 13th October, 2023.

6. The Appellant being dissatisfied with the Respondent’s response, filed a Notice of Appeal dated 8th November, 2023.

The Appeal 7. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal dated 22nd November, 2023 and filed on the same date:i.That the Respondent erred in law and fact by rejecting the Applicant's VAT refund application dated 26th of October 2011 and the 10th of May 2012 amounting to Kshs. 26,781,163. 00 in a decision dated 7th April, 2015. ii.That the issue of the Appellants VAT refund claim had been addressed in TAT Appeal No. 500 of 2022, Narcol Aluminum Rolling Mills Limited v Commissioner Legal Services and Board Coordination wherein the dispute at hand was the Respondent’s rejection of the Appellant’s refund claim as they were erroneously demanding Certificate of Exports to process the Appellant’s claim. The Tribunal ultimately determined the case in favor of the Appellant and ordered that the Appellant lodge an objection against the Respondent's decision dated 7th April 2015. iii.That while the Appellant lodged the objection within 30 days as per the Tribunal's directives, the Respondent in its decision dated 13th October 2023 have indicated their inability to comply with the Tribunal’s Judgment as the refund decisions are no longer subject to objections with effect from 1st July, 2023 in line with the 2023 Finance Act which amended Section 2 of the Tax Procedure Act and excluded a refund decision from the definition of a tax decision subject to objection process.iv.That the Appellant is thus appealing to this Honorable Tribunal to determine conclusively the issue relating to the Respondent’s rejection of the refunds application due to the fact that though at the time of filing the TAT Appeal No. 500 of 2022, Narcol Aluminum Rolling Mills Limited v Commissioner Legal Services and Board Coordination a refund decision was both objectionable and an appealable decision, the same had actually changed status to only appealable decision at the time the Judgment was delivered.

Appellant’s Case 8. The Appellant’s case is premised on the following documents:i.The Appellant’s Statement of Facts dated and filed on 22nd November, 2023 together with the documents attached thereto.ii.The Appellant’s Supplementary List of documents dated and filed on 8th April, 2024. iii.The Appellant’s written submissions dated 26th March, 2024 and filed on 27th March, 2024 together with the authorities attached thereto.

9. That the Appellant manufactures and exports aluminum kitchenware in the sub-Saharan region. The exportation of the aforementioned goods is zero rated, hence putting the Appellant in a perpetual credit position.

10. That the Appellant applied for the refunds amounting to Kshs. 9,479,413. 66 for the period of February to May 2011 on 26th October 2011 in line with the existing Regulations at the time.

11. That the Appellant similarly applied for the refunds amounting to Kshs. 17,301,749. 88 for the period of June - December 2011 on 10th May. 2012.

12. That the Respondent rejected the VAT refund claims vide a letter dated 7th April, 2015 on the grounds that the validity of the Appellant's exports could not be verified through the “Simba”2005 system.

13. That this current Appeal is indeed not the genesis of the Appellant's woes with the Respondent, nor is its first Appeal before this Tribunal in relation to VAT refund issue. That indeed, the Appellant had earlier sought the intervention of this Tribunal in TAT Appeal No 500 of 2022, Narcol Aluminum Rolling Mills Limited v Commissioner of Legal Services & Board Coordination when the Respondent herein rejected the Appellant’s VAT refund application on the 7th April, 2015.

14. The Appellant briefly highlighted the events that transpired in Appeal No 500 of 2022 as below.

15. That the Appellant applied for à refund amounting to Kshs. 9,479,413. 66 for the period of February to May 2011 on 26th October, 2011. That similarly, the Appellant applied for refunds amounting to Kshs. 17,301,749. 88 for the period of June - December 2011 on 10th May, 2012.

16. That to the Appellant's great dismay, the Respondent rejected the refund claims on 7th April, 2015 stating that the validity of the Appellant's exports could not be verified through the "Simba" 2005 system. That it should be noted that the rejection letter was issued 4 years after the refund applications were made.

17. That the period following the issuance of the rejection decision was punctuated with correspondences and physical meetings between the Appellant and the Respondent with the Appellant endeavoring to provide as much information as possible.

18. That on 26th September, 2017, the Respondent once again wrote to the Appellant elaborating that the refund claim was disallowed as there was no online export confirmation. That the Respondent further directed the Appellant to reach out to its sister Department, Customs and Border Control, to generate Certificates of Exports (COE) or exit reports from the Simba system.

