[2024] KETAT 743 (KLR)

Scofax Merchants v Commissioner of Domestic Tax (Appeal 1430 of 2022) [2024] KETAT 743 (KLR) (9 May 2024) (Judgment)

Neutral citation: [2024] KETAT 743 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 1430 of 2022

RM Mutuma, Chair, EN Njeru, M Makau, AM Diriye & B Gitari, Members

May 9, 2024

Between

Scofax Merchants

Appellant

and

The Commissioner Of Domestic Tax

Respondent

Judgment

Background 1. The Appellant is a registered taxpayer who is engaged in the business of construction and public works.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 laws of Kenya. Under Section 5 (1) of the Act, the Respondent is an agency of the Government of Kenya mandated to administer and enforce all provisions of the written laws as set out in Parts 1 & 2 of the First Schedule of the Act, to assess, collect and account for all revenues per those laws.

3. On 25th June 2020, through the iTax portal, the Respondent issued VAT assessments to the Appellant for the period January to October 2017 for a principal tax of Kshs 13,671,807. 00

4. The Appellant lodged a late objection to the additional assessments on 22nd October 2021 to which the Respondent issued an invalidation decision on 6th December 2021.

4. Aggrieved by the Respondent’s decision, the Appellant lodged this Appeal on 20th February 2023 after being granted leave to file an Appeal out of time by this Tribunal in a Ruling dated 17th February 2023.

The Appeal 6. The Appeal as contained in the Memorandum of Appeal dated 20th February 2023 2022 and filed on 27th February 2023 raised the following grounds of appeal;i.That the Respondent erred in fact and law by failing to consider all the documents supplied in support of objection before issuing objection decision.ii.That the Appellant, however, intends to engage the Respondent through the Respondent’s alternative Dispute Resolution framework with a view of solving the tax dispute amicably.

The Appellant’s Case 7. The Appellant’s case is set on its:-a.Statement of Facts filed on 27th February 2023 and the documents annexed thereto; andb.Written Submission dated 28th September 2023 and filed on 9th October 2023.

8. The Appellant submitted that the application arose as a result of erroneous default assessment after the Respondent issued it with a review notice, dated June 2021, requesting a review of the Appellant's tax returns in accordance with Section 59 of the Tax Procedures Act (TPA).

9. The Appellant averred that the Respondent issued it with an estimated VAT assessment for the period spanning January 2017 to October 2017, it then made its Objection on October 2021 to which the Respondent issued an objection decision on October 2021.

10. The Appellant stated that it used to withdraw cash over the counter and pay in hard cash and Mpesa as evidenced in the work book and mpesa statements.

11. The Appellant averred that its business went under in 2018 and was left broke to a point of being auctioned by auctioneers.

12. The Appellant stated that it has all invoices, purchase receipts and agreements for the period and are willing and ready to engage in ADR.

Appellant’s Prayers 13. The Appellant prayed that:a.The Respondent’s decision dated October 2021 be dismissed in its entirety.b.The cost of this Appeal to be borne by both parties.c.All the default additional assessments be rejected.d.All the penalties and interests be waived.e.Any other remedies that the Tribunal deems just and reasonable to grant

The Respondent’s Case. 14. The Respondent set out its case on its;a.Statement of Facts dated 27th March 2023 and filed on 28th March 2023 and the documents annexed thereto; andb.Written submissions dated 18th September 2023 and filed on 22nd September 2023

15. The Respondent submitted on the following issues for determination:-i.Whether the Appellant's Supplementary Statement of Facts and additional Statement of Facts were validly filed; ii. Whether the notice of objection was validly lodged; iii. Whether the Appeal herein is valid;iv.Whether the additional assessments were legally justified; v. Whether the Appellant discharged its burden of proof.

i. Whether the Appellant's Supplementary Statement of Facts and Additional Statement of Facts were validly filed 16. The Respondent submitted that the Appellant had filed a Supplementary Statement of Facts dated 27th April 2023 and an additional Statement of Facts filed on 29th August 2023 without leave of the Honourable Tribunal and the same should be expunged from the record.

ii. Whether the Notice of Objection was validly lodged 17. The Respondent stated that Section 51 (2) of the Tax Procedures Act provides the strict timelines within which an Objection to an assessment can be lodged.

18. The Respondent further stated that Section 51 (6) and (7) of the Tax Procedures Act provides the procedure of seeking for extension of time to object to an assessment beyond the prescribed 30 days.

