[2024] KETAT 1578 (KLR)

Reshroy Investments Limited v Commissioner of Domestic Taxes (Tax Appeal E870 of 2023) [2024] KETAT 1578 (KLR) (22 November 2024) (Judgment)

Neutral citation: [2024] KETAT 1578 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E870 of 2023

Grace Mukuha, Chair, E Komolo, GA Kashindi & AM Diriye, Members

November 22, 2024

Between

Reshroy Investments Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a registered taxpayer whose main business is dealing in civil works and general supply of goods.

2. The Respondent is the Commissioner of Domestic Taxes appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1), the Kenya Revenue Authority (the Authority) is an agency of the Government for the collection and receipt of all revenue. Further, under section 5(2) with respect to the performance of its function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 & 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. The Appellant was issued with value added tax (VAT) assessments for the period of June 2022 dated 3rd March, 2023.

4. The Respondent’s assessments arose from disallowed input tax claim due to noted variances between purchases claimed by the Appellant in their VAT returns and sales declared by their suppliers in VAT returns.

5. On 4th April 2023, the Appellant lodged a late objection to the assessment order.

6. On 17th May 2023, the Respondent fully rejected the Appellant's objection.

7. The Appellant being aggrieved by the decision of the Respondent lodged its Memorandum of Appeal on 6th December 2023.

The Appeal 8. The Appellant filed its Memorandum of Appeal dated 24th November, 2023 on 6th December, 2023 and set out the following grounds of appeal:a.The Commissioner of Domestic Taxes erred in fact and in law in assessing the tax payable.b.The Commissioner of Domestic Taxes erred in fact and in law in failing to consider the Appellant’s nature of business thereon.c.The Commissioner of Domestic Taxes erred in fact and in law in failing to consider authentic assessment of taxes for the Appellant.

The Appellant’s Case 9. The appeal is anchored on the following document(s) filed before the Tribunal:i.Appellant’s Statement of Facts dated 24th November 2023

10. The Appellant averred that it did an original self-assessment for Value Added Tax (VAT) for the period of June 2022 on 14th July 2022 under acknowledgment number KRA202213707448.

11. The Appellant stated that it claimed input tax of Kshs 3,750,000. 00 with a VAT input of Kshs 600,000 in the original self-assessment for Value Added Tax (VAT) for the period under acknowledgment number KRA202213707448.

12. The Appellant averred that the Respondent did an assessment on the Appellant and issued a Value Added Tax (VAT) additional assessment under acknowledgment number KRA202303070153 for the period of June 2022.

13. The Appellant stated that the VAT additional assessment under acknowledgment number KRA202303070153 dropped an input of Kshs 3,750,000,00 with a VAT input of Kshs 600,000 in the month of June 2022.

14. The Appellant further stated that VAT additional assessment under acknowledgment number KRA202303070153 made by the Respondent thus resulted in an incremental tax liability of Kshs 600,000. 00 plus penalties and interest.

15. The Appellant averred that it objected to the Respondent's additional assessment and the Respondent issued receipts acknowledgment number KRA202304817913 dated 4th April 2023.

16. The Appellant stated that the Respondent reviewed the objection made by the Appellant under acknowledgment number KRA202304817913 and issued an objection decision on 25th May 2023 stating the objection as fully rejected.

17. The Appellant averred that the Respondent erred in the method and model used in arriving at the VAT additional assessment and that the Respondent did not understand the Appellant’s industry, its working models, and the contractual obligations of the Appellant.

Appellant’s Prayers 18. The Appellant prayed to the Tribunal for orders that:a.This Appeal be allowed with costs.b.The Decision of the Commissioner for Domestic Taxes with regards to the tax payable by the Appellant be discharged and set aside with costs to the Appellant.c.The additional assessments issued by the Respondent for the periods under review, together with penalties and interest were unlawful and improperly assessed and as such the same should be set aside.d.The Honourable Tribunal be pleased to assess the tax payable by the Appellant to be commensurate with the actual transactions and the evidence tendered.e.The Tribunal considers vacating the additional assessments accordingly so that the going concern of the company is not threatened.f.The objection decisions under review be declared null and void and quashed in its entirety.g.Any other relief that this Honourable Tribunal deems fit.

