[2023] KETAT 507 (KLR)

Thuranira t/a Dave G Stores v Commissioner of Legal Services and Board Coordination (Tax Appeal 510 of 2022) [2023] KETAT 507 (KLR) (13 October 2023) (Judgment)

Neutral citation: [2023] KETAT 507 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 510 of 2022

RM Mutuma, Chair, EN Njeru, M Makau, BK Terer & W Ongeti, Members

October 13, 2023

Between

David Thuranira T/A Dave G Stores

Appellant

and

Commissioner Of Legal Services And Board Coordination

Respondent

Judgment

Background 1. The Appellant is an individual sole proprietor, resident registered taxpayer living and working within the Republic of Kenya. His main form of business is in the operation of a mini supermarket.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, the Authority 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 conducted an audit into the Appellant’s tax affairs for January to April 2018 and issued a VAT Auto Assessment on 15th November 2019.

4. The Appellant objected to the additional assessments on iTax on 29th December 2021 and 12th January 2022 after which the Respondent issued an Objection Invalidation via email dated 24th January 2022.

5. The Appellant then requested for an extension of time to lodge the late objection providing documents with computation on 31st January 2022 stating that he had lodged a manual objection and was not aware of the need to lodge an Objection on iTax.

6. On 23rd February 2022 the Appellant was notified by the Respondent on the phone that his late Objection was not supported then the Appellant sent the manual objection on 23rd February 2022. On 12th April 2022, the Respondent rejected the Appellant’s Objection via email.

7. On receiving the objection decision and feeling aggrieved, the Appellant filed a Notice of Appeal dated and filed on 6th May 2022.

The Appeal 8. In its Memorandum of Appeal filed on 13th February 2022, the Appellant premised its Appeal on the following grounds:-a.That on 22nd September 2021 the Appellant was served with a VAT arrears demand notice number PTO/2019/290 for Kshs 4,274,630. 00 covering the period 2018 and 2019. That he wrote a letter dated 6th October 2021 in response stating that he did not expect any demand notice since he was already being audited and was waiting for feedback on the audit as he had submitted the documents. That at this point, it did not become clear that he was to raise an Objection to the demand notice electronically.b.That to explain the amount being demanded, the new accountants reconciled both sales and purchases on a monthly basis from January to April 2018 and discovered overstatement and understatement of sales and purchases at the point of VAT filing resulting in inconsistencies. That subsequently, they raised electronic objections to all VAT amounts that they could not explain. That he explained everything both in physical meetings with KRA officers and in writing. That he also entered into a payment plan for the amounts that could not be explained amounting to Kshs 240,147. 54. c.That despite all his explanations, KRA objected to his late Objections (letter of 11th April 2022) on the basis that the Objection was not supported by any documents and that the letter referred to was not for 2019. That the Appellant has not received the letter of 2019 but believes that the issues raised in the letter of 2019 have been addressed in the letter of October 2020 and in fact the letter of 2019 was never mentioned in the letter of May 2020. d.That on 13th April 2022, the Appellant appealed against the Objections and the feedback from KRA on 26th April 2022 stated that if the Appellant wished to appeal he could appeal to the Court of Appeal or consider the alternative dispute resolution.e.That according to analysis and reconciliation, the amount payable is Kshs 240,418. 00 which the Appellant is already paying under the current payment plan, and not Kshs 2,959,509. 00 being demanded from the Appellant by the Respondent,

The Appellant’s Case 9. The Appellant set down its case in its:-a.Statement of Facts filed on 18th May 2022. b.Written submissions dated 17th March 2023 and filed on 29th March 2023.

10. He stated that after receiving a telephone call from the Respondent with regard to the verification of records for January 2016 to 2020 requested via letter dated 20th May 2020, he informed his accountant who undertook to provide the required documents but left without doing so. He added that he had a problem accessing his email and never received the letter from the Respondent since his KRA email recovery contact was linked to the accountant’s mobile phone and the accountant left without handing over most documents which contributed to his delay in providing all the required documents/information in time.

11. He averred that he contracted new consultant accountants in October 2020 but the only queries from the Respondent were the verification of documents for 2016 to 2020 thus they undertook to work on the required information providing the necessary documentation on various dates between March 2021 and August 2021 save for the rent schedules and capital gains claims because the Appellant does not have rental income.

12. He stated that he was served with a VAT arrears demand notice on 22nd September 2021 for Kshs 4,227,630. 00 for the period between January to April 2018 and July 2020 when he was still under audit. He added that he wrote to the Respondent stating that he did not expect a demand notice since he was still being audited and was expecting feedback from the same not being clear about if he was supposed to raise an objection to the demand notice electronically.

13. He asserted that the Respondent informed his accountants that the Objections were to be raised electronically which he did and further entered a payment plan for the unexplained amounts but the Objection for March failed to go through and had to be redone on 12th March 2022 and resubmitted.

14. He averred that he received an email from KRA asking for documents supporting the late Objection which was submitted on 31st January 2022 but the letter was not accepted.

