[2023] KETAT 149 (KLR)

Olare Suppliers Limited v Commssioner Domestic Taxes (Tribunal Appeal 362 of 2022) [2023] KETAT 149 (KLR) (Civ) (10 February 2023) (Judgment)

Neutral citation: [2023] KETAT 149 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tribunal Appeal 362 of 2022

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

February 10, 2023

Between

Olare Suppliers Limited

Appellant

and

Commssioner Domestic Taxes

Respondent

Judgment

Background 1. The appellant is a private limited company incorporated in Kenya under the Companies Act. Its principal business is cleaning and garbage collection.

2. The respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, cap 469 of the Laws of Kenya. Under section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all revenues. Further, under section 5 (2) of the Act with respect to the performance of its functions under subjection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 & 11 of the First Schedule of the Act for the purpose of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Respondent served the Appellant with a Notice of Intention to Audit under section 59 of the Tax Procedures Act, 2015 on the October 1, 2021 culminating in the issuance of a demand notice for VAT amounting to Kshs 23,661,151. 00 on the January 12, 2022 for the months of August 2020, November 2020 and April to July 2021.

4. The appellant objected to the assessment on theFebruary 28, 2022providing all the necessary documentation in support of the purchases with evidence of goods being delivered and payments being made.

5. The objection was invalidated on the 22nd of March 2022 wherein the tax due was stated to be at Kshs 21,000,0001. 58 for the months of August 2020, November 2020 and April to July 2021.

6. On the 24th of March 2022 another demand was issued for Kshs 24,161,136. 00 for the months of August 2020, November 2020, April to July 2021.

7. The Appellant was aggrieved with the decision and it appealed to the Tribunal vide a Notice of Appeal dated the 30th of March 2022.

The Appeal 8. The appellant premised its Appeal on the grounds of appeal as stated in the Memorandum of Appeal dated the 6th of April 2022 and filed on April 8, 2022 as follows:-a.That the Respondent erred in law and fact in asserting that it had been given inadequate documents by the appellant, whereas the appellant had supplied the respondent with thousands of pages of documents that had been requested.b.That the respondent erred in finding that the appellant did not receive goods from various suppliers when there is overwhelming documentary evidence that the goods were purchased, paid for and delivered.c.That the respondent erred in finding that the appellant dealt with missing traders when there is no evidence to support this finding.Further, the laws governing tax administration in the country does not define what a missing trader is and what qualifies as a missing trader. There is no evidence that the Appellant dealt with missing traders or that the Goods were not supplied to them.d.That from the analysis and the bulk of the disallowed invoices are from reputable companies which cannot by any means be regarded are missing trader. It is therefore ridiculous how the missing trader tag is being used.e.That the respondent further erred in finding, that the traders our client dealt are missing when there is overwhelming evidence that:

The Appelant’s Case 9. The appellant’s case is premised on the Statement of Facts dated April 6, 2022and filed onApril 8, 2022and the written submissions filed on November 23, 2022:

10. Theappellant stated that the respondent erred by disallowing the Input VAT it had claimed on the basis that the seller did not declare the output VAT because the duty of control and enforcement lies with the respondent and there are no powers vested on the appellant to force the other party to declare the same.

11. That the assessments were not done in accordance with section 29(2) of the TPA.

12. That the respondent erred in law and facts by disallowing the input tax on the basis that the same were not declared by the supplier. That in its view, it is the duty of the Commissioner to carry out compliance and not the taxpayer. It is unjust to deny its lawful claims that arose in the course of its business.

13. That all its claims were based on section 17 of the VAT Act, and there is no law that provides that its input tax would be disallowed if the supplier does not declare the output tax.

14. The appellant contended that it had provided the respondent with valid ETR receipts which it ought to have considered. It argued further that the respondent erred in making a finding that the appellant “bought invoices” from “missing traders” without any basis and evidence.

15. It was also its contention that the respondent erred reversing and vacating its assessment in non-conformity with the requirements ofsection 29 of the TPA.

16. The appellant avers that the objection was not handled carefully and diligently by the respondent for the reason that:a.All documents needed for the review of this case were availed.b.The respondent failed to look at the objection and ask for further documents which the Appellant was more than willing to avail.

17. The appellant argued that it was entitled to the input tax claim undersection 17(1) and (2) of the VAT Act because a person who makes transactions in respect of which VAT is deductible should be allowed the input VAT in respect of the goods and services acquired by him as provided for under the VAT Act, provided that such goods or services have a direct and immediate link with the output transactions in respect of which the VAT is deductible.

