[2024] KETAT 344 (KLR)

Uchuzi Supermarket Limited v Commissioner of Domestic Taxes (Tax Appeal 13 of 2023) [2024] KETAT 344 (KLR) (23 February 2024) (Judgment)

Neutral citation: [2024] KETAT 344 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 13 of 2023

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

February 23, 2024

Between

Uchuzi Supermarket Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a company registered and domiciled in Kenya and registered for Corporate and VAT taxes.

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. On 15th November 2019, the Respondent issued Value Added Tax Automated Assessments (VAA Assessments) for the months of January, February, March, April and May 2018.

4. On 13th December 2019, the Appellant objected to the assessment.

5. Subsequently, the Respondent issued the Appellant with an objection decision on 22nd October 2021.

6. Being aggrieved by the Respondent’s objection decision, the Appellant filed this Appeal on 9th January 2023.

The Appeal 7. The grounds of the Appeal are outlined in the Amended Memorandum of Appeal dated 26th June 2023 and filed on 27th June 2023 and as summarized hereunder:a.The Respondent erred in law and in fact by delivering the Respondent’s Objection decision out of time on 22nd October 2021 despite the Appellant’s notice of objection being dated and lodged on 13th December 2019 contrary to the express provisions of Section 51(11) of the Tax Procedures Act, 2015. b.It is undisputed that the Respondent’s first response to the Appellant’s notice of objection dated and lodged on 13th December 2019 was made by email on 23rd February 2023 long after the expiry of the statutory sixty-day period set out in Section 51(11) of the Tax Procedures Act, 2015. c.The Appellant’s notice of objection dated and lodged on 13th December 2019 was deemed allowed by operation of law on 11th February 2020 in line with the mandatory statutory provisions in Section 51 (11) of the Tax Procedures Act, 2015. d.The Respondent erred in law and in fact by purporting to undertake any proceedings subsequent to 11th February 2022 in attempting to deal with the notice of objection or persisting in its tax demand arising from the Value Added Tax Automated Assessments for the months of January-May 2018. Any such purported attempt to deal with the notice of objection or persisting in its tax demand arising from the Value Added Tax Automated Assessments for the months of January-May 2018 is therefore a nullity and ought to be struck out.e.In any event, and without prejudice to the foregoing, the invoices that were subject of the notice of objection were properly supported with documentation provided both in hard copies and soft copies to the Respondent.f.The confirmed Value Added Tax assessment amount of Kshs. 3,562,992. 37 arising from purportedly disallowed purchase invoices is as a result of erroneous computation by the Respondent.g.The Respondent erred in law and in fact by purporting to require that the Appellant provide supporting documentation for a different list of invoices that earlier required to be provided on 21st September 2021.

The Appellant’s Case 8. The Appellant’s case was set out in its:a.The Statement of Facts filed 9th January 2023 together with the documents attached thereto.b.Written Submissions dated 14th September 2023 and filed on 20th September 2023.

9. The Appellant averred that on 15th November 2019, the Respondent issued a Value Added Tax (VAT) Automated Assessment (VAA) for the months of January – May 2018 on the Appellant.

10. The Appellant stated that it duly lodged its notice of objection dated 13 December 2019 (the notice of objection) in response to the VAA asserting that the entire assessment was erroneous and the VAT assessment of Kshs. 6,677,814. 94 raised by the Respondent ought to be set aside.

11. The Appellant submitted that the Respondent admitted in Paragraph 6 of the Respondent’s Statement of Facts dated 16th February 2023 that its first response to the notice of objection was through a request for documents on 27th September 2021.

12. The Appellant argued that, in actual fact, the first response to the notice of objection (as pleaded by the Respondent itself) was through the email dated 23rd February 2021. That nowhere in the Respondent’s pleadings before this Tribunal is it alleged that any earlier response was made to the notice of objection.

13. The Appellant insisted that there is no response to the Notice of Objection whatsoever that was received by the Appellant before 23rd February 2021 nor has any such earlier response been placed on record by the Respondent.

14. The Appellant stated that this is despite the fact that the express provisions of Section 51(11) of the Tax Procedures Act, 2015 required the Respondent to issue its Objection decision within 60 days (that is, on or before 11th February 2020).

15. The Appellant argued that by failing to make an objection decision, request for further information, or otherwise communicate with the Appellant on or before 11th February, 2020 (being 60 days after the notice of objection was lodged) the notice of objection was automatically allowed by operation of law.

