[2024] KETAT 353 (KLR)

Savana Saw Mill Limited v Commissioner of Domestic Taxes (Tax Appeal 1518 of 2022) [2024] KETAT 353 (KLR) (8 March 2024) (Judgment)

Neutral citation: [2024] KETAT 353 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1518 of 2022

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

March 8, 2024

Between

Savana Saw Mill Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private company incorporated under the Companies Act and its main business activity is tree lumbering.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and KRA 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 Appellant filed returns in regard to Value Added Tax for the period February 2018 claiming input tax.

4. As a result, Value Added Tax Automated Assessment flagged out the inconsistencies in the Appellant's returns for February 2018.

5. The Respondent sent a notice to the Appellant to remedy the inconsistencies within 65 days on 5th April 2019.

6. The Respondent sent a further reminder on 11th April 2019.

7. The Respondent on 15th November 2019 issued the Appellant with additional assessments in respect to Value Added Tax for the period February 2018.

8. The Appellant being dissatisfied with the assessments lodged an objection on i-Tax on 6th August 2020.

9. The Respondent on 21st January 2022 rejected the Appellant's objection application and consequently confirmed the assessments.

10. Aggrieved by the decision on its objection application, the Appellant filed this Appeal.

The Appeal 11. The Appeal is premised on the Memorandum of Appeal dated 14th December, 2022 and filed on 15th December, 2022 raising the following grounds: -a.The Commissioner of Domestic Taxes erred in fact and in law in assessing the tax.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 12. The Appellant’s case was also premised on its Statement of Facts dated on 14th December 2022 and filed on 15th December 2022 together with the attachments thereto.

13. The Appellant averred that the Respondent did an assessment on it for the month of February 2018 and issued a VAT additional assessment number KRA201915620165 dated 15th November, 2019.

14. That the VAT additional assessment struck off purchases of Kshs 4,906,205. 97 for the additional assessment number KRA201915620165.

15. That the assessment made by the Respondent resulted to an incremental tax liability of Kshs. 816,841. 12 plus penalty and interest.

16. That the Appellant objected to the Respondent's additional assessment and the Respondent issued an acknowledgement receipt for the objection.

17. That the Appellant was issued with acknowledgement receipt number KRA202016171636, dated 6th August, 2020 for the objection to the additional assessment number KRA201915620165, for the month of February 2018.

18. That the Appellant submitted the relevant documents to the representative of the Respondent on 6th August 2020 to support the objection.

19. That the Respondent reviewed the objection grounds together with the supporting documents provided by the Appellant and issued a late objection rejection notice on 21st January, 2022.

20. That the Respondent erred in the method and model used in arriving at the additional assessment.

21. That the Respondent did not understand the Appellant's industry, its working model and contractual obligations.

22. That Appellant filed a Notice of Appeal as per Section 52 of the Tax Procedures Act 2015 to the Tribunal.

23. That it was against the Respondent's decision/order of assessment that this Appeal was preferred with a request to deduct the amount arising from the additional assessment.

Appellant’s Prayers 24. The Appellant made the following prayers to the Tribunal, that:-a.This Appeal be allowed with costs.b.The decision of the Commissioner for Domestic Taxes with regard 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 period under review, together with penalties and interest, be declared unlawful and improperly assessed and as such the same should be set aside.d.The Tribunal be pleased to assess the tax payable by the Appellant to be commensurate with the actual transactions and the evidence tendered.e.Any other relief that the Tribunal deems necessary.

The Respondent’s Case 25. The Respondent premised its case on the following documents:-a.The Respondent’s Statement of Facts dated and filed on 13th January 2023. b.The Respondent’s Written Submissions dated 8th September 2023 and filed on 11th September 023.

26. In response to the Appeal the Respondent averred that the assessment was based on the original return filed for the period of February 2018 and that the summary of changed fields which originated from input Value Added Tax disallowed.

