[2024] KETAT 1296 (KLR)

Tropical Healthcare Limited v Commissioner of Legal Services and Board Coordination (Tax Appeal E630 of 2023) [2024] KETAT 1296 (KLR) (6 September 2024) (Judgment)

Neutral citation: [2024] KETAT 1296 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E630 of 2023

E.N Wafula, Chair, RO Oluoch, Cynthia B. Mayaka, AK Kiprotich & G Ogaga, Members

September 6, 2024

Between

Tropical Healthcare Limited

Appellant

and

Commissioner of Legal Services and Board Coordination

Respondent

Judgment

Background 1. The Appellant is a Company registered in Kenya and whose business activity is in general supplies of medical related items and food supplements.

2. The Respondent is a principal officer appointed under Section 13 of the KRA Act, and the Kenya Revenue Authority charged with the responsibility of assessing, collecting, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Respondent issued Income tax and VAT additional assessments on 4th January 2023 for a total of Kshs 73,536,882. 38.

4. The Appellant lodged a late objection on 15th June 2023 which the Respondent replied vide an email on 16th June 2023 advising the Appellant to lodge a valid objection within 7 days.

5. The late objection was accepted by the Respondent on 23rd June 2023. The Appellant further requested for additional 14 days to validate the objection as per Section 51(3) of the Tax Procedures Act.

6. The Appellant vide an email on 11th July requested for additional 14 days to enable it compile the documents requested. The Respondent on the same date informed the Appellant that its request had been declined and allowed the Appellant up to 14th July 2023 to provide supporting documents.

7. The Appellant provided some documents through its agent on 14th July 2023 and thereafter the parties held a meeting at the Respondent’s offices on 4th August 2023 where the parties agreed on some documents to be provided by the Appellant. The Appellant provided some documents on 11th August 2023.

8. The Respondent issued its objection decision on 11th August 2023.

9. Dissatisfied with the Respondent’s objection decision, the Appellant filed a Notice of Appeal on 11th September 2023

The Appeal 10. The Appellant’s Memorandum of Appeal filed on 25th September, 2023 is premised on the following grounds:i.That the Commissioner of Legal Services and Board Coordination erred in ignoring the evidence provided of VAT exempt supplies as provided in the objection to the tax decision dated 11th August 2023ii.That the Commissioner of Legal Services and Board Coordination erred in ignoring the challenges caused by the ill health and desertion provided in the objection to the Tax decision dated 11th August 2023iii.That the Commissioner of Legal Services and Board Coordination wrongfully and arbitrarily disregarded forty percent of the Appellant's declared expenses without due consideration. This action unjustly increased the amount of Corporation tax payable by the Appellantiv.That the Commissioner of Legal Services and Board Coordination erred in failing to consider the impact on the financial statement declarations occasioned by the supply disputes with the Appellant's client-the Government of Kenya.v.That the first Respondent wrongfully issued Agency notice circulated to the Appellant's bankers on the basis of an erroneous tax assessment.

Appellant’s Case 11. The Appellant’s case was premised on it’s Statement of Facts dated and filed on 25th September, 2023 together with the documents attached thereto.

12. The Appellant stated that on various dates between the period 2017 and 2019, the Appellant made supplies of food supplements to various Government agencies including but not limited to the Ministry of Health

13. That the supplies made to the Ministry of Health were for the purposes of emergency relief as declared on various VAT exempt supplies as described under VAT Act Section 23(3) where the remission of taxes is allowed under the condition that ‘...the taxable good for emergency relief purposes for use in specific areas and within a specified period, imported or purchased locally by the Government or its approved agent...'

14. It averred that on 10th February 2017, a National Drought Emergency was declared in Kenya. That the evidence of this can be found in the National Disaster Risk Management Policy (2017).

15. That in support of the National disaster response, the Appellant made supplies of food supplements to the Ministry of Health. That consequently, the supplies during this period should be considered exempt from VAT

16. It submitted that in a letter dated 29th December 2022, the Commissioner- Domestic Taxes arbitrarily disregarded expenses amounting to Shs 137,829,963. That the letter is neither the legal nor the logical basis of this disallowed expenses was provided.

17. That in the Appellant's Objection to the tax decision dated 11th August 2023, it was made clear that the Director of the company had suffered ill health. That however, as of September 2023, the Director was in better health and was open to discuss fair roadmap to the resolution of the matter.

Appellant’s Prayers 18. The Appellant prayed for the following orders;a.The Appeal herein be allowedb.The decision of the Commissioner of Legal Services and Board Coordination be set asidec.That the Agency notice circulated to the Appellant’s bankers be revoked

Respondent’s Case 19. The Respondent’s case was premised on its Statement of Facts dated 25th October 2023 and filed 27th October 2023 together with the documents attached thereto.

20. It was the Respondent’s submission that on 4th January 2023, it issued Income tax and Value Added Tax(VAT)additional assessments with a total principal tax liability of Kshs.73,536,882. 38.

