[2024] KETAT 537 (KLR)

Techtime Systems Limited v Commissioner of Domestic Taxes (Appeal 005 of 2023) [2024] KETAT 537 (KLR) (26 April 2024) (Judgment)

Neutral citation: [2024] KETAT 537 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 005 of 2023

CA Muga, BK Terer, D.K Ngala, GA Kashindi & SS Ololchike, Members

April 26, 2024

Between

Techtime Systems Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Backgroud 1. The Appellant is a private limited company and registered taxpayer resident in Mombasa North District, Kenya. The principal business of the Appellant is dealing in wholesale and retail, repair of motor vehicles and motorcycles as well as a general contractor and supplier.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. 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 Parts 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. On 11th March 2022, the Respondent issued the Appellant with additional assessment via the iTax platform for the 1st January 2021 to 31st March 2021 period inclusive of interest and penalties amounting to Ksh 1,500,318. 40.

4. In a letter dated 25th October 2022 and on iTax platform, the Appellant lodged a late objection to the entire assessment through its notice of objection which was duly acknowledged by the Respondent via email of 14th November 2022.

5. The Respondent issued its invalidation decision dated 5th December 2022 requiring the Appellant to make immediate payment of principal VAT liability of Ksh 1,304,624. 70 together with accrued interest and penalties.

6. Aggrieved by the Respondent’s invalidation decision, the Appellant filed its Notice of Appeal dated 4th January 2023 at the Tribunal on the same date.

The Appeal 7. The Appeal was premised on the following grounds as set out in the Memorandum of Appeal dated 4th January 2023 and filed on even date;a.That the purchases claim disallowed in the VAT return for the period of January 2021 were correctly claimed as per the provisions of Section 17(1) and 17(3)(a) of the Value Added Tax Act No. 35 of 2013 (hereinafter ‘VAT Act’) for deduction of input Tax.b.That the Appellant’s suppliers who claimed the input tax for the January 2021 period had systemic issues on declaring purchases leading to their subsequent late filing of their amended return for the January 2021 period yet this was used by the Respondent as the basis of raising the additional assessment.c.That the Appellant notified their suppliers to correct the inconsistency by breaking down lumped up sales on their VAT return to include individual and specific purchasers and amend their return for the period appropriately.

Appellant’s Case 8. The Appellant stated as follows in its Statement of Facts dated and filed on 4th January 2023;

9. That the Appellant had all documents and invoices to support the purchases that were correctly claimed in January 2021.

10. That the Appellant had all bank statements and receipts as proof of payment for the period under review.

11. That the Appellant desired for the Tribunal to direct the Respondent to amend the assessment as per returns and accounts as applicable.

Appellant’s Prayers 12. The Appellant’s prayers to the Tribunal were that:a.The Tribunal sets aside the invalidation decision.b.The Tribunal directs the Respondent to amend the assessment pursuant to the VAT Act.

The Respondent’s Case 13. The Respondent’s response was captured in the Statement of Facts dated and filed on 2nd February 2023.

14. The Respondent averred that the Appellant failed to respond to the Respondent’s electronic mail dated 10th July 2021, where the Appellant was notified that it had made purchase claim that had not been declared by its supplier.

15. The Respondent averred that upon receiving the Appellant’s objection, it requested for further information and evidence to support the late objection through its email of 31st October 2022 but the Appellant failed to respond.

16. That the Respondent in a bid to promote fair administration of justice nonetheless considered the Appellant’s late objection and again on 14th November 2022 requested the following documents to support the Appellant’s objection:i.Copies of the disallowed invoices.ii.Statements for the period under review.iii.Proof of payment.iv.Supplier’s confirmation.v.Delivery notes.vi.All other relevant documents and information that could support the objection.

17. The Respondent averred that the Appellant did not avail supporting documents as requested leading to the Respondent to declare the objection invalid through its decision dated 5th December 2022 for failing to meet the requirements stipulated under Section 51(3) of the Tax Procedures Ac No. 29 of 2015 (hereinafter ‘TPA’).

18. That pursuant to Section 24(2) of the TPA, the Respondent is allowed to assess a taxpayer’s liability using any information available to him and the Respondent asserted that it operated within the confines of the law.

19. The Respondent averred that the late objection failed to meet the threshold stipulated under Section 51(3) and (4) of the TPA since the Appellant did not precisely state the grounds of objection nor adduce evidence and/or documents in support of the objection.

20. It was the Respondent’s assertion that it neither erred in law nor in fact as it carefully examined the information available; that however, it was the Appellant who failed to discharge its burden of proof by availing requested documents pursuant to Section 56(1) of the TPA which provides that;“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

Respondent’s Prayers 21. The Respondent prayed that the Tribunal would:i.Dismiss the Appeal with costs.ii.Uphold assessments as issued in the invalidation notice of 5th December 2022.

