[2024] KETAT 444 (KLR)

UDV Kenya Limited v Commissioner of Legal Services and Board Coordination (Tax Appeal 158 of 2022) [2024] KETAT 444 (KLR) (19 April 2024) (Judgment)

Neutral citation: [2024] KETAT 444 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 158 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, T Vikiru & AK Kiprotich, Members

April 19, 2024

Between

UDV Kenya Limited

Appellant

and

Commissioner of Legal Services and Board Coordination

Respondent

Judgment

Background 1. The Appellant is a locally incorporated company, which is owned by Diageo Great Britain Limited and East African Breweries PLC and its core business is the manufacture, marketing and sales of spirit based alcoholic beverages.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority (KRA) Act, and KRA 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. By a letter dated 24th March, 2021 (“the 1st Assessment”), the Commissioner, Domestic Taxes Department raised an assessment for Excise duty & VAT for February 2021 amounting to a total tax liability of Kshs. 607,826,710. 00.

4. The Appellant, by a letter dated 28th March, 2021 challenged this assessment.

5. On 12th April, 2021 the Respondent issued further additional assessments for Excise tax and VAT for February 2021 amounting to Kshs. 87,224,650. 00.

6. The Respondent sent an email on 13th April, 2021 and attached to it the letter dated 12th April, 2021.

7. The Appellant lodged its objection against the additional assessments dated 12th April, 2021 through a letter dated 10th May, 2021.

8. On 4th January, 2022 the Respondent issued its objection decision on the 2nd notice of objection confirming the additional assessments and demanding aggregate sums of Kshs. 55,343,616. 00 and Kshs. 31,881,034. 00, respectively, for Excise duty and VAT (totaling Kshs. 87,224,650. 00) for February 2021.

9. Following its dissatisfaction with the Respondent’s decision, the Appellant appealed by filing a Notice of Appeal to the Tribunal dated 2nd February, 2022.

