[2023] KETAT 348 (KLR)

Nasscom Limited v Commissioner of Investigations & Enforcement (Tax Appeal 256 of 2022) [2023] KETAT 348 (KLR) (9 June 2023) (Judgment)

Neutral citation: [2023] KETAT 348 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 256 of 2022

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

June 9, 2023

Between

Nasscom Limited

Appellant

and

Commissioner Of Investigations & Enforcement

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya.

2. The Respondent is a principal officer appointed pursuant to Section 13 of the Kenya Revenue Authority Act (KRA), Act No 2 of 1995, and the Kenya Revenue Authority is empowered to enforce and administer provisions of written laws set out in Section 5 as read together with the First Schedule of the KRA Act.

3. In October 2018, the Respondent commenced investigations on the Appellant's tax affairs after receiving intelligence that the Appellant had failed to declare Kshs 2,931,669,567. 00 in its Equity Bank Account.

4. Vide a letter dated May 15, 2020, the Appellant received communication of the Respondent's findings for tax period 2018 to 2019. The Respondent asked the Appellant to respond to the findings within 14 days.

5. By a letter dated June 4, 2020, the Appellant wrote to the Respondent explaining its business model and requested the Respondent for time to provide supporting documents and contracts.

6. On September 20, 2020, the Respondent requested the Appellant to provide documents relevant to the investigations.

7. The Appellant responded a vide letter dated October 7, 2020, and requested for a meeting to discuss its tax affairs.

8. At the meeting, Appellant furnished the requested information and documents.

9. The Appellant issued the notice of assessment dated April 7, 2021.

10. In response to the notice of assessment, the Appellant lodged its notice of objection on May 6, 2021.

11. On June 25, 2021, the Appellant sent a letter providing more information to support its objection to the assessment.

12. The Respondent issued the objection decision dated December 9, 2021 which disallowed the Appellant’s objection.

13. Aggrieved by the objection decision, the Appellant filed a Notice of Appeal dated February 25, 2022 and filed on March 11, 2022.

The Appeal 14. The Appeal is premised on the following grounds stated in the Memorandum of Appeal dated February 25, 2022 and filed on March 11, 2022:-a.That the Respondent erred in fact and in law by failing to appreciate that the Appellant is a commission agent whose role is to facilitate remittances and not an importer of mobile phones and accessories.b.That the Respondent erred in fact and in law by treating the Appellant's bank SWIFT transfers as company purchases despite clear evidence that the Appellant was neither an importer nor a seller of mobile phones and accessories, and thereafter proceeding to compute and impose corporation tax, value added tax and customs duties in the total sum of Kshs 1,485,570,244. 00. c.That the Respondent erred in fact and in law by baselessly applying the 'industry markup' of 11. 22% to the SWIFT remittances made by the Appellant. The Appellant was not an industry player importing and selling mobile phones and accessories to warrant the application of the said industry mark up.d.That the Respondent erred in fact and in law in failing to consider all the evidence and documents supplied by the Appellant in support of its position that it was a commission agent and not an importer.e.That the Respondent erred in law and fact by issuing the impugned objection decision out of time contrary to Section 51(11) of the Tax Procedures Act, 2015. f.That the Respondent erred in law and fact by failing to appreciate that the Appellant was exporting its services, hence the services were zero-rated supplies for which the Appellant was not liable to impose and remit Value Added Tax.

Appellant’s Case 15. The Appellant’s case is also premised on the following documents:-a.The Appellant’s Statement of Facts dated February 25, 2022 and filed on March 11, 2022 together with the documents attached thereto.b.The Appellant’s written submissions dated June 6, 2022 and filed on June 22, 2022 together with the authorities attached thereto.

16. The Appellant averred that it operates on a business model where it has entered into commission agreements with various institutions based in Asia for the facilitation of the collection of payments for purchases of mobile phones and related accessories by businesses in Kenya. That for the services it renders to the businesses based in Asia, the Appellant earns a commission of 0. 5% of the value of every remittance and remits 99. 5%.

17. That the company acts as the agent of its foreign partners for the sole purpose of facilitating the collection and remittance of payments by the customers of the foreign partners in Kenya. That the company collects money on behalf various importers of mobile phones in Kenya, and subsequently remits the same to the suppliers based in Asia subject to a commission of 0. 5%.

18. That because the company does not purchase the mobile phones supplied from Asia, the company never owns nor possesses any consignment. That further, it does not assume or bear any risks and liabilities (including tax liabilities), associated with the ownership and importation of the mobile phones. That at all times, the responsibility for importation of the mobile phones, including tax obligations rest with the respective purchasers.

19. That once an importer pays for an order through Nasscom, and Nasscom remits the payment to the supplier in Asia, it is up to that importer to arrange for the importation of the consignment and clearance of all customs taxes related thereto.

20. That accordingly, the company is not an importer or a purchaser of mobile phones, it is merely a commission agent appointed for the sole purpose of facilitating remittances to suppliers based in Asia.

21. That in light of the nature and character of the business of the company, the Respondent’s treatment of bank SWIFT transfers amounting to Kshs 2,887,294,599. 00 as purchases is manifestly erroneous, and has been made without considering and taking into account the documentation and explanation tendered by the company in opposition to the assessment.

22. That the singular use of the company's bank records without considering the factual responses as well as the failure to take into account the nature of the business is manifestly unfair and unreasonable.

23. That further, it is unfair and unreasonable for the Respondent to apply an industry mark up of 11. 22% on the imports allegedly made by the company.

