[2023] KETAT 564 (KLR)

Ramsay Limited v Commission of Legal Services & Coordination (Tribunal Appeal 1030 of 2022) [2023] KETAT 564 (KLR) (19 October 2023) (Judgment)

Neutral citation: [2023] KETAT 564 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal 1030 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, E Ng'ang'a, AK Kiprotich & B Gitari, Members

October 19, 2023

Between

Ramsay Limited

Appellant

and

Commissioner of Legal Services & Coordination

Respondent

Judgment

1. The Appellant is a limited liability Company and a registered taxpayer.

2. The Respondent is a principal officer appointed under and in accordance with 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 issued additional VAT assessments to the Appellant amounting to Kshs 13,864,861. 00 on 19th May 2022. The Appellant objected to the assessments vide a letter dated 2nd June 2022.

4. The Respondent issued its objection decision vide a letter dated 15th August 2022.

5. Being aggrieved by the objection decision, the Appellant lodged a Notice of Appeal on 20th September 2022.

The Appeal 6. The Appellant in its Memorandum of Appeal cited the following grounds:a.That the Respondent erred in law and fact by issuing additional Value Added Tax (VAT)assessments to the Appellant on 19th May 2022, for various months in the 2017 tax period. That it is important to note that at the time of the said assessment, the Appellant had been struck off the register of companies pursuant to Section 897(4) of the Companies Act No. 17 of 2015. b.That the Respondent erred in law and fact by failing to appreciate that the Appellant as an entity had ceased to exist following its dissolution and the same had been subsequently published under Gazette Notice No. 2331 of 13th March 2020. c.That the Respondent erred in law and fact by failing to appreciate that according to the law, once a company is dissolved, it no longer exists legally and as such any liability claimed by the Respondent under the assessments issued on 19th May 2022 had been overtaken by events.d.That the Respondent erred in law and fact by issuing the amended assessments for the period January to April 2017 outside the statutory limit of five years as prescribed under Section 31(6)(a) of the Tax Procedures Act 2015. e.That the Respondent erred in fact by issuing an incorrect assessment of Ksh. 1,691,185. 28 for the period December 2017. That the correct sales figure for December 2017 as per the filed VAT return was Ksh. 394,958. 00 The correct VAT figure for the month should have been Ksh. 63,193. 28. f.That the Respondent failed to appreciate that tax can only be levied on a taxable supply made by a registered "person‖ as per Section 5 of the VAT Act 2013. g.That the term 'person' has been explicitly defined under Section 3 of the Tax Procedures Act 2015 as follows;―person‖ includes an individual, company, partnership, limited partnership, association of persons, trust, National Government, foreign government, political subdivision of the National Government or foreign government, or an international organization.‖h.That the Respondent additionally erred in law and fact by failing to appreciate that a ―Company‖ is defined under Section 2 of the Companies Act No. 17 of 2015 to mean a company formed and registered under this Act or an existing company. As well, a company is also defined under the Tax Procedures Act No. 29 of 2015 to mean a company as defined in the Companies Act (Cap.486) or a corporate body formed under any other written law, including a foreign law.i.That the Respondent in issuing an objection decision on the additional VAT assessments on 15th August 2022, failed to appreciate that the Appellant was not a registered entity under the Companies Act 2015 or any other relevant tax laws, thereby rendering its assessment null and void.

The Appellant’s Case 7. The Appellant’s case is premised on the hereunder filed documents:-a.The Appellant’s Statement of Facts dated 19th September, 2022 and filed on 20th September 2022 together with the documents attached thereto.b.The Appellant’s written submissions dated 28th April, 2023 and filed on the same date.

8. The Appellant stated that the company had since ceased to exist following its dissolution effective from 13th March 2020 and the same being subsequently published under Gazette Notice No. 2331 of 13th March 2020.

9. It was the Appellant’s contention that the Respondent issued the Appellant with additional VAT assessments amounting to Ksh. 13,864,861. 00 for various months in the 2017 tax period. That the said assessments were issued on 19th May 2022 for the 2017 period.