The Respondent’s Case 19. The Respondent’s case is premised on the following documents filed before the Tribunal:a.Respondent’s Statement of Facts dated 4th January 2023b.Respondent’s Written submissions dated 16th August 2024

20. The Respondent averred that the instant dispute arose from an additional VAT assessment issued on the Appellant for the period June 2022 which arose from disallowed input tax claim due to noted variances between purchases claimed by the Appellant in their VAT returns and sales declared by their suppliers in VAT returns.

21. The Respondent averred that it sought to verify the authenticity of all invoices claimed in the VAT month of June 2022 following a data set indicating that the Appellant's purchases were at variance with the supplier's declaration.

22. The Respondent stated that the Appellant was requested to avail all the purchase invoices claimed, the proof of payment and delivery, however the Appellant failed to comply thus assessments were issued on 3rd March 2023.

23. The Respondent averred that at the time the Appellant claimed the inputs, it was not entitled to since the inputs did not meet the requirements of Section 17(2) (b) of the Value Added Tax Act.

24. The Respondent stated that the Appellant thereafter lodged a late objection to the assessments on 4th April 2023. On 17th May 2023, the Respondent rejected the Appellant's objection as it did not conform to the provisions of Section 51(3) of the Tax Procedures Act.

25. The Respondent contended that the Honourable Tribunal lacks the jurisdiction to hear and determine the Appeal herein as the same has been filed contrary to Section 12 and 13(1) of the Tax Appeals Tribunal Act.

26. The Respondent reproduced Section 12 of the Tax Appeals Tribunal Act which provides as follows;“A person who disputes the decision of the Commissioner on any matter arising under the provisions of any tax law may, subject to the provisions of the relevant tax law, upon giving notice in writing to the Commissioner, appeal to the Tribunal..."

27. The Respondent stated that a Notice of Appeal invokes the Tribunal's jurisdiction, and without it, the Tribunal has no jurisdiction to determine the dispute. The Respondent averred that the Appellant failed to file a notice of appeal before instituting the Appeal herein and as such the Appeal is fatally defective and should be struck out for failing to comply with the mandatory provisions of the law.

28. The Respondent contended that the High Court has already pronounced itself on the issue of procedural guidelines as enshrined in the Tax Appeals Tribunal Act and therefore, the Appellant has a right of appeal but that right should be exercised in view of statutory structures governing the exercise of that right.

29. The Respondent further contended that the Tribunal has no jurisdiction to hear and determine the Appeal herein, and that if a court has no jurisdiction, then it has no power to adjudicate on a matter.

30. The Respondent further contended that the Appeal herein is time barred as the same has been filed contrary to Section 13(3) and (4) of the Tax Appeals Tribunal Act.

31. The Respondent stated that the Appellant was issued with an assessment order dated 3rd March 2023 and lodged a late objection on 4th April 2023. Thereafter, the Respondent issued the Appellant confirmation of assessments dated 17th May 2023.

32. The Respondent reproduced Section 13 (1) and (2) of the Tax Appeals Tribunal Act which provides as follows:1. A notice of appeal to the Tribunal shall-a.be in writing or through electronic means;b.be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.2. The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of-a.A memorandum of appealb.Statement of facts; andc.The tax decision

33. The Respondent stated that the Appellant instituted the Appeal herein on 6th December 2023 which was beyond the 30 days statutory period.

34. The Respondent reproduced Section 13 (3) and (4) which provides the procedure of seeking for extension of time to file an appeal at the Honourable Tribunal beyond the prescribed 30 days.