15. He stated that according to the analysis, the amount payable to the Respondent is Kshs 240,418. 00 which he is already paying under the current payment plan and not Kshs 2,595,509. 00 being demanded and the issue of communication was complicated further by the Covid-19 pandemic which also affected his business adversely.

16. The Appellant submitted that the Respondent’s decision rejecting the Appellant’s Objection dated 11th April 2022 is an appealable decision as it falls under any other decision made under a tax law.

17. It argued that accepting the contrary would mean that any time the Respondent rejects the taxpayer’s late Objection the tax assessment becomes final and the taxpayer has no recourse but to pay the disputed tax without a right to appeal which is a wrong interpretation of the law.

18. It urged the Tribunal to find that the Respondent’s rejection of the Appellant’s Objection for lateness and rejection of his application for extension of time in support of the application did not relate to the letter dated 5th November 2019, was unfair and in bad faith.

19. He contended that he had explained to the Respondent in his letter of 6th October 2020 that he did not receive the letter dated 15th November 2019 but had received the Respondent’s letters dated 20th May and 8th December 2020 which were titled Return Review and Verification of Records, respectively, asking for documents which the Appellant provided.

20. The Appellant submitted that it was improper, unjust, unfair, and in bad faith for the Respondent to fail to provide details for the letter dated 19th November 2019 despite being informed of the Appellant never receiving the same.

21. The Appellant asserted that the Respondent was duty bound to supply the Appellant with the letter of 15th November 2019, if it was to remain the basis for his Objection, to enable him to deal appropriately with the issues therein and not engage the Appellant requesting for more documents with the impression that they will be considered with the assessment being reviewed.

22. He contended that in the ADR agreement dated 29th September 2022 between the parties, the issue of the lateness of the Appellant’s objection was part of the issues for contention including the disputed figures thus adopting the Appellant’s objection by conduct thus the issue of the Objection’s lateness was overtaken by events and the Respondent is estopped from challenging the Appellant’s Appeal on this ground.

23. The Appellant submitted that he is not indebted to the Respondent for any tax liability save for Kshs 194,772. 65 which he has been paying in installments leaving a balance of Kshs 11,172. 64 that he is paying in line with the partial consent dated 28th December 2022 stemming from an ADR deliberation and agreement of 22nd September 2022 in which the Respondent reviewed the Assessment down from Kshs 2,959,509. 00 to Kshs 1,113,254. 29 with Kshs 94,600. 00 having already been paid and conceded to, and the disputed sum is now Kshs 918,481. 65.

24. The Appellant further submitted that he engaged his accountant to supply the Respondent with the documents requested in its letter dated 20th May 2020 which led to a fallout between the Appellant and his accountant since the accountant had not supplied the same by July 2020.

25. He asserted that he immediately engaged the services of an accountant who conducted an audit of the Appellant’s records and supplied the Respondent with the requested documents between 23rd March 2021 and 1st September 2021 detailing the correct tax liability in which the Appellant conceded to Kshs 240,417. 57 but the documents were not considered by the Respondent. It added that it has been paying the undisputed amount and is left with Kshs 100,172. 64 to be paid through 6 monthly installments as per the ADR agreement.

26. The Appellant contended that the Respondent rejected his Objection for being late upholding the assessment of 15th November 2019 despite being supplied with documents in breach of the Appellant’s legitimate expectation that his letters of 20th May and 8th December 2020 would be considered.

27. He reiterated that he provided a summary of the purchase report for January to April 2018 and all the invoices in support of the same between 23rd March and 1st September 2021, which are in the Respondent’s custody thus the sum of Kshs 918,481. 65 demanded as VAT due by the Respondent is erroneous, excessive and made in bad faith.

The Appellant’s Prayers 28. Given that the Appellant did not have specific prayers in its pleadings and that the gist of an appeal before the Tribunal is anchored on the Respondent’s tax assessment, the Tribunal surmises that the Appellant’s prayer is for the objection decision to be vacated.

The Respondent’s Case 29. The Respondent’s case is premised on its:-a.Statement of Facts dated and filed on 16th June 2022. b.Written Submissions dated 10th February 2023 and filed on 13th February 2023.

30. The Respondent stated that it reviewed the Appellant’s late Objection and disallowed the same in accordance with the law.

31. It stated that it was justified in disallowing the Appellant’s VAT claim as the Appellant did not furnish reasons for late objection and further the Objection as submitted was invalid since documentation was not availed.

32. It averred that it was justified in disallowing the Appellant’s objection because the Appellant did not provide all the documents required by the Respondent.

33. It asserted that input tax is only allowed for deduction once a person has the relevant supporting tax invoices and the same must be claimed within six months after the end of the tax period in which the supply importation occurred as per the provisions of Section 17 of the VAT Act.

34. It reiterated that in making the Assessment Order and confirming the assessment, the Respondent relied on available information that it had. Further, it stated that the confirmed assessment issued is proper in law and the same should be upheld.

35. The Respondent submitted that the Tax Procedures Act is not absolute but conditional on an Appellant lodging a valid appeal pursuant to Section 51 (1) of the Tax Procedures Act.