10. The Appellant submitted that it lodged a manual objection on 2nd June 2022 to which the Respondent addressed on email pointing out that the objection ought to have been made on the iTax platform as well as the fact that Appellant should have attached evidence to support the grounds of objection.

11. That the Appellant responded via email requesting to be allowed up to 20th June 2022 to submit the requested documents owing to the fact that the documents were in storage, and it would take a few days to retrieve.

12. That this was followed with a series of email correspondence where the Appellant requested for more time to submit the requested documents, which it submitted on 27th June 2022. It averred that the Respondent acknowledged receipt of the documents on 7th July 2022 citing that the Appellant did not provide evidence to show that the supply was supply of live trees and not firewood, a list of its customers and invoices, a list of its suppliers and purchase invoices and contractual arrangements.

13. That the Respondent then requested to have the Appellant's response to the issues raised by close of business on 13th July 2022.

14. The Appellant submitted that it thereafter engaged a consultant to handle the matter on its behalf. That the consultants responded to the Respondent's concerns noting that the Appellant as a company had been wound up or dissolved with effect from 13th March 2020. That it was thus not possible to provide the Respondent with the information requested.

15. That it had become difficult to trace the documents and information requested by KRA since they were not maintained after the winding up of the company.

16. That by the time the VAT assessments were issued, the Appellant had already been wound up. That the Respondent's Assessments and tax demands therefore had been overtaken by events as there was no obligation to keep records of a dissolved entity.

17. That it then requested the Respondent to consider closing the enquiry and vacating the assessments as it was not possible for the Appellant to provide the information under the circumstances.

18. That certainly, from the sequence of events, it was clear that by the time the Respondent was issuing its additional assessments, the Appellant had ceased to exist. It added that the Appellant had passed its resolution and accompanying documents to have the company struck off under Section 897(1) of the Companies Act 2015 on 20th November 2018.

19. That this was followed by the Appellant filling the requisite documents to have the company struck off and the same was later published under Gazette Notice No. 2331 of 13th March 2020. That the said information had been made available to the Respondent.

20. The Appellant emphasized that the Respondent in proceeding to issue its assessments and objection decision completely failed to appreciate that according to the law, once a company is dissolved, it no longer exists legally and as such any liability claimed by the Respondent under the assessments issued on 19th May 2022 had been overtaken by events.

21. That indeed, it was also crucial to highlight that the Respondent issued the amended assessments for the period January to April 2017 outside the statutory limit of five years as prescribed under Section 31(6)(a) of the Tax Procedures Act 2015.

22. That additionally, the Respondent issued an incorrect assessment of Ksh. 1,691,185. 28 for the period December 2017. That the correct sales figure for December 2017 as per the filed VAT return was Ksh. 394,958. 00. The correct VAT figure for the month should have been Ksh.63,193. 28.

23. The Appellant submitted that for the Respondent's assessment to be valid under the tax laws, more particularly the Value Added Tax Act (VAT) 2013 & the Tax Procedures Act (TPA)2015,the Appellant had to be registered under the Companies Act 2015 and actively be in existence.

24. According to the Appellant, the definitions of two key terms under the VAT Act 2013, TPA Act 2015 and the Companies Act 2015. That according to Section 5 of the VAT Act 2013 tax can only be levied on a taxable supply made by a registered "person".

25. That the term 'person' has been explicitly defined under Section 3 of the Tax Procedures Act 2015 as, ―person" includes an individual, company, partnership, limited partnership, association of persons, trust, National Government, foreign government, political subdivision of the National Government or foreign government, or an international organization.‖

26. The Appellant added that a ―Company" is defined under Section 2 of the Companies Act No. 17 of 2015 to mean a company formed and registered under this Act or an existing company. That as well, a company is also defined under the Tax Procedures Act No. 29 of 2015 to mean a company as defined in the Companies Act (Cap. 486) or a corporate body formed under any other written law, including a foreign law.