24. That the company does not engage in importation and the additional assessment is therefore without basis and violates the principle of legality that requires that tax be imposed only as provided by legislation.

25. That the Appellant has been filing returns for income tax and remitting the taxes due in respect of the commission income consisting of 0. 5% of the value of every remittance.

26. That the assessment has not taken into account the fact that the Appellant has declared all moneys received and remitted in its self-declaration accounts and has subsequently paid all taxes due.

27. That the Appellant held and still holds the legitimate expectation that the Respondent would not casually disregard the nature of the company's business as well as the documentation and explanations tendered in opposition to the assessment.

28. That the Respondent registered the Appellant for VAT obligation on 11th November 2019 with a roll out date being December 1, 2019 and yet its VAT liability computations are for the years 2017, 2018 and 2019 prior to registration for VAT. That it is within common law and precedent rulings from various tribunal and Court decisions that tax obligation cannot be back-dated or applied retrospectively.

29. That further, the Respondent erred in law and fact by failing to appreciate that the Appellant was exporting its services, hence the services were zero-rated supplies for which the Appellant was not liable to impose and remit Value Added Tax.

30. That contrary to the allegations in the assessment, the company imported the several mobile phones and accessories during the years 2017 and 2018.

31. The Appellant averred that all the imports have been accounted for in the company's self-declaration returns with many being samples that were provided to potential customers from the manufacturers in Asia.

32. That all imports were subject to customs valuation and their values were accepted by the Commissioner of Customs and duly processed and released to the company.

33. That as result, the imposition of customs taxes in sum of Kshs 714,005,130. 00 was unfair, unreasonable, and without legal basis.

34. That in response to the allegation that the company 'failed to declare the imported phones for customs purposes', the East Africa Community Customs Management Act, 2004 (EACCMA), contains elaborate provisions relating to the customs process, including self-declarations, mis-declaration and smuggling.

35. The Appellant identified the following as the issues for determination by the Tribunal:-a.Whether the Respondent erred in fact and in law by failing to appreciate that the Appellant’s model of business is that of commission agent.b.Whether the Respondent erred in fact and in law by treating the Appellant’s SWIFT transfers as company purchases.c.Whether the Respondent erred in fact and in law by baselessly applying mark up of 11. 22% to the SWIFT remittances made by the Appellant.d.Whether the Respondent erred in fact and in law by failing to consider all the evidence and documents supplied by the Appellant to posit that it was a commission agent and not an importer or purchaser of mobile phones.e.Whether the Respondent erred in fact and in law by issuing impugned objection decision out of time contrary to Section 51(11) of the Tax Procedure Act of 2015. f.Whether the Respondent erred in law and fact by failing to appreciate that the Appellant's service was exported, hence the service was zero rated.

36. The Appellant submitted on each of the issues as follows:-

a). The Respondent erred in fact and in law by failing to appreciate that the Appellant is a commission agent whose role is to facilitate remittances and not an importer of mobile phones and accessories. 37. The Appellant submitted that its business is that of a commission agent pursuant to the commission agreement entered by the Appellant and Asian based companies dated September 26, 2016. That the Appellant's obligation was to facilitate collection of payments from businesses based in Kenya and remit the same. That for every remittance made, the Appellant earns a commission of 0. 5% of the total remittance and remits 99. 5%.

38. That Appellant maintained an account at Equity Bank number xxxx which it used to receive payments from various importers of mobile phones for purpose of facilitating remittance to Asia. That the monies received in the said account at all material times belonged to the suppliers in Asia. That the deposits made into its account including by Ropem Communications Limited was not on account of its sales, rather it was for payment for orders which the Kenyan based importers made with suppliers in Asia and which was the Appellant's duty to remit.

39. That the Appellant made several remittances out of the said account to Asian based suppliers between 2017 and 2019 for orders which importers made. That it is therefore undisputed that the Appellant in collecting payments from suppliers' clients, deducting 0. 5 % commission of the amount received and facilitating subject remittance of 99. 5 %, the Appellant acted as an agent of the Asian suppliers.

40. The Appellant submitted that the business is very clear as stipulated in the commission agreements that it is a commission agent and therefore it is manifestly erroneous for the Respondent to hold the Appellant as an importer of mobile phones and accessories.

b). The Respondent erred in fact and in law by treating the Appellants SWIFT transfers as purchases. 41. The Appellant submitted that the agreement entered into by the Appellant with Infinix Mobility limited dated September 26, 2016 clearly explains that the Appellant’s role is to ease transfer of payments between Infinix Limited based in Asia and buyers of Infinix products within Kenya. That therefore, all the money transferred by the Appellant was remittance and not purchases.

42. That the Respondent erroneously relied on the description of purposes of Appellant SWIFT transfer as purchases of mobile phones and pro-forma invoices which allegedly name the Appellant as the purchaser. That all the remittances made by the Appellant were solely from third party payments and the Appellant's role was merely to facilitate remittance to suppliers based in Asia.

43. That the Respondent misconstrued the purpose of remittance and arrived at unreasonable conclusion that the SWIFT transfers made on the Appellant's account were for purchase of imports. That the SWIFT transfers were mere remission of the payments collected from the importers of mobile phones in Kenya in accordance with the agreement dated September 26, 2016.

