[2023] KETAT 632 (KLR)

Njenga v Commissioner of Legal Services & Board Coordination (Tax Appeal 1380 of 2022) [2023] KETAT 632 (KLR) (3 November 2023) (Judgment)

Neutral citation: [2023] KETAT 632 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1380 of 2022

Grace Mukuha, Chair, G Ogaga, Jephthah Njagi, E Komolo & T Vikiru, Members

November 3, 2023

Between

Bernard Gichia Njenga

Appellant

and

Commissioner of Legal Services & Board Coordination

Respondent

Judgment

1. The Appellant is an individual that is a tax resident in Kenya.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. Under Section 5 (2) of the Act with respect to the performance of its function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Respondent raised additional Value Added Tax (VAT) assessments amounting to Kshs. 997,536. 64 together with the resultant penalties and interest for the tax periods of September 2015, October 2015, November 2015, December 2015, January 2016, February 2016, March 2016 and April 2016 on 12th January 2017 and for the tax period of August 2015 on 8th May 2018 after the Appellant failed to file his VAT returns on the relevant due dates.

4. The Appellant filed late objections to the assessments on 19th September 2022.

5. On 23rd September 2022, the Respondent emailed the Appellant informing him that the objections were not validly lodged within the stipulated timelines and that there were no supporting documents submitted to support the reasons for lodging the objection application late.

6. The Respondent sent reminders to the Appellant on 26th September 2022 and 28th September 2022 seeking him to provide a justification for lodging late objections.

7. The Respondent subsequently rejected the late objections through a letter dated 3rd October 2022.

8. Dissatisfied with the Respondent‘s decision, the Appellant consequently filed his Notice of Appeal on 2nd November 2022.

The Appeal 9. The Appeal is premised on the Memorandum of Appeal filed on 16th November 2022 which raised the following grounds: -a.That the Respondent erred in law and fact by claiming that the Appellant failed to make full declarations in Value Added Tax (VAT) returns for the months of August 2015 to April 2016 thus resulting in the additional assessment of VAT of Kshs. 997,536. 00. b.That the Respondent erred in law by performing the additional assessment resulting to double-declaration of the sales amount which was already declared by the Appellant in Gitech Computer Systems Limited. The Appellant therefore has attached a detailed reconciliation to VAT account to demonstrate full declaration of VAT. The Appellant has also attached the VAT returns for the period under review which demonstrates compliance and how the Appellant has been paying this tax obligation.c.That the Respondent erred in law and fact in its objection decision given the fact that the Appellant had offered himself for audit by the authorities which in turn could have formed a strong basis for arriving and determination of tax payable.

Appellant‘s Case 10. The Appellant‘s case is premised on the Statement of Facts filed on 16th November 2022 and the documents attached to it.

11. The Appellant averred that the Respondent did not conduct due diligence and went ahead to perform the additional assessments resulting to VAT of Kshs. 997,536. 64 plus penalties and interest.

12. The Appellant stated that he objected to the additional assessments and that the Respondent issued a decision on 3rd October 2022.

13. The Appellant averred that he started business as a sole proprietor in the name of Gitech Computer Systems which was attached to his personal KRA PIN. That in 2009 Gitech Computer Systems was converted to Gitech Computer Systems Limited and thus all the VAT returns that were done under the Appellant‘s KRA PIN were shifted to the limited liability company KRA PIN.

14. The Appellant argued that it was clear that the Respondent‘s allegation that the Appellant owed taxes for the tax periods in 2015 and 2016 was not only unreasonable and baseless, but also prejudicial to the Appellant.

Appellant‘s prayers 15. The Appellant prays that: -a.The Respondent‘s decision to demand for tax amounting to Kshs. 997,536. 00 as outlined in its objection decision be struck out in its entirety.b.The Respondent‘s action to demand tax amounting to Kshs. 997,536. 00 be declared arbitrary, capricious, unreasonable, unfair and contrary to the administration of justice and legitimate expectations of the Appellant.c.The Respondent, its employees, agents or other person purporting to act on its behalf be barred and/or stopped from taking any further steps towards enforcement or recovery of the tax of Kshs. 997,536. 00 as demanded.d.The costs of this Appeal.e.Any other remedies that the Tribunal deems just and reasonable.

Respondent‘s Case 16. The Respondent‘s case is premised on the following documents.a.Its Statement of Facts dated and filed on 9th December 2022 and the documents attached thereto.b.Its Written Submissions dated and filed on 10th July 2023.