19. That it should be noted that as per the Respondent’s letter dated 26th September, 2017, the Appellant was under the impression that the Respondent was still considering its refund claim. That this was not a naive assertion of the Appellant as in the letter dated 26th September, 2017, the Respondent led the Appellant to believe that once the Certificates of Export and additional documents requested were presented, the Respondent would consider the Appellant's refund claim.

20. That relying on the Respondent's directives, the Appellant engaged the Customs and Border Control Department with the view of obtaining the Certificates of Export. That this proved to be a tiring and arduous task with the Appellant expelling a significant amount of energy and resources into the acquisition of the same.

21. That the Appellant's unfortunate predicament was aggravated by the fact that the requirement for the provision of Certificate of Export was introduced as per Guidelines published on 12th April, 2013 providing for validation of exported goods subject to zero rating, refunds and rebates. That crucially, the Guidelines were introduced more than 4 years after the VAT refund claim was made by the Appellant.

22. That this meant that the Respondent, in its letters dated 7th April, 2015 and 26th September, 2017, was retrospectively applying the Guidelines introduced on 12th April, 2013 to send the Appellant on a wild goose chase requiring it to acquire Certificates of Export for its refund claims to be considered. That this was despite the fact that at the point of making the refund application, the provision of the Certificates of Export was not necessary.

23. That indeed, the acquisition of the Certificates of Export proved to be a difficult endeavor owing to the inefficiencies in the Customs Department’s offices. That noting the difficulty in the acquisition of the same, the Kenya Association of Manufacturers intervened to try and engage with the Customs Department on behalf of not just the Appellant, but the industry at large, but ultimately this proved futile.

24. That on 23rd January, 2022, the Appellant wrote to the Respondent indicating that after years of follow-up, they now had some of the Certificates of Export, an audit report from the TREO officer confirming successful exit points, and certified copies of the original export entries by the Customs officer at the exit points as stipulated in the letter dated 26th September, 2022. That accordingly, the Appellant again asked the Respondent to reconsider the Appellant’s application for VAT refunds on this basis.

25. That the Appellant's letter dated 23rd January, 2022 went un-responded to and the Appellant again through its tax agents wrote to the Respondent on 4th February, 2022.

26. That the Respondent via an email rejected to review the additional information provided in support of the Appellant’s refund applications dated 26th October, 2011 and 10th May, 2012 amounting to Kshs. 26,781,163. 00 on grounds that the Commissioner had made a ruling on 7th April, 2015.

27. The Appellant stated that noting the same, it objected, through its agents, to the Respondent's decision to reject reviewing the information requested by the Respondent itself. That in making the objection, the Appellant relied on Section 51(7) of the Tax Procedures Act citing the difficulties it had in retrieving the Certificates of Export from the Customs Department.

28. That the Respondent rejected the Appellant's objection on 29th March, 2022 citing an inordinate delay in raising the objection. That in its objection decision, the Respondent conveniently failed to take cognizance of the several meetings, and particularly its letter dated 26th September, 2017 indicating the Appellant's refund would be considered if the Appellant furnished the Certificates of Export among other documents requested.

29. That in any event, the Respondent in citing inordinate delay was attempting to craft the very unfair narrative that the Appellant was idling and twiddling its thumbs which was the cause for the delay. That indeed, the Respondent was very much aware of the trials and tribulations the Appellant has been through as it was involved in every step of the way with the promise that the documents would be reviewed and the Appellant's refund claim be considered.

30. The Appellant submitted that it should be noted that at the time of the Appellant making the refund applications, the provision of the Certificate of Export was not a requirement, yet the Appellant followed the Respondent's directives appreciating the presumption of regularity.

31. That the Respondent further failed to take cognizance of the fact that the application for late objection was necessitated by the fact that at the behest of the Respondent's demand, the Appellant expended valuable time, effort and resources in the obtaining of Certificates of Export, and unfortunately due to inefficiencies in the Respondent's sister Department, the acquisition of the Certificates took a considerable amount of time. That the acquisition was however necessary as the Respondent had severally intimated that the refund claim would be considered upon acquisition of the Certificates.

32. That upon receipt of the Respondent's decision dated 29th March, 2022 wherein the Respondent rejected the Appellant's application to file a late objection for the VAT refund, the Appellant instituted Appeal No. 500 of 2022 before this Tribunal, and the same was litigated to conclusion in the Appellant's favor.

33. That this Tribunal in the aforementioned Judgment crucially noted that the Respondent's demand for the Certificates was unjustified and illegal. That in verbatim, this Tribunal averred that;“In the same way, the Respondent's action in compelling the Appellant to provide COEs in regards to a refund claim of 26th October 2011 and 10th May 2012 when the Guidelines which made COEs mandatory documents in processing refund claims came into effect on 12th April 2013 was unlawful and unjustified.”

