[2024] KETAT 275 (KLR)

Prinisa Trading Company Ltd v Commissioner of Domestic Taxes (Tax Appeal 1061 of 2022) [2024] KETAT 275 (KLR) (23 February 2024) (Judgment)

Neutral citation: [2024] KETAT 275 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1061 of 2022

Grace Mukuha, Chair, W Ongeti, G Ogaga, E Komolo & Jephthah Njagi, Members

February 23, 2024

Between

Prinisa Trading Company Ltd

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya and conducting business within the Republic.

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

3. The Respondent conducted an additional assessment for VAT on the Appellant for various months being July 2015, March 2016-December 2016, February 2017, February 2018-October 2018, March 2019-December 2019, January 2020-December, 2020, and January 2021, and posted the same on the Appellant’s ITax ledger.

4. Dissatisfied with the Respondent’s decision, the Appellant filed this Appeal through a Notice of Appeal on 22nd September 2022.

The Appeal 5. The Appeal is premised on the following grounds listed in the Memorandum of Appeal dated 26th September 2022 and filed on 27th September 2022:-a.That the VAT liabilities appearing on the Appellant’s ledger are erroneous.b.That the VAT liabilities are as a result of VAT adjustments not effected in the Respondent’s iTax system after the Appellant withdrew the tax refund applied of 3,806,171. 00. c.That the Appellant has on several occasions tried to resolve the matter with the tax station, but efforts have been futile.

The Appellant’s Case 6. The Appellant’s case was premised on its:-a.Statement of Facts dated 26th September 2022 and filed on 27th September 2022. b.Written Submissions dated 15th March 2023 and filed on 16th March 2023.

7. The Appellant stated that it applied for a tax refund of Kshs. 3,806,171. 00 in the month of September 2011.

8. That in the month of February 2015, the Appellant requested the Respondent’s centralized refund unit for withdrawal of the tax refund to utilize the VAT credits in the subsequent months which was approved.

9. The Appellant averred that it came to know that later the adjustments were not done in the system when applying for the Tax Compliance Certificate in the month of August 2022, hence the outstanding liabilities in the ledger.

10. The Appellant submitted that it wrote to the Respondent on 11th October 2022 furnishing it with relevant documents and on 14th October 2022 providing additional documents.

11. On whether the notice of objection by the Appellant was validly lodged as per Section 51(3) of the Tax Procedures Act, the Appellant submitted that there is no specific format that the notice of objection should conform with, other than comprising of requirements under Sections 51(2) of the TPA.

12. It relied on the case of Republic V Kenya Revenue Authority Ex Parte M-Kopa Kenya Limited (2018) eKLR wherein Lady Justice Nyamweya stated that;“106. 106. In my view, since there is no format for making an objection, what is required is the substance rather than the form. What the law frowns at is an objection that is framed in such an ambiguous manner as not to be certain whether the taxpayer is seeking further particulars or indulgence to enable it pay the taxes demanded. In this case the applicant had clearly made what was in substance an objection as envisioned under section 51 of the Tax Procedures Act”

13. The Appellant therefore argued that its notice of objection substantially covered essentials as provided under the law. It further alleged that it furnished the Respondent with additional information on 13th October 2022 and wrote a reminder letter on 11th February 2023.

14. The Appellant submitted that having lodged a request for ledger reconciliation on 20th May 2021, it was incumbent upon the Respondent to notify it of the status of the ledger reconciliation. The Appellant insisted that the said invalidation notice was issued way after 30 days statutory period allowable for the Appellant to rectify any issues that the Respondent may have had with the objection, effectively locking out the Appellant from rectifying any issues over its objection thus violating the Appellant’s right to fair administrative action.

15. The Appellant alleged that in its application for late objection indicated that it didn’t have access to its iTax account having forgotten its iTax password and password to the email and only came to learn of the assessments after a change of the said iTax password and email address.

16. The Appellant therefore invited the Tribunal to refer the matter back to the Respondent for reconsideration.

17. On whether the Objection decision issued by the Respondent was validly lodged as per Section 51(3) of the Tax Procedures Act, the Appellant submitted that even if the notice of objection was not validly lodged as anticipated in Section 51 (3) of the TPA the Respondent was still under duty to render its objection within 60 days, for the reason that Section 51(11) of the TPA does not contemplate an objection decision to be based solely on a validly lodged Objection.

