[2023] KETAT 132 (KLR)

Sawa Sawa Company Limited v Commissioner of Domestic Taxes (Appeal 107 of 2022) [2023] KETAT 132 (KLR) (Civ) (17 March 2023) (Judgment)

Neutral citation: [2023] KETAT 132 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 107 of 2022

RM Mutuma, Chair, RO Oluoch, EN Njeru, D.K Ngala & EK Cheluget, Members

March 17, 2023

Between

Sawa Sawa Company Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company registered in Kenya and does business of construction. It is a registered taxpayer.

2. The Respondent is a principal appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions 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 Respondent subjected the Appellant to a compliance check based on the variance between filed VAT returns and turnover as per the filed income tax returns for the years 2017 and 2018 in the sum of Kshs. 224,971. 00 and Kshs. 594,278. 00 respectively.

4. The Appellant was issued with a pre-assessment notice with the variances to give explanations on the variances.

5. 0n 24th May 2021 the Respondent issued an additional assessment amounting to Kshs.s. 1,634,610. 00. The Appellant filed an objection against this assessment on the 2nd June 2021.

6. The Respondent issued its objection decision on the 2nd of August 2021 confirming the additional assessment. From the record, the Objection decision is dated 2nd August 2021 but from the pleadings of both parties, the objection decision subject of the Appeal is said to be dated 9th August 2021.

7. On the 21st of August 2021, the Respondent instructed its officers to enforce the contents of the Objection decision issued on the 9th August 2021, whereupon an Agency Notice was issued to the Managing Director Family Bank Limited in respect of two accounts held by the Appellant at the bank, directing that any monies for or payable to the Appellant be remitted to the Respondent’s account at Central bank of Kenya to recover the taxes due.

8. Being dissatisfied with the assessment and the enforcement measures taken by the Respondent, the Appellant filed a Memorandum Appeal dated 2nd February 2022 which was filed with the Tribunal on the 3rd February 2022.

9. Simultaneously with the Appeal, the Appellant filed a Notice of Motion dated 16th February 2022 under a Certificate of Urgency seeking, inter alia, stay of the enforcement of the Agency Notice in respect of enforcement of the Objection decision dated 9th August 2021.

10. The Tribunal granted temporary orders of stay of enforcement of the Agency Notice, on the 19th April 2022.

The Appeal 11. The Appeal is anchored on its Memorandum of Appeal dated 2nd February 2022 filed with the Tribunal on the 3rd February 2022, it is further supported by the Statement of Facts of even dates and Notice of Appeal filed on 11th January, 2022 with written submissions dated 5th October 2022 and filed on 6th October, 2022.

The Memorandum of Appeal 12. The Memorandum of Appeal is framed and based on the following grounds;a.That the Additional assessment is excessive by reason of some error or mistake of fact in the assessed income.b.That the estimated assessment is punitive, excessive erroneous and not as per the income.c.That the Commissioner while raising the estimated additional assessment made a substantial error or defect in procedure provided by VAT Act 2013 Section 17, and the rules made thereunder which may possibly have produced error or defect in the decision. By dishonoring or not taking into account credit for input tax against output tax in the decision being contrary to law, or to some usage having the force of law. The decision having failed to determine some material issue of law or usage having force of law ignored or did not take into account “Fair Administrative Action’’.d.That the Commissioner denied the Appellant access to information, every person has the right to access information held by another person as required for the exercise or protection of any right or fundamental freedom. Every person has a right to the correction or deletion of untrue or misleading information that affects the person.e.The Commissioner while raising Additional Estimated Assessment erred in failing to allow purchases that the Appellant legally incurred in production of income in the respective months.f.The Respondent erred in failing to consider the purchases invoices presented to them and also purchases and sales ledgers as per their request.g.The Appellant demonstrated to the Respondent the specific items for the affected months, but proceeded to raise output VAT(Additional Assessment ) of Kshs. 1,944,722. 23 and enforced collection and recovery of the portion of Kshs. 1,634,610. 10. h.That all the documents as requested by the Respondent (Commissioner) were availed to him while he dishonestly claims that they were not availed. The Appellant proved that the Assessment is excessive, the tax decision should not have been made or should have been made differently, it said it complied with Section 30 of the TAT Act, 2013 as read together with VAT Act, 2013 Section 62. i.That the Respondent erred in law and fact not to accord the Appellant a fair hearing, more specifically to hear the Appellant and consider the substance of the Objection and further giving untrue and dishonest reasons for adding back the taxable supply without taking into account credit for input tax against output tax.

