[2024] KETAT 1269 (KLR)

Rivastage Company Limited v Commissioner of Domestic Taxes (Appeal E493 of 2023) [2024] KETAT 1269 (KLR) (9 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1269 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E493 of 2023

E.N Wafula, Chair, E Ng'ang'a, Jephthah Njagi & G Ogaga, Members

August 9, 2024

Between

Rivastage Company Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company based in Nakuru dealing in wholesale and retail business.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. For the performance of its function under Subsection (1), the Authority is mandated under Section 5(2) of the Act to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act to assess, collect, and account for all revenues under those laws.

3. The Respondent assessed the Appellant's tax returns and raised an assessment notice vide a letter dated 8th May 2023.

4. That the assessments were based on a return review exercise by the Respondent which established that the taxpayer had made vatable purchases but had not withheld VAT since its appointment as a Withholding VAT agent.

5. On 22nd June 2023, 23rd June 2023 and 24th June 2023, the Appellant lodged objection applications against the assessments mentioned above and the Respondent issued an Objection decision on 11th July 2023 confirming the assessments.

6. The Appellant subsequently lodged its Notice of Appeal filed on 22nd July 2023.

The Appeal 7. The Appeal is premised on the Memorandum of Appeal filed on 21st August 2023 which raised the following grounds: -a.The Withholding VAT Taxes 2% assessed were erroneous as they were not deducted from the suppliers of goods contrary to the assumption of the Respondent. The full amount was paid to the suppliers as evidenced from the invoices.b.The Respondent never examined the relevant supplier's document to end up with the additional assessed withholding VAT Taxes of 2%. The Appellant did not deduct 2% VAT from the goods supplied. If the documents and invoices were examined, the Respondent would have realized the Appellant never withheld the taxes presumed and it would be excessive to claim the same VAT of 16% fully paid to the suppliers. The Respondent in its due diligence examination would realize there were no Withholding Certificates for the claims by the suppliers. The VAT Act CAP 476, Withholding Tax Regulations stipulate "any person withholding tax shall issue a Withholding Certificate to the withholdee" and this was not interrogated for both the seller and the buyer. When a taxpayer (trader) supplies and invoices an appointed Withholding Agent the payment of the supply is made less VAT charged or that which ought to have been charged. The Agent withholds VAT irrespective of whether the supplier is registered for VAT or not. The Agent issues a Withholding VAT Certificate to the supplier indicating the VAT Withheld. This Certificate entitles the trader to claim back the withheld VAT to avoid double taxation since the same tax is declared and paid by the trader through a VAT3 Return. The process of verification and processing the claim (additional assessment) must, in the words of Article 47(1) of the Constitution, be efficient and expeditious.c.The Appellant was appointed as a Withholding Tax Agent without his involvement, engagement, and knowledge. The Respondent under normal circumstances was duty bound to train the Appellant on the way of operating such a new tax obligation added without its knowledge. Lack of inclusivity in its appointment created a dilemma situation leading to the Appellant to be penalized without proper explanation.d.The Appellant in normal circumstances, if it had been appointed correctly through an all-inclusive process and deliberately failed to withhold the VAT 2% the sanction or penalty would be Kshs. 10,000. 00 or 10% of the tax due whichever is higher. The approach taken by the Respondent is inaccurate and wrong as the whole 16% VAT taxes have been paid by the suppliers. By Act No. 4 of 2004 the amendments to Section 35(6) gave the Commissioner power to "impose such penalty as may, from time to time, be prescribed under the rules". Rule 14A has prescribed the penalty for failure to deduct or remit withholding tax for the purposes of Section 35(6).

Appellant’s Case 8. The Appellant’s case is also premised on the following documents filed before the Tribunal:a.Statement of Facts dated 13th July 2023 and filed on 21st August 2023. b.Written Submissions dated 10th April 2024 and filed on 11th April 2024.

9. The Appellant stated that from its consideration of the tax records relating to this dispute it is factual that the Withholding VAT 2% taxes assessed were erroneous as they were not deducted from the suppliers of goods contrary to the assumption of the Respondent. That the full amount was paid to the suppliers. That for the withholding taxes to be due from the withholding agent there has to be proof the agent has withheld the 2% Withholding taxes.

10. The Appellant argued that to form a conclusive assessment of the 2% Withholding VAT procedure to be followed as per the VAT Act Cap 476 and the TPA the examinable documents are suppliers’ invoices and Withholding certificates. That the Respondent never examined the relevant Appellant’s and supplier's documents to form a correct decision on the additional assessed withholding VAT taxes.

11. The Appellant also argued that it was appointed as an Agent without its involvement engagement and knowledge and therefore was not well versed on how to conduct itself in the circumstances.

12. The Appellant submitted that the normal sanction or penalty for VAT withholding taxes is Kshs. 10,000. 00 or 10% of tax due whichever is higher. That the Appellant never withheld taxes and therefore there were no withholding taxes due to be penalized.

Appellant’s prayers. 13. The Appellant prayed to the Tribunal to allow the appeal.

Respondent’s Case 14. In response to the Appeal the Respondent presented its:a.Statement of Facts dated 12th October 2023 and filed on 13th October 2023 together with the documents attached thereto.b.Written submissions dated 15th April 2024 and filed on 16th April 2024.