27. That it was based on the above that it submitted that the Respondents assessments lacked a legal basis upon which they can be anchored and as such, the assessments can only be treated as bad debts under the law.

The Appellant’s Prayer 28. The Appellant prayed that the Tribunal grants the following prayers;a.That this Appeal be allowed.b.That the assessment for the period January to April 2017 be set aside as they are time barred on the basis of Section 31 (6) (a) of the Tax procedures Act 2015. c.That the Respondent be compelled to withdraw the entire additional VAT assessments amounting to Kshs. 13,864,861. 00 as the assessment has been overtaken by events.d.That the Respondent’s objection decision dated 15th August 2022 be set aside.

Respondent’s Case 29. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal:a.The Respondent’s Statement of Facts dated and filed on 25th October, 2022 together with the documents attached thereto.b.The Respondent’s written submissions dated 31st March, 2023 and filed on the same date.

30. The Respondent stated that it issued the Appellant with additional VAT assessments amounting to Kshs 13,864,861. 00 for various months in the 2017 tax period.

31. That the Appellant lodged a manual objection on 2nd June 2022 and provided grounds to support the objection. That on 7th July 2022 it received documents from the Appellant and noted that the Appellant never provided evidence in support of the objection.

32. That the Appellant's objection was rejected and the Respondent confirmed the additional assessments in totality vide a letter dated 15th August 2022.

33. It was the Respondent view that the issues arising in this matter were as follows;a.Whether the Respondent erred in law and in fact by issuing the amended assessments.b.Whether the Respondent erred in law and fact by issuing an objection decision.

34. It was the Respondent’s contention that the Appellant did not provide sufficient evidence in support of its objection thereby the Respondent was justified in raising the VAT assessments. That Section 56(1) of the Tax Procedure Act places the onus of proof in tax objections on the taxpayer who in this case failed to avail evidence that would support a contrary assessment or that would have guided the Respondent at arriving to a different objection decision.

35. The Respondent averred that in support of the point raised hereinabove, it relies on the case of Metcash Trading Limited vs Commissioner for the South Africa Revenue Services and another case CCT 3/2000.

36. The Respondent stated that Section 43(1) of the VAT Act requires that the taxpayer keep records for a period of five years from the last date of entry made. The Respondent further relied on Section 43 (3) of the VAT Act to support its arguments.

37. The Respondent insisted that the assessment was issued based on the information provided.

38. The Respondent stated that it is mandated by the Tax Procedures Act to make amended assessments. That Section 31 of the Tax Procedures Act empowers the Respondent to make alterations or additions to original assessments from available information for a reporting period based on the best judgment.

39. The Respondent further stated that the objection decision was valid since it was issued based on the reclassification of supplies from exempt to chargeable at a rate of 16%. It added that the Appellant was unable to demonstrate that the supplies were not exempt for VAT purposes hence the output should have been subjected to VAT at 16% as required by law. It further relied on Section 30 of the Tax Appeals Tribunal Act.

40. The Respondent stated that it was upon the Appellant to prove that the Respondent's decision was null and void.

41. The Respondent further submitted that the assessment as issued in the objection decision dated 15th August 2022 was lawful and justified under the Tax Procedure Act.

42. The Respondent averred that the Appellant was undeserving of the prayers sought due to the foretasted reasons.

Respondent’s prayers. 43. The Respondent prayed that the Tribunal finds that;a.The Appellant's Appeal be dismissed for lack of merit.b.The decision by the Commissioner issued on 15th August 2022 be upheldc.The Respondent be awarded the costs of the Appeal.

Issues For Determination 44. Having considered the parties’ pleadings and all the documents attached to the Appeal, the Tribunal was of the view that the issues for determination are:-a.Whether de-registration of a taxpayer under the Companies Act, 2015 can shield it from tax liability.b.Whether there were any assessments that were in contravention of Section 31(6)(a) of the TPA.c.Whether the Respondent was justified in confirming the assessments.

