[2023] KETAT 538 (KLR)

Sender Services Co Limited v Commissioner of Domestic Taxes (Tax Appeal 850 of 2022) [2023] KETAT 538 (KLR) (19 October 2023) (Judgment)

Neutral citation: [2023] KETAT 538 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 850 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, E Ng'ang'a, AK Kiprotich & B Gitari, Members

October 19, 2023

Between

Sender Services Co Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The appellant is a limited liability company incorporated in Kenya with its principal activity being cleaning services.

2. The respondent is an officer appointed under and in accordance with section 13 of the Kenya Revenue Authority (KRA) 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 respondent issued the appellant with a notice of assessment vide a letter dated April 1, 2021.

4. The appellant lodged an objection on August 30, 2021.

5. The respondent wrote to the appellant through an email dated October 18, 2021 requesting for supporting documents to allow for a validly lodged late objection.

6. Subsequently, the respondent issued the appellant with an invalidation notice dated October 28, 2021.

7. Following its dissatisfaction with the respondent’s decision, the appellant filed a Notice of Appeal and subsequently this Appeal on August 16, 2022.

The Appeal 8. The appeal is premised on the following grounds as stated in the appellant’s memorandum of appeal dated August 4, 2022 and filed on August 16, 2022:-a.That the objection decision was made in respect of erroneous and fictitious additional assessments made and registered against the taxpayer.b.That on April 14, 2021 the Commissioner did not follow the correct due process in determining the VAT additional assessments for the months of December 2016, December 2017, March 2018, April 2018 and December 2018. c.That it is just and reasonable that the excessive additional assessments be vacated and the status quo be maintained in accordance with the original VAT for the months in question.d.That the Commissioner is relying on the above decision to institute very harsh and aggressive enforcement measures by issuing Agency Notices in respect of the taxpayer bank accounts.e.That this Appeal and the Alternative Dispute Resolution mechanism is a fair and reasonable avenue for the expeditious and mutually acceptable conclusion of the matter.

appellant’s Case 9. The appellant’s case is premised on the hereunder submitted documents:a.The appellant’s statement of facts dated dated August 4, 2022 and filed on August 16, 2022 together with the documents attached thereto.b.The appellant’s Rejoinder to the respondent’s Statement of Facts dated and filed on September 20, 2022. c.The appellant’s written submissions dated May 2, 2023 and filed on May 4, 2023.

10. The appellant submitted that the treatment of the appellant's invoices on account of its work in the construction of electrical and electronics and dormitories at Nyang'oma Technical Training Institute for the Deaf is at the core of the disputed assessments. That due to authorized exemptions from VAT by both the National Treasury and the respondent, the appellant did not charge and bears no VAT on the subject invoices. That however, the respondent erroneously levied and wrongfully demanded the payment of VAT additional assessments on these exempt invoices.

11. That in the matter under appeal, the respondent has conveniently sought to hide behind the technicalities of the Tax Procedures Act 2015 to avoid being brought to account to explain the illegality that it blatantly committed in raising VAT additional assessments which it knew or reasonably ought to have known were free of VAT in accordance with lawful exemptions issued to the appellant.

12. That further, the respondent walked out on the ADR process, without providing any valid reasons.

13. It is the appellant’s submission that this Honourable Tribunal be pleased use to powers conferred to it by the Laws of Kenya to overturn the illegalities committed by the respondent and award due compensation to the weak and defenceless appellant for the pain and suffering consequent upon the respondent's illegal acts.

14. That the appellant filed the following documents in support of its grounds:-a.The National Treasury's letter to the respondent, confirming that TIVET Project Phase II is an official funded project and exempt from VAT.b.The respondent's letter to the appellant authorizing the supply of items/services free of VAT.c.The appellant's reconciliation of the disputed assessments in the years 2016, 2017 and 2018. d.The appellant's Schedule of Monthly VAT Returns and Withholding VAT for the year 2016. e.The appellant's Schedule of Monthly VAT Returns and Withholding VAT for the year 2017. f.The appellant's Schedule of Monthly VAT Returns and Withholding VAT for the year 2018.

15. That the respondent rejected the above in toto, and without offering any reasons, walked out of the ADR process.

16. That it is unjust and unreasonable for the respondent to purport to subject to VAT additional assessments, turnover in respect of item/services which were lawfully exempted from VAT.

17. That in the course of reconciling the disputed VAT additional assessments, the appellant discovered errors in the filed VAT returns as follows:a.For 2016 - Taxable value of Kshs. 8,694,434. 61 and amended VAT assessment of Kshs. 1,391,109. 52;b.For 2017 - Taxable value of Kshs. 19,101,800. 00 and amended VAT assessment of Kshs. 3,056,288. 00;c.For 2018 - Taxable value of Kshs. 0. 00 and amended VAT assessment of Kshs. 0. 00.