13. The Appellant therefore prays that the aforementioned assessment be annulled with costs and that the Appellant be permitted to pay the tax leviable on its true income ascertainable from evidence which has always been available and will be adduced at the hearing.

The Appellant’s Statement of Facts 14. In support of the Appeal the Appellant stated that the Commissioner raised an additional assessment against it on the 24th May 2021 for the period of December 2017 and December 2018 totaling to Kshs. 1,168,775. 77. 00. Subsequently, it was also served with notice of further additional assessments on the 16th December 2021 and 18th June 2022 amounting to Kshs. 931,137. 00 and enforced collection and recovery under Section 42 of the TPA for 1,634,610. 00 on 3rd January 2022.

15. The Appellant avers that the Respondent claimed that the taxable supplies for the months of June 2020, January 2017, December 2016, December 2017, December 2018 which were unpaid totals to 1,944,722. 23 and hence the additional assessments.

16. That the Appellant being aggrieved by the assessment and the Commissioner’s decision to enforce the collection of these taxes it filed respective objections on the on 2nd June 2021 and on 1st February 2022.

17. It states that it complied with the requests and all demands by the Respondent by providing all the documents demanded by the Respondent. That the Commissioner’s action to raise additional assessment despite having been supplied with all the requisite documents was an illegality under Section 17 of the VATAct, 2013 and the general fair administrative action contrary to Article 47 of the Constitution of Kenya 2010

18. It therefore prayed for orders that;a.The Agency Notice dated 3rd January 2021 reference P051465998B/s/No:AN/537/12/2021 be annulled/cancelled until the hearing and determination of the Appeal.b.The aforesaid assessment of Kshs. 1,944,722. 23 be annulled with costs, and that the Appellant to be permitted to pay the tax leviable on his true income ascertainable from the evidence which has always been available and will be adduced at the hearing.

The Appellant's Submissions. 19. The submissions reiterated the Statement of Facts and the Memorandum of Appeal.

20. That the Appeal after being filed was referred to ADR and a partial consent recorded on 20th September 2022, with the VAT assessments for the periods December 2016, January 2017, May 2017 and June 2020 amounting to 1,125,473. 30 being referred back to the Tribunal for hearing and determination.

21. That the amendment of the self-assessment by the Respondent was in error as the Respondent did not consider the documents provided.

22. The Appellant identified one issue for determination that is;“whether the Commissioner was justified in amending the VAT additional assessment and disallowing input tax claimed by the Appellant.’’

23. Further it argued that input tax was claimed within the six months stipulated by Section 17 of the VATAct.

24. It stated that the Respondent failed to adhere to Section 59 of the TPA and also contravened Section 31 of the VATAct by making speculative assessments in regard to additional assessments raised on the 18th January 2022 for the period January 2017 being 108,000. 00, Kshs. 309,644. 64. 00 for May 2017 among other extra assessments.

The Respondent’s Case 25. The Respondent opposed the Appeal by filing its Statement of Facts dated and filed on 1st March 2022 and the written submissions dated and filed on 2nd November 2022.

The Respondent’s Statement of Facts. 26. The Respondent confirms that an additional assessment was issued on 24th May 2021 and an Objection decision issued on 9th August 2021 based on an objection by the Appellant dated 2nd June 2021.