18. The Appellant insisted that the contents of the alleged Objection decision does not meet the threshold of the law citing Section 51(10) of TPA which provides that:“An objection decision shall include a statement of findings on the material facts and reasons for the decision.”

19. The Appellant prayed that the Tribunal find the said decision to have failed to meet the threshold required and thus null and void.

The Appellant’s prayers 20. The Appellant consequently prayed that the Tribunal directs the Respondent to vacate the VAT tax liabilities appearing on its iTax ledger and issue it with a Tax Compliance Certificate.

The Respondent’s Case 21. The Respondent’s case is premised on;a.Respondent’s Statement of Facts dated 24th October 2022 and filed on 25th October 2022. b.Respondent’s written submissions dated and filed on 6th April 2023.

22. The Respondent refuted every allegation by the Appellant and pleaded that the Appellant had not objected to the VAT liabilities on its iTax ledger and as such therefore the Tribunal lacks requisite jurisdiction to entertain the appeal.

23. The Respondent insisted that the Appeal contravenes the provisions of Sections 50 (4) and 51 of the Tax Procedures Act which mandates a taxpayer to object to the tax decision at this first instance when they are aggrieved by a tax decision.

24. The Respondent stated that without prejudice to the foregoing, pursuant to the provisions of Section 24 (2) of the Tax Procedures Act it is allowed to assess a taxpayer’s liability using any information available and it therefore operated within the confines of the law to arrive at the assessment of the VAT liabilities appearing on the Appellant’s iTax ledger for the contested period.

25. On whether the Tribunal has jurisdiction to hear and determine the Appeal the Respondent submitted that the Appellant has not demonstrated by way of evidence that the Appellant lodged an objection to the Respondent subject to Section 51 of the Tax Procedures Act. It further stated that the Tribunal should not have been the first port of call of the Appellant and the Appellant failed to exhaust remedies set out in law.

26. The Respondent submitted that it did not have an opportunity to render an objection decision or review the decision before the Appellant appealed to the Tribunal and insisted that the assessed liabilities on the Appellant’s ITax ledger do not constitute an appealable decision to the Tribunal.

27. The Respondent relied on the consolidated appeal TAT No.s 335/336&337 of 2019-Mobile Galary, Andand Trading & Smart Phones V Commissioner of Investigations & Enforcement where the Tribunal held that an assessment subject to appeal did not fall within the meaning of an appealable decision as envisaged under Section 3 of the Tax Procedures Act.

28. The Respondent buttressed its submissions by relying on Owners of Motor Vessel “Lillian S” V Caltex Oil (Kenya) Ltd (1989) eKLR where the court determined that jurisdiction is everything and without it, a court must down its tools.

29. In response to the Appellant's written submissions in which it alleged to have filed an objection, the Respondent submitted that the Appellant did not present any evidence before the Tribunal. The Respondent further submitted that it is impractical and contrary to the Tax Procedures Act to lodge an objection with the Respondent after instituting proceedings at the Tribunal.

30. The Respondent also submitted that the Appellant is bound by its pleadings and that the Appellant had not indicated in its pleadings that it lodged an objection.

The Respondent’s prayers 31. The Respondent prayed that the Tribunal: -i.Dismisses the Appeal with costs.

Issues For Determination 32. Gleaning through the Memorandum of Appeal, the parties’ Statements of Facts, and submissions, the following issue emerges for the Tribunal’s determination:Whether the Tribunal is seized of jurisdiction to entertain this Appeal.

Analysis And Findings 33. The Tribunal having ascertained the issue, proceeds to analyze the issue as hereunder.

34. The Tribunal observed that the Appellant pleaded that in the month of February 2015, it requested the Respondent’s centralized refund unit for withdrawal of the tax refund to utilize the VAT credits in the subsequent months which was approved. The Appellant averred that it came to know that later the adjustments were not done in the system when applying for the Tax Compliance Certificate in the month of August 2022, hence the outstanding liabilities in the ledger.

35. The Respondent refuted every allegation by the Appellant and pleaded that the Appellant had not objected to the VAT liabilities on its iTax ledger and as such therefore the Tribunal lacks requisite jurisdiction to entertain the Appeal.