The Appeal 10. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated 16th February, 2022 and filed on 22nd February, 2022:-i.That no Excise duty is due by virtue of Section 7(1) of the Excise Duty Act, 2015 ('EDA') which provides that:-“...Subject to this section, no Excise Duty shall be charged on the following;·.·(b)excisable goods exported under customs control, including as stores....”In accordance with the above stated provision of the law, the Appellant properly claimed Excise Duty rebate on the exports it made in its February 2021 returns. That the objection decision was erroneous and based on assumptions as opposed to a true record of the Appellant’s tax position.ii.That the Respondent erred in disallowing the objection and upholding the 2nd additional assessment.iii.That the Respondent erred in failing to consider the objection upon the terms on which it was made. In particular, the Respondent failed to consider and address:a.The correct entries supplied by the Appellant in the objection in substitution of the incorrect and/or missing entries in February, 2021, Excise returns as well as the documents supplied in support of the affected exports.b.The objection by the Appellant to the wrongful imposition of a penalty in the sum of Kshs. 6,376,207. 00iv.That the Respondent erred in its objection decision in relying on the provision in the objection of the correct entry numbers as well as the supply of missing entries to conclude that no export took place in respect to the rebates claimed.v.That while in the objection the Appellant inadvertently included entry numbers that did not relate to it, referred to entry numbers for earlier exports, and failed to provide entry numbers in some cases, these were corrected - a fact overlooked in the objection decision. Contrary to the Respondent's position, upon such rectification, it was clear that the Appellant had properly claimed, and was entitled to rebates on the basis of the exports it had made as demonstrated in its schedule setting out the details of the correct export entries and the corresponding export documentation in support of the rebate that were provided to the Respondent as part of the objection and afterwards during the review process.vi.That the Respondent erred in disregarding the documentation provided to it in support of the Appellant's Excise duty rebate claim and further claiming that the correct entries provided by the Appellant were ostensibly ‘new entries’ and a confirmation that there was an under declaration of Excise duty.vii.That the Respondent in its objection decision erred in stating that ‘...certificates of export were not presented, the same were requested for..’ The Appellant, as part of its objection, provided the Respondent with the schedule of export entries showing the corresponding certificates of exports and/or certificates of exit in support of the Excise duty rebate and copies of Certificates of Exports.viii.That the Respondent erred in relying on the provisions of the VAT Act as a basis for denying the Appellant a rebate it is entitled to under the Excise Duty Act, 2015. In particular, the objection decision explicitly relied on Regulation 12(3) of the VAT Regulations, 2013 (sic-regulation 13(3) of the VAT Regulations, 2017) to deny the Appellant the rebate claim as “.. certificate of landing and T1 entries were requested to confirm the actual landing of the goods to the country of destination in cases where the exports were made to third parties i.e. South Sudan. The aforementioned documents were not provided...”ix.That indeed, so far as is material, Regulation 13(2)(c)(iii) of the VAT Regulations, 2017 expressly disclaims the application of those provisions (i.e. the VAT Regulations) from Excise Duty - “for excisable goods, the documents shall be in accordance with the provisions of the Excise duty Act, 2015. ”x.That Regulation 13(2)(c)(i) & (ii) of the VAT Regulations, 2017 provides:“..The documentation relating to a supply required as the proof of an exportation of goods or services shall be-(c)for goods, a copy of(2)the bill of lading, road manifest, or airway bill, as the case may be;(ii)the export or transfer entry certified by a proper officer of Customs at the port of exit....”xi.That Regulation 13(3) of the VAT Regulations, 2017, provides:-“..Where the Commissioner has reasonable grounds to believe that goods treated by a registered person as exported may not have been exported-(a)the Commissioner may, by notice in writing, require the registered person to produce, within the time specified in the notice, a certificate signed and stamped by a competent authority outside Kenya stating that the goods were duly landed and entered for home consumption at a place outside Kenya;(b)the supply shall not be treated as an exportation until the certificate referred to in paragraph (a) has been provided to, and accepted by, the Commissioner...”xii.That even assuming, the VAT Regulations, 2017 apply, the objection decision is still invalid as:a.The notice as stipulated by the said Regulation was not given to the Appellant by the Respondent before it issued the impugned additional assessments confirmed by the objection decision. The requests came only after the Appellant had lodged its objection.b.The Respondent failed to demonstrate that it had reasonable grounds to believe that the goods were not exported. A mere request for documentation made on email without any justification as to why the request was being made does not suffice.c.In any event, as requested, the Appellant provided the Respondent's compliance team with most of the certificates of export save for a few which the Appellant was still in the process of retrieving and should be able to furnish the Respondent with the same.xiii.That the objection decision was not issued within the mandatory 60-day period stipulated in Section 51(11) of the Tax Procedures Act, 2015("the TPA”), thus by operation of law the objection was allowed and the impugned 2nd additional assessments in the aggregate sum of Kshs 87,224,650. 00 set aside.

Appellant’s Case 11. The Appellant’s case is premised on the following documents:i.Its Statement of Facts dated 16th February 2022 and filed on 22nd February, 2022 together with the documents attached thereto.ii.The Appellant’s witness statement of Esther Kinuthia dated 22nd March, 2023 and filed on 23nd March, 2023; and admitted as evidence under oath on 21st November, 2023. iii.The Appellant’s Supplementary Statement of Facts dated 29th September, 2022 and filed on 21st November, 2023 together with the documents attached thereto.iv.The Appellant’s written submissions dated 4th December, 2023 and filed on 5th December, 2023

12. That as required by the Excise Duty Act, 2015 ("the EDA") and the Value Added Tax Act (“the VAT Act"), the Appellant filed both Excise duty and VAT returns for February 2021.