27. That the assessment was confirmed because the Appellant failed to provide the documents that had been requested by the Commissioner. It was its further argument that Section 31 of the TPA allowed the Commissioner to exercise its best Judgment based on the available information. That’s how the Respondent exercised its power in this case.

28. It identified only one issue for determination:“Whether the Appellant claim for deduction on VAT is valid.’’

29. Its submission was largely based on its Statement of Facts.

30. The Respondent relied on Section 17 of the VATAct. It stated that the Appellant was not entitled to Input Tax as the same was claimed outside the statutory period.

31. Its prayer to the Tribunal was for orders that:a.The Appellants’ claim for deduction of VAT is invalid.b.The Respondent’s Objection decision dated 9th August 2021 in as far as assessment for the periods December 2016, January and May 2017 and June 2020 amounting to Kshs. 1,125,473. 30 is proper in law and to uphold the same.

Issues For Determination 32. The Tribunal having looked carefully at the special circumstance of this Appeal, arrives at the conclusion that there is only one issue for determination;a.Whether the Tribunal can issue any orders in respect of any tax based on an objection decision alleged to be dated 9th August 2021 but not availed to the Tribunal by either party.

Analysis And Findings 33. Although the Respondent had challenged the validity of the Notice of Appeal dated the 24th August 2021, it seems the issue, though not officially documented was abandoned after the ruling on the Notice of Motion dated 16th February 2022. This is evidenced by the fact that the parties entered into a partial consent on the disputed tax on the 20th September 2022.

34. Both parties in their pleadings alluded to the fact that there was an Objection decision dated 9th August 2021. That the objection decision was as a result of additional assessment of tax and a demand of additional tax made on the 24th of May 2021. The Appellant then objected to the assessment on 2nd June 2021.

35. As stated earlier, the parties have not attached a copy of the Objection decision, neither at the time of filing the pleadings, affidavits and submissions during the hearing of the application for orders of stay of the execution of the Agency Notice, nor at this stage of hearing of the main suit.

36. The Objection decision that is on record acknowledged and annexed by both parties is the one dated 2nd of August 2021. The objection decision is for the sums of Kshs. 224,971. 00 and Kshs. 594,278. 00.

37. In the pleadings the sum in dispute seems to be 1,944,722. 00 to which the sum of 1,634,610. 00 was picked for recovery enforcement vide the Agency Notice. The figure mysteriously came down to Kshs.s 1,125,473. 00 vide a consent of 20th September 2022. No chronology of systematic calculations to the figures was given.

38. The Tribunal alluded to this issue at paragraph 28 of its Ruling delivered on 19th April 2022 when it stated that:“… it would appear that the Notice of Appeal in this matter was not calculated to challenge the objection decision issued on the 2nd august 2021 confirming the VAT assessment in the aggregate sum of Kshs. 819,249. 00. The Respondent though having deponed in the replying affidavit that it issued an objection decision on 9th August 2021 that was challenged by the Appellant through a Notice of Appeal filed before the Tribunal on the 24th August ,2021 no such objection was annexed, instead the aforesaid objection decision issued on 2nd August 2021 was the one annexed to the replying affidavit… ’’

39. None of the parties addressed itself to the issue in the determination of the main Appeal despite the fact that Tribunal had prompted the parties to rectify this issue in the above stated Ruling. Instead both parties opted to dwell on issues under Section 17(2) of the VATAct which reads as follows;“If, at the time when a deduction for input tax would otherwise be allowable under Subsection (1)—a.the person does not hold the documentation referred to in Subsection (3), orb.the registered supplier has not declared the sales invoice in a return,the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation: Provided that the input tax shall be allowable for a deduction within six monthsafter the end of the tax period in which the supply or importation occurred.”

40. This Section in the terms of the issue for determination seems irrelevant considering that parties had entered into consent on the tax payable.