18. That the Tribunal should condemn the respondent's VAT additional request, that the same be vacated and be substituted with the amounts in the reconciliations above.

19. That the respondent's opposing grounds do not oppose but reinforce the Applicant's grounds in its written submissions.

20. That the proper conduct of the alleged verification exercise ought to have brought to the respondent's attention, the existence of VAT exemption for some of the appellant's turnover.

21. That further, the appellant's contention in the objection letter of August 30, 2021 of unexplained variances should have led the respondent to a different route of enquiry than to request for supporting documents of an issue which was not amenable to such scrutiny.

22. That it is therefore evident that the respondent made a disastrous decision in issuing the invalidation notice dated October 28, 2021.

23. That the respondent made wholesale rejection of the appellant's grounds of appeal by submitting that ―this claim is inaccurate. The appellant did not provide supporting documents to warrant the late objection and support grounds for the objection.‖

24. That the respondent's Statement of Facts dated August 30, 2022 is a calculated attempt to mislead this Honourable Tribunal, and have valid basis in law.

25. That in the 'Background of the Case', (para. B4), the respondent clearly states that ―the dispute arose from additional assessments issued on the appellant based on noted variances between turnover as per filed Income Tax returns and filed VAT returns‖. That it is therefore misleading for the respondent to allege that ―this claim is inaccurate‖.

26. That the Appeal was buttressed on the respondent's cited erroneous and illegal VAT additional assessments which were solely based on differences in turnover and the appellant's statement of facts.

27. That the appellant has discharged the burden of proof under section 56(1) of the Tax Procedures Act by submitting the National Treasury's letter Ref. 415/232/011 and Kenya Revenue Authority letter Ref. H/0/3023(3)/(e)7(3) which indisputably show that the assessments under the Appeal were incorrect.

28. That the appellant submitted to the Tribunal, copies of the National Treasury's letter Ref. DFN 415/232/011 of April 13, 2017 and the respondent's letter, Ref. H/0/3023 (3)/ (e)/7(3) which authorized the Applicant to supply items/services in respect of Nyang'oma Technical Training Institute for the Deaf, free of VAT.

29. That in raising the assessments which are subject to this Appeal, the respondent overlooked and/or abandoned the ―free of VAT‖ status of the transactions it had duly authorized.

30. The appellant reiterated that it has adequately met the threshold in the burden of proof in the Appeal as to why the respondent was wrong in its position and overall findings; failure to give effect to VAT exemptions on particular invoices; Reconciliation of the Disputed Assessments; and the demonstration of damages suffered consequent upon the respondent's actions.

31. That it is the stated position of both parties to the Appeal that costs should follow the event.

Appellant’s Prayers 32. The appellant prayed that this Honourable Tribunal:a.Be pleased to find that the respondent, wilfully, illegally and maliciously issued to the appellant, defective notices of VAT additional assessments that contravened and subverted the provisions of Part ll, Item 20 of the 1st Schedule of the VAT Act, 2013. b.Be pleased to find that the respondent, consequent upon its illegal acts, set out in paragraph (a) above, instituted misplaced and uncalled for enforcement and recovery measures that were harmful to the reputation and business of the appellant, and which caused loss of business and inflicted mental anguish, loss of self-esteem to the life and livelihoods of the appellant's directors and staff.c.Be pleased to dismiss the respondent's Objection decision dated 28th October, 2021 and its Statement of Facts dated 30th August, 2022 for being incompetent and devoid of any merit under the Laws of Kenya.d.Be pleased to find that the contested VAT additional assessments be expunged from the appellant's records kept by the respondent. In place thereof, the respondent be required to effect the results of the appellant's Reconciliation of the Disputed Assessments prepared and submitted during the ADR process and to substitute the following amended assessments:-i.For 2016 - Taxable value of Kshs. 8,694,434. 61 and amended VAT assessment of Kshs. 1,391,109. 52;ii.For 2017 - Taxable value of Kshs. 19,101,800. 00 and amended VAT assessment of Kshs. 3,056,288. 00;iii.For 2018- Taxable value of Kshs. 0. 00 and amended VAT assessment of KShs.0. 00. e.Be pleased to order the respondent to pay the appellant general and exemplary damages on the aggravated scale for the loss of business and psychological suffering occasioned by its unlawful assessment, enforcement and recovery measures together with costs associated with the undertaking of this appeal.