13. That by a letter dated 24th March 2021 ("the 1st Assessment”), the Commissioner, Domestic Taxes Department raised an assessment for Excise duty & VAT for February 2021 in which it was claimed that after analysis of the self-declarations in the Excise and VAT returns for February 2021, the Appellant had a total tax liability of Kshs. 607,826,710. 00.

14. That the Respondent alleged that Excise duty of Kshs. 324,084,060. 00 had been claimed in the Excise return, based on invoice number 9510268125 from Agro-Chemicals Food Company. That records in the Respondent’s office show that the supplies made to UDV from Agrochemicals in the month of February had a total Excise duty value of Kshs. 120,537,000. That the difference of Kshs. 203,547,060. 00 would be disallowed.

15. That the Respondent alleged that Customs records showed that in the month of February, the Appellant exported a total of 15,190 litres of spirits to South Sudan, whereas the Appellant claimed Excise duty on 754,856 litres. That the Excise rebate claimed on the unsupported exports of 739,666 litres would be disallowed.

16. That the Respondent alleged that records from the Excisable Goods Management System (EGMS) indicated that the Appellant produced a total of 3,941,017 litres of spirits but only declared manufactured quantities of 3,216,257 litres in the Excise return. That the difference of 724,760 litres; 677,208 litres being Ready to Drink alcoholic beverages and 47,552 litres being spirits, would be brought to charge of Excise tax.

17. That the Respondent further alleged that the Excise tax adjustments above will cause an equal increase in the vatable value of vatable supplies for VAT purposes.

18. That VAT would be charged on the total amount of Excise duty disallowed of Kshs. 491,163,750. 00. That further, VAT would be charged on sales made to DEFCO declared in the VAT return of Kshs. 22,946,714. 00.

19. That the Appellant, by a letter dated 28th March challenged this assessment on the grounds that:Prepaid Excise Dutyi.For the month of February 2021, UDV sought relief on Excise duty paid on raw materials utilized to manufacture excisable goods as pursuant to Section 14 of the Excise Duty Act.ii.The utilization of neutral spirit forms the basis upon which the Excise duty relief is offset and in most cases the neutral spirit purchased in a particular month may not be utilized in the same month it is purchased. In view of this, the Commissioner's comparison of the neutral spirit purchased against the Excise duty claimed is erroneous and should be vacated.Excise Duty Rebates on Exportsiii.UDV's Excise duty rebates claimed were fully supported by the necessary documents and the Commissioner’s disallowance was erroneous and lacked justification in both fact and law and should be set aside.Production Reports from EGMSiv.UDV has remitted the required Excise duty on all goods that left the factory.VATv.UDV remitted the correct amount of VAT as set out in its VAT return for February 2021. vi.The VAT assessment was erroneous and unjustified.

20. That on 12th April, 2021 the Chief Manager in charge of Domestic Excise & Agriculture at the Large Taxpayers Office issued another “Additional Assessments for Excise Tax and VAT for February 2021. ” That after referencing, (though without addressing in any detail their contents), the 1st additional assessment as well as the 1st objection, the 2nd additional assessment for Excise duty and VAT was raised on somewhat different basis. i.e.Excise Returni.Prepaid Excise Duty paid - That the Appellant’s explanation regarding the prepaid Excise duty calls for an amendment of the February Excise return to reflect a true position. That the Appellant needed to ensure that all the information required in the return is provided in the prescribed format for this and earlier returns that may be erroneous.ii.Exports records - That the information provided to support exports had been analysed by the Respondent. That some data lacked the entry numbers and therefore could not be verified against the Respondent’s Customs data. That the Excise rebate relating to these entries of Kshs. 13,667,550. 00 had been disallowed. That eighteen entries, with an Excise rebate value of Kshs. 5,575,500. 00 were found to have been claimed on in the past. That these had been disallowed. That Certificates of Exit were not issued on nine entries with an Excise rebate of Kshs. 9,672,696. 00. That this had also been disallowed.iii.EGMS Variance – That the EGMS variance would be shelved at that moment.iv.That the Excise duty payable was summarised as follows:Kshs.