Parties Written Submissions 22. The Appellant’s written submissions were filed on 21st August 2023. The Appellant submitted on a single issue for determination as stated hereunder;Whether the Appellant submitted the documents requested for supporting input VAT claimed in the period under review which includes but not limited to purchases invoices, delivery notes, payment proof and supplier confirmations for the claimed purchases invoices that are disputed or rather disallowed by the Respondent for the VAT return month of January 2021.

23. The Appellant asserted that it provided all the requested documents in support of its objection and annexed the attachments in the pleadings. Moreover, the Appellant claimed that it pursued Alternative Dispute Resolution (ADR) but the process grounded to a halt due to communication breakdown.

24. The Appellant averred that it is trite law that an objection was deemed validly lodged where the Appellant supported its grounds by adducing sufficient and relevant documents which the Appellant duly did and cited Section 56(1) of the TPA to buffer this position.

25. To further buttress its position, the Appellant stated that it was not in dispute whether it provided documentation as requested since it provided invoices requested by the Respondent which were accompanied by delivery notes. Additionally, disputed supplier invoices were accompanied by supplier issuance confirmations which were backed by bank statements to indicate proof of payment for the review period.

26. The Appellant was adamant that it provided all the necessary documentation in compliance to Section 51(3) of the TPA. To buffer this position, the Appellant cited the case of Kenya Revenue Authority vs Man Diesel & Turbo SE, {2021} eKLR where it was held that the Appellant must prove an assessment by the Commissioner is wrong.

27. The Appellant stated that input tax for VAT purposes was a continuous process especially for the construction sector as projects could be ongoing for a longtime without necessarily receiving any payment during the period which was also essentially due to the strict timelines put for claiming input tax.

28. The Appellant contested the Respondent’s Statement of Facts claiming that it failed to make proper reference to documents provided in arriving at its decision. Additionally, the Appellant claimed that the Respondent failed to take into consideration all the supporting documentation provided in confirming the additional assessments which led to issuance of a wrong decision by the Respondent.

29. The Respondent’s written submissions dated 23rd August 2023 were filed on even date wherein it established three issues for determination which it analysed as follows:

(a) Whether there was a valid objection. 30. The Respondent asserted that after extending time for the Appellant to validate its objection, it requested for specific documents to facilitate the verification of the Appellant’s objection as required by Section 51(3) of the TPA. That further, the Respondent pursuant to Section 51(4) of the TPAinformed the Appellant that its objection was invalid.

31. Additionally, the Respondent averred that the Appellant squandered the opportunity to provide evidence to defray tax liability by failing to adhere to timelines. It was thus, the Respondent’s assertion that the Appellant’s objection was not valid and the Appellant could not fault the Respondent for the assessment as issued. The Respondent cited the following authorities in buffering its position:i.Boleyn International Limited vs Commissioner of Domestic Taxes [TAT No. 55 of 2019]ii.Afya Xray Centre Limited vs Commissioner of Domestic Taxes [TAT No. 70 of 2017]

(b) Whether the invalidation notice was valid. 32. The Respondent stated that it requested for additional information for validation of the Appellant’s objection but this was not forthcoming leading to invalidation notice which was communicated within the threshold of 60(sixty) days pursuant to Section 51(4) of the TPA. It was the Respondent’s avowal that the invalidation notice was valid.

(c) Whether the tax assessments were correctly issued. 33. The Respondent submitted that the assessment was issued within the confines of the law and in line with its mandate and that the failure to object as required meant that the taxes demanded could not be amended as was held in the case of Mohamed Ali t/a Top Model Apparels & 44 Others v Kenya Revenue Authority [2020] eKLR.

34. The Respondent averred that it bent backwards to accommodate and reach the Appellant who remained difficult and unresponsive through the process. The Respondent cited Section 23 of the TPA as imposing the responsibility upon the Appellant to maintain and provide all material documents required by the Respondent in order to ascertain what taxes were due and payable.

35. The Respondent contrasted the instant Appeal to the Tribunal’s decision in Osho Drappers Limited vs Commissioner of Domestic Taxes[TAT 159 of 2018] by stating that unlike the mentioned case, in the current Appeal, no documents were produced to discharge the burden of proof thus no reduction of assessments would be possible.

36. The Respondent stated 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. In buffering this position, the Respondent cited the case of Primarosa Flowers Limited vs Commissioner of Domestic Taxes [2019]eKLR where it was 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...”

37. The Respondent submitted that the tax assessments were correctly issued and placed the tax obligation upon the Appellant. The Respondent quoted the High Court decision in the case of Republic v Kenya Revenue Authority Ex-Parte Bata Shoe Company (Kenya) Limited [2014] eKLR where it was held that;“…payment of tax is an obligation imposed by the law. It is not a voluntary activity. That being the case, a taxpayer is not obligated to pay a single coin more than is due to the taxman. The taxman on the other hand is entitled to collect up to the last coin that is due from a taxpayer.”