Analysis And Findings 45. Having identified the issues falling for its determination, the Tribunal wishes to analyse as hereunder.a.Whether de-registration of a taxpayer under the Companies Act, 2015 can shield it from tax liability.

46. The genesis of this dispute is the Respondent’s additional assessments dated 15th May 2022 which assessed the Appellant for VAT liability in relation to the year 2017.

47. It was the Appellant’s contention that the company had ceased to exist following its dissolution effective from 13th March 2020 and the same being subsequently published under Gazette Notice No. 2331 of 13th March 2020.

48. That certainly, from the sequence of events, it was clear that by the time the Respondent was issuing its additional assessments, the Appellant had ceased to exist. It added that the Appellant had passed its resolution and accompanying documents to have the company struck off under Section 897(1) of the Companies Act 2015 on 20th November 2018.

49. That this was followed by the Appellant filling the requisite documents to have the company struck off and the same was later published under Gazette Notice No. 2331 of 13th March 2020. That the said information had been made available to the Respondent.

50. The Appellant emphasized that the Respondent in proceeding to issue its assessments and objection decision completely failed to appreciate that according to the law, once a company is dissolved, it no longer exists legally and as such any liability claimed by the Respondent under the assessments issued on 19th May 2022 had been overtaken by events.

51. The Respondent on its part submitted that the VAT Act requires that the taxpayer keep records for a period of five years from the last date of entry made.

52. Section 10(1) & (2) of the Tax Procedures Act provides as follows regarding deregistration of a person for tax purposes;(1)A person who ceases to be required to be registered for the purposes of a tax law shall apply to the Commissioner for deregistration under that specific tax law.2. A registered person shall apply for deregistration under subsection (1)—a.in the prescribed form; andb.within thirty days of ceasing to be required to be registered under that tax law.‖

53. The above law is couched in mandatory terms that a taxpayer ought to apply to the Commissioner for deregistration upon ceasing to be required to be registered for tax purposes. The Tribunal noted that although the Appellant provided documents to support its claim to the effect that it had been deregistered under the Companies Act, nothing was provided to demonstrate that it had made any application to the Commissioner for deregistration for tax purposes.

54. Additionally, Section 31(1) of the Tax Procedures Act allows the Respondent to amend a taxpayer’s self-assessment. It states as follows;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—…‖

55. Given that the Appellant did not apply to the Commissioner for deregistration for tax purposes, it follows that the Respondent acted within the law in amending the assessments.

56. }Accordingly, the Tribunal finds that the Respondent was justified in assessing the Appellant.

b.Whether There Were Any Assessments That Were In Contravention Of Section 31(6)(a) Of The Tpa. 57. It was the Appellant’s contention that the Respondent erred in law and fact by issuing the amended assessments for the period January to April 2017 outside the statutory limit of five years as prescribed under Section 31(6)(a) of the Tax Procedures Act 2015.

58. Section 31(6)(a) of Tax Procedures Act provides as follows regarding time limits for the Respondent to issue assessments;―Where an assessment has been amended, the Commissioner may further amend the original assessment—(a)five years after—i.for a self-assessment, the date the taxpayer submitted the self-assessment return to which the self-assessment relates; orii.….‖(Emphasis added)

59. From the above provision of the law, it follows that the Respondent was only allowed to amend the self-assessment of the taxpayer up to a limit of five years after the date the Appellant filed its self-assessment returns. Given that the assessments were issued on 19th May 2022, the last date Respondent was allowed by law to assess the Appellant was 20th May 2017.

60. Given that VAT monthly returns as provided under Section 19(2) of the VAT Act has due date being 20th date of the subsequent month, it follows that the Respondent could assess the Appellant up to and including the returns for April 2017. In the Instant case the Tribunal noted that the Respondent had included in the assessments the Months of January, February and March 2017.