17. The Respondent stated that it issued an additional assessment for an amount of Kshs. 997,536. 64 together with the resultant penalties and interest on various dates between 12th January 2017 and 8th May 2018 for the periods between August 2015 and April 2016 after the Appellant failed to file the taxes on the relevant due dates.

18. The Respondent submitted that the Appellant filed a late objection to the entire assessment on 19th September 2022.

19. The Respondent stated that on receipt of the late objection, it contacted the Appellant on 23rd September 2022 informing the Appellant that the objection was not validly lodged within the stipulated timelines as per Section 51 of the Tax Procedures Act (TPA) and further that there were no supporting documents submitted to support the reasons for lodging the objection application late.

20. The Respondent submitted that it sent reminders to the Appellant on 26th September 2022 and 28th September 2022 seeking him to provide a justification for lodging a late objection contrary to the law.

21. The Respondent submitted that it rejected the late objection through a letter dated 3rd October 2022 as the Appellant did not provide documents supporting the reason for the late objection application.

22. The Respondent summarised the issues it wished the Tribunal to determine into two:a.Whether the Respondent‘s additional VAT assessments were valid and lawful.b.Whether the Appellant‘s objection was valid.

a. On whether the Respondent‘s additional VAT assessments were valid and lawful. 23. The Respondent cited Section 5 (2) of the KRA Act to reiterate that the Respondent has an obligation to enforce all tax laws. That in fulfilling its mandate, the Respondent is not bound by the tax returns of the Appellant.

24. The Respondent stated that it may assess a taxpayer‘s tax liability using any information available to the Respondent as empowered under Section 24 of the TPA which reads: -―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.

25. The Respondent further stated that it is empowered to issue default assessments where a taxpayer has not submitted a tax return for a reporting period. That Section 29 (1) of the TPA provides that: -―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 (Cap. 470) for the period;b.the amount of the excess in the case of an excess of input tax carried forward under the Value Added Tax Act, 2013 (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.

26. The Respondent submitted that VAT is charged pursuant to Sections 5 (1)a.and 5 (2) of the VAT Act, 2013 which provide that: -1A tax, to be known as value added tax, shall be charged in accordance with the provisions of this Act on—a.a taxable supply made by a registered person in Kenya;2. The rate of tax shall be—a.in the case of a zero-rated supply, zero per cent; orb.in any other case, sixteen per cent of the taxable value of the taxable supply, the value of imported taxable goods or the value of a supply of imported taxable services.

27. The Respondent averred that all taxable supplies under the Act are vatable except exempt supplies. That the Appellant did not provide evidence to demonstrate that the assessments are for exempt goods or services.

28. The Respondent was further guided by the judgment of the Tribunal in the case of Mara Beef Limited Vs Commissioner of Domestic Taxes TAT Appeal No. 226 of 2020, Paragraph 61 where the Tribunal held as follows: -―As per the Act, the Respondent is empowered to make a decision based on information available and its own best judgment. The Act does not limit or set standards on how the Respondent ought to arrive at an assessment neither does it provide that the taxpayer should be givenreasons for an assessment. The Act provides that the Commissioner shall notify the taxpayer of the assessment as detailed in subsection (2). In this case the Respondent has revealed that the information was in the form of corporation declarations.

29. The Respondent referred to Section 31 (1) of the TPA which provides that:-―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 –c.in any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates.

30. That Section 31 of the TPA empowers the Respondent to make alterations or additions to an original assessment from available information for a reporting period based on the Respondent's best judgement.

31. The Respondent argued that the Appellant had the burden to demonstrate that the Respondent‘s decision was wrong, and cited Section 56 (1) of the TPA which provides that: -―In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.

32. The Respondent was further guided by the judgment of the learned judge in the case of Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] ekLR where he stated as follows with regard to Section 30 of the TPA: -―31. The importance of the above provision is that the party with the obligation of persuasion (what Wigmore termed the risk of non- persuasion) is said to bear the burden of proof. The flip side of the foregoing is the effect of non-persuasion on a party with the burden ofproof which is that the particular issue at stake in the litigation will be decided against him/her. Generally, the taxpayer has the burden of proof in any tax Controversy. The tax payer must demonstrate that the commissioner's assessment is incorrect. The taxpayer has a significantly higher burden. The taxpayer must prove the assessment is incorrect.