44. The Appellant submitted that the Respondent’s decision to treat the Appellant's bank SWIFT transfers as purchases is unreasonable based on the fact that the Appellant’s business was not of imports or purchases of mobile phones.

c). The Respondent erred in fact and in law by baselessly applying a markup of 11. 22% to the SWIFT remittance made by the Appellant. 45. The Appellant submitted that it was unfair, unreasonable and without any basis for the Respondent to apply an industry markup of 11. 22% on the alleged imports made by the Appellant when the documents tendered by the Appellant show that it was a commission agent.

46. That the Appellant being a commission agent as pursuant to commission agreement dated September 26, 2016 and not importer or purchaser of the alleged imports, applying an industry markup of 11. 22% to the Appellant’s SWIFT transfers is misconceived and misapprehension of facts. That the Respondent failed to consider material facts contained in the commission agreements and bank account statements supplied by the Appellant regarding the character and nature of the Appellant’s business.

47. The Appellant submitted that the industry mark up of 11. 22% applied by the Respondent is erroneous and inapplicable in view of the Appellant’s business being a commission agent and not an importer or purchaser of mobile phones as alleged.

The Respondent erred in fact and in law in failing to consider all the evidence and documents supplied by the Appellant in support of its position that it was a commission agent and not an importer. 48. The Appellant submitted that through its several correspondences with the Respondent, it tendered material evidence and explanations about the nature of its business. That the bank accounts transactions tendered by the Appellant clearly elucidate that it is a commission agent and not an importer of the mobile phones and accessories as alleged by the Respondent.

49. That the commission agreements clearly state the obligations of the parties and that the Appellant’s role was to collect and remit payments from importers of electronics and do not extend to entering into contracts on behalf of its principal.

50. That pursuant to the Appellant’s bank statement on its account at Equity Bank tendered to Respondent, the amount sent to Hong Kong between 2017 and 2019 is Kshs 2,887,294,599. 00 and the money received is Kshs 2,931,669,567 a difference of Kshs 44,374, 968, 00 which was the amount in the Appellant’s bank account. That the amount demanded by Respondent of Kshs 1,023,028,251. 00 is too irrational compared to the Appellant's balance in its account and is arrived at without considering the Appellant’s bank transactions.

51. That whilst the Appellant is alive to the burden of proof under Section 56 of the TPA 2015, the Respondent disregarded evidence, documents and explanations tendered with regards to the Appellant’s model of business.

52. The Appellant submitted that the Respondent’s request for documents vide a letter dated June 10, 2021 of the list of importers of mobile phones in Kenya, instructions from the suppliers in Asia and also agreements between Appellant and importers of mobile phones in Kenya was farfetched and unreasonable in view of Sections 23, 30 and 56(1) of the Tax Procedure Act. That these documents were in possession of third parties with whom the Appellant had no relationship.

53. That whereas the Respondent has produced several bank deposit slips and purported sales documents, the said documents are hardly evidence that the SWIFT remittances totaling Kshs 2,887,294,599. 00 were purchases.

e). The Respondent erred in fact and in law by issuing impugned objection decision out of time contrary to section 51(11) of the Tax Procedure Act of 2015 54. The Appellant submitted that it lodged its notice of objection dated May 6, 2021 to the Respondent's notice of assessment dated April 7, 2021. That the Respondent issued its objection decision on December 9, 2021 after lapse of 60 days required by law.

55. That Section 51 (11) of the Tax Procedure Act 2015 provides that;'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.'

56. That the 60 days period started running from the June 25, 2021 when the Respondent received additional information from the Appellant. The Appellant submitted that the Respondent failed to make its decision within the statutory of period of 60 days by virtue of Section 51(11)(b) of the TPA and thus the Appellant’s objection is deemed to have been allowed by operation of law.

57. That the objection decision ought to have been issued by the August 24, 2021. That the impugned objection decision was issued on December 9, 2021, after a period of almost 6 months after receipt of the Appellant's further information contained in its letter lodged on June 25, 2021.

58. That accordingly, the Appellant's notice of objection dated May 6, 2021 was deemed allowed by operation of the law. That in failing to communicate its decision within the statutory period of 60 days from June 25, 2021, the Respondent is taken to have allowed the Appellant’s objection.

f). The Appellant's services were exported service and thus is zero rated. 59. The Appellant submitted that its business as stated in its agreement dated September 26, 2016 was to facilitate collection of payments from importers in Kenya and remit the funds to suppliers based in China. That this is further evidenced by the Appellant's bank statement in its Equity Bank account showing SWIFT transfers to companies overseas. That this is evidently clear that the Appellant's services was consumed outside the Country since the beneficiaries of services offered are based in China and other overseas countries.

60. That when determining whether a service is VAT zero rated, the main point of consideration is whether the service is consumed outside the Country particularly the location of the consumer. That the nature of the Appellant's business in this case is facilitating collection of payments and remission to China thus falls within the meaning of a zero rated service. That further, the Appellant has no relationship with importers of goods situated in Kenya but with suppliers in China to whom services are rendered for 0. 5% commission as supported by the commission agreements between the parties.

61. That Section 2 of the repealed VAT Act 2013, defines exported service as 'a service provided for use or consumption outside Kenya whether the service is performed in Kenya or both inside and outside Kenya'.

62. The Respondent submitted that its services of collecting and remitting payments for and to suppliers abroad for commission was exported service and therefore zero rated.

