[2023] KETAT 542 (KLR)

Ngai v Commissioner of Domestic Taxes (Tax Appeal 884 of 2022) [2023] KETAT 542 (KLR) (19 October 2023) (Judgment)

Neutral citation: [2023] KETAT 542 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 884 of 2022

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

October 19, 2023

Between

Kenneth Mucuiya Ngai

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a trader and resident of Embu within the Republic of Kenya and a registered taxpayer.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act and is charged with the responsibility of among others, assessment, collection, accounting and general administration of tax revenue, on behalf of the Government of Kenya.

3. The genesis of this Appeal is that the Respondent conducted a compliance check on the Appellant‘s VAT returns for the period covering January 2018 to May 2018 and established a mismatch of invoices between Appellant‘s returns and the suppliers‘ returns. The Respondent raised assessments on the disallowed invoices.

4. Being aggrieved by the assessments, the Appellant filed an objection dated 14th December 2020. The Respondent alleged that it contacted the Appellant and requested the Appellant to produce documents (invoices) after the objection. The Respondent also alleged that the suppliers with regard to those mismatched invoices were also contacted and they provided the invoice statements.

5. The Respondent alleged that the Appellant failed to produce requested documents leading to issuance of objection decision on 29th October 2020 which directed the Appellant to settle income tax and VAT taxes amounting to Kshs. 1,715,241. 00.

6. Dissatisfied by the objection decision, the Appellant filed a Notice of Appeal on the 24th August 2022.

The Appeal 7. The Appellant sought leave of the Tribunal to file the instant Appeal out of time, vide the application dated 26th July 2022 and leave to file an Appeal out of time was granted on 23rd September 2022.

8. The grounds of the Appeal are outlined in the Memorandum of Appeal, dated 26th July 2022 and filed on 24th August 2022, as summarized hereunder: -a.That the Respondent erred in law and in fact by arriving at an additional assessment for reason of errors or mistake in the apportioning of liability.b.That the Respondent erred in law and fact by overlooking the fact that the invoices submitted by the Appellant in filling of VAT were similar in substance and content of the transactions reflected therein to those submitted by the Appellant‘s suppliers, despite the discrepancies in the invoices numbering and dates of issuance.c.That the Respondent erred in law and fact by ignoring the request to accept the Appellant‘s suppliers‘ customer statement and proof of payments for the purchases captured in the said statements, and correctly dated and numbered invoices as evidence of the Appellant‘s payments.d.That the Respondent erred in law and fact by mounting additional tax assessments on the Appellant without regard that it was its automated system that did not reconcile and match the invoices produced by the Appellant and the Appellant‘s suppliers emanating from the same purchases.e.That the Respondent erred in law and fact through its omission to confirm that the causative factors of the mismatch between the Appellant‘s invoices and the Appellant‘s suppliers‘ (Jojo Plastics Limited, Conix Industries limited, Beekay Suppliers, Chloride Exide, Metsee Cables, Premier Industries Limited, Samura Engineering Limited and Vectus Kenya Limited) VAT returns is the discrepancies in the details and particulars of the said suppliers‘ invoices and not the Appellant‘s default in tax liability.f.That the Respondent erred in law and fact in concluding that the Appellant has not partially paid VAT due to the discrepancies in the invoices numbering of the invoices submitted by the Appellant and those submitted by Appellant‘s suppliers (Jojo Plastics Limited, Conix Industries limited, Beekay Suppliers, Chloride Exide, Metsee Cables, Premier Industries Limited, Samura Engineering Limited and Vectus Kenya Limited).

The Appellant‘s Case 9. Whereas the Appellant filed application for extension of time which leave was granted by the Tribunal on 23rd September 2022, the Appellant did not file a Statement of Facts nor did he file written submissions in support of his case.

10. The Appellant relied on the Memorandum of Appeal to argue its case as contained in the Memorandum of Appeal is outlined herein above.