18. It posited that the fact that the Respondent has not contested that it provided all documents required means that it had complied with the VAT input claim requirement under section 17(3) of the VAT Act.

19. The appellant cited the case of ManginvInland Revenue Commissioner (1971) AC 739: where Lord Donovan stated that:“The words are to be given their ordinary meanings. They are not to be given some other meaning simply because their object is to frustrate legitimate tax avoidance devices.”

20. That the meaning of the foregoing is that if the law provides a clear definition of “ What is allowable and not allowable”, then the Respondent has no power to infer a meaning on the same to cause an ambiguity that injures the taxpayer.

21. It also cited the case of Gokals Kenya LimitedvCommissioner for Domestic TaxesTAT No 126 of 2018 eKLR, where it was held that the Respondent erred in disallowing the Appellant’s claim of input tax deduction by failing to identify who the traders were neither did it provide any evidence to support its claim that these traders were not registered.

22. The appellant submitted that its objection was in conformity with the law because:a.It had provided all relevant documents pursuant to section 51(3) (c) of the Tax Procedures Act, 2015. b.The taxation process and the review process were not consultative in line with the principles of administrative of justice enshrined in article 47 of the Constitution of Kenya.c.It contravened section 51(3) and (4) of the Tax Procedures Act, 2015.

23. The appellant relied on the following cases to support the foregoing assertions:a.Republic v National Land Commission & 2 other Ex-parte Archdiocese of Nairobi Kenya Registered Trustees (St Joseph Mukasa Catholic Church Kahawa West (2018) eKLRb.Republic v Kenya Revenue Authority Exparte Yaya Towers Limited [2008] eKLR,c.Mungangia Tea FActory Company Limited &othersvCommissioner of Domestic taxes[2020] eKLRd.Westminster Corporation v London and Northwestern rail Co.[1905] AC 426e.Highlands Mineral Water LimitedvCommissioner of Domestic taxes, tax Appeal No. E026 of 2020.

Appellant’s Prayer 24. The appellant’s prayer to the Tribunal was for the following orders:a.To set aside the additional assessment amount on the basis of incorrect interpretation of Law and fact by the respondent.b.That the respondent’s confirmed assessments be set aside .c.That the Appellant has at all times adhered to the relevant tax legislation.

Respondent’s Case 25. The respondent’s case was premised on its Statement of Facts filed on the 9th of May 2022 and written submissions filed on the 23rd of November 2022.

26. The appellant argued that:a.Section 24 (1) & (2) of the Tax Procedures Act provides that the Commissioner is not bound by the information provided therein and can assess the tax liability based on any other available information.b.The appellant’s objection was filed outside the statutory period prescribed undersection 51(2) of theTPA.c.Two of the appellant’s late objection were irregularly allowed and assessments vacated on the 10th of March 2022. d.The respondent rejected the late objection on the 22nd of March 2022.

27. The respondent contended that to date, the appellant has never provided the evidence of sickness which caused it to file a late objection. In its view the allegation of having been prevented by the Covid-19 pandemic from complying with the statutory time limits was unsupported and cannot be a magic wand, in having the late objection allowed.

28. It stated that it should not allow the appellant to take advantage of the two late objections irregularly accepted and assessments vacated in the system.

29. It submitted further that the appellant has failed to discharge its burden of proof under section 56(1) of the TPA, hence no basis whatsoever to fault the respondent.

30. That the Tribunal should further be guided by section 56 (1) of the TPA which has placed the burden on the taxpayer to prove that a tax decision is incorrect as was reiterated in the cases of:a.PearsonvBelcher CH.M Inspector of Taxes) Tax Cases Volume 38 referred to by Justice DS Majanja in PZ Cussons East Africa LimitedvKenya Revenue Authority(2013) eKLRb.Primarosa Flowers Ltd v Respondent of Domestic taxes[2019] eKLR,c.Nairobi TAT Appeal No 55 of 2018- Boleyn International LimitedvCommissioner of Investigation and Enforcement Respondent’s Prayer

31. The respondent prayed for orders that:a.The Appeal be dismissed with costs.b.The Objection decision dated March 22, 2022 be upheld.

Issues For Determination 32. The Tribunal having gone through the parties’ pleadings and submissions determined the following as the issues that present themselves for determination in this matter.a.Whether the respondent’s objection decision is valid and regularb.Whether the Respondent’s tax assessment is justified.

Analysis And Determination(a)Whether therespondent’s objection decision is valid and regular

33. Section 51(7) of the TPA provides as follows with regard to late notices of objection:-“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.”