63. The Appellant relied on the following cases:-a.Julius Mwema Nyuguto v Anne Wairimu Githogori [2019] eKLR.b.Kenya Revenue Authority v Man Diesel & Turbo Se [2021] eKLR.c.SITA Information Networking Computing BV v The Commissioner of Domestic Taxes-Tax Appeal No. 45 of 2015. d.SAJ Ceramics Limited v Commissioner of Domestic Taxes TAT No 465 of 2021. e.Minazini Enterprises Ltd v The Commissioner of Domestic Taxes, Tax Appeal No 56 of 2016. f.Vivo Energy Kenya Ltd v Commissioner of Customs and Border Control, Kenya Revenue Authority & Another [2020] eKLR,g.Republic v Kenya Revenue Authority Ex Parte M-KOPA Kenya Limited 2018 eKLR.h.Republic v Commissioner of Customs Services Ex-Parte Unilever Kenya Limited [2012] eKLR.i.Commissioner of Domestic Taxes v Total Touch Cargo Holland (2018) eKLR.

Appellant’s Prayers. 64. The Appellant prays that:a.The Tribunal be pleased to allow the Appeal in its entirety,b.The Objection decision dated December 9, 2021 issued by the Respondent be set aside,c.The Notice of Objection dated May 6, 2021 be allowed,d.The Tribunal be pleased to order the Respondent to pay the costs of this Appeal, ande.The Tribunal be pleased to issue any other orders favorable to the Appellant as it may find just and expedient to issue.

Respondent’s Case 65. The Respondent’s case is premised on the following documents:-a.The Respondent’s Statement of Facts dated and filed on March 31, 2022. b.The Respondent’s written submissions dated and filed on November 16, 2022 and the authority attached thereto.

66. The Respondent averred that it commenced investigations against the Appellant on or about October 2018.

67. That in the years 2017-2019, the Appellant made SWIFT transfers amounting to Kshs 2,887,294,599. 00 from its bank account to lnfinix Mobility Limited, a company domiciled in China to purchase mobile phones.

68. That this is evidenced by the SWIFT transfer forms and supporting pro-forma invoices obtained from Equity Bank. That the said documents indicate the purchaser as the Appellant and the quantities of various phone models purchased.

69. That further, the statements recorded from Mr James Karanja of Ropem Telcom Limited who had made deposits into the Appellant's bank account showed that the said deposits were payments for the purchase of mobile phones from the Appellant.

70. The Respondent averred that it consulted the custom data with the purpose of establishing the nature of imports done by the Appellant. That the inquiry into the custom system showed that the Appellant's imports for 2017-2019 comprised of mainly mobile phones and mobile accessories.

71. That in raising the tax assessment against the Appellant, the Respondent treated Kshs 2,887,294,599. 00 transferred from the Appellant's bank account to lnfinix Mobility Limited as the Appellant's imports and thus the Respondent charged customs duties, Value Added Tax (VAT), IDF and RDL. That in order to arrive at the Appellant's sales, the Respondent marked up the Appellant's imports using an industry margin of 11. 22%.

72. That upon conclusion of the tax investigations, the Respondent communicated its findings to the Appellant through a letter dated May 15, 2020.

73. That the Appellant disputed the Respondent's findings and insisted that it is an agent whose role is to facilitate remittance of funds from buyers of mobile phones based in Kenya to suppliers who are domiciled in Asia. The Appellant further stated that for the performance of this service, it received a commission of 0. 5% of the total funds remitted through its bank account. To support the claim, the Appellant provided contract agreements between it and the mobile phone suppliers.

74. That seized of this information from the Appellant, the Respondent tasked the Appellant to demonstrate the principal-agent relationship, however the Appellant failed to do so. That instead, the Appellant opted to provide contract agreements between the Appellant and suppliers.

75. That consequently, on April 7, 2021, the Respondent issued a tax assessment of Kshs 1,485,570,244. 00 comprising of Corporation tax, VAT and custom duties, penalties and interest.

76. That in response, the Appellant lodged its notice of objection on May 6, 2021.

77. That the Respondent considered the grounds raised in the notice of objection, the documentation and further information provided in support and issued its objection decision on December 9, 2021.

79. The Respondent responded to the specific issues raised in the as follows:-

a). Respondent erred in fact and in law by failing to appreciate that the Appellant is a commission agent. 80. The Respondent contended that the Appellant is in the business of importation and sale of mobile phones and as such, the Appellant is not a commission agent but a retailer.

81. That the purpose of remittances made by the Appellant to its suppliers of mobile phones was described as 'purchase of phones' by the Appellant in the SWIFT transfer forms.

82. That the pro-forma invoices obtained from the Equity Bank to support the SWIFT transfer transactions indicate the Appellant as the purchaser.

83. That the Directors of Ropem Communications Limited in their statements confirmed that the deposits they made to the Appellant's bank account were for payments for mobile phones they bought from the Appellant.

84. That the Appellant has a shop at Digital House, Luthuli Avenue where it retails the mobile phones.

85. That the Appellant has failed to provide sufficient proof of the existence of the principal/agent relationship between the Appellant and the suppliers from Asia. That the signed contract agreement between the Appellant and the lnfinix Mobility does not prove principal-agent relationship.

86. That the Appellant bears the burden of proving the existence of principal-agent relationship however, from the documentation and information provided, the Appellant failed to discharge that proof.

b). Respondent erred in fact and in law by treating the Appellant's bank SWIFT transfers as company purchases. 87. The Respondent contended that the treatment of bank SWIFT transfers as the company's purchases is justified since it is supported by the description of the purpose of the transfers as purchase of mobile phones and the accompanying pro-forma invoices indicated the Appellant as the purchaser.

c). Respondent erred in fact and in law by baselessly applying the 'industry mark-up' of 11. 22% to the swift remittances made by the Appellant. 88. The Respondent stated that the mark up of 11. 22% was applied to allow for the costs incurred in the production of income as per provisions of Section 15 of the Income Tax Act, since it had been established that the Appellant was in the business of importation and sale of mobile phones and accessories.