The Appellant‘s Prayers 11. The Appellant prayed for orders against the Respondent that:i.The Appeal be allowed;ii.The decision of the Respondent to levy additional VAT assessment of Kshs. 1,715,241. 00 against the Appellant be set aside;iii.The costs of the proceedings; andiv.Such other further orders or reliefs as the Honourable Tribunal may deem just and expedient.

The Respondent‘s Case 12. The Respondent premised its case on the grounds as per; -a.Statement of Facts dated and filed on 17th October 2022; andb.Written Submissions dated and filed on 18th April 2023.

13. The Respondent stated that the Appeal was not properly filed and relied upon Section 13 of the Tax Appeals Tribunal Act 2013 which provides as follows:(1)A notice of appeal to the Tribunal shall—a.be in writing;b.be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.2. The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of—a.a memorandum of appeal;b.statements of facts; andc.the tax decision.‘‘

14. The Respondent stated that the Appellant failed to comply with the provisions of Section 13 of the Tax Appeals Tribunal Act because the Appellant did not file a Statement of Facts, without which the Respondent is unable to respond effectively.

15. That the Appellant has further failed to attach a copy of the objection decision which decision is the substratum that the Appeal herein seeks to challenge.

16. The Respondent submitted that the failure by the Appellant to attach a copy of the objection decision and the Statement of Facts renders the Appeal fatally defective and the same cannot be cured in law.

17. Further, it submitted that the Appellant‘s failure to attach a copy of the objection decision has thus failed to satisfy the Tribunal that there is appealable decision before it.

18. The Respondent relied on the provisions of Section 2 of the Tax Procedures Act which defines appealable decision as follows: -“Appealable decision‖ means an objection decision and any other decision made under a tax law other than—a.a tax decision; orb.a decision made in the course of making a tax decision.

19. The Respondent submitted that without the objection decision, the Tribunal is left to speculate what decision was all about and the issues that led to the decision being issued by the Respondent as an objection decision is a crucial document without it, the appeal fails

20. Further, the Respondent relied on the case of Miguna Miguna vs. Lufthansa Group operating as Lufthansa German Airlines and 6 others, Kenya National Commission on Human Rights and another 2021 eKLR to advance the theory that the Court refused to grant orders sought because the evidence was not adduced and as such, the matter was merely speculative.

21. The Respondent further submitted that the Appellant failed to file an appeal within the required timelines because the objection decision was rendered on 29th October 2020 while the Memorandum of Appeal was filed on 24th August 2022. Therefore, the Respondent submitted that the Appeal offends the provisions of Sections 13(1)(b) and 13(3) and (4) of the Tax Appeals Tribunal Act.

22. To support the preposition that the filing appeal out of time without leave is fatal, the Respondent relied on the cases of Salsa Global Investment Co. ltd vs. Commissioner of Domestic Taxes (2023) and Boss Freight Terminal Ltd vs. Commissioner of Domestic Taxes (2005) eKLR where the Tribunal dismissed the Appellant‘s Appeal and held that the Appeal was filed out of time without seeking and obtaining prior leave of the Tribunal.

23. On the issue of whether the Appellant erred in disallowing the input VAT, the Respondent stated that the Respondent is not bound by the tax returns filed by the Appellant. The Respondent also stated that it may assess a taxpayers‘ tax liability using any information available to the commissioner. To this end, the Respondent relied on the provisions of section 24 (2) of the Tax Procedures Act which provides as follows:(2)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.‘‘

24. Further the Respondent also stated that it is empowered to amend returns under Section 31 (1) (b) of the Tax Procedures Act 2015 based on the available information and to the best of the Commissioner‘s judgement. The said section provides as follows:Subject to this section, the Commissioner may amend an assessment (referred to in this Section as the ―original assessment") by making alterations or additions, from the available information and to the best of the Commissioner's judgement, to the original assessment of a taxpayer for a reporting period to ensure that—(b)in the case of an excess amount of input tax under the Value Added Tax Act, 2013 (No. 35 of 2013), the taxpayer is assessed in respect of the correct amount of the excess input tax carried forward for the reporting period.‘‘

25. The Respondent submitted that it examined all the relevant information and records availed by the Appellant before arriving at the objection decision. The Respondent argued that failure to provide all requisite documents to support the objection was contrary to Section 51 (3) (c) of the Tax Procedures Act.