Certificates of Exit not issued. 9,672,696

Entry previously claimed on. 5,575,500

Entries not in the name of UDV 26,427,870

Entry numbers not provided 13,667,550

Principal Excise 55,343,616v.That entries disallowed under Excise above did not qualify to be exports and would therefore be reclassified to the general rated class of vatable goods. That Vatable value has been taken to be Customs value declared in the Customs entry and the Excise tax and VAT as per table below:CIF values from Customs data Excise Duty Vatable Value VAT@16%Kshs.

Certificate of exit not issued. 56,178,487 9,672,696 65,851,183 10,536,189

Entry previously claimed on 1,537,970 5,575,500 7,113,470 1,138,155

Entries not in the name of UDV 86,196,387 26,427,870 112,624,257 18,019,881

Entry numbers not provided

13,667,550 13,667,550 2,186,808

Principal VAT

31,881,034vi.That the two additional assessments for the aggregate sum of Kshs. 87,224,650. 00 were issued on the Appellant's iTax platform, which sum together with unspecified interest and penalties, was to be paid immediately.

21. That the Respondent sent an email titled “Demand Notice for your action and a request for documents” on 13th April, 2021 and attached to it the letter dated 12th April, 2021 as well as “a Demand Notice for your action and request for information.”

22. That the Appellant lodged its objection against the assessment dated 12th April, 2021 through a letter dated 10th May, 2021. The Appellant objected to the additional assessment on the following grounds:i.Pre-Paid Excise duty - UDV sought relief of Excise duty as statutorily provided for under Section 14 of the Excise Duty Act, 2015. That the relief sought was based on the difference between actual sales and the actual volume of raw spirit purchased from various suppliers. That a schedule giving a breakdown of the Excise duty offset in relation to sales made for February, 2021 was attached to the Respondent’s letter dated 12th April, 2021. ii.That the 2nd additional assessments stated that information supplied by the Appellant did not support the exports asserted to have been made and thus they were disallowed and Excise duty was charged on them. That for each of the four clusters, in its 2nd objection, the Appellant provided the relevant support documents and/or the correct information as follows:a.Entry numbers not provided - Kshs. 13,657,550. 00 - That these were rebates on sales that were not subject to the EDA, thus as per Section 7of the EDA was not chargeable. That the entries in relation to these sales as well as the relevant documents were provided as appendices II & III to the 2nd objection.b.Entry previously claimed on - Kshs. 5,575,500. 00 - That as the entry numbers previously given were incorrect, UDV supplied as Appendix IV to the 2nd objection the correct entry numbers for exports which had been made.c.Certificates of Exit not issued - Kshs 9,672,696. 00 - That the relevant Certificates of Exit for the affected 9 entries were supplied as Appendix V attached to the 2nd objection.d.Entries not in the name of UDV - Kshs. 26,427,870. 00 - That the incorrect entries quoted in the returns which indeed which were not in UDV's names were corrected and attached as Appendix VI to the 2nd objection.e.That part of the issue with in the impugned entries were limitations in the iTax system which should not operate to the prejudice of a taxpayer. UDV requested the KRA to configure the iTax system to allow multiple entries under the same HS codes as well create a CSV file within the iTax system to facilitate the filing of returns in an efficient manner.f.That the Commissioner's VAT assessment was predicated on its erroneous and unjustified additional Excise duty assessment as set out in its assessment.g.That in addition, UDV objected to the variance of Kshs. 6,376,206. 72 between the sums demanded in the 2nd additional assessments and that shown in the iTax. That the variance was a penalty levied on UDV ostensibly under Section 84(b) of the Tax Procedures Act, 2015(“the TPA”), and that this was not warranted as the Appellant had not knowingly made a false statement with the intention to mislead KRA and its returns were reasonably accurate.