27. That the Respondent communicated to the Appellant on 5th April 2019 and 11th April 2019 that either the Appellant or its corresponding suppliers should amend their respective returns for the inconsistent invoices.

28. That the Appellant failed to provide sufficient documentary evidence in support of its grounds for late objection as stipulated under Section 51(7) of the TPA.

29. That the aforementioned Section 51(3) of the TPA provides that:-“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if-a.the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments;b.in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(1); and(c)all the relevant documents relating to the objection have been submitted."

30. That the Respondent is allowed by Section 24(2) of the Tax Procedures Act to assess a taxpayer's liability using any information available to it. To this extent, the Respondent confirms to have operated within the confines of the law by using the data available.

31. The Respondent averred that it is allowed to make additional assessments based on the available information to the best of its judgment pursuant to Section 31 of the Tax Procedures Act.

32. The Respondent further averred that it did not err in law or fact as it carefully examined the information available before issuing the assessment.

33. That the Appeal herein is incompetent on the ground that the notice of objection is invalid under Section 51 (3) of the Tax Procedure Act.

34. The Respondent stated that under Section 56 of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, the Appellant has the burden to demonstrate that it has discharged a tax liability.

35. That Section 56(1) of the Tax Procedures Act provides that:-“In any proceedings under this Part, the burden shall be on the Appellant to prove that a tax decision is incorrect"

36. That Section 30 of the Tax Appeals Tribunal Act further provides that:-“In a proceeding before the Tribunal, the appellant has the burden of proving-a.where an appeal relates to an assessment, that the assessment is excessive; orb.In any other case, that the tax decision should not have been made or should have been made differently.”

37. The Respondent submitted that the following should be the issues for determination in this matter:-a.Whether the Respondent was justified in issuing the additional assessment and disallowing the VAT input claimed.b.Whether the Appellant discharged its burden of proof.

38. The Respondent submitted that Section 17(1) of the VAT Act is categorical that a taxpayer, in this case the Appellant is only allowed to claim input Value Added Tax only to the extent that the supply or importation acquired was used to make a taxable supply. The Section states that:-“Subject to the provisions of this Act and the regulations, input tax on a taxable supply to, or importation made by, a registered person may, at the end of the tax period in which the supply or importation occurred, be deducted by the registered person in a return for the period, subject to the exceptions provided under this section, from the tax payable by the person on supplies by him in that tax period, but only to the extent that the supply or importation was acquired to make taxable supplies"

39. That Section 17(3) of the VAT Act provides that;-“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; andd.a credit note in the case of input tax deducted under section 16(2);e.a debit note in the case of input tax deducted under section 16(5); orf.in the case of a participant in the Open Tender System for the importation of petroleum products that have been cleared through a non-bonded facility, the custom entry showing the name and PIN of the winner of the tender and the name of the other oil marketing company participating in the tender:Provided that the input tax that may have been incurred by an oil marketing company participating in the Open Tender System before the coming into force of this provision shall be claimed within twelve months after this provision comes into force."

40. The Respondent submitted that, for a taxpayer such as the Appellant herein to prove that it is entitled to an input VAT claimed, it must either produce the documents referred to in the Section 17(3) of the VAT Act which are related to the transaction in issue or the suppliers must have declared the sales invoice for the input claimed in its return.

41. That the Appellant failed to provide any of the aforementioned documents to support its claim for input VAT. Further, the suppliers from whom the claim for input VAT was made had not declared the sales invoice in their return.

42. The Respondent submitted that it was justified and within the law in disallowing the unsupported input VAT claim and making the additional assessment and the Appeal should be dismissed on that ground.

43. The Respondent submitted that the Appellant had the burden of proof that the assessment made by the Respondent was incorrect and/or that the documents and/or information relied upon by the Respondent in disallowing the input VAT claimed and/or in making the assessment was wrong.

44. The Respondent submitted that the burden was on the Appellant to proof that the Respondent erred in disallowing the input VAT claimed and in making the additional assessment.