88. That this margin was determined by analyzing submitted returns of seven similar companies that are involved in sale of mobile phones and electronics. That these companies include Kishna Distributors Limited, Zetort Communications Limited, Phone Link Limited, Edin Communications Limited, Bright Technologies Limited, Avi Communication and Smart Simu Limited.

89. That the Respondent conducted an analysis and computation of gross profit margin for these seven companies and that the Respondent established that for the years 2019, 2018 and 2017, the average GPM for these companies were 11. 95%, 10. 26% and 11-45%. That the Respondent did an average of GPM for the years 2019, 2018 and 2017 and arrived at 11. 22% and thus the applicable margin for the Appellant's case.

d). The Respondent erred in fact and in law in failing to consider all the evidence and documents supplied by the Appellant in support of its position that it was a commission agent and not an importer. 90. The Respondent submitted that it considered all the documentation provided by the Appellant and information/documents provided by third parties. That these include narrations on SWIFT transfer forms together with the pro-forma invoices provided by Equity Bank on the said transactions.

91. That the documentation confirmed that the Appellant indeed purchased mobile phones from Asia. The Respondent submitted that despite being requested to do so, the Appellant failed to provide further proof in support of its allegations.

e). Respondent erred in law and fact by issuing the impugned objection decision out of time contrary to Section 51(11) of the Tax Procedures Act 2015. 92. The Respondent contended that there were exchange of correspondences and information between the Appellant and the Respondent since the time the Appellant lodged its notice of objection.

93. That during these engagements, the Appellant sought time to supply the Respondent with further documentations and information to support its notice of objection.

94. That the latest correspondence was on October 12, 2021. That the Appellant upon being granted time failed to provide further documentation/information until the Respondent issued its objection decision.

95. That the 60-days-period, between the last time the Appellant and Respondent communicated, did not expire before the objection decision was issued and thus the decision was within the stipulated timelines provided by the Section 51(1l)(b) of the Tax Procedures Act, 2015.

f). Respondent erred in law and fact by failing to appreciate that the Appellant was exporting its services. hence the services were zero-rated supplies. 96. The Respondent denied that the Appellant was an exporter of it services. Instead, the Respondent contended that retail of mobile phones to companies such as Ropem Telcom Limited is vatable supply under the Value Added Tax Act, 2013 and it attracts a VAT of 16%. That therefore, the allegation that the services are zero rated is misplaced and without merit.

97. The Respondent submitted that there are two issues for determination in this Appeal as follows:-a.Whether the Respondent was right in demanding the taxes amounting to Kshs 1,485,570,244. 00. b.Whether the Respondent issued the objection decision out of time.

Whether the Respondent was right in demanding the taxes amounting to Kshs 1,485,570,244. 00. 98. The Respondent submitted that Section 24(2) of the Tax Procedures Act 2015 mandates the Respondent to conduct tax investigations into the business of a taxpayer. That the Section provides as follows:-'The commissioner shall not be 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.'

99. That the Respondent in this case conducted investigations on the Appellant's business upon receiving intelligence that the Appellant failed to declare Kshs 2,931,669,567. 00 its Equity Bank account No xxxx.

100. That Section 73(2) (b) of the Income Tax Act, Cap 470 justifies the Respondent's position that it was right in demanding the taxes. That Section 73(2)(b) provides as follows:- 'Where a person has delivered a return in income, the commissioner may-'

If he has reasonable cause to believe that such return is not true and correct, determine, according to the best of his judgment, the amount of the income of that person and assess him accordingly.' 101. The Respondent submitted that in this particular case, it relied on SWIFT transfer forms and supporting pro-forma invoices obtained from Equity Bank to establish that indeed the Appellant was the purchaser of the mobile phones and mobile accessories.

102. That the Respondent treating bank SWIFT transfers as the company's purchases was based on the fact that the same is supported by the description of the purpose of the transfers as 'purchase of mobile phones' and the accompany in pro-forma invoices indicated the Appellant as the purchaser.

103. That the Respondent went further and consulted the custom data in order to establish the nature of imports done by the Appellant which divulged information that the Appellant's imports for 2017-2019 consisted of mobile phones and accessories.

104. That in regards to the application of the 11. 22% industry markup, the Respondent established this mark up by analyzing and computing the gross profit margins of seven similar companies that are involved in the sale of mobile phones and electronics.

105. The Respondent submitted that it did not pluck figures from the air and impose the same on the Appellant as the Appellant stated in its submissions but rather the Respondent had a basis in reaching at the 11. 22% mark up.

106. That the 11. 22% margin presents a fair value where no information as to cost is available.

107. The Respondent submitted that it acted in accordance with Section 29 of the TPA in applying the best judgment principle to determine the taxes due. That Section 29 of the Tax Procedures Act 2015 provides as follows:'Where a taxpayer has failed to submit a tax return for a reporting period in accordance with the provisions of a tax law, the commissioner may, based on such information as may be available and to the best of his or her judgement, make an assessment (referred to as a 'default assessment') of-a.The amount of the deficit in the case of a deficit carried forward under the Income Tax Act(cap470) for the period;b.The amount of the excess in the case of an excess on input tax carried forward under the Value Added Tax Act, 201. 3 (No 35 of 2013),for the period; orc.The tax (including a nil amount) payable by the taxpayer for the period in any other case.'