23. That there then ensued an exchange of correspondence between the Appellant and the Respondent with documents, which the latter requested and were supplied by the former as follows:i.By an email of 22nd June, 2021 followed up by another email of 30th June, 2021, the Respondent requested for:a.Detailed Export data (in excel format) for February 2021 as declared in UDV's VAT and Excise returns.b.The Supporting schedules as per the appendices in the 2nd objection.c.The Statement of Facts for the case TAT Number 282 of 2020 Kenya Breweries Limited vs the Commissioner of Customs and Border Control.d.Any other relevant document.e.Certificate of landing for each of the certificates of exports annexed in support of the objection for the Appellant.ii.By its email of 1st July, 2021, the Appellant sent the documents requested save for soft copies of the CoEs and export documents which were not possible to be sent by email and the Respondent was referred to UDV's Relationship Manager.

24. That on 4th January, 2022 the Respondent issued its objection decision on the 2nd notice of objection confirming the 2nd additional assessments and demanding aggregate sums of Kshs. 55,343,616. 00 and Kshs. 31,881,034. 00, respectively, for Excise duty and VAT (totaling Kshs. 87,224,650. 00) for February 2021.

25. That the basis of the objection decision was:i.Entries with excise rebate value of Kshs. 13,667,550. 00 had no export numbers hence disallowed,ii.18 entries whose summary was provided, with an excise rebate of Kshs. 26,427,870. 00 were found not be in the name of UDV hence disallowed.iii.Entries with an Excise value of Kshs. 5,575,500. 00 were found to have been claimed in the past, hence disallowed.iv.Certificates of exit for 9 entries of Excise rebate value of Kshs. 9,672,696. 00 were not provided hence disallowed.

26. That the Respondent stated that, in regard to VAT, there was need to verify the landing certificates to verify that the goods actually landed in the country of destination.

27. That the Respondent explained that based on Regulation 12(3) of the VAT Regulations 2013 introduced through Legal Notice No. 54 issued on 30th March, 2017 which provides that:“Where the commissioner has reasonable grounds to believe that goods treated by a registered person is exported may not have been exported-a)the Commissioner may, by notice in writing, require the registered person to produce, within the time specified in the notice, a certificate signed and stamped by a competent authority outside Kenya stating that the goods were duly landed and entered for home consumption at a place outside Kenya.b)the supply shall not be treated as an exportation until the certificate referred to in paragraph (a) has been provided to, and accepted by, the Commissioner.”

28. That the export process by UDV has certain key step as follows:i.On the basis of commercial invoices issued to it by UDV, the foreign purchaser of the goods intended for export, appoints a licensed agent who makes Customs' declaration, via the Integrated Customs Management System ("ICMS") set up and operated by KRA, generating Customs numbers for each entry which forms the basis of the road manifest number with immaterial modifications for present purposes.ii.Upon loading onto the truck for transportation from UDV's warehouse, it is inspected and sealed by KRA as well as recorded in KRA's Regional Electronic Tracking System (“RECTS”). A seal number issued which is loaded into ICMS. RECTS enables Customs to track the movement of the goods, with any deviation from the expected route or attempts at tampering with the seal triggering alerts. There has never been any suggestion, and there is no suggestion, of any such deviation or tampering against UDV whether in respect to the impugned goods or at all.iii.When the goods reach the border at Malaba (the relevant location for the goods in question in this Appeal), there is a joint inspection by KRA's and URA's officials after which an Outward rotation number is issued and noted on the export documents, copies of which are retained by Customs.iv.URA issues T1 forms which facilitate movements within Uganda while KRA issues a Certificate of Export. Due to backlogs, there has been delay in the issuance of those Certificates of Export, a process which has been compounded by the manual verification during which the licensed agents provide T1 entries for verification by KRA's officials.

29. That critical facts emerge that should be noted:i.At all times from the moment goods destined for export are loaded onto the truck, Customs has real time visibility and control. Customs also has a complete record of all the export documents, most of which are issued by it.ii.Correspondingly, an exporter like UDV, once the goods are loaded, has no control of the process and little, if any access to the documents.