21. That on 15th June 2023, the Appellant objected to the assessments on iTax out of time, providing reasons for the late objection, which were reviewed and accepted.

22. That on 15th June 2023 the Appellant was also notified in writing of acceptance of its late objection. That the Respondent requested it to provide documents in support of its objection within seven (7) days.

23. That on 16th June 2023 vide email, the Appellant was notified that its late objection application had been accepted. That the Appellant had stated ill health -depression as the reason for his late objection.

24. That the Respondent raised the additional assessments based on IFMIS data available. The Respondent submitted that it disallowed 40% of the purchases claimed due to lack of supporting documents as evidence in the tax decision dated 29th December 2022.

25. The Respondent stated that it could not ascertain income attributable to exempt, zero rated or general supplies since no records were provided by the Appellant. It averred that it also noted that no supplies were declared as exempt, zero-rated or general rated in the monthly VAT returns with the exception of December 2020 hence the supplies were charged tax for VAT purposes.

26. That the Appellant objected to the assessments stating that its supplies were VAT exempt and that there were no retained earnings for the period under review.

27. That on 11th July 2023, the Appellant responded attaching a letter requesting for an extra Fourteen (14) days to enable it compile the documents requested which was not granted. That further, the Appellant was requested to provide these documents by 14th July 2023 since a month had already lapsed without it providing any documentation or communicating.

28. That on 14th July 2023, the tax agent of the Appellant sent partial invoices and Local Purchasing orders.

29. That the Respondent thereafter requested for a meeting with the Appellant and its tax agent which was not forthcoming.

30. The Respondent stated that the Appellant finally came to the Respondent's offices on 4th August 2023 and a meeting was held where it was agreed that the Appellant provides the following;a)Workings/reconciliations in soft copy.b)General ledgers for the periods under review.c)Sample purchase invoices for the goods traded.d)Sample sales invoices.e)LPOs for supplies to government entities.

31. That the Appellant did not provide sufficient documents and only provided partial Local Purchase Orders (LPOs) and invoices on the 58th day which was on Friday 11th August 2023 at 2:42 p.m. That there was no sufficient time considering day 60 of issuing an objection decision was falling on a Sunday.

32. It stated that on 11th August 2023, the Respondent thus issued its objection decision accordingly.

33. In response to the Appellant’s grounds of Appeal, the Respondent stated that the Appellant vide correspondences was given several opportunities to provide documents to support its grounds but failed to within the statutory timelines.

34. The Respondent further stated that the evidence provided by the Appellant albeit late i.e. two (2) days to the statutory timelines for issuing an objection decision was not sufficient.

35. The Respondent stated that the late objection and ground of illness-depression was acknowledged and the late objection allowed on that basis.

36. The Respondent submitted that it disallowed 40% of the purchases claimed due to lack of supporting documents as illustrated in the tax decision.

37. The Respondent further stated that no supporting records were provided until the last minute, which were not even sufficient despite several opportunities given to the Appellant.

38. The Respondent averred that under Section 24 of the Tax Procedures Act 2015, it can use the information available to it at the time to make a tax decision.

39. The Respondent reiterated that it engaged the Appellant vide correspondence since 4th January 2023 when the first assessments were issued and thereafter given an opportunity to raise a late objection and time to provide supporting documentation and failed to do so.

40. It was the Respondent’s submission that he who comes to equity must come with clean hands and in this present instance the Appellant appears to have brought this Appeal without clean hands and in bad faith

41. The Respondent further stated that the Tax Service Office-Debt Department rightfully issued Agency notices well within the law with a view to enforcing the taxes which became due and payable when the Appellant failed to support its claims by failing to challenge the tax decision.

42. That the Appellant did not provide documentation within time and what was provided in the last minute was not sufficient and the Appellant still had not provided any further documentation with its Appeal and the burden now lies with it to prove that the tax decision is erroneous as claimed as provided for under Section 56(1) of the Tax Procedures Act, 2015.

43. The Respondent contended that, it is not bound by the Appellant's tax returns or information provided by, or on behalf of the Appellant and the Respondent may assess the Appellant's tax liability using any information available to it.

44. That under Section 31(1) of the Tax Procedures Act, 2015, the Respondent may amend the Appellant's tax assessment by making alterations or additions based on the available information and to the best of its judgement to ensure that the Appellant is liable for the correct amount of tax payable.

45. That the Appellant’s grounds were therefore not only spurious but also unsupported, as the Appellant had failed to discharge its burden of proof. That further, the Appeal was brought in bad taste as the Appellant was engaged by the Respondent and given several opportunities to provide proof but failed to do so sufficiently.

46. The Respondent reiterated the provisions of Section 56(1) of the Tax Procedures Act,2015, Section 30 of the Tax Appeals Tribunal Act, 2013 and Section 107 of the Evidence Act, Cap 80 laws of Kenya and states that the Appellant had not proven that the Respondent's decision was incorrect or unlawful. The Respondent contended that the Appellant had not discharged its burden of proof.

