[2024] KETAT 446 (KLR)

Peak Choice Limited v Commissioner of Domestic Taxes (Tax Appeal 1577 of 2022) [2024] KETAT 446 (KLR) (19 April 2024) (Judgment)

Neutral citation: [2024] KETAT 446 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1577 of 2022

CA Muga, Chair, BK Terer, D.K Ngala, SS Ololchike & GA Kashindi, Members

April 19, 2024

Between

Peak Choice Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company whose principal activity is in professional, scientific and technical activities. The Appellant is a registered taxpayer.

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

3. The Respondent issued additional assessments for VAT amounting to Kshs 2,508,000. 00 for the month of July 2022 through assessment order dated 26th October 2022. The Appellant objected to the additional VAT assessment through i-Tax and through the notice of objection dated 10th November 2022.

4. The Respondent rejected the notice of objection and issued a confirmation of assessment notice dated 25th November 2022.

5. The Appellant being aggrieved by the Respondent's decision filed its Notice of Appeal before the Tribunal on 28th December, 2022.

DIVISION -- THE APPEAL 6. The Appellant through its Memorandum of Appeal dated 23rd December 2022 and filed on 28th December 2022, raised the following grounds of the appeal:-i.That the Respondent erred in law and fact by issuing the decision dated 24th November 2022 against July 2022 VAT assessments on the grounds that the Appellant failed to avail the documentary evidence to support the case.ii.That all the relevant documentations are available and all explanation relating to the same could be shared for the Respondent's review and input.iii.That Appellant believes that the matter could have been rectified at the objection stage if they could have been given a fair and just hearing and considering the substance of the objection.iv.That the Respondent erred in law and fact by disallowing the Appellant's purchases declared in the VAT returns for the months of July 2022 that resulted to incremental tax.v.That the Respondent erred in law and in fact by going against Section 17 of the Value Added Tax Act, No. 35 of 2013 (hereinafter ‘VAT Act’) which provides as follows:“If, at the time when a deduction for input tax would otherwise be allowable under subsection (1) - a) The person does not hold the documentation referred to in subsection (3), or b) the registered supplier has not declared the sales invoice in return the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentationProvided 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.”vi.That the supplier in question amended their returns and declared the sales but the Commissioner still went ahead and disallowed the Appellant’s valid inputs.vii.That the Appellant claimed input tax correctly as per Section 17(1) of the VAT Act.viii.That all the invoices claimed were proper tax invoices as required under VAT Tax Regulations 2017, Regulation No.9 which describes the features of a valid tax invoice.ix.That the Appellant’s also not required under any tax law to ensure that its suppliers correctly declare the corresponding output VAT for its input VAT to be validated.x.That the VAT input is valid and can be fully supported.xi.That the assessments are excessive, unfair and contrary to the provisions of VAT Act.xii.That the Appellant is willing and ready to provide all the relevant supporting documents for review and maintain a good relationship with the Respondent.xiii.That it is in the interest of justice and the rules of natural justice that this Tribunal grants the Appellant given an opportunity to properly file its Notice of Appeal, Memorandum of Appeal and Statement of Facts as chances of its success are overwhelming.

APPELLANT’S CASE 7. In support of the Appeal, the Appellant lodged a Statement of Facts dated 23rd December 2022 and filed on 28th December 2022. The Appellant’s submissions are not on record. Therefore, the Tribunal relies on the Appellant’s Statement of Facts.

8. The Appellant stated that on 26th October 2022, the Respondent issued the VAT additional assessments for the month of July 2022 amounting to Kshs 2,508,000 which the Appellant objected to on 10th November 2022.

9. The Appellant stated that on November 2022, the Respondent rejected the Appellant’s objection without giving the Appellant time to provide the relevant clarifications or documentations which the Appellant has to prove its case.

10. The Appellant stated that all the relevant documentations are available and all explanation relating to the same can be shared for the Respondent's review and input.

Appellant’s Prayers 11. The Appellant prayed that the Appeal be allowed and the Respondent’s assessments be set aside.

RESPONDENT’S CASE 12. In response to the Appeal, the Respondent filed its Statement of Facts dated 30th January 2023 on 31st January 2023. The Respondent in addition filed written submissions dated 9th September 2023 on 11th September 2023.

13. According to the Respondent, the dispute arose due to disallowed input Value Added Tax. The Appellant was among taxpayers who were over claiming purchases and a directive was issued to the Respondent to disallow the inputs claimed from their returns. The Respondent then issued additional assessments for VAT dated 26th October 2022 to which the Respondent filed its objection on 10th November 2022.

14. The Respondent stated that it requested the Appellant to provide the grounds of Objection and all relevant documents relating to the objection for review as per Section 51 (3) of the Tax Procedures Act No. 29 of 2015 (hereinafter ‘TPA’). According to the Respondent, the Appellant failed to comply by providing necessary documents therefore, the Respondent issued invalidation notice.