35. The Respondent therefore averred that before the Honourable Tribunal allows a late appeal, the Appellant ought to have applied in writing for an extension of time giving the reasons for the delay.

36. The Respondent further averred that, since the Appellant has failed to provide any justifiable reason for the delay of more than seven months in lodging an appeal, there is no valid appeal, as no leave has been granted to the Appellant by the Tribunal.

37. On whether the additional assessments are legally justified, the Respondent stated that the additional assessments were issued in accordance with the provisions of the Value Added Tax Act based on available information.

38. The Respondent stated that it identified certain invoices where the Appellant improperly claimed input tax. The Appellant was requested to provide proof of payment by submitting bank statements or delivery notes for the goods claimed to have been purchased.

39. The Respondent stated that no explanation or evidence to the contrary has been provided for the noted inconsistency available.

40. The Respondent averred that having noted inconsistencies in between the input VAT claimed by the Appellant and output VAT declared by its various suppliers, it invoked section 17(2)(b) of the Tax Procedures Act.

41. The Respondent averred that all non-compliance issues were brought to the Appellant's attention who failed to adduce additional evidence or records to explain the noted non-compliance issues thus the assessments were confirmed.

42. The Respondent further averred that in the absence of solid proof of payment evidence from the Appellant, the Respondent could not make a conclusion that the invoices were paid for.

43. On whether the Appellant has discharged burden of proof, the Respondent averred that the burden of proof is on the Appellant to produce the evidence challenging the Respondent's decision as per Section 56(1) of the Tax Procedures Act, 2015.

44. The Respondent stated that the Appellant was given an opportunity to present its case by way of documentary evidence which it squandered prior to its objection decision. The Appellant is bound by Section 51(3)(c) of the Tax Procedures Act and Section 30 of the Tax Appeal Tribunal Act to provide all necessary evidence in support of its objection.

45. It was the Respondent's position that the Appellant's objection was legally and procedurally rejected, the assessment was legally and procedurally issued, and the objection was duly considered, with the confirmation of assessments made in accordance with the law.

46. The Respondent submitted that the Appellant's Appeal is fatally defective, and the Appellant is in total contravention of Section 51(12), 52(1) of the Tax Procedures Act and Section 13(3) and (4) of the Tax Appeals Tribunal Act.

47. The Respondent submitted that section 51(12) of the Tax Procedures Act provides the strict timelines within which an objection to an assessment can be lodged. Section 51(12) provides:“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."

48. The Respondent submitted that the Appellant was issued an assessment order on 3rd March 2023 and lodged a late objection on 4th April 2023. Thereafter, the Respondent issued a confirmation of assessments dated 25th May 2023. The Appellant, being aggrieved by the Respondent's decision of 25th May 2023, instituted this appeal on 6th December 2023.

49. The Respondent relied on the case of Salsa Global Investment Co. Ltd vs Commissioner of Domestic Taxes (2023) eKLR where the Tribunal dismissed the Appellant's Appeal and held that the Appeal was filed out of time without seeking and obtaining prior leave of the Tribunal. The Appeal was found to be defective for being in contravention of the law and hence the Tribunal lacked the requisite jurisdiction to hear and determine the same.

50. The Respondent also relied on the decision in Boss Freight Terminal Ltd vs Commissioner of Domestic Taxes (2015) eKLR where the High Court dismissed the Appellant's Appeal and held that;“Whilst I recognize that the Appellant was entitled to seek an extension of time, the position is that the Appellant has not yet made an application for an extension of time. I so find because the mention in the appellant's submissions, that the court has authority to enlarge time cannot be deemed to constitute an application for the enlargement of time."

51. The Respondent submitted that Sections 13(3) and (4) of the Tax Appeals Tribunal Act are designed to ensure that any deserving person aggrieved by the Respondent's decision, and who fails to file an appeal within the statutory time, has recourse to appeal before the Tribunal. However, the person must first file an application seeking leave to appeal out of time and provide proof showing why they were unable to file the appeal within the prescribed time.