Respondent’s Case 33. The respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal: -i.The respondent’s Statement of Facts dated 30th August, 2022 together with the documents attached thereto.ii.The respondent’s written submissions dated and filed on 18th April, 2023 together with the legal authorities filed therewith.

34. The respondent submitted that the appellant’s claim is inaccurate. That the appellant did not provide supporting documents to warrant the late objection and support grounds for the objection.

35. That the respondent issued the appellant with additional assessments on 14th April, 2021 wherein the appellant was required to object within a period of 30 days. That the appellant objected to the assessments raised on 30th August, 2021 which was 138 days after the issuance of the additional assessments. That this is contrary to the provisions of the law.

36. That the appellant was, vide respondent’s emails dated 8th September, 2021, 1st October, 2021 and 18th October, 2021 notified that its objection was not validly lodged as per the provisions of section 51 of the Tax Procedures Act owing to non-submission of the relevant documents relating to the objection. That the appellant was further requested vide the same emails to provide all the relevant documents in support of the objection including the ones listed in the email to enable the respondent review its objection.

37. That section 51(3) of the Tax Procedures Act 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; andb.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…‖

38. That further, section 51(7) of the Tax Procedures Act provides that:―The Commissioner may allow an application for the extension of time to file a notice of objection if —a.the taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of an absence from Kenya, sickness or other reasonable cause; andb.the taxpayer did not unreasonably delay in lodging the notice of objection.‖

39. That in the instant case, the appellant has not provided adequate evidence, either during the objection review process or before this Tribunal to satisfy the requirement for late objection as per section 51(7) of the Tax Procedures Act. That as a matter of fact, the appellant did not give grounds for late objection.

40. That the burden of proof on tax matters lies on the appellant who alleges that the respondent made an incorrect decision. 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.‖

41. That the appellant failed to provide the following information requested to support the late objection:a.Audited Financial Statements.b.General ledger.c.Invoices to support the sales by the company.

42. That based on the appellant’s failure to avail supporting documents within the requested 14 days, the respondent issued an invalidation notice on the basis that the appellant had failed to provide documents.

43. The respondent reiterated that in challenging a tax assessment, the burden is on the appellant to demonstrate that the assessment was excessive and erroneous, a fact that has not been discharged by the appellant.

44. The respondent stated that the issuance of agency notices is a legal way of enforcement of taxes provided for under section 42 of the Tax Procedures Act.That in the instant case, the objection decision has not been lawfully challenged wherewith the tax liability has crystallized.

45. That based on the responses stated above, the respondent reiterated that the appellant’s grounds for appeal are not sufficient. That from the facts of the case, the appellant failed to discharge the burden required to challenge the basis of the respondent’s invalidation notice.

46. That this matter raises one main issue for the Honourable Tribunal’s determination being whether the respondent’s invalidation was within the scope of the law.

47. That in Primarosa Flowers Limited v Commissioner of Domestic Taxes [2019] eKLR, the Hon Makau J whilst making reference to the Australian case of Mulherin v Commissioner of Taxation [2013] FCAFC 115 held that: -―……the onus is on the taxpayer in proving that the assessment was excessive by adducing positive evidence which demonstrates that the taxable income on which tax ought to have been levied…‖

48. That breach of compliance with section 51(3) of the Tax Procedures Act compelled the respondent to reject the appellant’s objection pursuant to Section 51(4). That the appellant not only filed its objection late but also failed to adduce sufficient accompanying evidence to support the objection despite several reminders.

49. That further, the appellant was unable to avail all documentation in support of its application for extension of time within the threshold prescribed by section 51(7) of the Tax Procedures Act which provide that:―the Commissioner may allow an application for the extension of time to file a notice of objection if—a.The taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of an absence from Kenya, sickness or other reasonable cause; andb.The taxpayer did not unreasonably delay in lodging the notice of objection.‖

50. That in theabsence of supporting documents from the appellant, the respondent issued the decision dated 28th October, 2021 pursuant to the provisions of section 51(3)( c) and (7) of the Tax Procedures Act, 2015.

51. On the issue of burden of proof and the onus to provide documentation lying on the appellant, the respondent further relied on the following cases:a.Afya Xray Centre Limited v Commissioner of Domestic Taxes TAT Appeal No. 70 of 2017;b.Meera Umoja Kenya Limited v Commissioner of Domestic Taxes Nairobi TAT Appeal No. 93 of 2019;c.Commissioner of Domestic Taxes v Structural International Kenya Ltd

52. The respondent therefore submitted that the onus was on the appellant to provide all material documents to enable the respondent ascertain the taxable supply, which it failed to do.