33. The Respondent relied on the case of Commissioner of Income Tax v Lerematesho Ltd [1976] eKLR where the Court of Appeal stated that: -―The fact of assessment itself places on a taxpayer the burden of proving that it was excessive. Indeed, if on the evidence the taxpayer can only show that the conflicting views are equally balanced, then the taxpayer would have failed to discharge that onus.

34. The Respondent averred that on 19th September 2022, the Appellant objected to the decision of the Respondent and that he submitted documents to the Respondent on 26th September 2022.

35. That the objection application was filed outside the statutory timeline of 30 days by almost 68 months and despite numerous emails to the Appellant requesting for reasonable reasons for filing the objection out of time, none was received. Based on this, the Respondent concluded that the Appellant did not discharge his burden of proof that the assessment by the Respondent was incorrect.

36. The Respondent averred that the additional assessment of VAT was within the law because the Appellant had not submitted any returns for the reporting periods.

37. The Respondent submitted that since the Appellant filed the objection application late and in an invalid manner, it was justified in disallowing his objection and upholding the assessment.

38. The Respondent further submitted that it was within its mandate to issue the additional assessment and confirm the same and cannot be faulted for doing that which was within its mandate.

b. On whether the Appellant‘s objection was valid. 39. The Respondent asserted that the Appellant was required to object within 30 days. It cited Section 51 (2) of the TPA which provides that: -―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.

40. The Respondent averred that Section 51 (6) and (7) of the TPA envisions and offers remedy to a taxpayer in case there is a delay in the lodgment of a notice of objection within the statutory timeline. That these sub-sections of the law provide as follows: -―(6) A taxpayer may apply in writing to the Commissioner for an extension of time to lodge a notice of objection.7. The Commissioner shall consider and may allow an application under subsection (6) if —a.the taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of an absence from Kenya, sickness or other reasonable cause; andb.the taxpayer did not unreasonably delay in lodging the notice of objection.

41. The Respondent posited that an extension of time is an equitable remedy available only to a deserving party. That the Appellant did not and still has not provided reasonable grounds why he should be allowed to object out of time.

42. The Respondent accentuated the fact that on 23rd September 2022, 26th September 2022 and on 28th September 2022 it numerously reached out to the Appellant via email reminding him of the fact that he had not lodged any reason and or evidence to show cause as to why he did not file an objection within the stipulated statutory timeframes.

43. The Respondent stated that the Appellant was requested to provide the reasons and evidence for the late objection, which the Respondent claimed the Appellant did not provide. The Respondent further emphasised that the Appellant filed an objection 68 months late without reasonable cause, and on this basis, the Respondent contended that it correctly rejected the late objection.

44. The Respondent placed it reliance on the judgment in the case of Krystalline Salt Lid vs KRA [2019] eKLR to buttress its position on special procedures for redress of tax disputes.

45. The Respondent further relied on the judgment of the Tribunal in the case of Sera Steel Limited -vs- Commissioner of Domestic Taxes Appeal No. 461 of 2021 Paragraph 70 that: -―From the chronology of events, the taxpayer failed to follow due process and the rejection of its application for the enlargement of time to lodge the notice of objection by the commissioner was proper and merited.

46. The Respondent submitted that the Tribunal should not provide cover, refuge and comfort to parties who exhibit scant respect for rules and timelines of procedure. That the Appellant should not be allowed to lodge a late objection after choosing not to object within the provided timelines.

Respondent‘s prayers 47. The Respondent prays that the Tribunal:a.Dismisses the Appeal with costs for lack of merit.b.Upholds the Respondent‘s assessments.

Issue for Determination 48. The Tribunal has considered the facts of the matter and the submissions made by the parties, and considers the issue for determination as follows: Whether the Respondent was justified in issuing the late objection rejection dated 3rd October 2022.

Analysis and Findings 49. Having identified the issue that calls for its determination, the Tribunal proceeded to analyze it as hereunder.

50. The Respondent raised additional VAT assessments amounting to Kshs. 997,536. 64 together with the resultant penalties and interest on various dates between for the tax periods of September 2015, October 2015, November 2015, December 2015, January 2016, February 2016, March 2016 and April 2016 on 12th January 2017 and for the tax period of August 2015 on 8th May 2018 after the Appellant failed to file his VAT returns on the relevant due dates.

51. The Appellant filed late objections to the assessments on 19th September 2022.

52. On 23rd September 2022, the Respondent emailed the Appellant informing him that the objections were not validly lodged within the stipulated timelines and that there were no supporting documents submitted to support the reasons for lodging the objection application late.