26. The Respondent asserted that it is the duty of the taxpayer to provide documents whenever required by the Commissioner. The Respondent relied on the provisions of section 23 (1) (a) of the Tax Procedures Act 2015 to emphasize that a taxpayer is required to keep documents or record in such manner that the taxpayers tax liability can be readily ascertained.

27. It is the Respondent‘s case that the Appellant failed to provide the requested invoices therefore, the Respondent rejected the input VAT where the invoices were not produced and allowed where invoices were provided even though there was mismatch in information between the Appellants‘ invoices and its suppliers‘ invoices.

28. The Respondent also relied upon the provisions of Sections 17(2) and (3)(a) of the VAT Act 2013 which provides as follows:1. If, at the time when a deduction for input tax would otherwise be allowable under subsection (1), the person does not hold the documentation referred to in subsection (3), the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation.Provided that the input tax shall be allowable for a deduction within six months after the end of the tax period in which the supply or importation occurred.(2)(3) The documentation for the purposes of subsection (2) shall be—a.an original tax invoice issued for the supply or a certified copy.‘‘

29. The Respondent stated that the relevant invoices were not provided for the relevant period to help the Commissioner ascertain the correct input VAT. The Respondent argued that without production of the relevant invoices, the Commissioner correctly disallowed the unsupported VAT input. In this regard, the Respondent submitted and relied on the case of Commissioner Investigations and Enforcement vs. Sangyung Enterprises K ltd (2002) eKLR in which the court held as follows:Section 17 provides the statutory basis to deduct and claim input VAT. A registered tax payer is entitled to deduct input VAT on taxable purchases but that the same can only be allowed if the taxpayer holds such documentation which documentation includes ‗an original tax invoice issued for the supply or a certified copy.‘‘‘

30. The Respondent further submitted that it is entitled to request for additional information from a taxpayer. The Respondent relied on the provisions of Section 59 of the Tax Procedures Act, which empowers the Respondent to seek additional information from a taxpayer. The Respondent submitted that the Appellant failed to provide additional documents upon request. Therefore, the Respondent asked this Tribunal to find that additional assessments were anchored in law and that the same were factually and legally justified.

31. Further the Respondent argued that the burden is on the Appellant to prove that the decision of the Respondent is wrong but the Appellant failed to discharge this duty. In this regard, the Respondent relied on the provisions of Section 56 (1) of the Tax Appeals Procedures Act 2015 which provides as hereunder:In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.‘‘

32. The Respondent also relied upon the provisions of Section 30 of the Tax Appeal Tribunal which provides as follows:30. Burden of proofIn a proceeding before the Tribunal, the Appellant has the burden of proving—a.where an appeal relates to an assessment, that the assessment is excessive; orb.in any other case, that the tax decision should not have been made or should have been made differently.‖

33. To emphasize that the taxpayer has burden to prove that a tax decision is incorrect, the Respondent relied on cases of Prima Rosa Flowers Ltd vs. Commissioner of Domestic Taxes (2009) eKLR, Ushindi Exporters ltd vs. Commissioner Investigations and Enforcement TAT No.7 of 2015 and Commissioner of Domestic Taxes vs Metoxide ltd (2021). The Respondent also relied on the case of Commissioner of Domestic Taxes vs. One Stop Trading Ltd (2021) to submit that taxpayer bears the burden of producing documentations to support its claim for VAT.

34. The Respondent averred that the Appellant has not adduced any evidence before the Tribunal to show the Respondent‘s assessments were excessive or erroneous, thus has failed to discharge it burden of proof under the law.