16. The Appellant relied on the case of Republic v Kenya Revenue Authority Ex Parte M-Kopa Kenya Limited [2018] eKLR, upheld the effect of Section 51(11) of the Tax Procedures Act by finding that:“.... In this case the applicant had clearly made what was in substance an objection as envisioned under Section 51 of the Tax Procedures Act, 2015. Accordingly, the Respondent was required to make a decision in respect thereof within sixty (60) days under Section 51(11) of the said Act. As the Respondent defaulted in making a determination thereon within the prescribed time, the said objection was deemed to have been allowed...”

17. The Appellant also cited Eastleigh Mall Limited v Commissioner of Investigations & Enforcement (Income Tax Appeal E068 of 2020) [2023] KEHC 20000 (KLR) (Commercial and Tax) (17 July 2023) (Judgment) ITA No. E068 of 2020, Hon. Mabeya J. emphatically held;“It is clear from the forgoing that the provisions of section 51(11) of the Tax Procedures Act are mandatory. They are not cosmetic. Parliament in its wisdom knew that in matters tax, time is very crucial as those in commerce need to make informed decisions. If the Commissioner is allowed to exercise his discretion and stay ad-infinitum before issuing an objection decision, the tax payer would be unable to make crucial decisions and plan his/her business properly. The timelines set are mandatory and not a procedural technicality. […]

18. That the Respondent’s failure to issue the objection decision within 60 days meant that the Appellant’s objection had been allowed. In this regard, the Tribunal’s decision cannot stand. The Court need not therefore consider the second ground regarding the assessment of Corporation tax.

19. The Appellant posited that the Respondent had no discretion on whether or not to render the Objection decision. Further, the Appellant stated that the failure on the Respondent’s part to respond to the Appellant’s notice of objection within the stipulated 60 days automatically results in the notice of objection being allowed by operation of the law and the Respondent cannot therefore be justified in law and fact to continue to demand payment of the impugned VAT of Kshs. 6,667,814. 94 from the Appellant.

Appellant’s Prayers 20. The Appellant requested the Tribunal to;a.Find that the Appellant’s notice of objection dated 13 December 2019 deemed as allowed by operation of law on 11 February 2020 in line with the mandatory statutory provisions in Section 51(11) of the Tax Procedures Act, 2015. b.Set aside the Respondent’s objection decision dated 22nd October 2021. c.Provide for costs of this Appeal.

The Respondent’s Case 21. In response to the Appeal, the Respondent presented its;a.Statement of Facts dated and filed on 16th February 2023, andb.Written Submissions dated and filed on 30th August 2023.

22. In the Preliminary Objection to the Appeal, the Respondent argued that the Tribunal lacked jurisdiction to hear and determine the subject Appeal for contravening Sections 13 (1) and (2) of the Tax Appeals Tribunal Act No 40 of 2013 (TAT Act), the Appellant failing to file a notice of appeal within thirty days from the date of the objection decision appealed against or filing copies of a memorandum of appeal, statements of facts, and the tax decision filed within fourteen days from the date of filing a notice of appeal.

23. The Respondent posited that the subject Appeal contravenes Section 13 (3) of the TAT Act, the Appellant having failed to file a substantive application seeking leave to extend the time for filing a notice of appeal.

24. It stated that the application subsuming within the subject Appeal is otherwise incompetent there being no substantive application, and consequently does not disclose the grounds relied upon and prayers sought.

25. It argued that the subject Appeal and any application subsuming therein is otherwise incompetent, misplaced, and an abuse of the court process of this Tribunal as there is no competent Appeal for determination.

26. Subsequently, the Respondent averred that whereas Section 24(2) of the Tax Procedures Act, 2015 allows a taxpayer to submit tax returns in the approved form and manner prescribed by the Respondent, the Respondent is not bound by the information provided therein and can assess for additional taxes based on any other available information.

27. The Respondent in its objection decision noted, invoices for the amount of Kshs. 4,1736,343. 38 with input tax amounting to Kshs. 6,677,814. 94 were not sufficiently supported or were over-claimed and have therefore been disallowed. Consequently, the Value-Added tax assessment for the period of January, February, March, April and May 2018 was amended. The Respondent relied on Section 17(2) and (3) of the Value Added Tax Act, 2013.