30. That the Respondent wrongly conflates two different statutory regimes, transposing from one - the Valued Added Tax Act 2013 ("the VAT Act") - inapplicable subsidiary provisions - the VAT Regulations- to a wholly different statutory scheme - the Excise Duty Act, 2015 ("the EDA"). In this regard, the Appellant expounded as follows:i.By its long title, the EDA was enacted to “...provide for the charge, assessment and collection of excise duty, to make administrative provisions relating thereto, and for connected purposes... “ii.Section 7 of the EDA sets out circumstances in which no Excise duty is chargeable on exported excisable goods as well as conditions applicable to trigger the stipulated exemptions. To the extent material to this Appeal:a.Section 7 (I)(b) provides “...Subject to this section, no excise duty shall be charged on the following- ... (b) excisable goods exported under customs control, including as stores; ...”b.Section 7(5)(6) of the Excise Duty Act further provides that: “...(5) An exemption granted under this section shall apply if the Commissioner is satisfied that- (b) excisable goods or services for export under subsections (l)(b) and (c) have not been, and shall not be consumed in Kenya...”

31. That the above provisions of the EDA provide a complete, exhaustive code for the administration of exemptions under Section 7. That it is not subject to the provisions of any other Act and it most certainly cannot be subject to subsidiary legislation promulgated under an entirely different Act for verification of exports for tax breaks available under that Act. That unless expressly incorporated and provided there is no inconsistency with the substantive provisions of the EDA, the VAT Regulations have no application to it.

32. That oblivious to the above, in the objection decision, the Respondent explicitly relied on Regulation 12(3) of the VAT Regulations, 2013. The Appellant accepts that this is a typo for which it will not hang the Respondent on the cross. That it seems obvious, as now confirmed in the Respondent's Statement of Facts, it was meant to be Regulation 13(3) of the VAT Regulations, 2017, which are still inapposite even overlooking (which the Appellant should not) it has not been incorporated to apply to the EDA.

33. That Regulation 13 (l)(a) and 13(2)( c)(i) and (ii) of the VAT Regulations, 2017 provide as follows;“(1)An exportation shall be a taxable supply- (a) in the case of goods, when the taxable supply involves the goods being entered for export under the East African Community Customs Management Act and delivered to a recipient outside Kenya at an address outside Kenya;(2)The documentation relating to a supply required as the proof of an exportation of goods or services shall be - (c) for goods, a copy of-(i)the bill of lading, road manifest, or airway bill, as the case may be;(ii)the export or transfer entry certified by a proper officer of Customs at the port of exit.”That It is beyond any plausible dispute that this is solely for purposes of claiming VAT refunds on exports of taxable supplies as authorized in the VAT Act, certain documents must be supplied as proof of exportation.

34. That any possible doubt (of which there are no possible reasonable ones), is wholly resolved by the expressed limitation in Regulation 13(2)(c)(iii) disclaiming its application to the EDA “...for excisable goods, the documents shall be in accordance with the Excise Duty Act...”

35. That even assuming, arguendo, that the VAT Regulations apply, the Respondent's reliance is still misplaced. That the requests for documents to UDV, were not within the stipulated procedural as well as substantive prophylactic protections. That Regulation 13(3) of the VAT Regulations, 2017 provides that:“... (3) Where the Commissioner has reasonable grounds to believe that goods treated by a registered person as exported may not have been exported- (a) the Commissioner may, by notice in writing, require the registered person to produce, within the time specified in the notice, a certificate signed and stamped by a competent authority outside Kenya stating that the goods were duly landed and entered for home consumption at a place outside Kenya;”

36. That the substantive protection built in to Regulation 13 is that to trigger its operation, the Commissioner must have reasonable grounds that an export may not have taken place. That there was no attempt whether at the stage of the two assessments nor the objection review to show that any such reasonable grounds for such a belief existed. That without such reasonable grounds, there is no lawful basis for invocation of the Regulation 13 whether as the Respondent has wrongly attempted to do or at all.

