[2024] KETAT 886 (KLR)

Rural Distributors Enterprises Limited v Commissioner of Legal Services & Board Coordination (Tax Appeal 203 of 2023) [2024] KETAT 886 (KLR) (28 June 2024) (Judgment)

Neutral citation: [2024] KETAT 886 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 203 of 2023

CA Muga, Chair, BK Terer, D.K Ngala, GA Kashindi & SS Ololchike, Members

June 28, 2024

Between

Rural Distributors Enterprises Limited

Appellant

and

Commissioner Of Legal Services & Board Coordination

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya under the Kenyan Companies Act, 2015. Its principal business activity is in the construction industry.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. Under Section 5(1), the Respondent is an agency of the government for the collection and receipt of all tax revenue. Further under Section 5(2) with respect to performance of its functions under subsection (1), the Respondent 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 revenue in accordance with those laws.

3. On 17th March 2022, the Appellant was issued with additional VAT assessments for the years 2015, 2016, 2017, 2018, 2019 and 2020 as a result of variances between the local purchases claimed by the Appellant and sales declared by their various suppliers amounting to Kshs. 13,481,477. 01 less penalties and interest.

4. Dissatisfied with the said assessment, the Appellant lodged an objection against it on 28th October 2022 vide its i-Tax platform. Vide an email sent to the Appellant on 1st November 2022, the Respondent acknowledged receipt of the said objection and requested the Appellant to validate its objection by providing supporting documentation.

5. Subsequently, the Respondent rejected the Appellant’s objection vide its objection decision dated 8th November 2022 and confirmed the additional assessment for Kshs. 13,481,477. 01 together with the resultant penalties and interest.

6. Being aggrieved by the Respondent’s objection decision, the Appellant lodged a Notice of Appeal on 7th March 2023.

The Appeal 7. The Appeal is premised on the following grounds set out in the Memorandum of Appeal dated 3rd March 2023 and filed on 7th March 2023:(i)The Respondent erred in law and in fact by failing to consider the Appellant’s grounds of Objection on its full merit; and(ii)The Respondent erred in law and in fact by issuing the Appellant with an additional assessment without taking into consideration the expenses that was incurred in the business.

Appellant’s Case 8. The Appeal is anchored on the Appellant’s Statement of Facts dated 2nd March 2023 lodged with the Tribunal on 7th March 2023.

9. The Appellant contends that the Respondent issued additional assessment dated 17th March 2022 for years of income 2015 – 2020.

10. The Appellant was not aware of the existence of the said additional assessment since it was sent on an email address which the Appellant’s director was not aware of its login PIN.

11. The Appellant’s email address was only at that time of the assessment being accessed by its accountant who at the time of the assessment had ceased working for the Appellant and that it was only on 17th March 2022 when the Appellant’s director visited the Respondent’s offices that he became aware of the additional assessment.

12. The Appellant lodged a late objection to the said assessment on iTax on 28th October 2022 stating among other reasons its predicament to access email registered on iTax.

13. On 28th October 2022, the Respondent requested the Appellant to give reasons and supporting documents to support its application for late objection.

14. The Appellant was surprised by the Respondent's letter dated 8th November 2022 since according to the Appellant, it had given the Respondent sufficient reason as to why it could not object on time. That even before the lapse of the sixty (60) days statutory timelines, the Respondent wrote to the Appellant a letter dated 8th November 2022 stating that it had fully rejected the Appellant’s application for late objection.

15. The Appellant stated that the Respondent had erred in law and in fact by failing to consider the Appellant’s grounds of objection on its full merit and in assessing and confirming income tax without taking into consideration the expenses that were incurred in the accounting period.

16. In conclusion, the Appellant made the following prayers to the Tribunal:(a)The Objection Decision dated 8th November, 2022 be annulled and set aside in its entirety;(b)The Tribunal be pleased to issue an Order directing the Respondent to consider the Appellant’s application for late objection on its full merits and issue the Appellant with a fresh assessment;(c)The Appeal be allowed with costs to the Appellant; and(d)Any other orders that the Tribunal may deem fit.

Respondent’s Case 17. The Respondent filed its Statement of Facts dated 24th March 2023 on 28th March 2023 and made averments as outlined herein:

18. The Respondent shall raise an objection that the appeal herein is incompetent for failure to comply with the provisions of Section 13 (1) (b) of the Tax Appeals Tribunal Act, CAP 469A of Kenya’s Laws (hereinafter “TATA”).

