[2024] KETAT 538 (KLR)

SPL International Limited v Commissioner of Domestic Taxes (Tribunal Appeal 173 of 2023) [2024] KETAT 538 (KLR) (26 April 2024) (Judgment)

Neutral citation: [2024] KETAT 538 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal 173 of 2023

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

April 26, 2024

Between

SPL International Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company incorporated in Kenya under the Companies Act. Its principal business is construction.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. For the performance of its function under Subsection (1), the Authority is mandated under Section 5(2) of the Act to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act to assess, collect, and account for all revenues under those laws.

3. The Respondent stated that while reviewing the Appellant’s VAT return for the period December 2018, it noted variances between the income tax return and sales as per corresponding VAT return for the period, and on that basis, it issued additional assessments to the Appellant.

4. The Respondent further stated that it issued additional income tax assessments for the year 2017 owing to disallowed purchases in the Appellant’s income tax return.

5. The Respondent averred that the March 2019, May 2021 and June 2021 assessments arose from IFMIS data which revealed that the Appellant had transacted with County Governments but failed to declare the transactions and remit VAT.

6. On 27th May 2021, the Respondent issued the Appellant with an additional VAT assessment in the sum of Kshs. 1,646,140. 72 inclusive of penalties and interest for the month of December 2018. That the Appellant was further assessed with additional VAT on 14th September 2021 in the sum of Kshs. 7,092,497. 92 inclusive of penalties and interest for the months of March 2019, May 2021 and June 2021, and on 15th September 2021, the Respondent issued the Appellant with an additional income tax assessment of Kshs. 1,275,851. 74 for the year 2017.

7. The Appellant objected to the 2017 income tax assessment on 27th September 2021, the December 2018 VAT assessment on 21st June 2021 and the VAT assessments of March 2019, May 2021 and June 2021 on 3rd January 2022.

8. Vide its decision of 18th February 2022 which confirmed the outstanding taxes, the Respondent rejected the late objection application dated 3rd January 2022 for the March 2019, May 2021 and June 2021 assessments.

9. The Respondent further confirmed the December 2018 VAT assessment on 14th October 2022.

10. Dissatisfied with the Respondent’s decisions, the Appellant filed its Notice of Appeal on 27th February 2023.

The Appeal 11. The Appeal is premised on the Memorandum of Appeal dated 10th February 2023 and filed on 27th February 2023 which raised the following ground:-“That the Respondent erred in its decision to issue the Appellant with additional tax assessments in respect of income tax, withholding income tax (WHT) and Value Added Tax (VAT).”

Appellant’s Case 12. The Appellant’s case is premised on its Statement of Facts filed on 27th February 2023 and the documents attached thereto.

13. The Appellant stated that the Respondent erred in its decision to issue the Appellant with additional tax assessments of VAT for the period December 2018 on 27th May 2021, March 2019, May 2021 and June 2021 on 6th September 2021 and of income tax for the year 2017 on 26th August 2021.

14. The Appellant stated that it objected to the income tax assessment for the year 2017 on 27th September 2021, and VAT assessments for the period December 2018 on 21st June 2021, May 2019, May 2021 and June 2021 on 3rd January 2022.

15. The Appellant averred that the Respondent confirmed the assessment of 14th October 2022 and 18th February 2022, disregarding the Appellant’s objections to the same.

16. The Appellant submitted that it relied upon Section 17 of the Value Added Tax Act.

Appellant’s prayers 17. The Appellant prayed for the Tribunal: -a.To vacate the assessments based on the above grounds.b.To direct the Commissioner to honour the law as pertains the objection decision.c.To be allowed to enter into a payment plan for the outstanding tax.

Respondent’s Case 18. The Respondent’s case is premised on the following documents:-a.Its Statement of Facts dated 14th June 2023 and filed on 16th June 2023. b.Its written submissions dated 12th December 2023 and filed on 19th December 2023.

19. The Respondent stated that while reviewing the Appellant’s VAT returns for the period December 2018, it noted variances between the income tax returns and sales as per corresponding VAT returns for the period, and on that basis, it issued additional assessments to the Appellant.

20. The Respondent averred that it issued additional income tax assessments for the year 2017 owing to disallowed purchases in the Appellant’s income tax return.

21. The Respondent further stated that the March, 2019, May 2021 and June 2021 assessments arose from IFMIS data which revealed that the Appellant had transacted with County Governments but failed to declare the transactions and remit VAT.

22. On 27th May 2021, the Respondent issued the Appellant with an additional VAT assessment in the sum of Kshs. 1,646,140. 72 inclusive of penalties and interest for the month of December 2018. That the Appellant was further assessed with additional VAT assessments on 14th September 2021 in the sum of Kshs. 7,092,497. 92 inclusive of penalties and interest for the months of March 2019, May 2021 and June 2021, and on 15th September 2021, the Respondent issued the Appellant with additional income tax assessments in the sum of Kshs. 1,275,851. 74 for the year 2017.