34. That accordingly, the matter was effectively laid to bed in favor of the Appellant as this Tribunal further ordered as follows;a)The Appeal be and is hereby allowed.b)The Respondent's decision dated 29th March 2022 rejecting the Appellant's application to lodge its objection out of time be and is hereby set aside.c)The Appellant be and is hereby granted leave to lodge its Objection to the VAT refund application within 30 days from the date of delivery of this Judgment.”

35. That in line with the Tribunal's judgement, the Appellant raised its objection on 6th October 2023 and the Respondent issued its objection decision on 13th October 2023 wherein it stated that the objection application could not be reviewed at the Independent Review of Objection as a rejection of refund claim does not constitute an objectionable decision in line with Section 47(13) of the Tax Procedure Act, 2023. That accordingly, the Respondent informed the Appellant to seek recourse before the Tax Appeal Tribunal.

36. That the aforementioned provision was introduced by the Finance Act 2022, which provided that Section 47 of the Tax Procedures Act be repealed and replaced with the new Section which provided in Subsection 13 that; “A person aggrieved by a decision of the Commissioner under this section may appeal to the Tribunal within thirty days after being notified of the decision.”

37. That the Finance Act 2023 amended Section 2 of the Tax Procedure Act by deleting refund decision as a tax decision. That this meant that refund decisions which were previously objectionable decisions as per Section 51 were no longer objectionable. That consequently, as of 1st July, 2023, the rejection of a refund was no longer an objectionable decision but rather an appealable decision as provided by the dictates of Section 47(13) of the Tax Procedures Act.

38. That thus, while the Appellant duly filed the objection within the prescribed 30-day period, adhering to the Tribunal's directives as per the Tribunal’s decision in TAT Appeal No. 500 of 2022, the Respondent is unable to address the same in light of legislative changes introduced by the 2023 Finance Act, which amended the Tax Procedures Act to exclude refund decisions from the definition of tax decisions subject to the objection process.

39. The Appellant stated that it is thus requesting this Tribunal to conclusively determine and render a verdict on the Appellant's VAT refund claim dated 26th October 2011 and the 10th May 2012. That it should be appreciated that the only objection the Respondent had to the claim was the provision of the Certificates of Export, and this Tribunal has since ruled that the production of certificates is not a requirement.

40. The Appellant submitted in conclusion that it has not to date received its refund claims despite having lodged the same in 2011. That indeed, the Appellant was sent on a wild goose chase to search for Certificates of Export which were demanded as a result of retrospective application of Guidelines introduced after filing of the refund claim. That luckily, the Tribunal stepped in and justice was served. That the Appellant is however once again at the doorstep of the Tribunal seeking its indulgence in the determination of the validity of the refund claim conclusively as the Respondent has shifted the burden of doing so to this Tribunal.

41. The Appellant relied on the following authorities to buttress its case:i.TAT Appeal No. 500 of 2022, Narcol Aluminum Rolling Mills vs. Commissioner of Legal services and Board Co-ordination.ii.Chief Land Registrar & 4Others vs. Nathan Tirop Koech & 4 Others [2018] eKLR on legitimate expectation.iii.Sifa International Limited vs. NSSF Board of Trustees [2010] eKLR on the maxim omnia praesumuntur rite esse acta (All things are presumed to have been done correctly)iv.Kibos Distillers Limited & 4 Others vs. Benson Ambuti Adega & 3 Others [2020] eKLR on the presumption of regularity.v.Intersplav vs. Ukraine on the expectation that VAT refunds compensation when criteria an requirements have been met by a taxpayer.

Appellant’s Prayers 42. The Appellant prayed that:i.That this Appeal be allowed.ii.That this Honorable Tribunal issues a decision on the validity of the Appellant’s VAT refund claims dated 26th of October 2011 and the 10th of May 2012. iii.That the Appellant's VAT refund claim be allowed in its entirety.

Respondent’s Case 43. The Respondent’s case is premised on its Statement of Facts dated 13th October, 2023 and filed on 22nd December, 2023.

44. The Respondent stated that it refutes each and every one of the allegations by the Appellant in the Memorandum of Appeal and Statement of Facts and averred that in the absence of alleged exports in the Simba system, the claim for refunds cannot be entertained.

45. That the Respondent is reliant on Section 17(5) of VAT Act 2013, among other enabling provisions of the law to support its case.