19. The Respondent whilst reviewing the Appellant’s VAT returns for the period between the year 2015-2020 noted several variances between the local purchases claimed by the Appellant and the sales declared by its numerous suppliers namely; Prosab Company, Tononoka Steel Limited, Rhombus Concrete Limited, Adili Trustees Limited, Apex Steel Limited, and S.S Mehta & Sons Limited.

20. The Respondent averred that it issued additional VAT assessments on 17th March 2022 in line with Section 31 of the Tax Procedures Act, CAP 469B of Kenya’s Laws (hereinafter “TPA”) which provides as follows:“(1)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-a.in the case of a deficit carried forward under the Income Tax Act (Cap. 470), the taxpayer is assessed in respect of the correct amount of the deficit carried forward for the reporting period;b.in the case of an excess amount of input tax under the Value Added Tax Act, 2013 (No. 35 of 2013), the taxpayer is assessed in respect of the correct amount of the excess input tax carried forward for the reporting period: orc.in any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates.”

21. The Appellant filed an objection to the assessments through the i-Tax platform on 28th October, 2022 which was more than 6 months since the assessments were issued in clear contravention of Section 51 (2) of the TPA, which stipulates that any party that intends to object to an assessment issued by the Respondent, should do the same within 30 days of the decision.

22. The Respondent averred that it gave the Appellant an opportunity to validate its objection by making an application for extension of time to file an objection, as per Section 51 (7) of the TPA on the following grounds:“(a)The taxpayer was prevented was lodging the notice of objection within the period specified sub section (2) because of an absence from Kenya, sickness or other reasonable cause; and(b)The taxpayer did not unreasonably delay in lodging the notice of objection.”

23. The Respondent states that the Appellant could not delve into the merits of the objection as this would be contrary to Section 56(3) of the TPA and Section 13 (6) of the TATA.

24. The Respondent contended that not only did the Appellant not state any grounds to validate its late objection, but it did not support the late objection with any documentation.

25. The Respondent stated that it exercised its best judgment in making the assessments in full consideration of the documentation and information available pursuant to Section 31 of the TPA.

26. The Respondent averred that the Appellant therefore by failing to validate its late objection within the stipulated timelines, there was no valid objection against the Respondent’s assessments and the outstanding taxes remain due and owing.

27. In any event, the Appellant bears the burden to prove that the assessments were excessive or improper and from the documents adduced in support of their appeal, the same was not evident and therefore the Appellant had failed to discharge this burden as required by Section 56 (1) of the TPA and Section 30 of the TATA.

28. The Respondent stated that the instant Appeal was unmeritorious because the assessments and the subsequent decision to reject the late objection by the Appellant, were proper and duly anchored in law as earlier stated, and there was therefore no basis to set aside the assessments and the rejection of the late objection.

29. In conclusion, the Respondent prayed that this Tribunal:(i)Upholds the Respondent’s decision as proper and in conformity with the provisions of the law; and(ii)That this Appeal be dismissed with costs to the Respondent as the same was devoid any merit

Parties’ Written Submissions 30. The instant Appeal was canvassed by way of written submissions. The Respondent’s submissions are dated 11th October 2023 and were filed on 16th October 2023. The Appellant did not file any written submissions.

31. The Respondent submitted that the decision the Appellant was appealing against in the Appeal herein is the Respondent ‘s invalidation decision of 8th November 2022. It referred to the provisions of Section 13 of the TATA which mandates every taxpayer who disputes an appealable decision by the Respondent, to lodge a notice of appeal to the decision to the Tribunal within thirty (30) days of being notified of the decision.

32. Furthermore, Section 13 of the TATA grants the Tribunal discretion to determine an application for leave to file an appeal out of time where there was sufficient cause to do so. For this reason, the Respondent submitted that the instant Appeal was incompetent having been filed out of time and without leave of the Tribunal, thus it should be struck out for being time barred.

33. The Respondent cited the provisions of Section 51(7) of the TPA and stated that the Appellant filed a late objection to the Respondent’s additional assessment of Kshs. 13,481,477. 01 since the objection to the aforementioned assessment was filed more than 30 days after the date of the assessment. It further stated that in several correspondence including an email sent on 1st November 2022, it requested the Appellant to furnish documents in order to allow the application for extension of time to lodge a notice of objection but the said email elicited little to no response from the Appellant.

