[2024] KETAT 1649 (KLR)

Presto Business Group Limited v Commissioner of Domestic Taxes (Tax Appeal E863 of 2023) [2024] KETAT 1649 (KLR) (Commercial and Tax) (21 November 2024) (Judgment)

Neutral citation: [2024] KETAT 1649 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal E863 of 2023

CA Muga, Chair, BK Terer, EN Njeru, E Ng'ang'a & SS Ololchike, Members

November 21, 2024

Between

Presto Business Group Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya and operates as a networking company.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws (hereinafter “Act”). Under Section 5 (1) of the Act, the Kenya Revenue Authority 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 the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. Upon conducting a compliance check against the Appellant for the month of September 2021 and April 2022, the Respondent issued the Appellant with principal VAT assessment totaling Ksh 23,465,634. 00 on 23rd December 2022.

4. The Appellant lodged its notice of objection through iTax on 12th October 2023 accompanied with a request for extension of time to lodge an objection late which was acknowledged by the Respondent on the same date. This was followed by Respondent’s electronic mail of 23rd October 2023 rejecting the Appellant’s application for late objection.

5. The Appellant in a further letter dated 24th October 2023 and sent on electronic mail similarly prayed to be allowed to file their objection late. However, on 25th October 2023, the Respondent rejected the Appellant’s request for extension of time to lodge an objection late instead confirmed the additional VAT assessment as earlier issued.

6. Aggrieved by the Respondent’s decision dated 25th October 2023, the Appellant filed its notice of appeal dated 15th November 2023 on 29th November 2023, at the Tribunal.

The Appeal 7. The Appeal was founded upon the following grounds as laid-out in the Memorandum of Appeal dated 25th October 2023 and filed on 29th November 2023. i.That the Respondent erred in law and in fact by failing to consider supporting documentation provided by the Appellant.ii.That the Respondent erred in law and in fact by assessing and confirming VAT without taking into consideration the expenses that were incurred in the accounting period.

Appellant’s Case 8. The Appellant’s Statement of Facts were dated 15th November 2023 and filed on 29th November 2023.

9. It was the Appellant’s case that the VAT variance was as a result of VAT declaration which the Appellant cleared and availed all supporting documents.

10. The Appellant averred that the taxes in dispute were for the month of September 2021 totaling Ksh 13,793,103. 00 and for the month of April 2022 totaling Ksh 9,672,531. 00.

11. The Appellant stated that the tax charged at 16% of income made for the period was punitive and unfair as it was made without considering expenses incurred for the period. It was the Appellant’s case that the Respondent’s attempt to deny that supporting documentation was not availed was an attempt to deny the Appellant its rightful expenses claim.

Appellant’s Prayer 12. The Appellant’s prayed for the following reliefs:a.That the Tribunal annuls and sets aside in its entirety the Respondent’s objection decision dated 25th October 2023. b.That the Tribunal allows the Appeal with costs.c.Any other orders that the Tribunal may deem fit.

The Respondent’s Case 13. In response, the Respondent relied on its statement of facts dated and filed on 5th January 2024.

14. The Respondent averred that its compliance check was based on undeclared VAT having identified that the Appellant was issued with withholding VAT tax certificates which it failed to declare the corresponding gross turnover in its returns for the period.

15. The Respondent averred that the Appellant traded with the County Government of Mandera which withheld 2% yet the Appellant failed to declare the sales in full.

16. The Respondent sought to address the following as issues for determination in defending its position;

Whether the Appeal before the Tribunal was validly lodged 17. Citing Section 13(3) and (4) of the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”), the Respondent averred that the Appeal herein was improperly before it the same having been filed without the Appellant first seeking leave from the Tribunal to file it since it had been filed outside the statutory timeframe of 30 days. Therefore, it was the Respondent’s case that the Appeal was incompetent and ought to be struck out for failing to comply with the mandatory provisions of the law.

Whether the Respondent’s decision to reject the Appellant’s late objection was justified. 18. The Respondent stated that the Appellant in the present case failed to provide reasons that occasioned their objection to the VAT assessment of 9 months as provided for under Section 51(2) of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter”TPA”) yet the procedure for seeking extension of time to object beyond the prescribed 30 days is clearly set out under Section 51(6) and (7) of the TPA. That there were two specific stages for granting of extension of time to lodge an objection late, one was determining whether there was proof of reason stated and the second was that the proved reason was actually what prevented a taxpayer from lodging the notice of objection.

19. It was the Respondent’s case that the Appellant failed to provide reason and documents as evidence to support their claim of lodging the objection late.

Whether the additional assessments were legally justified 20. The Respondent stated that it issued the VAT assessments based on available information which was not contradicted by the Appellant whose withholding tax certificates remained uncancelled and were still credits in its ledger. It was the Respondent’s assertion that the Appellant failed to discharge its burden of proof as required by Section 56(1) of the TPA as read together with Section 30 of TATA.

Whether the Appellant discharged burden of proof 21. It was the Respondent’s case that it rendered a decision that was legally and procedurally sound after the Appellant squandered its opportunity to present its case by way of documentary evidence at the objection stage yet Section 51(3)(c) of the TPA an Section 30 of TATA require the Appellant to provide all necessary evidence in support of its objection. The Respondent asserted that the Appellant failed to adduce evidence challenging the Respondent’s decision as couched under Section 56(1) of the TPA.