45. The Respondent submitted that the Appellant has the responsibility to maintain records and availing the same when requested to do so. The Appellant failed to discharge the burden of proof by failing to provide any documents in support of the objection and the input VAT claimed despite several requests by the Respondent.

46. That the Respondent was therefore correct, in the absence of any documents to warrant a review of its assessment, to use the available information to assess and confirm the tax due.

47. The Respondent submitted that it used the available information and its best judgment to come up with the assessments. That without availing the records requested, the Appellant cannot claim the assessments are wrong without adducing evidence to support the same.

48. The Respondent relied on the following cases:-a.Oliver Merrick Fowler and another V Kenya Revenue Authority [2022] eKLR.b.Ushindi Limited v Commissioner of Investigations and Enforcement Kenya Revenue Authority [2020] eKLR.c.Digital Box Limited V Commissioner of Investigations and Enforcement [2020].d.Republic v KRA: Proto Energy Limited (2022) eKLR.e.Ngurumani Traders Ltd v Commissioner of Investigations and Enforcement (2017) eKLR.

Respondent’s prayers. 49. The Respondent prayed that the Tribunal:-a.Dismisses the Appealb.Upholds the objection decision.c.Awards costs of the Appeal to the Respondent.

Issue for Determination 50. The Tribunal has reviewed the Memorandum of Appeal, Statements of Facts filed by both parties and the Respondent’s submissions, and has identified the issue for determination as follows:-

Whether the appeal before the Tribunal is valid. Analysis and Findings 51. The Tribunal having determined the issue that falls for its determination proceeds to analyze it as hereunder.

52. The genesis of this Appeal was the return filed by the Appellant in regard to Value Added Tax for February 2018 claiming input tax.

53. The Respondent stated that the Value Added Tax Automated Assessment flagged out the inconsistencies in the Appellant's returns.

54. The Respondent sent a notice to the Appellant to remedy the inconsistencies within 65 days.

55. Since the inconsistencies were not remedied, the Respondent on 15th November 2019 issued the Appellant with additional assessments in respect to Value Added Tax.

56. The Appellant being dissatisfied with the assessments lodged an objection on the i-Tax platform on 6th August 2020.

57. The Respondent on 21st January 2022 rejected the Appellant's objection because of the Appellant’s “Failure to support the reason for late objection,”

58. Aggrieved by this decision the Appellant filed this Appeal on 15th December 2022.

59. 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. The Section states as follows:-“13. Procedure for appeal1. 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.”

60. The Tribunal observes that the Appellant received the Respondent’s rejection decision on 21st January 2022 but filed its Notice of Appeal on 15th December 2022 which was more than eleven months subsequent to receiving the rejection decision.

61. The Tribunal further notes that the Appellant failed to apply for leave to file its Notice of Appeal out of time as required in Section 13(3) of the TAT Act which provides that: -“(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).”

62. The Tribunal is of the considered view that the timelines for appealing the Commissioner’s decisions are clearly set in the law, and taxpayers are liable to comply with the timelines, save for when unavoidable circumstances prevent a taxpayer from fulfilling its obligations as envisioned in Section 13 (4) of the TAT Act which states: -“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.”

63. 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.”

64. 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 as thus:-“... 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 tax payer would be unable to make crucial decisions and plan his/her business properly. The timelines set are mandatory and not a procedural technicality.”

65. Based on the law and the case laws cited above, the Tribunal finds that there is no valid Appeal before it as it was filed out of time and without leave of the Tribunal.

Final Decision 66. The upshot of the foregoing 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 costs.

67. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 8TH DAY OF MARCH, 2024GRACE MUKUHA - CHAIRPERSONJEPHTHAH NJAGI - MEMBERDR. WALTER ONGETI - MEMBERGLORIA A. OGAGA - MEMBERDR. ERICK KOMOLO - MEMBER