52. The Respondent further submitted that the Appellant having failed to comply with Section 13 (3) and (4) of the Tax Appeals Tribunal Act whereby the Appellant was required to file an application seeking to be allowed to file a notice of appeal out of time and failed to do so, then this instant appeal fails to meet the threshold for the appeal to proceed having also failed to comply with the principle of Article 159 (2) (d) of the Constitution.

53. The Respondent relied on the case of Owners of the Motor Vessel "Lillian S." vs Caltex Oil (Kenya) Ltd (1989) eKLR to submit that that jurisdiction is everything and where the Tribunal finds that it has no jurisdiction, it should proceed to strike out the Appeal.

54. The Respondent submitted that the Honourable Tribunal should therefore down its tools and should not adjudicate itself on the merits of the case.

Respondent’s Prayers 55. The Respondent prayed to the Tribunal for the following orders:a.The Respondent's confirmation of assessments issued on 17th May 2023 being VAT amounting to Kshs. 600,000/- be found to be proper in law and upheld.b.The appeal is devoid of merit and ought to be struck out with costs to the Respondent.

Issues For Determination 56. Based on the pleadings and submissions filed by the parties, the Honourable Tribunal has framed the following issues for determination:i.Whether the Honourable Tribunal has jurisdiction to hear and determine the appeal herein.ii.Whether the rejection of the Appellant’s objection was justified

Analysis And Findings i. Whether the Honourable Tribunal has jurisdiction to hear and determine the appeal herein 57. The Respondent argued that the Appeal is incompetent for being filed out of time without leave and in the circumstances this Honourable Tribunal lacks the requisite jurisdiction to hear and determine the appeal herein.

58. The Tribunal notes that the Appellant has not made any submissions to respond to the averments by the Respondent on the issue relating to the late filing of the instant appeal.

59. The Tribunal has taken note of the chronology of events leading to this appeal pointing out that the confirmation of assessment was rendered on 17th May 2023 communicating the rejection of the objection to the Appellant herein, however, the subject Memorandum of Appeal is dated 24th November 2024 and was filed on 6th December 2024.

60. In the instant appeal, the Tribunal notes Appellant did not file the appeal as required under Section 13(1) of the Tax Appeals Tribunal Act within the prescribed time, and the Appellant herein did not file an application before the Tribunal seeking enlargement of time to file an Appeal as required under Section 13 (3) and (4) of the Tax Appeals Tribunal Act.

61. A taxpayer must obtain leave before filing an appeal out of time. In Kenya Hotel Properties Limited vs.Attorney General & 5 others (Application 2 (E004 of 2021) of 2021) [2021] KESC 49 (KLR), the Supreme Court stated as follows at paragraph 18; -‘‘In County Executive of Kisumu v County Government of Kisumu & 8 others, SC. Civil Appl. No. 3 of 2016 [2017] eKLR, this Court found that an appeal filed out of time without leave of this Court is irregular and this Court will not invoke ‘novel’ principles so as to validate such a petition and deem it properly filed.’’

62. The impact of filing pleadings out of time without leave is that it denies the Tribunal the jurisdiction to entertain the Appeal. As was stated in The Owners of the Motor Vessel “Lillian S” vs. Caltex Oil (Kenya) Limited, “Jurisdiction is everything. Without it, the court must down its tools.”

63. The import of the foregoing is that the Tribunal finds and holds that it lacks jurisdiction to entertain the instant appeal having been filed out of time and without leave. Consequently, the Tribunal downs its tools at this point.

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

Final Decision 65. For the reasons set out above, the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby struck out.b.Each party to bear its own cost.

66. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF NOVEMBER 2024. ..................GRACE MUKUHACHAIRPERSON…………………………DR. ERICK KOMOLOMEMBER……………………GEORGE A. KASHINDIMEMBER……………………ABDULLAHI DIRIYEMEMBER