108. The Respondent submitted that the burden is on the Appellant to prove the existence of a principal- agent relationship pursuant to Section 56(1) of the Tax Procedures Act 2015. That Section 56(1) provides as follows:-'In any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.'

109. The Respondent submitted that it relied on the general rule of evidence that he who alleges must prove. That Section 107 of the Evidence Act, Cap 80 provides as follows:-1. 'Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist?2. When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person.'

110. The Respondent submitted that the Appellant did not discharge the burden of proving the principal-agent relationship and as such it is right for the Respondent to conclude that the Appellant is in the business of importation and sale of mobile phones.

b). Whether the Respondent issued the objection decision out of time. 111. The Respondent submitted that the objection decision was within the 60-day time limit provided for in Section 51(11) of the Tax Procedures Act 2015 which was the law applicable at that particular time. That Section 51(11) of the Tax Procedures Act 2015 provides as follows:'The commissioner shall make the objection decision within sixty days from the date of receipt of-(a)The notice of objection or(b)Any further information the commissioner may require from the taxpayer; Failure to which the objection shall be deemed allowed'.

112. The Respondent submitted that there was an exchange of correspondences and information between the Appellant and the Respondent after the Appellant lodged its notice of objection.

113. That the latest correspondence was on October 12, 2021. That in adherence to Section 51(11) (b) of the Tax Procedures Act 2015, time started running after the Respondent received the last correspondence from the Appellant.

114. That the Respondent issued the objection decision on the 58th day after receiving the last correspondence from the Appellant.

115. That the repealed Section 51(11) of the Tax Procedures Act 2015 was the law in force at the time this particular tax matter arose as the Finance Act, 2022 is clear in Section 1 on the coming into force of the amended legislation.

116. The Respondent relied on the following authorities:-a.Wilken Telecommunication Limited vs Commissioner of Domestic Taxes TAT No 195 of 2021. b.Family Signature Ltd vs Commissioner of Investigations & Enforcement TAT No 25 of 2016. c.Kenya Revenue Authority vs Maluki Kitili Mwendwa [2021] eKLR.d.Mbuthia Macharia vs Annah Mutua Ndwiga & Another [2017] eKLR.e.Primarosa Flowers Ltd vs Commissioner of Domestic Taxes [2019] eKLR.

Respondent’s Prayers. 117. The Respondent prays that:-a.The Appeal be dismissed for lack of merit.b.The Respondent’s decision and resultant tax demand be upheld.c.The Respondent be awarded the cost of the Appeal.

Issues For Determination 118. The Tribunal has carefully studied the pleadings and documentation of both parties and is of the respectful view that the issues that call for its determination are as follows:-a.Whether the Appellant’s objection dated May 6, 2021 was allowed by the operation of the law.b.Whether the Appellant was a commission agent or importer of mobile phones.c.Whether the Appeal herein is merited.

Analysis And Findings. 119. Having identified the issues for determination, the Tribunal proceeded to analyse the issues as follows:-

a). Whether the Appellant’s objection dated 6th May 2021 was allowed by the operation of the law. 120. The Appellant submitted that it lodged its notice of objection dated May 6, 2021 to the Respondent's notice of assessment dated April 7, 2021. That the Respondent issued its objection decision on December 9, 2021 after lapse of 60 days required by law.

121. Section 51 (11) of the Tax Procedure Act 2015 provides that;'The Commissioner shall make the objection decision within Sixty (60) from the date of receipt of –a.The notice of objection; orb.Any further information the Commissioner may require from the taxpayer, failure to which the objection shall be deemed to be allowed.'

122. That the 60 days period started running from the June 25, 2021 when the Respondent received additional information from the Appellant. The Appellant submitted that the Respondent failed to make its decision within the statutory period of 60 days by virtue of Section 51(11) (b) of the TPA and thus the Appellant’s objection is deemed to have been allowed by operation of the law.

123. That the objection decision ought to have been issued by the August 24, 2021. That the impugned objection decision was issued on December 9, 2021, after a period of almost 6 months after receipt of the Appellant's further information contained in its letter lodged on June 25, 2021.

124. That accordingly, the Appellant's notice of objection dated May 6, 2021 was deemed allowed by operation of the law. That in failing to communicate its decision within the statutory period of 60 days from June 25, 2021, the Respondent is taken to have allowed the Appellant’s objection.

125. On the other hand, the Respondent submitted that after receiving the notice of objection dated May 6, 2021 from the Appellant, there was an exchange of correspondence and information between the Appellant and the Respondent.

126. That during these engagements, the Appellant sought time to supply the Respondent with further documentations and information to support its notice of objection.

127. That the latest correspondence was on October 12, 2021.

128. That the 60-days period, between the last time the Appellant and Respondent communicated, did not expire before the objection decision was issued and thus the decision was within the stipulated timelines provided by the Section 51(1l) (b) of the Tax Procedures Act, 2015.

129. The Tribunal has looked at the documents filed by the parties and noted that after the Appellant issued its notice of objection on May 6, 2021, there was communication between the parties as follows:-a.The Respondent wrote to the Appellant on June 10, 2021 and requested for information to support the objection.b.The Appellant replied to the said letter on June 25, 2021. c.On September 28, 2021, the Appellant wrote an email replying to an email sent to it by the Respondent on September 23, 2021. d.On October 29, 2021, the Respondent sent an email to the Appellant in response to the email of 28th September from the Appellant.e.On October 14, 2021, the Respondent wrote to the Appellant asking for more documents.f.The Appellant wrote an email to the Respondent on December 10, 2021 indicating that it had supplied all the information and documents to support its objection.