53. That the appellant failed to object as required by section 51 of Tax Procedures Act and the same was clearly explained vide various emails attached to the Statement of Facts and the appellant has not produced any evidence before this Honourable Tribunal to show that the said decision was wrongful or illegal.

respondent’s Prayers 54. The respondent prayed that the Tribunal:a.Be pleased to dismiss this Appeal in its entirety.b.Proceeds to confirm the assessments and find that the same is due and payable by the appellant.

Issues for Determination 55. The Tribunal has evaluated the pleadings and documentation filed by both parties and is of the respectful view that the singular issue falling for its determination is:- Whether the respondent’s invalidation notice was justified

Analysis And Determination 56. The Tribunal having established the issue for its determination, proceeds to analyse it as hereunder.

57. The appellant submitted that it lodged its notice of objection on August 30, 2021 in response to an assessment issued by the respondent on April 1, 2021.

58. The appellant acknowledged that its objection was late. It however submitted that the contention in its objection letter of August 30, 2021 of unexplained variances should have led the respondent to a different route of enquiry than to request for supporting documents on an issue which was not amenable to such scrutiny. That it is therefore evident that the respondent made a disastrous decision in issuing the invalidation notice dated October 28, 2021.

59. The respondent, on its part, submitted that the appellant objected to the assessments raised on August 30, 2021 which was 138 days after the issuance of the additional assessments. That this is contrary to the provisions of the law.

60. The respondent further stated that the appellant was, vide respondent’s emails dated September 8, 2021, October 1, 2021 and October 18, 2021 notified that its objection was not validly lodged as per the provisions of section 51 of the Tax Procedures Act owing to non-submission of the relevant documents relating to the objection. That the appellant was further requested vide the same emails to provide all the relevant documents in support of the objection including the ones listed in the email to enable the respondent review its objection. That the appellant did not provide the requested documents.

61. The Tribunal has perused the parties’ pleadings and noted that indeed the appellant filed a late objection on August 30, 2021.

62. Section 51(3) of the Tax Procedures Act provides as follows regarding the attributes of a valid notice of objection:―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; andb.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…‖

63. From the foregoing, it is clear to the Tribunal that for an objection to be considered validly lodged a notice of objection must contain the following elements:a.It must be in writing;b.It must be lodged with the Commissioner within thirty days of the taxpayer being notified of the tax decision;c.It must state the grounds of objection;d.It must state the amendments required to be made to correct the decision; ande.It must state the reasons for the amendments;

64. Having considered the elements required for an objection to be validly lodged, it is clear to the Tribunal that the letter to the respondent dated 30th August, 2021 falls short of the threshold for a valid objection by being filed late, failing to state the grounds of objection, neglecting to propose the amendments and reasons for the amendments needed. Further, the appellant did not make an application for extension of time under section 51(7) in order to file a late notice of objection.

65. The Tribunal established that the appellant was indulged by the respondent to provide documents in support of its objection via various emails dated September 8, 2021, October 1, 2021 and October 18, 2021; to which the appellant has not shown evidence of response or submission of the requested documents to the respondent.

66. The Tribunal is guided by its decision in Hasus Energy Limited v Commissioner of Domestic Taxes, TAT Appeal No. 291 of 2021 where it was found that a notice of objection can only be considered to be validly lodged when it meets all the conditions under section 51(3) of the Tax Procedures Act.

67. The Tribunal is further guided by the case of Republic v Kenya Revenue Authorityex-parte Funan Construction Limited [2016] eKLR where the court laid emphasis on the decision made in the case of Nairobi H.C. Misc. Civil Application No. 534 of 2007; Republic v Kenya Revenue Authority & 2others, Ex-parte Arrow Hi-fi (E.A.) Limited which held:-―An objection that does not conditionally state a clear and unambiguous position of the taxpayer and which suggests a discussion or a meeting is not an application under S229 (2)…For it to be effective it must unequivocally deal with all aspects of the assessment and specify the taxpayer’s position on each with clear answers and figures admitted or not admitted….‖

68. As a result of the foregoing, the Tribunal cannot consider the purported notice of objection as being validly lodged.

69. The Tribunal having determined that the appellant’s objection was invalidly lodged finds that the respondent’s notice of invalidation was justified.

Final Decision 70. In view of the foregoing, the Tribunal finds that the Appeal fails and accordingly makes the following Orders: -a.The Appeal be and is hereby dismissed.b.The respondent’s notice of invalidation dated October 28, 2021 be and is hereby upheld.c.Each Party to bear its own costs.

71. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF OCTOBER, 2023ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERDR. RODNEY OLUOCH MEMBEREUNICE NG’ANG’A - MEMBERABRAHAM K. KIPROTICH - MEMBERBERNADETTE GITARI - MEMBER