23. The Respondent stated that it exercised its best judgment in making the assessment in full consideration of the documentation and information available pursuant to Section 31 of the Tax Procedures Act and in line with Section 29 of the Tax Procedures Act.

24. The Respondent stated that the Appellant objected to the 2017 income tax assessment on 27th September 2021 and the December 2018 VAT assessment on 21st June 2021, and that the Appellant objected late to the VAT assessments of March 2019, May 2021 and June 2021 assessments on 3rd January 2022.

25. The Respondent averred that it wrote an email to the Appellant on 18th January 2022 acknowledging receipt of the objection application and requested the Respondent to validate its objection by providing supporting documentation for the late objection. That the Respondent further reminded the Appellant to validate its objection on 10th February 2022.

26. The Respondent stated that it rejected the late objection application by the Appellant vide its decision of 18th February 2022 confirming the outstanding taxes in the sum of Kshs. 6,325,481. 37 alongside the resultant penalties and interest after the Appellant failed to support the reasons for the late objection.

27. The Respondent raised an objection that the Appeal herein is incompetent for failure to comply with the provisions of Sections 51 and 52 of the Tax Procedures Act.

28. The Respondent averred that the Appellant appealed against assessments that were part of the objection made on 3rd January 2022. The Respondent stated that the decision it made on 18th February 2022 related to an application for late objection and the Appellant cannot appeal on issues of the merit of the assessment as this is contrary to Section 56(3) of the Tax Procedures Act.

29. The Respondent stated that the decision it made on 18th February 2022 related to an application for late objection and the Appellant cannot appeal on issues of the merit of the assessment as this is contrary to Section 56(3) of the Tax Procedures Act.

30. The Respondent further stated that the Appeal is incompetent and should be struck out as there is no appealable decision and that the Appeal has been filed contrary to the provisions of Section 13(1) and (2) of the Tax Appeals Tribunal Act.

31. The Respondent stated that without prejudice to the foregoing, that the Appellant filed a late objection on 3rd January 2022 to the assessments for March 2019, May 2021 and June 2021 raised on 14th September 2021. The Respondent stated that the objection was filed more than 3 months since the assessments were issued, in contravention of Section 51(2) of the Tax Procedures Act, 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.

32. 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 Tax Procedures Act.

33. The Respondent contended that not only did the Appellant not state any grounds to validate its late objection, but it also did not support the late objection with any documentation, therefore the Respondent stated that its decision to reject the late objection was valid.

34. The Respondent submitted that the Appellant bears the burden to prove that the assessments were excessive or improper and stated that from the documents adduced in support of its appeal, the Appellant failed to discharge this burden as required by Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunals Act.

35. The Respondent submitted that the Appeal herein is incompetent as the same was filed out of time without leave of the Tribunal. The Respondent referred to Section 13 of the Tax Appeals Tribunal Act to submit that the provision mandates every taxpayer who disputes an appealable decision by the Respondent, to lodge a notice of appeal to the decision, to the Tribunal within 30 days of being notified of the decision. That the same Act grants the Tribunal discretion to determine an application for leave to file an appeal out of time where there is sufficient cause to do so.

36. The Respondent submitted that it is trite law that the issue of time limitation goes to the jurisdiction of the Tribunal and there is no need for ascertainment of facts or probing of evidence, the Tribunal need only to review the law and consider the present Appeal.

37. The Respondent submitted that the Appellant, having failed to file an appeal within the mandatory timelines, and failed to file an application for extension of time, there is no valid appeal before the Tribunal. That in the absence of an order granting leave to the Appellant to file an appeal out of time, the present appeal is incompetent and should be struck out for being time barred.

38. The Respondent stated that the Appellant was assessed for various tax periods in 2019 and 2021 in the sum of Kshs. 6,325,481. 37 as a result of several variances between the income tax returns and sales as per the corresponding VAT returns in the period under review.

39. The Respondent averred that it is not in dispute that the Appellant filed a late objection to the assessments being more than 30 days since the date of the assessments. That the Respondent in several correspondences, including the emails of 18th January 2022 and 10th February 2022 requested the Appellant to furnish reasons for the late objection in order to allow the application for extension of time to lodge a notice of objection.

40. The Respondent submitted that for a taxpayer such as the Appellant herein to prove that they are entitled to file a late objection, they must produce any information or documentation to satisfy the conditions pre-set out in Section 51(7) of the Tax Procedures Act to demonstrate that they were either out of the Country, sick or for any other justifiable cause.

41. The Respondent asserted that in its aforementioned correspondence and in particular in the email of 18th January 2022, it also requested for documentation to support the Appellant's grounds of objection as required in Section 51(3) of the Tax Procedures Act.

42. The Respondent stated that it specifically requested for the grounds of acceptance of the late objection and evidence of the same, evidence of payment of tax in dispute, the grounds of objection on the substantive matter, documents supporting the objection and amendments required to be made and the reasons for the amendments.

43. The Respondent submitted that the Appellant failed to provide any information and documents to support both its application for extension of time to file an objection and to support the substantive objection itself. The Respondent submitted that in the absence of the supporting documents, the Respondent had no choice but to invalidate the objection and confirm its assessments.