15. The Respondent stated that since the Appellant failed to provide relevant documents, the Respondent rejected the objection application on 24th November 2022 and issued a confirmation assessment notice dated 25th November 2022.

16. The Respondent stated that Section 24 of the TPA allows a taxpayer to submit tax returns in the approved form and manner prescribed by the Respondent but the Respondent is not bound by the information provided therein and can assess for additional taxes based on any other available information.

17. The Respondent averred the Appellant made an application for input VAT which upon review was found to be invalid for reasons that the Appellant's suppliers had not declared from their end which is a mandatory requirement for a claim of Input VAT pursuant to Section 17(2)(b) of the VAT Act.

18. The Respondent states that according to the law, one can only successfully claim for input VAT when the supplier declares its supply on its returns which was not the case in the Appeal herein.

19. The Respondent stated that the Appellant failed to comply with the provisions of Section 17(1), (2) & (3) of the VAT Act therefore, issued a notice confirming the assessment.

20. The Respondent submitted that the additional VAT assessments were issued to disallow the input VAT claimed by the Appellant on various over claimed purchases of suppliers. The Respondent relied on Section 17 (1) (2) and (3) of the VAT Act which provides that:-“(1)Subject to the provisions of this Act and the regulations, input tax on a taxable supply to, or importation made by, a registered person may, at the end of the tax period in which the supply or importation occurred, be deducted by the registered person in a return for the period, subject to the exceptions provided under this section, from the tax payable by the person on supplies by him in that tax period, but only to the extent that the supply or importation was acquired to make taxable supplies.(2)If, at the time when a deduction for input tax would otherwise be allowable under subsection (1)—(a)the person does not hold the documentation referred to in subsection (3), or(b)the registered supplier has not declared the sales invoice in a return, 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.(3)The documentation for the purposes of subsection (2) shall be—(a)an original tax invoice issued for the supply or a certified copy;(b)a customs entry duly certified by the proper officer and a receipt for the payment of tax;(c)a customs receipt and a certificate signed by the proper officer stating the amount of tax paid, in the case of goods purchased from a customs auction.”

21. The Respondent submitted that the Appellant over claimed purchases and failed to provide documentation to prove the claim for deduction of input VAT.

22. The Respondent relied on Section 51(3) (c) of the TPA which provides as follows:“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if-(a)the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments;(b)in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(:1. ); and(c)all the relevant documents relating to the objection have been submitted."

23. Consequently, the Respondent submitted that the Appellant failed to furnish the Respondent with all the necessary documents supporting its grounds for objection.

24. Finally, the Respondent relied on Section 59 (1) of the TPA which provides as follows:“(1)For the purposes of obtaining full information in respect of the tax liability of any person or class of persons, or for any other purposes relating to a tax law, the Commissioner or an authorized officer may require any person, by notice in writing, to-(a)produce for examination, at such time and place as may be specified in the notice, any documents (including in electronic format) that are in the person's custody or under the person's control relating to the tax liability of any person;(b)furnish information relating to the tax liability of any person in the manner and by the time as specified in the notice; or(c)attend, at the time and place specified in the notice, for the purpose of giving evidence in respect of any matter or transaction appearing to be relevant to the tax liability of any person.”

25. Consequently, the Respondent submitted that the Appellant failed to prove its case.

Respondent’s Prayers 26. The Respondent prayed that the Tribunal would uphold its assessment and objection decision issued on 24th November, 2022 and 25th November 2022. The Respondent also requested the Tribunal to dismiss the Appeal with costs to it.

ISSUES FOR DETERMINATION 27. The Tribunal having considered the parties pleadings, documents and submissions puts forth a single issue for determination as follows:Whether the Respondent erred in invalidating the notice of objection under Section 51(4) of the TPA.

ANALYSIS AND FINDINGS 28. The Tribunal wishes to analyse the issues as hereunder:

29. The Tribunal notes the Appellant’s argument that the Respondent erred in law and fact by issuing the decision dated 24th November 2022 against July 2022 VAT assessments on the grounds that the Appellant failed to avail the documentary evidence to support the case. The Appellant also argued that the Respondent invalidated the objection before receiving the Appellant’s documents yet all the relevant documentation were available and all explanation relating to the same could be shared for the Respondent's review and input.

30. The Tribunal notes the Respondent’s argument that the Appellant failed to provide documents in support of the notice of objection even after request therefore, the notice of objection was invalidated and the assessments confirmed. It is therefore, necessary to establish whether the Respondent followed the provisions of the law while invalidating the notice of objection.