Respondent’s Prayer 22. The Respondent made the following prayers to the Tribunal:i.That the Tribunal finds that the Respondent’s decision to reject the late objection and the consequent demand for tax liability of Ksh 23,465,634. 00 as proper in law and in conformity with the VAT Act and the TPA.ii.That the Tribunal finds the Appeal devoid of merit and dismiss the same with costs to the Respondent.

Parties’ Written Submissions 23. The Appellant did not file any submissions despite having been granted additional time to do so by the Tribunal on 10th July 2024. The Respondent’s written submissions dated 26th June 2024 were filed on 27th June 2024 wherein the Respondent submitted on exactly similar issues for determination as argued in its statement of facts. The Tribunal will not rehash the same.

Issues For Determination 24. The Tribunal having carefully considered the parties’ pleadings, documentation and the Respondent’s written submissions finds that two issues arise for its determination as follows:i.Whether the Appeal is properly before the Tribunal.ii.Whether the Respondent’s decision to reject the Appellant’s late objection was justified.

Analysis And Findings 25. The Tribunal having established two issues for determination will proceed to analyze them as follows:

Whether the Appeal is properly before the Tribunal. 26. The origin of the dispute was a compliance audit of the Appellant which resulted in a principal VAT assessment in respect of the month of September 2021 and April 2022 of Ksh 23,465,634. 00. The Appellant was categorical that it adduced documentation and records that properly explained the inconsistencies raised, whilst the Respondent was of the firm view that the Appellant’s evidence was not sufficient to defray the tax liability as assessed. Although the Appellant stated that the tax charged at 16% of income was punitive and unfair and was made without considering the allowable expenses, the Respondent asserted that the decision was arrived at based on available information and was legally and procedurally sound.

27. The Tribunal notes the Respondent’s assertion that there were uncancelled withholding tax certificates and hanging credits in Appellant’s ledger that did not have corresponding gross turnover returns for the period, This Appellant did not controvert this assertion but clung to its averment that it adduced documentary evidence explaining away the inconsistency raised by the Respondent. In addition, the Appellant did not contest the assertion by the Respondent that it failed to declare its sales in full having traded with the County Government of Mandera which withheld 2%.

28. The Tribunal notes the issues in the dispute as raised by parties notwithstanding, the fact that the chronology of events leading to the instant Appeal raise legal procedural technicalities. The Tribunal also that upon receiving the objection decision dated 25th October 2023, the Appellant had up to 25th November 2023 to lodge its notice of appeal pursuant to the provisions of Section 51(12) of the TPA. Instead the Appellant lodged its Appeal on 29th November 2023 and was 4 days late. The Appellant did not bother to seek the remedy of seeking the leave of the Tribunal to lodge its Appeal late contrary to Section 13(3) of the TATA which provides as follows:“(3)the Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).”

29. The Tribunal notes the following holding of the Supreme Court in Petition No. 5 of 2013, Raila Odinga versus Independent Electoral and Boundaries Commission & Others [2013] eKLR:“Our attention has repeatedly been drawn to the provisions of Article 159(2)(d) of the Constitution which obliges a court of law to administer justice without undue regard to procedural technicalities. The operative words are the ones we have rendered in bold. The Article simply means that a court of law should not pay undue attention to procedural requirements at the expense of substantive justice. It was never meant to oust the obligation of litigants to comply with procedural imperatives as they seek justice from courts of law. In the instant matter before us, we do not think that our insistence that parties adhere to the constitutionally decreed timelines amounts to paying undue regard to procedural technicalities. As a matter of fact, if the timelines amount to a procedural technicality it is a constitutionally mandated technicality.”

30. The Tribunal also notes the opinion of J Mativo in Equity Holdings Ltd vs Commissioner of Domestic Taxes Civil Appeal E069 and E025 of 2020(2021) KEHC 25(KLR) that express statutory edicts are not procedural technicalities and that further, Article 159 (2) (d) of the Constitution was not meant to oust express statutory provisions and to open a window for disregard of statutory requirements.

31. The Tribunal’s view is that it is settled law that statutory timelines are not a procedural technicality. The statutory timelines are set in mandatory terms. The Tribunal associates with the holding in the case of Commissioner of Domestic Taxes vs. Lifecare International Brokers Limited [2020] eKLR, where Majanja J observed the following:“Failure to file an appeal within time and without complying with statutory conditions is not a mere technicality that can be overlooked, it goes to the competence of the appeal. Counsel for the Appellant valiantly addressed the court on why the court should validate the appeal. The issues raised are factual issues that call for the court to exercise its discretion and can only be addressed in an appropriate application which is not before the court.”

32. Accordingly, the Tribunal finds that the Appeal herein was improperly brought before it and is available for striking out.

33. The Tribunal will not delve into the second issue identified for determination as the same has been rendered moot.

Final Decision 34. The upshot of the foregoing is that the Appeal herein fails and accordingly the Tribunal proceeds to make the following Orders:a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

35. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 21ST DAY OF NOVEMBER, 2024. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A - MEMBEROLOLCHIKE S. SPENCER - MEMBER