Issues For Determination 38. The Tribunal having carefully considered the parties’ pleadings, documentation and submissions notes that a single issue distills for the Tribunal’s determination as follows:Whether the Respondent’s objection decision dated 5th December, 2022 was justified.

Analysis And Determination 39. Having identified a single issue for determination, the Tribunal will proceed to analyse it as hereunder.

40. The dispute herein arose from the Respondent’s additional assessment against the Appellant for 1st January 2021 to 31st March 2021 review period. The Appellant lodged its notice of objection late vide a letter dated 25th October 2022 which was acknowledged by the Respondent on 14th November 2022. The Tribunal notes that Section 51 (2) of the TPA provides as follows:“A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.”

41. The Tribunal notes that on one hand the Respondent was insistent that the Appellant made purchase claim relating to January 2021 that had not been declared by its supplier; on the other hand, the Appellant averred that its suppliers had systemic issues that prevented them from declaring the claim and that the Appellant communicated the same and requested them to amend the same which was done.

42. The Tribunal notes that the Respondent stated that the Appellant did not avail documents as requested in the email of 14th November 2022. The Appellant made averments in its pleadings that it provided all the requested documents in support of its objection but did not append any proof in its pleadings to the Tribunal. The Tribunal relies on Section 24 (2) of the TPA which provides that;“The Commissioner shall not be bound by a tax return or information provided by, or on behalf of, a taxpayer and the Commissioner may assess a taxpayer’s tax liability using any information available to the Commissioner.”

43. In similar fashion, the Tribunal notes that the Appellant made declarations but failed to substantiate that it provided invoices requested by the Respondent which were accompanied by delivery notes as well as disputed supplier invoices accompanied by supplier issuance confirmations and backed by bank statements to indicate proof of payment for the review period. The Tribunal has not sighted any evidence accompanying the pleadings filed by the Appellant to controvert the Respondent’s assertions that it failed to avail the requested documentation. Thus, the statements by the Appellant remain mere averments. The Tribunal relies on the case of Trust Bank Limited vs Paramount Universal Bank Limited & 2 others (2009) eKLR where the Court held that;“…It is trite where a party fails to call evidence in support of its case that party fails to substantiate its pleadings.”

44. The Tribunal notes that Section 15 (1) of the ITA allows deduction of expenditure which is wholly and exclusively incurred in production of that income, similarly Section 17 (1) of the VATAct provides that;“1. Subject to the provisions of this Act and 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.”

45. The Tribunal notes that the Appellant failed to contradict the Respondent’s assertions but instead made sweeping statements in its pleadings that it had notified suppliers to correct the inconsistency by breaking down lumped up sales on their VAT return to include individual and specific purchasers and amend their return for the period. Again, the Tribunal was not afforded the evidence in support of these assertions by the Appellant. The Tribunal reiterates the position as held in the case of Commissioner of Domestic Taxes -vs- Structural International Kenya Ltd ITA E089 of 2020 (2021) KEHC 152 (KLR), where the High Court stated as follows;“For the avoidance of doubt, the Tribunal is reminded that in matters where the supply of goods, be it for VAT purposes or Corporation Tax, the burden is always on the trader / taxpayer to show that, the documentation set out in the statute and in which he relies on arose out of a commercial transaction. Period. If additional documents, which would reasonably expected to be in his possession is requested for to verify the alleged transactions, he should produce the same to the Commissioner. That is what is expected of a keen and diligent trader.”

46. The Tribunal is of the view that the Appellant was derelict in its duty as a diligent taxpayer even in the pleadings presented to the Tribunal, the Appellant did not attempt to explain why it filed its objection late. The Tribunal relies on the case of Boleyn International Limited vs Commissioner of Domestic Taxes [TAT No. 55 of 2018] where the Tribunal held that;“…on 8th March 2018, the Appellant lodged an objection with the Respondent. However, the said objection did not reiterate the grounds of objection, the corrections required to be made and the reasons for the amendments. Neither did the Appellant provide the relevant documents in support of its alleged objection. Therefore, there was no conceivable way the Respondent would have considered the Appellant’s objection as the same did not place itself within the parameters of Section 51(3) of the TPA…”

47. From the foregoing, the Tribunal’s view is that Respondent’s invalidation decision dated 5th December, 2022 was justified.

Final Decision 48. The upshot of the foregoing is that the Appeal lacks merit and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby dismissedb.The Respondent’s invalidation decision dated 5th December 2022 be and is hereby upheldc.Each party to bear its own costs.

49. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 26TH DAY OF APRIL, 2024CHRISTINE A. MUGACHAIRPERSONBONIFACE K. TERER DELILAH K NGALAMEMBER MEMBERGEORGE KASHINDI SPENCER S. OLOLCHIKEMEMBER MEMBER