41. The consent is said to be pursuant to an ADR agreement dated 16th August 2022 marking the Appeal as partially settled. The original ADR agreement was not availed to the Tribunal. Therefore, no any other facts are available in respect of the basis of the consent other than the consent itself. This consent was adopted by the Tribunal on the 22nd of September 2022 as an order of the Tribunal.

42. The consent confirmed payment of Kshs. 303,711 leaving a balance of Kshs. 950,845 which was agreed to be payable in equal installments from August 2022 to November 2022, leaving a balance of Kshs. 1,125,473 to be determined by the Tribunal.

43. The Respondent did not challenge the existence of the Appeal hence it’s the Tribunal’s considered view that the proceedings and the subsequent orders are proper. The Tribunal will therefore not interfere with the said consent as was stated in the following cases:a.The case of NKM v SMM [2019] eKLR the court observed at paragraph 16 thus;“It is now settled law that a consent judgment or order has contractual effect and can only be set aside on grounds which would justify setting a contract aside or certain conditions remained to be fulfilled which are not carried out.’’b.English Case of Purcel V. F. C. Trigell Ltd, (trading as Southern Window And General Cleaning Co. and Another), [1970] 3 ALL ER 671, where Winn, LJ,opined: It seems to me that, if a consent order is to be set aside, it can only be set aside on grounds which would justify the setting aside of a contract entered into with knowledge of the material matters by legally competent persons, and I see no suggestion here that any matter that occurred would justify the setting aside or rectification of this order looked at as a contract.’’c.In Kenya Commercial Bank Ltd Versus Specialized Engineering Co. Ltd [1982] KLR 485, “it was held that an order entered into by consent is binding on all parties to the proceedings and cannot be set aside or varied unless it is proved that it was obtained by fraud, or collusion, or by an agreement contrary to the policy of the Court, or where the consent was given without sufficient material facts, or in representation or ignorance of such facts in general for a reason which would enable the court to set aside an agreement. Justice Harris at page 493 opined: The marking by a court of a consent order is not an exercise to be done otherwise than on the basis that the parties fully understand the meaning of the order either personally or through their advocates, and when made, such an order is not lightly to be set aside or varied save by consent or one or other of the recognized grounds.’’“The consent herein was entered into on 21st September, 2017 after the court adopted the Mediation Settlement Agreement dated 3rd August, 2017 on the mode of distribution of various assets. The Mediation Settlement Agreement was reached after the main suit was referred to mediation. Parties filed their case summaries and a mediator was appointed to assist in the mediation process.’’

44. The facts herein are almost similar and therefore the Tribunal will not interfere with the consent entered into by the parties for the taxes not disputed.

45. In regard to the dispute referred to the Tribunal for determination of a balance of Kshs.s 1,125,473, the Tribunal holds that the Appellant’s failure to attach the objection decision dated the 9th of August 2021 is fatal to this Appeal.

46. Section 13(2) of the Tax Appeals Tribunal Act provides that:“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.” (Emphasis added)

47. This provision of the law is couched in mandatory terms. Consequently, the Appellant’s failure to attach the objection/tax decision dated the 9th of August 2021 rendered this Appeal incompetent and thus a nullity.

48. The sum total of the foregoing is that the Tribunal finds that the Appellant’s Appeal is not meritorious.

Final Decision 49. The Tribunal on the basis of the foregoing analysis proceeds to make the following final Orders;-a.That save for the Partial Consent endorsed by the Tribunal on the 22nd September, 2022 the Appeal dated 2nd February, 2022 and filed before the Tribunal on the 3rd February 2022 be and is hereby dismissed.b.Each party to bear its own costs.

50. Orders accordingly.

DATED AND DELIVERED AT NAIROBI THIS 17TH DAY OF MARCH, 2023. ………………………….ROBERT M. MUTUMA - CHAIRPERSONRODNEY O. OLUOCH - MEMBERELISHAH NJERU - MEMBERDELILAH K. NGALA - MEMBEREDWIN K. CHELUGET - MEMBER