15. The Respondent stated that he is allowed by Section 24(2) of the Tax Procedures Act to assess a taxpayer's liability using any information available to him. That on the basis of this he operated within the confines of the law by using the data available following a return review.

16. The Respondent averred that the additional assessment raised was based on the current assessment issued by the Respondent and hence no double assessments. That further the Respondent did not err in law or fact in confirming the assessment due to lack of supporting documentation.

17. On the issue that the Appellant was appointed as a Withholding tax agent without its knowledge, the Respondent submitted that the Appellant was appointed as a Withholding VAT agent on 22nd April 2021 and was notified through its itax- registered mail.

18. The Respondent further submitted that the appointment was as per the provisions of Section 42A of the Tax Procedures Act and added that the Appellant has for over two (2) years never opposed the appointment and only raised the issue after assessment for failure to withhold tax.

19. On the issue raised by the Appellant that the penalty is beyond the statutory penalty, the Respondent referred to Section 39A of the Tax Procedures Act and added that as per the provision, in case of failure by a Withholding VAT agent to deduct the 2%, the Respondent is empowered to demand the tax not deducted from the agent as if it was due from the withholding agent.

20. The Respondent further relied on Section 56(1) of the Tax Procedures Act to state that the burden is always on the taxpayer to prove that a tax decision is incorrect.

21. The Respondent in support of its case relied on the holdings in KRA vs Man Diesel &Turbo Se, Kenya [2021] eKLR, Commissioner of Domestic Taxes vs Structural International Kenya Ltd [Income Tax Appeal No. E089 of 2020]KEHC 152 (KLR) and Digital Box Ltd vs Commissioner of Investigations and Enforcement [TAT No.115 of 2017 amongst Others.

Respondent’s prayers 22. The Respondent prayed that the Tribunal:a.Upholds Respondent's Objection decision dated 11th July 2023. b.Dismisses the Appeal with costs to the Respondent as the same is devoid of merit.

Issues For Determination 23. The Tribunal has considered the facts of the matter and the submissions made by the parties, and considers the issues for determination to be as follows:a.Whether the appeal is valid.b.Whether the Respondent’s assessments against the Appellant were justified.

Analysis And Findings 24. The Tribunal upon ascertaining the issues falling for its consideration proceeds to analyze the same as hereunder.a.Whether the Appeal is valid.

25. The Appellant upon being dissatisfied with the Objection decision dated 11th July 2023 filed its Notice of Appeal on 22nd July 2023.

26. The Tribunal notes that the procedure for appeal as set out in Section 13 (1) (b) of the Tax Appeals Tribunal Act (TAT Act) requires that a notice of appeal shall be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.

27. Consequently, the Appellant is required to abide by the provisions of Section 13 (2) of the Tat Act which provides as follows:“The Appellant shall within fourteen days from the date of filing the notice of appeal, submit enough copies, as maybe advised by the Tribunal of –a.memorandum of appealb.…………………….”

28. The Tribunal observed that the Appellant upon filing its Notice of Appeal on 22nd July 2023 was as per Section 13 (2) TAT Act was expected to file its Memorandum of Appeal within fourteen days thereafter. The Appellant filed its Memorandum of Appeal on 21st August 2023 well outside the requisite time.

29. The Tribunal further noted that the Appellant failed to apply for leave to file its Memorandum of Appeal out of time as required by Section 13(3) of the TAT Act which provides as follows:“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).”

30. The Tribunal is of the considered view that the timelines for appealing the Commissioner’s decisions are clearly set out in the law and taxpayers are liable to comply with the same.

31. The Tribunal reiterates its holding in the case of W.E.C. Lines Ltd vs. The Commissioner of Domestic Taxes [TAT Case No.247 of 2020] where it was held at paragraph 70 while reiterating the holding in Krystalline Salt Ltd vs KRA [2019] eKLR that: -“Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures. The relevant procedure here is the process of opposing an assessment by the Commissioner.”

32. The Tribunal is also guided on the adherence to timelines by the case of Eastleigh Mall Limited v Commissioner of Investigations & Enforcement (Income Tax Appeal E068 of 2020) [2023] KEHC 20000 (KLR) where the court held: -“... Parliament in its wisdom knew that in matters tax, time is very crucial as those in commerce need to make informed decisions. If the Commissioner is allowed to exercise his discretion and stay ad-infinitum before issuing an objection decision, the taxpayer would be unable to make crucial decisions and plan his/her business properly. The timelines set are mandatory and not a procedural technicality.”

33. Based on the statutory law and the case laws cited above, the Tribunal finds that there is no valid Appeal before it as the Memorandum of Appeal in the matter was filed out of time and without leave of the Tribunal. In the circumstances the Tribunal did not delve into the other issue set out for determination as the same was rendered moot.

Final Decision 34. The upshot of the foregoing analysis is that the Appeal fails and 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 costs.

35. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF AUGUST, 2024. ERIC NYONGESA WAFULACHAIRMANEUNICE N. NGA’NG’A JEPHTHAH NJAGIMEMBER MEMBERGLORIA A. OGAGAMEMBER