61. Accordingly, the Tribunal finds that the Respondent’s additional assessments for January, February and March 2017 were in contravention of Section 31(6)(a) of Tax Procedures Act 2015.

c. Whether The Respondent Was Justified In Confirming The Assessments. 62. The Tribunal noted that through its objection decision dated 15th August 2022, the Respondent confirmed the VAT assessments stating that the Appellant’s supplies were not VAT exempt.

63. The Appellant had stated that the Respondent issued an incorrect assessment of Ksh. 1,691,185. 28 for the period December 2017. That the correct sales figure for December 2017 as per the filed VAT return was Ksh. 394,958. 00. The correct VAT figure for the month should have been Ksh.63,193. 28.

64. The Respondent on its part contended that the Appellant did not provide sufficient evidence in support of its objection thereby it was justified in raising the VAT assessments. That Section 56(1) of the Tax Procedure Act places the onus of proof in tax objections on the taxpayer who in this case failed to avail evidence that would support a contrary assessment or that would have guided the Respondent at arriving to a different objection decision.

65. Section 17(3) of the VAT Act provides as follows regarding documentation;― 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;d.a credit note in the case of input tax deducted under section 16(2); ore.a debit note in the case of input tax deducted under section 16(5).‖

66. The Tribunal perused through the documents provided by the Appellant in support of its case and noted that the Appellant had attached VAT monthly return schedule for December 2017 and other documents in relations to the company’s process of deregistration. No document was placed before the Tribunal in relations to VAT as envisaged under Section 17(3) of the VAT Act.

67. A taxpayer served with an assessment which it disputes, is enjoined to provide the necessary documents and information that suggest that such an assessment is erroneous, misplaced and not justifiable in the circumstances. Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act squarely place the burden of proof upon a taxpayer to discredit any tax assessment or decision.

68. The Appellant’s averments that the assessments were wrong were not enough as set out in Section 107 of the Evidence Act which provides that:―Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.‖

69. This position was upheld in Kenya Power & Lighting Co Ltd v Rassul Nzembe Mwadzaya [2020] eKLR where the court stated thus:―Since no evidence was adduced in support of the defence case, the defence on record therefore remained as a mere allegation. This is the position in law and was restated in the case of Edward Muriga through Stanley Muriga…Vs…Nathaniel D. Schulter, Civil Appeal No.23 of 1997, where the Court of Appeal stated: -―In this matter, apart from filing its statement of defence the Defendant did not adduce any evidence in support of assertions made therein. The evidence of the 1st Plaintiff and that of the witness remain uncontroverted and the statement in the defence therefore remains mere allegations. ―

70. Similarly, in the case of Primarosa Flowers Limited vs. Commissioner of Domestic Taxes (2019) eKLR, whilst making reference to the Australian case of Mulherin vs Commissioner of Taxation [2013] FCAFC 115 the Court held that:-―……. The onus is on the taxpayer in proving that assessment was excessive by adducing positive evidence which demonstrates the taxable income on which tax ought to have been levied….‖

71. Accordingly, the Tribunal finds that the Respondent was justified in confirming the tax assessments on the Appellant.

Final Decision 72. Based on the foregoing analysis the Tribunal determines that the Appeal is partially merited and the Orders that accordingly recommend themselves are as follows: -a.The Appeal is partially allowed.b.The Respondent’s objection decision dated 15th August, 2022 be varied in the following terms;i.The Respondent’s VAT assessments for January, February and March 2017 are hereby set aside.ii.The Respondent’s assessments for April to December 2017 are hereby upheld.c.Each party to bear its own costs.

73. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF OCTOBER, 2023. ERIC NYONGESA WAFULACHAIRMAN....................CYNTHIA B. MAYAKAMEMBER....................DR. RODNEY O. OLUOCHMEMBER...................EUNICE NG’ANG’AMEMBER....................ABRAHAM K. KIPROTICHMEMBER....................BERNADETTE GITARIMEMBER