47. That the Appellant's appeal was not supported by documentary proof showing why the Respondent's assessment and objection decision were erroneous and the same were without merit thus ripe for dismissal.

Respondent’s Prayers 48. The Respondent prayed that the Tribunal;a.Upholds the Respondent's decision dated 11th August 2023 as valid and in conformity with the provisions of the law.b.Finds that the purported Appeal herein is without merit and dismiss it with costs to the Respondent.

Issue For Determination 49. The Tribunal frames the issue for determination to be:Whether the Respondent was justified in the assessments of tax on the Appellant.

Analysis And Findings 50. The Tribunal having appropriately ascertained the issue that falls for its determination shall proceed to make analysis as hereunder.

51. It was the Appellant’s contention that on various dates between the period 2017 and 2019, it made supplies of food supplements to various Government agencies including but not limited to the Ministry of Health

52. That the supplies made to the Ministry of Health were for the purposes of emergency relief as declared on various VAT exempt supplies as described under VAT Act Section 23(3) where the remission of taxes is allowed.

53. It averred that on 10th February 2017, a National Drought Emergency was declared in Kenya. That the evidence of this can be found in the National Disaster Risk Management Policy (2017).

54. It submitted that in a letter dated 29th December 2022, the Commissioner- Domestic Taxes arbitrarily disregarded expenses amounting to Shs 137,829,963. That the letter was neither the legal nor the logical basis of this disallowed expenses.

55. The Respondent on the other hand stated that the Appellant vide correspondences was given several opportunities to provide documents to support its grounds but failed to within the statutory timelines.

56. The Respondent further stated that the evidence provided by the Appellant albeit late being two (2) days to the statutory timeline for issuing an objection was not sufficient.

57. That the Appellant did not provide documentation within time and what was provided in the last minute was not sufficient and the Appellant still had not provided any further documentation with its Appeal and the burden now lies with it to prove that the tax decision was erroneous as claimed.

58. The Tribunal notes that the key issue in this case is whether the Appellant had supported its objection with sufficient documents. The Tribunal notes that the Respondent both in the objection decision and its pleadings was consistent in its argument that the Appellant failed to provide documents and information in support of its objection. In particular the Tribunal notes that the Respondent requested for documents in support of the objection.

59. Indeed the Tribunal notes that in the objection decision the Respondent stated in part as follows;“Statement of Findings4. We requested you to provide the following documents for review;a)Workings/reconcilliations in soft copyb)General ledgers for the periods under review.c)Sample purchase invoices for the goods traded.d)Sample sales invoices.e)LPOs for supplies to government entities5. you only provided LPOs and invoices.6…”

60. The Tribunal has further perused through the documents attached and notes that the Appellant attached to the pleadings a copy of the letter titled ‘NOTIFICATION OF AWARD..’ and one invoice both of which the Respondent acknowledges but states that they were not sufficient. The Tribunal notes that the Appellant did not address itself to the issue of the documents requested as listed by the Respondent in the objection decision dated 11th August 2023.

61. It is the view of the Tribunal that the Appellant ought to have provided the documents requested or the documents it is required by law to keep under the Income Tax Act or VAT Act in support of its objection and this Appeal failure to which means its arguments remain mere averments.

62. The provision of documents as evidence is well stated under Section 30 of the Tax Appeals Tribunal Act which provides as thus:“In a proceeding before the Tribunal, the appellant has the burden of proving-Where an appeal relates to an assessment, that the assessment is excessive; or In any other case, that the tax decision should not have been made or should have been made differently.”

63. The Tribunal is of the view that the Appellant failed to meet the obligation placed on it by Section 30 of the Tax Appeals Tribunal Act to discharge its burden of proof by providing supporting documents.

64. The Tribunal reiterates its decision in TAT 1296 of 2022 James Finlay (Kenya) Limited Vs Commissioner Legal Services And Board Coordination where it held as follows at Paragraph 83;“In the instant case the Tribunal found that the Appellant failed to address the specific documents mentioned by the Respondent in the objection decision and therefore failed to discharge the burden of proof.”

65. Consequently, the Tribunal finds that the Appellant failed to discharge the burden of proof placed upon it in demonstrating that the Respondent was not justified in the assessment of the taxes.

Final Decision 66. The Tribunal finds that the Appeal lacks merit and accordingly proceeds to make the following final Orders:i.The Appeal be and is hereby dismissed.ii.The Respondent’s objection decision dated 11th August 2023 be and is hereby upheld.iii.Each party to bear its own costs.

67. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 6TH DAY OF SEPTEMBER, 2024ERIC NYONGESA WAFULACHAIRMANDR. RODNEY O. OLUOCH CYNTHIA B. MAYAKAMEMBER MEMBERABRAHAM K. KIPROTICH GLORIA A. OGAGAMEMBER MEMBER