36. The Tribunal observed that the Appellant in its submissions indicated that it wrote to the Respondent on 11th October 2022 furnishing it with relevant documents and on 14th October 2022 providing additional documents. The Appellant further submitted that its notice of objection was validly lodged as per Section 51(3) of the Tax Procedures Act.

37. The Tribunal noted that in its pleadings, the Appellant on discovering the assessments on iTax during application for a tax compliance certificate proceeded to file a Notice of Appeal at the Tribunal on 22nd September 2022. The Appellant, in its bundle of documents presented to the Tribunal, did not demonstrate that it filed any notice of objection with the Respondent as alleged in its submissions. The Tribunal also observed the dates mentioned by the Appellant in its submissions that it furnished the Respondent with documents was on 11th and 14th October 2022 several days after it had filed the extant Appeal.

38. The Respondent insisted that this appeal contravenes the provisions of Sections 50 (4) and 51 of the Tax Procedures Act which mandates a taxpayer to object to the tax decision at this first instance when they are aggrieved by a tax decision.

39. The Tribunal is guided in this matter by the provisions of Section 51 of the Tax Procedures Act which provides for remedies where a taxpayer is aggrieved by a tax decision as follows;“(1)A taxpayer who wishes to dispute a tax decision shall first lodge an objection against that tax decision under this section before proceeding under any other written law.(2)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 Appellant has not demonstrated to the Tribunal that it filed a notice of objection with the Respondent and pursued the process to an appealable decision.

41. The Tribunal can only seize jurisdiction of a matter once the same is properly filed as provided for in Section 3 of the Tax Appeals Tribunal Act and Section 52 of the Tax Procedures Act which states that:“(1)A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act, 2013 (No. 40 of 2013).”

42. Pleadings and documents availed to the Tribunal point to the fact the Appellant filed the Notice of Appeal soon after discovering assessments on its iTax portal. Therefore, it is the finding of the Tribunal that the Appellant’s action was premature and not supported by law. The Appellant put the cart before the horse. It had not exhausted all remedies available to it as provided for in law before filing the same (if dissatisfied by the decision that may have emerged) with the Tribunal. In the circumstances, the Tribunal cannot have jurisdiction to hear and determine the Appeal.

43. Nyarangi JA in the case of Owners of the Motor Vessel “Lillian S” v Caltex Oil (Kenya) Ltd [1989] eKLR stated that:“Jurisdiction is everything. Without it, a court has no power to make one more step. Where a court has no jurisdiction, there would be no basis for a continuation of proceedings pending other evidence. A court of law must down tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction.”

44. The Tribunal has not hesitated to down its tools in the past when faced with a matter in which it does not have jurisdiction. In the Mazeras Kenya EPZ Limited V Commissioner of Domestic Taxes TAT 2022, the Tribunal concluded that:“The Tribunal therefore finds that it is not seized of the jurisdiction to entertain this Appeal and the Tribunal must at this point down its tools.”

45. Similarly, in TAT NO. 768 OF 2021 Thitu Trading Co Ltd V Commissioner of Domestic Taxes the Tribunal stated that:“The procedure as prescribed in the TPA is that once the taxpayer has received the tax demand and disputes the facts, he ought to lodge its notice of objection within thirty days after receipt of the same. The Commissioner is then expected to review this objection and respond within sixty days with an Objection Decision. It is upon receipt of this objection decision, and if still in dispute can the taxpayer commence the process of lodging its appeal to the Tribunal.”

46. From the account of events, it is the finding of the Tribunal that it has no jurisdiction in the extant Appeal since the Appellant failed to follow due process as there was no appealable decision from which its appeal would have been underpinned.

47. Having established that there is no appealable decision in this Appeal, the Tribunal makes the determination that this Appeal is premature and must at this point down its tools.

Final Decision 48. The upshot to the foregoing is that the Appeal is incompetent and the Tribunal consequently makes the following orders:-a.The Appeal be and is hereby struck out.b.Each Party to bear its own costs.

49. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 23RD DAY OF FEBRUARY, 2024GRACE MUKUHA - CHAIRPERSONDR. WALTER ONGETI - MEMBERGLORIA A. OGAGA - MEMBERDR. ERICK KOMOLO - MEMBERJEPHTHAH NJAGI - MEMBER