Respondent’s Prayers 46. The Respondent prayed for orders that:i.The Appeal be dismissed with costs.ii.The decision vide letter dated 13th October, 2023 be upheld.

Issue For Determination 47. The Tribunal has considered the pleadings and submissions filed by the parties and is of the view that the single issue falling for its determination is:-Whether the Respondent was justified in rejecting the Appellant’s objection

Analysis And Findings 48. The Tribunal having established the issue falling for its determination, proceeds to analyse it as hereunder.

49. This dispute arose from the Respondent’s indication of its inability to comply with the Tribunal’s previous Judgment that the Appellant should lodge an objection to the Respondent’s rejection of its refund claims. The Respondent stated that refund decisions are no longer subject to objections with effect from 1st July, 2023 in line with the 2023 Finance Act which amended Section 2 of the Tax Procedure Act and excluded a refund decision from the definition of a tax decision subject to the objection process.

50. The Appellant on its part stated that the issue of its VAT refund claim had been addressed in TAT Appeal No. 500 of 2022, Narcol Aluminum Rolling Mills Limited v Commissioner Legal Services and Board Coordination wherein the dispute at hand was the Respondent’s rejection of the Appellant’s refund claims as the Respondent was erroneously demanding Certificates of Export to process the Appellant’s claims. That the Tribunal ultimately determined the case in favor of the Appellant and ordered that the Appellant lodge an objection against the Respondent's decision dated 7th April, 2015.

51. The Appellant argued that while it lodged the objection within 30 days as per the Tribunal's directives, the Respondent in its decision dated 13th October, 2023 indicated its inability to comply with the Tribunal’s Judgment.

52. The Tribunal notes that the Finance Act 2023 amended Section 3 of the Tax Procedures Act by stating as follows:“49. Section 3 of the Tax Procedures Act, 2015, is amended in the definition of “tax decision”—(a)by deleting item (e);…”

53. The Tribunal further notes that the aforementioned, deleted “item (e)” refers to a refund decision. This amendment was effective 1st July, 2023.

54. Section 51 of the TPA provides as follows:1. A taxpayer who wishes to dispute a tax decision shall first lodge an objection against that tax decision under this section before proceeding under any other written law.2. A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.”

55. The import of the change in law that refund decisions were no longer considered to be tax decisions as read together with Section 51 of the TPA means that taxpayers did not have recourse in objections under Section 51 as far as refund decisions are concerned.

56. Further, appealable decision is defined under the TPA as follows:“appealable decision” means an objection decision and any other decision made under a tax law other than—(b)a tax decision; or(c)a decision made in the course of making a tax decision;”

57. The Tribunal posits that with refund decisions no longer being subject to objection as per Finance Act 2023, it follows therefore that based on the changes effected on the same in the Finance Act 2023, they would then fall to be appealable decisions as per the definition of the same under the TPA.

58. The Tribunal however notes, that while the Finance Act 2023 made the aforementioned changes, in a decision delivered on 31st July, 2024; Civil Appeal No. E003 of 2023 - National Assembly & another v Okiya Omtatah Okoiti & 55 others (Consolidated with Civil Appeal Nos. E016, E021, E049 AND E064, E080 OF 2024), the Kenyan Court of Appeal (the Court) declared the Finance Act 2023 (the Act) unconstitutional.

59. The import of the Court of Appeal decision is that any changes to the tax statutes effected by the Finance Act 2023 were effectively rendered nugatory. It follows therefore that the deletion of refund decisions from the ambit of tax decisions was effectively negated and the statute reverted to its previous text and therefore, in the current scenario, the Appellant was justified in objecting to the Respondent’s rejection of its refund application as was previously directed by this Tribunal.

60. In light of the Court of Appeal decision, the Respondent ought to issue an objection decision to the Appellant’s notice of objection as refund decisions are now subject to the objection process.

Final Decision 61. The upshot of the foregoing analysis is that the Appeal is merited. Consequently, the Tribunal makes the following Orders: -a.The Appeal be and is hereby allowed.b.The Respondent be and is hereby directed to issue an objection decision in response to the Appellant’s notice of objection dated 6th October, 2023 within Thirty (30) days of the date of delivery of this Judgment.c.Each Party to bear its own costs.

62. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 23RD DAY OF AUGUST, 2024ERIC NYONGESA WAFULACHAIRMANCYNTHIA B. MAYAKA DR. RODNEY O. OLUOCHMEMBER MEMBERABRAHAM K. KIPROTICH DR. TIMOTHY B. VIKIRU MEMBER MEMBER