130. The Respondent made its objection decision vide a letter dated December 9, 2021.

131. Since the last communication from the Respondent to the Appellant was on October 14, 2021 as indicated in the Respondent’s Statement of Facts (which was not denied by the Appellant), the Tribunal finds the that the objection decision was made within the statutory timeline of 60 days and the Appellant’s objection dated May 6, 2021 was therefore not allowed by the operation of the law.

b). Whether the Appellant was a commission agent or importer of mobile phones. 132. The Appellant submitted that its business is that of a commission agent pursuant to the commission agreement entered by the Appellant and Asian based companies dated September 26, 2016. That the Appellant's obligation was to facilitate collection of payments from businesses based in Kenya and remit the same. That for every remittance made, the Appellant earns a commission of 0. 5 % of the total remittance and remit 99. 5%.

133. The Appellant submitted that the agreements further clearly state the obligations of the parties and that the Appellant’s role was to collect and remit payments from importers of electronics and do not extend to entering into contracts on behalf of its principal.

134. That whilst the Appellant is alive to the burden of proof under Section 56 of the TPA 2015, the Respondent has disregarded evidence, documents and explanations tendered with regards to the Appellant’s model of business.

135. The Appellant submitted that the Respondent’s request for documents vide letter dated June 10, 2021 of the list of importers of mobile phones in Kenya, instructions from the suppliers in Asia and also agreements between Appellant and importers of mobile phones in Kenya was farfetched and unreasonable as these documents were in possession of third parties whom the Appellant had no relationship with.

136. On other hand, the Respondent submitted that the Appellant is in the business of importation and sale of mobile phones and as such, the Appellant is not a commission agent but a retailer.

137. That the documents it obtained from Equity Bank indicate the purpose of remittances made by the Appellant to its suppliers of mobile phones was described as 'purchase of phones' by the Appellant in the SWIFT transfer forms.

138. The Respondent also submitted that the pro-forma invoices obtained from the Equity Bank to support the SWIFT transfer transactions also indicated the Appellant as the purchaser.

139. That the Appellant has a shop at Digital House, Luthuli Avenue where it retails the mobile phones.

140. The Respondent also submitted that the Appellant did not provide sufficient proof of the existence of the principal/agent relationship between the Appellant and the suppliers from Asia. That the signed contract agreement between the Appellant and the lnfinix Mobility did not prove principal-agent relationship.

141. On analyzing the documents filed by the parties, the Tribunal found that the only document that the Appellant filed as the evidence of being a commission agent was a Memorandum of Agreement with Infinix Mobility Limited of China dated September 26, 2016.

142. The Respondent filed the following documents to prove that the Appellant is indeed an importer of mobile phones and accessories.a.Eleven commercial invoices from Treasure International Trade Co Ltd of Hong Kong.b.Four large transactions reporting forms made by Nasscom at Equity Bank. The forms indicated that the source of funds to be 'business from cash sales' and the intended use of the money as 'to buy stock.'c.Cash sales and delivery notes to purchasers of mobile phones and accessories starting from Kshs 1. 5 million to Kshs 3. 5 million.d.Import declaration forms.e.Cheque payment of Kshs 4,290,000. 00 from Honn Communications Ltd.f.Statement of James Karanja Gatura made to Directorate of Criminal Investigations (DCI) indicating the 14 cheques his firm Ropem Telcom Limited had paid to Nasscom Limited for the purchase of mobile phones.

1433. The Tribunal noted that although the Appellant had indicated in paragraph three of its Statement of Facts that it has entered into commission agreements with various institutions in Asia for the facilitation of the collection of payments for purchase of mobile phones and related accessories, it did not file any other agreement or documents before the Tribunal to demonstrate that it was indeed a commission agent.

144. The Tribunal also noted that in order to establish whether the Appellant was a commission agent, the Respondent asked the Appellant to furnish it with the following documents vide a letter dated June 10, 2021. a.Fee notes and invoices to the suppliers based in Asia.b.Proof of payment of commissions by the suppliers based in Asia.c.Instructions emanating from the suppliers based in Asia to Nasscom limited.d.List of importers of mobile phones in Kenya.e.Agreements between Nasscom and importers of mobile phones in Kenya.

145. The Appellant submitted that it was unable to provide the information as it found it to be farfetched and unreasonable as these documents were in possession of third parties with whom the Appellant had no relationship.

146. The burden of proving that it was a commission agent and existence of a principal- agent relationship lay with the Appellant under the provisions of Section 56(1) of the Tax Procedures Act 2015. The Section 56(1) provides that:-'In any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.'

147. Further, Section 107 of the Evidence Act, Cap 80 provides that:-'Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist. When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person.'

148. The Tribunal is of the view that if indeed the Appellant was collecting payments on behalf of Asia based companies, it should have submitted evidence of communication with the Asian sellers such as messages on remittance of funds indicating the Kenyan importers for whom funds have been remitted.

149. The Appellant did not tender any evidence to show who the importers of mobile phones from Kenya were so as to be able to follow them on behalf of the Asia based exporters. In addition, the Appellant did not provide proof that the funds it remitted to Asia were on behalf of the Kenyan importers as no statements or confirmation messages regarding the remittances made were filed with the Tribunal.