34. In submitting that the Appellant has the responsibility to maintain records and avail the same when requested to do so, the Respondent relied on the case of Republic v KRA: Proto Energy Limited [2022] eKLR. The Respondent further relied on the case of Alphaquest Designs Limited v Commissioner of Domestic Taxes TAT No. 724 of 2022 and contended that in absence of the supporting documents, the Respondent had no choice but to invalidate the objection and confirm its assessments to the best of its judgment.

35. The Respondent cited the provisions of Section 56(1) of the TPA, Section 30 of the TATA and the case of Digital Box Limited v Commissioner of Investigations and Enforcement [2020] eKLR and stated that the burden of proof was on the Appellant to prove that the Respondent erred in invalidating the objection by adducing evidence in the form of information and/or documents to support its objection. However, in this case the Appellant failed to discharge the burden of proof by failing to provide any documents in support of the objection despite several requests by the Respondent.

Issues For Determination 36. The Tribunal having considered the Appeal herein, the Statements of Fact by the parties and the written submissions filed by the Respondent and is of the considered view that three issues arising for determination are as follows:(i)Whether the appeal herein is incompetent having been filed out of the statutory timelines provided by law.(ii)Whether the Respondent’s invalidation notice dated 8th November 2022 was justified.(iii)Whether the Respondent’s additional assessment of the Appellant’s VAT tax liability was justified.

Analysis And Findings 37. Having identified the issues for determination as above, the Tribunal proceeds to analyze the issues as hereinunder:(i)Whether the Appeal herein is incompetent having been filed out of the statutory timelines provided by law.

38. A Notice of Appeal ought to be lodged at the Tribunal within thirty days after a taxpayer is notified of the said decision pursuant to the provision of Section 51(12) of the TPA which provides as follows:“A person who is dissatisfied with the decision of the Commissioner under subsection (11) may appeal to the Tribunal within thirty days after being notified of the decision.”

39. The Respondent’s decision to invalidate the Appellant’s objection on grounds that it was filed out of time was issued on 8th November 2022. Ordinarily and in pursuance of the provisions of Section 51(12) of the TPA, the Appellant ought to have filed its Notice of Appeal on or before 8th December 2022.

40. From the record, the Appellant lodged its Notice of Appeal against the decision on 7th March 2023 together with its Memorandum of Appeal and Statement of Facts on 7th March 2023. The Tribunal notes that pursuant to Section 13 (1) and (2) of the TATA the procedure of Appeal is outlined 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 appeal;b.statements of facts; andc.the tax decision.”

41. The Tribunal notes that whereas the decision appealed against was made on 8th November 2022 the Notice of Appeal ought to have been filed on or before 8th December 2022. The law requires the record of appeal to be lodged 14 days after filing of a notice of appeal and in the instant case this ought to have been sometime on or before 22nd December 2022. The Memorandum of Appeal and Statement of Facts were filed on 7th March 2023 and therefore the Appeal herein was filed outside the statutory timelines prescribed under Section 51(12) of the TPA and section 13 (1) (b) of TATA.

42. The Tribunal, pursuant to Section 13 (3) and (4) of the TATA, has the mandate to extend time within which a taxpayer can lodge its appeal against the decision of the Commissioner. This section provides as follows:1. …..2. ……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).4. An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period.”

43. The Appellant herein has not adduced any evidence to demonstrate that it sought extension of time within which to file its Notice of Appeal against the Respondent’s decision, and whether it was granted leave by this Tribunal to file the Appeal herein out of time. As a result, the Tribunal finds that there the Appeal before it is incompetent. The Tribunal reiterates the Court’s decision in Commissioner of Domestic Taxes vs. Lifecare International Brokers Limited [2020] eKLR, where Justice D.S Majanja observed as follows:“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.”

44. In view of the foregoing, the Tribunal shall not delve into the other two issues earlier identified for determination as the same have been rendered moot.

Final Decision. 45. The upshot of the above is that the Appellant’s appeal is not merited. As a result, the Tribunal makes the following orders:(a)The Appeal herein is hereby struck out;(b)The Respondent’s objection decision dated 7th May 2021 is hereby upheld; and(c)Each party to bear its own costs.

46. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 28TH DAY OF JUNE, 2024…………..……………….CHRISTINE A. MUGACHAIRPERSON………………………. …………….……………..BONIFACE K. TERER DELILAH K. NGALAMEMBER MEMBER………………………… ………………………….GEORGE KASHINDI OLOLCHIKE S. SPENCERMEMBER MEMBER