44. The Respondent relied on the case of TAT 724 of 2022 Alphaquest Designs Limited v Commissioner of Domestic Taxes, where the Tribunal in dismissing the appeal on account of an invalidation held that: -“The Tribunal is also cognizant of the provisions of the tax laws that place the burden on the taxpayer to prove that a tax decision is wrong. The Tribunal does not think that this burden has been discharged by the Appellant. No material has been placed before the Tribunal to make it believe the Respondent’s decision was wrong. The Appellant laid out no basis as to why the requested documents could not be availed to the Respondent. The Appellant has not disputed the taxable sales in question and it admitted in its objection that it failed to declare the sales within the stipulated time due to the director's sickness, and seeks the Respondent to allow it to amend the return. The upshot of the analysis is that the Tribunal finds no reason to fault the Respondent's decision invalidating the objection in this Appeal.”

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

46. That the Respondent, in exercise of its mandate considered the information available and to the best of its judgment assessed the correct tax by invalidating the objection and confirmed the assessments.

47. The Respondent cited Section 56(1) of the Tax Procedures Act and Section 30 the Tax Appeals Tribunal Act in submitting that the Appellant has the burden of proof that the assessment made by the Respondent is incorrect and/or that the documents and/or information relied upon by the Respondent in making the assessment was wrong. The Respondent relied on the following cases to support this position: -a.Ushindi Limited v Commissioner of Investigations and Enforcement Kenya Revenue Authority [2020] eKLR;b.Digital Box Limited versus Commissioner of Investigations and Enforcement [2020];c.Republic v KRA: Proto Energy Limited (2022) eKLR

48. 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 despite several requests by the Respondent.

Respondent’s prayers 49. The Respondent prayed that the Tribunal:-a.Upholds the Respondent’s decision as proper and in conformity with the provisions of the law.b.Dismisses this Appeal with costs to the Respondent.

Issue for Determination 50. The Tribunal has considered the facts of the matter and the submissions made by the parties, and considers the issue for determination as follows:

Whether this Appeal is validly before the Tribunal. Analysis And Findings 51. The Tribunal analysed the issue that calls for its determination as hereunder, having reviewed all the pleadings, information and documents adduced by the Appellant and the Respondent concerning the impugned Respondent’s decisions.

52. The Tribunal notes that according to the Notice of Appeal filed by the Appellant at the Tribunal on 27th February 2023, the Appellant appealed against the Respondent’s decisions dated 3rd January 2022 and 14th October 2022. The Appellant proceeded to file its Appeal on 27th February 2023.

53. The Tribunal reviewed the Appellant’s documents to determine which decisions the Appellant appealed against and established that the document that the Appellant referred to as the Respondent’s decision dated 3rd January 2022 is the Appellant’s application for extension of time to file its objection which the Respondent declined in the letter dated 18th February 2022.

54. The Tribunal further observes that the document the Appellant referred to as the Respondent’s decision dated 14th October 2022 was a confirmation of assessment notice of VAT for the period December 2018 relating to the Appellant’s objection dated 21st June 2021 against an assessment dated 27th May 2021.

55. The Respondent submitted that the appeal herein is incompetent as the same was filed out of time without leave of the Tribunal. That the Tax Appeals Tribunal (TAT) Act grants the Tribunal discretion to determine an application for leave to file an appeal out of time where there is sufficient cause to do so. That the Appellant, having failed to file an appeal within the mandatory timelines, and having failed to file an application for extension of time, there is no valid appeal before the Tribunal.

56. The Tribunal refers to the procedure for appeal as set out in Section 13(1) (b) of the TAT Act requires that a notice of appeal shall be submitted to the Tribunal within thirty (30) days upon receipt of the decision of the Commissioner.

57. The Tribunal observes that the document dated 3rd January 2022 which the Appellant referred to as a decision of the Respondent was not a decision but the Appellant’s application for extension of time to lodge its notice of objection.

58. The Tribunal further notes that the document dated 14th October 2022 was a decision by the Respondent made on 14th October 2022, which the Appellant filed a Notice of Appeal against on 27th February 2023, which was later than 30 days after being notified of the decision.

59. The Tribunal 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: -“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).”

60. The Tribunal is of the considered view that the timelines for appealing the Commissioner’s decisions are clearly set in the law, and all 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.”

61. The Tribunal is guided by 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.”

62. Based on the foregoing, the Tribunal finds that there is no valid appeal before it, and that without a valid Notice of Appeal, the Tribunal does not have the jurisdiction to determine the matters in the Appeal.

Final Decision 63. The upshot of the above analysis is that the Tribunal finds that the Appeal is not validly before the Tribunal and accordingly proceeds to make the following Orders:-a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

64. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF APRIL, 2024. GRACE MUKUHACHAIRPERSONGLORIA A. OGAGA JEPHTHAH NJAGI MEMBER MEMBERDR WALTER J. ONGETI DR. ERICK KOMOLOMEMBER MEMBER