31. The Tribunal observes that whereas the Appellant did not file written submissions, the Respondent filed its and submitted that the Appellant failed to provide documents in support of the notice of objection which was contrary to the requirements under Section 17 of the VAT Act. The Respondent also submitted that the Appellant failed to furnish all the necessary documents to support grounds for its objection. The Respondent submitted that this was contrary to Section 51(3)(c) of the TPA.

32. The Tribunal has analysed all facts in issue and notes that the Respondent issued the assessment dated 26th October 2022. The Appellant lodged an objection to the assessments which the Respondent acknowledged receipt vide an objection acknowledgement receipt dated 10th November 2022. The Tribunal has also examined the letter dated 24th November 2022 from the Respondent to the Appellant wherein the Respondent stated that it issued the Appellant with letters dated 15th November 2022, 21st November 2022 and 23rd November 2022 advising the Appellant to validate the objection application.

33. Its worthy to note that the Respondent did not file letters dated 15th November 2022, 21st November 2022 and 23rd November 2022. The Tribunal cannot analyse the contents of the said letters as they were not adduced as evidence. The Tribunal will therefore examine the letter dated 24th November 2022 pursuant to the provisions of the law.

34. Since laws do not apply retroactively unless the statute expressly provides so, Section 51 (4) of the TPA as amended by Section 44(a) of the Finance Act No. 22 of 2022 is the applicable law to the assessments in issue.

35. Section 51(4) of the TPA upon amendment through the Finance Act No. 22 of 2022 provided as follows:“Where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall within a period of fourteen days notify the taxpayer in writing that the objection has not been validly lodged.”

36. The principle in Cape Brandy Syndicate v Inland Revenue Commissioners [1921] KB 64 requires that tax statutes must be construed strictly. In the case of Kakiwood Limited v Commissioner of Investigations and Enforcement (Tax Appeal 617 of 2022) [2023] KETAT 526 (KLR), this Tribunal observed as follows with regard Section 51(4) when it was confronted with a similar problem:“Section 51(4) of the Tax Procedures Act directs the Respondent on the next course of action after determining that a taxpayer’s notice of objection is invalid. It provides as follows: “Where the Commissioner has determined that a Notice of Objection lodged by a taxpayer has not been validly lodged, the Commissioner shall within a period of fourteen days notify the taxpayer in writing that the objection has not been validly lodged.From the documentation availed, the appellant objected to the respondent’s demand on January 13 2022. The respondent therefore had up to January 27, 2022 to invalidate the appellant’s Objection if it deemed it to have contravened the provisions of section 51 (3) of the TPA. The Tribunal has observed that the respondent replied to the appellant’s letter of 13th January, 2022 vide its letter dated March 25, 2022. This was more than fifty (50) days outside the statutory timelines of issuing a notice of invalidation.”

37. The Appellant lodged an objection to the assessments which the Respondent acknowledged receipt vide objection acknowledgement receipt dated 10th November 2022. Since tax statutes must be construed strictly as was held in Cape Brandy Syndicate v Inland Revenue Commissioners [1921] KB 64, the Tribunal therefore, finds that Respondent issued the letter dated 24th November 2022 within the timelines under Section 51(4) of the TPA as amended by the Finance Act No. 22 of 2022.

38. The Tribunal has found that upon issuing notice of invalidation, the Respondent invalidated the objection on 25th November 2022 vide confirmation assessment notice dated 25th November 2022. The Tribunal is unable to find fault in this letter because the Respondent was discharging its mandate.

39. The Tribunal notes that Appellant has the burden of proving that the Respondent’s decision is wrong pursuant to Section 56(1) of the TPA. The Tribunal cites the case of Digital Box Limited v Commissioner of domestic investigations and Enforcement [2020] in which it was affirmed that the burden of proving that the Commissioner’s decision is wrong is that of the taxpayer. The Tribunal is of the respective view that the Appellant failed to discharge its burden of proof.

40. Consequently, the Tribunal finds and holds that the Respondent did not err in invalidating the notice of objection through the confirmation assessment dated 25th November 2022.

FINAL DECISION 41. The upshot to the foregoing is that the Appeal lacks merit. Consequently, the Tribunal makes the following Orders:a.The Appeal is hereby dismissed;b.The Confirmation of assessment notice dated 25th November 2022 is hereby upheld; andc.Each party to bear its own costs.

42. It is so ordered.

DATED and DELIVERED at NAIROBI this 19th Day of April, 2024CHRISTINE A. MUGACHAIRPERSONBONIFACE K. TERER DELILAH K. NGALAMEMBER MEMBERSPENCER S. OLOLCHIKE GEORGE KASHINDIMEMBER MEMBERJUDGMENT APPEAL NO. 1577 OF 2022 -PEAKCHOICE LIMITED vs. COMMISSIONER OF DOMESTIC TAXES Page 14