The Respondent‘s Prayers 35. The Respondent prayed that the Tribunal be pleased to hold as follows:i.That the Appeal is not properly filed be filed before the Tribunal;ii.Dismiss the Appeal with costs for lack of merit; andiii.Uphold the Respondent‘s Objection decision dated 29th October 2020.

Issues For Determination 36. The Tribunal has carefully studied the parties‘ pleadings and submissions and is of the respectful view that the issues that call for its determination are as hereunder: -i.Whether the Appeal is properly filed before the Tribunal; andii.Whether Respondent erred in disallowing input VAT.

Analysis And Findings 37. The Tribunal addresses issues as herein under: -

i.Whether The Appeal Is Properly Filed Before The Tribunal. 38. The Respondent has challenged legality of the Appeal from three angles; -i.that the Appellant did not seek leave to file the appeal out of time;ii.that the Appellant failed to file Objection Decision; andiii.that the Appellant failed to file statement of facts.

39. On the first issue, that ‗the Appellant did not seek leave to file the appeal out of time,‘ the Tribunal has had an opportunity to peruse the Appellant‘s application dated 26th July 2022 for extension of time which is brought under Sections 12 and 13 (3) of the Tax Appeals Tribunal and Rule 10 (1) of the Tax Appeals Tribunal (Procedure) Rules 2015. The Tribunal also had an opportunity to read the supporting affidavit in support of the said application. The said application was heard on 23rd September 2022 and the Tribunal allowed the same with leave granted to the Appellant to file an Appeal out of time.

40. In view of the foregoing and the Tribunal having given orders on filing of an Appeal out of time the Tribunal finds and holds that the Respondent‘s submission that the Appellant filed the Appeal without leave hereby fails.

41. On the second issue raised by the Respondent that, the Appellant failed to file Objection Decision,‘ this Tribunal is guided by the provisions of Section 13 (2), of the Tax Appeals Tribunal Act which provides as follows:(2)The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of—a.A memorandum of appeal;b.Statements of facts; andc.The tax decision. (Emphasis Added)

42. This Tribunal has keenly perused the Appellant‘s pleadings. The Objection decision dated 29th October 2020 is on record. Consequently, the Appellant complied with Section 13(2)(c) of the Tax Appeals Tribunal Act. Therefore, this Tribunal finds and holds that the Respondent‘s submission that the Appellant failed to file an Objection decision hereby fails.

43. On the third issue raised by the Respondent that the Appellant failed to file statement of facts,‘ this Tribunal is guided by the provisions of Section 13 (2) (b), of the Tax Appeals Tribunal Act which provides as follows:(2)The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of—a.….b.Statements of facts(c)..

44. It is necessary to note that Section 13 (2) employs the word shall‘. It is stated in mandatory terms meaning that all documents under Subsection 13 (2) must be filed. This Tribunal has evaluated the pleadings filed by the Appellant. One fact stands out, the Statement of Fact was neither filed nor placed on record.

45. The Tribunal observes that the Appellant did not exercise due diligence in prosecuting this Appeal. Moreover, not only did the Appellant not file the Statement of Facts, he did not file written submissions as directed by the Tribunal.

46. Therefore, the Tribunal finds that the Appellant‘s failure to file a Statement of Facts is fatal to the Appeal. Consequently, the Tribunal finds and holds that the Appeal is not properly filed before the Tribunal.

ii.Whether Respondent Erred In Disallowing Input Vat. 47. In view of the finding that the Appeal is not valid for the reasons stated above, the Tribunal did not delve further on this issue.

Final Decision 48. The upshot of the foregoing is that the Appeal is incompetent and the Tribunal makes the following Orders: -a.The Appeal be and is hereby struck out; andb.Each party to bear its own cost.

49. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF OCTOBER, 2023. ROBERT MUTUMA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBERMUTISO MAKAU - MEMBERDR WALTER ONGETI - MEMEBER