150. The Respondent had requested for the information to proof that the Appellant was indeed a commission agent. That information was never provided. The Tribunal therefore finds that the Appellant did not discharge the burden of proving that it was a commission agent with a principal-agent relationship with suppliers in Asia.

c). Whether the Appeal herein is merited. 151. The Appellant submitted that the Respondent erroneously relied on the description of purposes of Appellant’s SWIFT transfer as purchases of mobile phones and pro-forma invoices which allegedly name the Appellant as the purchaser. That all the remittances made by the Appellant were solely from third party payments and the Appellant's role was merely to facilitate remittance to suppliers based in Asia.

152. The Appellant further submitted that the Respondent misconstrued the purpose of remittance and arrived at unreasonable conclusion that the SWIFT transfers made on the Appellant's account were for purchase of imports. That the SWIFT transfers were mere remission of the payments collected from the importers of mobile phones in Kenya in accordance with the Agreement dated September 26, 2016.

153. The Respondent submitted that it was guided by Section 24(2) of the Tax Procedures Act 2015 which mandates it to conduct tax investigation into the business of a taxpayer. The Section provides as follows:-'The commissioner shall not be 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.'

154. The Respondent submitted that in this case, it conducted investigations on the Appellant's business upon receiving intelligence information that the Appellant failed to declare Kshs 2,931,669,567. 00 its Equity Bank account.

155. The Respondent submitted that Section 73(2) (b) of the Income Tax Act, Cap 470 justifies the Respondent's position that it was right in demanding the taxes. That the Section 73(2)(b) provides as follows:-'Where a person has delivered a return in income, the commissioner may-(b)If he has reasonable cause to believe that such return is not true and correct, determine, according to the best of his judgment, the amount of the income of that person and assess him accordingly.'

156. The Respondent submitted that in this particular case, it relied on SWIFT transfer forms and supporting pro-forma invoices obtained from Equity Bank to establish that indeed the Appellant was the purchaser of the mobile phones and mobile accessories.

157. The law places the burden of proof in tax matters on the Appellant. In this particular case, the Appellant has not proved that the tax decision should not have been made or should have been made differently. The Appellant has the burden of proving that the decision of the Respondent is wrong. That this can only be done by providing documents that prove its case.

158. The Tribunal notes that the Appellant came before it and provided no evidence to show that the tax demanded by the Respondent was excessive and that it had provided all the documents requested by the Respondent. Other than the Agreement with Infinix Mobility Limited of China, the Appellant tendered no other evidence to the Tribunal to demonstrate that the tax demanded by the Respondent was excessive or should not have been demanded in the first place.

159. The Tribunal relied on the case of Alfred Kioko Muteti vs. Timothy Miheso & Another [2015] eKLR where the court held that:-'A party can only discharge its burden upon adducing evidence. Merely making pleadings is not enough'. In reaching its findings, the Court stated that: 'Thus, the burden of proof lies on the party who would fail if no evidence at all were given by either party. Pleadings are not evidence.'

160. In Tax Appeal Number 353 of 2018 Rumish Limited vs Commissioner of Domestic Taxes at pararaph 51, the Tribunal stated that:-'Additionally, Section 30 of the Tax Appeals Tribunal Act places the burden of proof on the taxpayer to submit all the necessary documentation to support its case. The same position was held by the court in Metcash Trading Limited-vs Commissioner for the South African Revenue Service and Another Case CCT 3/2000, where it was held that:.‘But the burden of proving the Commissioner wrong then rests on the vendor under section 37. Because VAT is inherently a system of self­ assessment based on a vendor's own records, it is obvious that the incidence of this onus can have a decisive effect on the outcome of an objection or appeal. Unlike income tax, where assessments can elicit genuine differences of opinion about accounting practice, legal interpretations or the like, in the case of a VAT assessment there must invariably have been an adverse credibility finding by the Commissioner; and by like token such a finding would usually have entailed a rejection of the truth of the vendor's records, returns and averments relating thereto. Consequently, the discharge of the onus is a most formidable hurdle facing a VAT vendor who is aggrieved by an assessment: unless the Commissioner's precipitating credibility finding can be shown to be wrong, the consequential assessment must stand.'

161. The Tribunal has dealt with a similar matter in TAT 555 of 2021 Atronix Ltd vs Commissioner of Domestic Taxes, where the Appellant had also claimed to be a commission agent collecting payments on behalf of phone sellers based in Asia. The Respondent had asked for documents similar to those asked for in the letter of the Respondent dated June 10, 2021. As the documents were not provided, the Tribunal stated as follows in Paragraphs 49 ad 50:-'49. The Appellant did not provide the requested documents thereby inviting the Respondent to disallow its objection as per the contents of its objection decision dated August 16, 2021. 50. The Tribunal also notes that upon the Appellant failing to provide sufficient documents to prove its objection, it gives the Respondent the leeway to invoke and take into consideration and rightly so the provisions of Section 24(2) of the TPA.'

162. Based on the aforementioned provisions of the law and the case law, the Tribunal finds that the Respondent’s decision to disallow the Appellant’s objection was proper in law.

Final Decision 163. The upshot of the foregoing is that the Appeal is without merit and the Tribunal accordingly proceeds to make the following Orders: -a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated December 9, 2021 be and is hereby upheld.c.Each party to bear its own costs.

164. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 9TH DAY OF JUNE, 2023. ………………ERIC N. WAFULACHAIRMAN………………CYNTHIA B. MAYAKAMEMBER………………ABRAHAM K. KIPROTICHMEMBER………………GRACE MUKUHAMEMBER………………JEPHTHAH NJAGIMEMBER