19. The Respondent submitted that before it allows a late objection, the Appellant ought to have applied in writing for an extension of time giving the reasons for the delay.

20. The Respondent averred that there are at least two stages involved in considering the application of extension of time. The first is determining whether there is proof of the reason stated. For example, when sickness is alleged, proof of such illness is required to establish that indeed there was sickness. The second stage is that the proved reason is one that actually prevented the taxpayer from lodging a notice of objection.

21. The Respondent asserted that the Appellant failed to provide any justifiable reason for the delay of more than 1 year and 4 months in lodging an objection hence it invalidated the late objection and issued an invalidation decision dated 6th December 2021.

22. The Respondent contended that there was no valid objection since the Appellant failed to comply with Section 51(3)(c) of the Tax Procedures Act and relied on the holding in Kotile General Contractors Company Limited vs. Commissioner of Domestic Taxes /2020] eKLR.

23. The Respondent argued that the Appellant neither paid the undisputed amount of Kshs. 11,962,831. 18 nor entered into any arrangement with it to pay the taxes not in dispute contrary to Section 51 (3) (b) and 52 (2) of the Tax Procedures Act.

24. The Respondent submitted that it communicated to the Appellant via email on 28th October 2021, requesting for reasons for the late submission of the Objection, and emphasized the importance of providing clarification and supporting evidence regarding the delay.

25. The Respondent further submitted that the Appellant failed to respond on the request to provide reasons and provide supporting documents. This prompted it to issue a rejection of the Objection and confirm the assessments in total.

26. The Respondent stated that it rejected the objection due to the late submission without considering its merits. Consequently, the Appeal is limited to issues directly related to the decision, as per Section 56 (3) of the Tax Procedures Act and 13 (6) of the Tax Appeals Tribunal Act.

iii. Whether the appeal herein is valid. 27. The Respondent stated that the Appeal herein is invalid since the Appellant failed to comply with Section 52(2) of the Tax Procedures Act. The Respondent further submitted that the Appellant's objection was invalid for the reason that the assessment not objected to was not paid contrary to Section 51 (3) (b) of the Tax Procedures Act and relied on TAT Appeal No 43 of 2017- Uchumi Supermarkets Ltd vs Commissioner of Domestic Taxes.

28. The Respondent submitted that it was justified by the law to invalidate the Appellant's objection and asserted that the Objection decision should therefore be affirmed by the Tribunal.

iv. Whether the Additional assessment were legally justified 29. The Respondent emphasized that the Appeal is incurably defective and an abuse of the court process since the Appellant seeks to challenge an objection decision resulting from an invalid objection and relied on the decision in the case of Misc. appl. No. 175 of 2022 -Valley drillers & general contractor's ltd vs. the commissioner of domestic tax as well as the decision in TAT appeal No 470 of 2021 seme NG-CDF vs the Commissioner of domestic taxes.

30. The Respondent pointed out that the decision to issue the additional assessments was justified and were issued in accordance with the provisions of the Value Added Tax Act based on variances where data sets indicated that the Appellant was trading but was not declaring the transactions correctly for the period January to October 2017.

31. The Respondent contended that it engaged the Appellant vide email correspondences dated 28th October 2021, 8th November 2021, 16th November 2021 and 24th November 2021 requesting it to provide support documentation to validate its objection to enable it to ascertain the correctness of its tax declarations.

32. The Respondent further stated that the Appellant at the Objection stage failed to avail the detailed support documentation to support its various objection grounds as per the requirements of Section 51 (3) of the Tax Procedures Act even after an opportunity was extended to it to present its case and the support for its objection application.

33. The Respondent asserted that despite the Appellant being given sufficient opportunity, in excess of two (2) months, the Appellant failed, refused and or neglected to provide and furnish any documents compelling it to confirm the assessments.

34. The Respondent argued that the tax period under review is in 2017 before the business purportedly went down in 2018. The taxes for 2017 are therefore validly and legally due and payable.

35. The Respondent submitted that the assessments were based on Section 31 of the Tax Procedures Act which empowers it to make alterations, or additions to original assessments from available information for a reporting period based on best judgment and relied on the judgement espoused in Digital Box Ltd vs Commissioner of Investigation & Enforcement (2019) eKLR.