36. It cited Sections 51 (3) of the Tax Procedures Act and the Tribunal’s decision in the case of Transfix Ltd v Commissioner of Domestic Taxes Misc. No 178 of 2022.

37. It submitted that the Appellant filed an invalid Objection approaching the Respondent beyond the thirty-day window contrary to the Tax Procedures Act and that the assessment subject to the Objection is dated 15th November 2019 while the Appellant lodged his objections on 29th December 2021 and 12th January 2022.

38. It further submitted that it determined that the Appellant did not merit an extension of time to file its Objection for not providing reasonable grounds as provided by the Tax Procedures Act and the Appellant’s grounds in support of the application for extension relied on are not relevant to the assessed period as the subject assessment was on VAT and automatically assessed for January to April 2018.

39. It reiterated that in the Appellant’s letter dated 6th October 2021, the documents referred to by the Appellant are in reference to tax affairs for the period 2021 leading the Respondent to reject the application.

40. It averred that its request for further details from the Appellant was not honoured and having failed to validate its objection decision, it dismissed the Objection on 11th April 2022 thus the Appeal before the Honourable Tribunal is irreparably incompetent.

41. Further, the Respondent submitted that the Appellant had a duty under Section 51 (3) of the Tax Procedures Act to provide all relevant documentation in support of his Objection.

42. It asserted that the Appellant failed to provide the relevant supporting documents to discharge the burden of proving the assessments as incorrect per Section 23 of the Tax Procedures Act and Section 43 of the VAT Act.

43. It contended that it is not bound by a tax return or information provided by or on behalf of the taxpayer and may assess a taxpayer’s tax liability using any information available to it as per Section 24 (2) of the Tax Procedures Act 2015. That it relied on customs data to assess the Appellant for Income tax and VAT.

44. It relied on Section 3 of the Income Tax Act, Section 5 of the VAT Act, Section 31 (1) of the Tax Procedures Act, the cases of Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR, and PZ Cussons East Africa Limited v Kenya Revenue Authority (2013) eKLR and argued that its assessment was premised on the provisions of Section 17 (3) of the VAT Act, the Appellant having not provided any documents as there were no invoices to be identified.

45. The Respondent maintained that the Appellant failed to prove that the tax decision was inconsistent, based on extraneous factors, excessive, or incorrect and that the Appellant’s evidence before the Honourable Tribunal does not discharge the Appellant’s burden of proof.

46. It argued that the invoices the Appellant seeks to rely upon are faint and illegible and it is impossible to rely on the documents to verify the Appellant’s input VAT claims under Section 17 of the VAT Act.

47. It submitted that the continued absence of evidence by the Appellant has not disabused the Respondent’s computation of taxes chargeable. That the Appellant has not demonstrated that the assessments are incorrect or excessive as the data relied upon by the Respondent was provided by the Appellant during its self-assessment under Section 28 of the Tax Procedures Act thus its computation remains uncontroverted.

The Respondent’s Prayers 48. The Respondent, therefore, prayed for the Tribunal to find that:a.The Respondent’s decision together with the penalties and interest are be due and payable;b.This Appeal is without merit and should be dismissed with cost to the Respondent.

Issue For Determination, Analysis And Findings 49. The Tribunal has reviewed the Consent filed on 5th April 2023 resulting from the Parties’ engagement in ADR and identified the following key points relating to the dispute at hand:-a.That the Appeal was marked as settled.b.That the amount in dispute Kshs 2,959,508. 42 had been reviewed to Kshs 1,113,254. 29c.That the Appellant conceded to only Kshs 194,772. 64 to which a payment plan was agreed on.d.That the Appellant disputes the amount of Kshs 918,481. 65 relating to time-barred invoices which was referred back to the Tribunal for hearing and determination.e.That each party shall bare its own costs, if any.

50. From the foregoing, it is evident that the issue arising from this Appeal being, ‘whether the Respondent was justified in rejecting the Appellant’s Notice of Objection for being time-barred’, had been spent.

51. Further, this consent changed the trajectory of the Appeal giving birth to a new issue for determination with respect to the disputed amount of Kshs 918,481. 65 for which the parties had not canvased in their pleadings and/or submissions. Further the Appellant did not file an amended Memorandum of Appeal, neither did either of the parties file supplementary/additional statements of facts to aid the Tribunal in making a determination.

52. The Tribunal therefore finds that this Appeal is spent and must therefore down its tools.

Final Decision 53. The upshot to the foregoing is that the Tribunal, save for the Consent reached at between the parties, finds that the Appeal lacks merit and the Orders that commend themselves are as follows:-a.The Appeal, save to the extent of the Consent of the parties dated 5th April, 2023 that was endorsed by the Tribunal on the 6th June, 2023 be and is hereby dismissed.b.Each party to bear its own costs.

54. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 13TH DAY OF OCTOBER, 2023ROBERT M. MUTUMA - CHAIRPERSONELISHAH N. NJERU - MEMBERMUTISO MAKAU - MEMBERBONIFACE K. TERER - MEMBERDR. WALTER ONGETI - MEMBER