28. The Respondent relied on the case of Highlands Mineral Water Limited v The Commissioner of Domestic Taxes, Tax Appeal E026 of 2020 where the court set out the criteria for claiming input VAT under Section 17 of the Value Added Tax Act by stating that:“34. I agree with the Appellant and I hold that the plain and unambiguous language of Section 17 of the VAT Act is clear that the only conditions provided for a Taxpayer to qualify for input VAT are:That the input tax was incurred on a taxable supply made to 07' on importation made by a taxpayer at the end of the tax period,That the input tax is deducted by a registered person on taxable supplies made by him; andThat the input tax is to be allowable for deduction within six months after the end of the tax period in which the supply or importation occurred."

29. The Respondent relied on Section 31(c) of the Tax Procedures Act which states that:-“In any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates.”

30. The Respondent also relied on Section 5 of the VAT Act, 2013 on charge of tax and Section 12 of the VAT Act, 2013 which provides for the time of supply of goods.

31. The Respondent relied on Sections 15 and 16 of the Income Tax Act which provide for the deductions allowed and the deductions not allowed.

32. Further, the Respondent cited Section 56(1) of the Tax Procedure Act, which states that:-“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect".

33. On whether the Respondent’s charge of tax of the Appellant is erroneous, the Respondent submitted that Section 23 of the Tax Procedures Act and Section 43 of the VAT Act mandate the Appellant to maintain documents required under any tax law and to provide the same on request by the Respondent. To this extent the Respondent submitted that the Appellant failed to meet its obligation. Additionally, the Respondent argued that pursuant to Section 24 (2) of the Tax Procedures Act, 2015 it is not bound by a tax return or information provided by or on behalf of a taxpayer and may assess the taxpayer’s liability using any information available to it and may amend an assessment as provided for in Section 31 (1) of the Tax Procedures Act.

34. The Respondent concluded by stating that the Appellant failed to prove that its tax decision was in any way inconsistent, based on extraneous factors, excessive or incorrect and thus submitted that additional assessment of VAT and Income tax were in accordance with the best judgment principle espoused in Saima Khalid V The Commissioner for Her Majesty’s Revenue and Customs-Appeal No. TC/2017/02292. “the commissioners are required to exercise their powers in such a way that they make a value judgment on the material which is before them...”

The Respondent’s Prayers 35. The Respondent prayed that the Tribunal:a.Upholds the Respondent's objection decision dated 22nd October 2021 as proper and in conformity with provisions of the law.b.Dismisses the Appeal with costs to the Respondent as the same is devoid of merit.

Issues For Determination 36. The Tribunal has carefully studied the parties' pleadings and submissions and is of the respectful view that the issues that call for its determination are as hereunder:a.Whether there was a competent Appeal on record.b.Whether the Respondent's Objection Decision dated 22nd October 2021 is valid.c.Whether the Respondent erred in assessing the Appellant for taxes.

Analysis And Findings 37. Having identified the issues that call for its determination, the Tribunal analyzed them as hereunder: -a.Whether there was a competent Appeal on record.

38. The Respondent raised a Preliminary Objection to the Appeal, arguing that the Tribunal lacks jurisdiction to hear and determine the subject Appeal for contravening Section 13 (1) and (2) of the Tax Appeals Tribunal No 40 of 2013, the Appellant failing to file a notice of appeal within thirty days from the date of the objection decision appealed against or filing copies of a memorandum of appeal, statements of facts, and the tax decision filed within fourteen days from the date of filing a notice of appeal and thus failing to discharge its mandate under Section 51 (3) (c) of the Tax Procedures Act.

39. The Respondent argued that the application subsuming within the subject Appeal, is otherwise incompetent there being no substantive application, and consequently does not disclose the grounds relied upon and prayers sought.

40. The Tribunal noted that the Notice of Appeal was lodged on the 22nd November 2021 arising from the grievance with the Objection decision issued on 22nd October 2021.

41. For a Notice of Appeal to be deemed as competently lodged, the same ought to be made and/or lodged within the prescribed timelines as set out under Section 13 (1) (b) of the Tax Appeals Tribunal Act, which states:“A notice of appeal to the Tribunal shall—(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.”

42. The Tribunal observes that the Appellant filed its Notice of Appeal on the 30th day and therefore finds that this was within the timelines as prescribed by the law.

43. On 11th May 2023, by mutual consent of both parties, the Tribunal granted the Appellant leave to file an amended Memorandum of Appeal and Statement of Facts. In this regard, the Tribunal concludes that the preliminary objection raised by the Respondent was spent by the decision of the Tribunal to grant leave.