34. It is clear from the above that absence from Kenya, sickness and any reasonable cause is a justifiable and legal reason for seeking to file an objection late. The Commissioner is thus behooved to consider an application for late objection that has raised one of these three reasons as the main cause for the filing of a late objection.

35. In the present Appeal, the appellant raised the valid reason of sickness as the main cause for filing the objection late. It thus follows that once it received this application, it ought to have requested for the evidence of sickness if it was in doubt that the appellant had indeed suffered a Covid-19 attack. Otherwise it was bound by the law to admit the late objection if it was not in doubt that the Appellant’s sickness had restrained it from complying with the statutory objection deadlines.

36. At the very least, the respondent ought to have shared details of any communication it sent the appellant requesting for evidence of sickness. In the absence of such a request, then it meant that the Commissioner was not disputing the appellant’s excuse for filing the objection late. In other words, the Commissioner would be presumed to have acceded to theappellant’s reasons for filing the objection late if it does not ask for documents to verify and or confirm that theappellant was indeed unwell.

37. The respondent, therefore pushed itself into a situation where it had to allow the appellant’s objection unless it could provide other reasons or explanation on why its discretion could not be exercised in favour of the appellant. Such a reason was not provided.

38. The foregoing aside, the respondent led itself into a cul-de-sac in this matter. By its own admission, it confirmed that it allowed 2 out of 4 of the appellant’s late objections and thereafter proceeded to vacate the assessments in relation to these two accepted late objections from its iTax system.

39. It then proceeded to issue an invalidation objection decision dated the March 22, 2022where it invalidated all the 4 objections. Unprocedurally the Commissioner did not withdraw and or refer to these previous admitted objections in this letter. This left the appellant with a situation where its application for late objection had been allowed and disallowed at the same time.

40. However, upon realization of its mistake, the Respondent stated in its submissions that the iTax system allowed the late objection and vacated the assessments related to those two objections irregularly.

41. It is trite that evidence can never be submitted through submissions. Submissions simply concretize and focus on each side’s case with a view to win the court’s decision that way. Submissions are not evidence on which a case is decided.The Court of Appeal affirmed this position in Avenue Car Hire &another vs. Slipha Wanjiru Muthegu Civil Appeal No. 302 of 1997 when it held that no judgments can be based on written submissions and that such a judgments is a nullity since written submissions are not a mode of receiving evidence.

42. This decision of the Court of Appeal is true to date and was recently adopted by Justice Odunga (as he then was) in Robert Ngande Kathathi v Francis Kivuva Kitonde [2020] eKLR, when he held that in legal proceedings, evidence ought not to be introduced by way of submissions. As was held by Mwera, J (as he then was) in Erastus Wade Opande v Kenya Revenue Authority &another Kisumu HCCA No 46 of 2007.

43. The foregoing directions by the superior courts make it clear that attempts by the Respondent to assert that the Appellant’s objection was allowed in error amounts to introducing evidence by way of submission, this is not sustainable in law.

44. Having dismissed the Respondent’s illegal attempt to withdraw an objection that it had granted, it follows that the Appellant’s objections had been allowed and deemed valid by the Commissioner. The Respondent could thus not be allowed to withdraw a valid objection by way of Counsel’s submission or a letter.

45. In the present circumstances, the only thing left for the respondent would have been to issue an objection decision under section 51(8) and (9) of the TPA. The decision to issue an invalidation notice undersection 51(7) TPA through a letter dated March 22, 2022 was thus an unlawful Action in the present circumstances.

46. In the premises, the only order that commends itself to the Tribunal is that the letter dated the 22nd of March 2022 declining the Applicant’s request for extension of time is irregular and invalid.b.Whether the respondent’s tax assessment is justififed.

47. Having held that the respondent’s letter dated March 22, 2002is invalid and unlawful, there is nothing left for the Tribunal to determine under this issue.

Final Decision 48. On the basis of the foregoing analysis the Tribunal finds that the Appeal is merited and accordingly proceeds to make the following Orders: -a.The Appeal be and is hereby upheld.b.The respondent’s letter dated March 22, 2002 be and is hereby set aside.c.Each party to bear its own costs.

49. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 10TH DAY OF FEBRUARY, 2023. ROBERT MUGAMBICHAIRPERSON.................EDWIN CHELUGETMEMBER.................RODNEY OLUOCHMEMBER.................ELISHAH NJERUMEMBER.................DELILAH NGALAMEMBER