36. The Respondent submitted that failure by the Appellant to provide the requisite documents to support its objection was contrary to Section 51 (3) of the Tax Procedures Act and therefore it exercised its best judgment before arriving at the objection decision and further relied on Section 59 of the Tax Procedures Act which empowers the Respondent to seek any information relating to the ascertaining of the correct tax liability of an Appellant and the decision in the case of Osho Drapers Limited versus Commissioner of Domestic Taxes [2022] eKLR.

v. Whether the Appellant discharged its burden of proof. 37. The Respondent emphasized that the Appellant has not adduced any evidence to support its case and therefore maintained that it has not discharged its burden of proof under Section 30 of the Tax Appeals Tribunal Act and Section 56 (1) of the Tax Procedures which places the burden on the taxpayer to proof that a tax decision is incorrect.

38. The Respondent submitted that Section 59 of the Tax Procedures Act gives it power to request for more and additional information to satisfy itself on the taxable income declared or matters tax. Some of the documents to be kept by a taxpayer and which should be availed to the Commissioner are, copies of invoices, copies of stock records, details of each supply of goods and services among others.

39. The Respondent relied on the decision espoused in the Commissioner of domestic services vs. Galaxy tools limited (2021] eKLR as well as in Prima Rosa Flowers limited vs. Commissioner of domestic taxes [20191 eKLR.

The Respondent’s Prayers 40. The Respondent prayed that this Tribunal:a.Upholds the Respondent's objection decision dated 6th December 2021 as proper and in conformity with the provisions of the lawb.Finds that this Appeal is devoid of merit and dismisses it with costs to the Respondent.

Issues For Determination 41. The Tribunal takes note that the Appellant filed the Supplementary Statement of Facts dated 27th April 2023 and Additional Statement of Facts on 29th August 2023 without leave of the Tribunal. The same having been filed without leave of the Tribunal are hereby expunged from the record.

42. The Tribunal has however considered the Memorandum of Appeal, the parties’ Statements of Facts and submissions and finds that there are two issues that calls for its determination as follows:a.Whether the Appeal herein is validb.Whether the Notice of Objection was validly lodgedc.Whether the Respondent’s Additional assessment was justified

Analysis And Findings 43. The Tribunal shall proceed to analyse the issues as herein under.

a. Whether the Appeal herein is valid. 44. The Respondent argued that the Appellant’s Appeal is invalid by reason that the Appellant failed to comply with Section 52 (2) of the Tax Procedures Act.

45. The Respondent argued that the Appellant neither paid the undisputed amount of Kshs. 11,962,831. 18 nor entered into any arrangement with it to pay the taxes not in dispute.

46. Section 52(2) of the Tax Procedure Act provides as follows;“A notice of appeal to the Tribunal relating to an assessment shall be valid if the taxpayer has paid the tax not in dispute or entered into an arrangement with the Commissioner to pay the tax not in dispute under the assessment at the time of lodging the notice.”

47. The Tribunal observes that the Appellant neither countered the Respondent’s arguments concerning the failure to pay the undisputed amount of tax nor did it provide the Tribunal with evidence of any such payment.

48. In the bundle of documents provided by the parties, the Respondent has attached eight assessments dated 25th June 2020 for the period March to October 2017 totalling Kshs. 18,496,462. 32 while the Appellant has attached an Objection decision dated 6th December 2021 wherein an amount of Kshs. 13,671,807. 00 was Objected to.

49. Section 52 (2) of the Tax Procedure Act (supra) requires that for an Appeal to be validly lodged, the Appellant must pay all taxes not in dispute. The Appellant herein has failed to demonstrate that it has complied with this provision.

50. The Tribunal therefore finds that the Appeal herein is invalidly lodged, thereby incompetent.

51. Having pronounced itself on the first matter, the Tribunal finds no reason in pursuing the other issues that fell for its determination as the same have been rendered moot.

Final Decision 52. The upshot of the foregoing is that the Appeal is untenable in law and Tribunal accordingly proceeds to make the following Orders:i.The Appeal be and is hereby struck out. ii. Each party to bear its own costs.

52. It’s so ordered.

DATED AND DELIVERED AT NAIROBI 9TH DAY OF MAY, 2024ROBERT M. MUTUMA - CHAIRPERSONELISHAH N. NJERU - MEMBERMUTISO MAKAU - MEMBERMOHAMED A. DIRIYE - MEMBERBERNADETTE M. GITARI - MEMBER