53. The Respondent sent reminders to the Appellant on 26th September 2022 and 28th September 2022 seeking him to provide a justification for lodging late objections.

54. The Respondent subsequently rejected the late objections through a letter dated 3rd October 2022, which the Appellant appealed against on 2nd November 2022.

55. In the late objection rejection letter dated 3rd October 2022, the Respondent cited that the waiver approval notice that the Appellant sent to it on 3rd October 2022 was not sufficient evidence to support reasons for lodging his objections late.

56. The Tribunal considers that the Respondent is expected to resolve tax disputes expeditiously to enable taxpayers to make informed decisions. Any delay in the dispensation of tax disputes has the effect of delaying the issuance of an objection decision. The timelines for objecting to tax assessments are clearly set in the law, and all taxpayers are liable to comply with the timelines, save for when unavoidable circumstances as envisioned in Section 51 (7) of the TPA, as cited below, prevent a taxpayer from fulfilling his obligations: -―(7) The Commissioner may allow an application for the extension of time to file a notice of objection if—a.the taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of an absence from Kenya, sickness or other reasonable cause; andb.the taxpayer did not unreasonably delay in lodging the notice of objection.

57. The Tribunal perused the evidence presented before it and found that the reason the Appellant provided for lodging his notices of objection late was that ‗VAT was charged in error‘. The Respondent found this reason not to be a reasonable cause and requested the Appellant on three separate dates on 23rd September 2022, 26th September 2022 and 28th September 2022 to provide reasons for lodging his objections out of time and to support these reasons with evidence.

58. The Tribunal observes that in the correspondences the Appellant had with the Respondent in the days leading to the Respondent‘s impugned decision, the Appellant failed to address the issue of why he lodged his notices of objection out of time despite the Respondent having specifically requested him on 23rd September 2022 to support his reason for objecting out of time and sending him reminders to do the same on 26th and 28th September 2022.

59. Notwithstanding the failure of the Appellant to prove with evidence his reason for lodging his objections out of time, it is the Tribunal‘s considered view that the reason the Appellant provided for lodging his objections out of time was insufficient and unreasonable. The reason that ‗VAT charged in error‘ shows no correlation with why he lodged his objections more than five years after he had been assessed by the Respondent. Further, the Tribunal notes that objecting to an assessment more than five years after being assessed is indeed an unreasonable delay.

60. The Tribunal, therefore, finds that the Appellant did not discharge his burden of proof as required under Section 56 (1) of the TPA and Section 30(b)of the Tax Appeals Tribunal (TAT) Act when he failed to adduce evidence to support his Appeal against the impugned late objection application rejection decision and to demonstrate that he did not unreasonably delay in lodging his objection. Section 30 (b) of the TAT Act provides that: -―In a proceeding before the Tribunal, the appellant has the burden of proving—(b)in any other case, that the tax decision should not have been made or should have been made differently.

61. Further, the Tribunal buttresses its observation of the importance of adherence to timelines by referring to Eastleigh Mall Limited v Commissioner of Investigations & Enforcement (Income Tax Appeal E068 of 2020) [2023] KEHC 20000 (KLR) where the court stated: -... Parliament in its wisdom knew that in matters tax, time is very crucial as those in commerce need to make informed decisions. If the Commissioner is allowed to exercise his discretion and stay ad-infinitum before issuing an objection decision, the tax payer would be unable to make crucial decisions and plan his/her business properly. The timelines set are mandatory and not a procedural technicality.

62. The Tribunal is further guided by the case of W.E.C. Lines Ltd vs. The Commissioner of Domestic Taxes [TAT Case No.247 of 2020] where it was held at paragraph 70 while reiterating the holding in Krystalline Salt Ltd vs KRA [2019] eKLR that: -― Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures. The relevant procedure here is the process of opposing an assessment by the Commissioner.

63. Based on the foregoing, the Tribunal finds that the Respondent correctly rejected the Appellant‘s application for extension of time to lodge notices of objection in its late objection application rejection decision dated 3rd October 2022.

Final Decision 64. The upshot of the foregoing is that the Appeal fails and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby dismissed.b.The late objection application rejection decision dated 3rd October 2022 be and is hereby upheld.c.Each party to bear its own costs.

65. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 3RD DAY OF NOVEMBER, 2023. GRACE MUKUHA - CHAIRPERSONGLORIA A. OGAGA - MEMBERJEPHTHAH NJAGI - MEMBERDR. ERICK KOMOLO - MEMBERTIMOTHY VIKIRU - MEMBER