44. Therefore, the Tribunal finds that the Appeal herein is properly on record.b.Whether the Respondent's Objection Decision dated 22nd October 2021 is valid.

45. The Appellant averred that the Respondent erred in law and fact by delivering the Respondent’s Objection decision out of time on 22nd October 2021 despite the Appellant’s notice of objection being dated and lodged on 13th December 2019 contrary to the express provisions of Section 51(11) of the Tax Procedures Act, 2015.

46. On the other hand, the Respondent advanced that it issued Value Added Tax Automated Assessments (VAA Assessments) for the months of January, February, May, March, April, and May 2018 on 15th November 2019. The Respondent further alleged that on 13th December 2019 the Appellant objected online to the 5 VAA assessments on the ground that all the invoices were correctly declared and claimed.

47. The Respondent argued that it requested documents from the Appellant supporting the objections via iTax. It argued that a review of the objection was done, and additional evidence was requested via email on various dates and the Appellant provided the last documents on 27th September 2021. Subsequently, on 22nd October 2021, the Respondent partially allowed the objection and delivered its decision disallowing unsubstantiated grounds of objection and delivered an amended assessment.

48. The Tribunal observes that it is not in dispute that the date of the notice of objection is 13th December 2019. The Appellant argued that there was no further engagement from this date until 23rd February 2021. Gleaning through the documents the Tribunal noted that on 23rd February 2021, the Respondent wrote to the Appellant indicating that it was in the process of reviewing the case but noted that the Appellant had not provided any documents to support its objection. The Respondent proceeded to request for various documents in a back-and-forth engagement that culminated in the objection decision being issued on 22nd October 2021.

49. Section 51 (11) of the Tax Procedures Act states that:“the Commissioner shall make the objection decision within sixty days from the date of receipt of—(a)the notice of objection; or(b)any further information the Commissioner may require from the taxpayer, failure to which the objection shall be deemed to be allowed.”

50. The import of this provision of law was that the objection shall be deemed to be allowed at the lapse of 60 days from the date of the notice of objection or 60 days from the date of submission of additional information requested by the Respondent. In the extant Appeal, the Tribunal observes that the 60 days lapsed before the Respondent could request further documents or information. The Respondent appears to have gone into slumber after the Notice of Appeal was filed and only resurfaced over 430 days later to revive the case.

51. The Tribunal is certain that all the engagements that occurred from 23rd February 2021 until the objection decision was issued on 22nd October 2021 were futile, null, and void since the Notice of Appeal had been allowed by operation of the law on or about 13th February 2020.

52. Similarly, the High Court in Eastleigh Mall Limited v Commissioner of Investigations & Enforcement (Income Tax Appeal E068 of 2020) [2023] KEHC 20000 (KLR) (Commercial and Tax) (17 July 2023) (Judgment) ITA No. E068 of 2020: Hon. Mabeya J. held;“It is clear from the forgoing that the provisions of Section 51(11) of the Tax Procedures Act are mandatory. They are not cosmetic. Parliament in its wisdom knew that in matters tax, time is very crucial as those in commerce need to make informed decisions. If the Commissioner is allowed to exercise his discretion and stay ad-infinitum before issuing an objection decision, the taxpayer would be unable to make crucial decisions and plan his/her business properly. The timelines set are mandatory and not a procedural technicality….The respondent’s failure to issue the objection decision within 60 days meant that the appellants objection had been allowed.”

53. Consequently, the Tribunal finds that the Respondent's Objection decision dated 22nd October 2021 was not validly issued and cannot stand the test of law. Having determined this the Tribunal will not delve into the remaining issue.

Final Decision 54. The upshot of the foregoing is that the Appeal is merited and the Tribunal accordingly makes the following Orders: -a.The Appeal be and is hereby allowed.b.The Respondent’s objection decision dated 22nd October, 2021 be and is hereby set aside.c.Each party bears its own costs.

55. Orders accordingly.

DATED AND DELIVERED AT NAIROBI THIS 23RD DAY OF FEBRUARY, 2024GRACE MUKUHA - CHAIRPERSONDR. WALTER ONGETI - MEMBERDR. ERIC KOMOLO - MEMBERJEPHTER NJAGI - MEMBERGLORIA A. OGAGA - MEMBER