37. That the second protection is procedural - service of notice requiring the certificate as specified. No such notice has ever been served. That the demand of documents as part of review of documents is not authorized under Regulation 13.

38. That the Appellant could go on flogging this now long-dead horse to argue further that even if it was applicable and its prerequisites had been satisfied, Regulation 13 is not an open license for the Respondent to demand each and every document under the sun as it sought to do during the objection review process. That it is limited to the certificate as specified. That matters such as “ ...a)Entries previously claimed, b)Entries not in your name, c) Certificate of exports not issued & export entries not provided...” do not come within its purview.

39. That therefore the Respondent's reliance in the objection decision on Regulation 13 of the VAT Regulations is contra-statute, and therefore unlawful, null and void. That since nothing can be built on nothing, ex nihilo nihil fit, it follows that the objection decision founded on such illegal reliance on Regulation 13, is equally unlawful, null and void.

40. That it is important to recall that under the rebate system as provided in Section 7 of EDA, KRA's role in verification as provided in sub-section 7(5)(b), is to be satisfied that the exports have taken place and the goods have not been consumed in Kenya. The Appellant reiterated that the evidence that the impugned exports took place and were not consumed in Kenya is compelling. That indeed, in the objection decision, the Respondent does not contend otherwise i.e. that the exports never took place and the goods were consumed in Kenya. That the objection decision is predicated on the unlawful premise that documents demanded under Regulation 13 of the VAT Regulations were not supplied, a conclusion the Appellant had demonstrated was unlawful, null and void.

41. That on the evidence before it, there was no other conclusion open to the Respondent. That as shown at paragraph 11 in the unchallenged testimony of Ms. Kinuthia, the Appellant’s witness, and highlighted in paragraphs 4, 5 and 6 of the Appellant’s submissions, there is no suggestion, let alone evidence, that the goods ever left Customs' control. That to compound matters, the Respondent's spumed repeated requests by UDV to obtain the documents sought from Customs, the issuer and/or primary custodian of them. That to date the Appellant has no information, let alone justification, why so as to discharge the statutory mandate as to satisfaction that exports took place, opportunity to obtain information and documents from Customs i.e. within KRA, was spumed. That nothing in Section 7(5) limits the process of satisfying oneself that exports had taken place to an exporter, especially where, as here, that material sought is available from not only Customs but the KRA's own platforms ICMS as well as RECTs.

42. That the Appellant’s requests for information, were part of a genuine attempt of verification of whether or not exports took place, and the goods were not locally consumed, then surely the requests for information as well as documents should have been done before any assessment was raised; but not after the assessment had already been raised as part of an ostensible review of an objection to that assessment.

43. That while considering the specific grounds upon which the Respondent upheld the 2nd assessment as issued, it should not be lost just how arbitrarily this was done. That an additional assessment is issued for a whopping Kshs. 607,826,710. 00 which included some Kshs. 203,547,060. 00 as Excise duty claimed but not supported. That there is no consideration of the objection by way of an objection review process after which an objection decision is rendered. That instead, the various heads relied on in the 1st additional assessment are abandoned and a fresh assessment, albeit for a lesser amount of Kshs. 87 million odd though nonetheless still substantial, under the rubric export records broken down under four specific headings.

44. That when UDV objected, instead of considering the 2nd assessment on the terms on which it was made in light of that objection, unlawfully using inapposite provisions, the Respondent essentially undertakes a fishing expedition in effort to bolster the grounds of the 2nd objection by demanding information and documents, it could and should have verified from ICMS and RECTs as well as Customs, from an exporter it knows probably does not have them. That when predictably enough, some of these are not supplied, the mission is accomplished and, voila, the 2nd Assessment is confirmed.

45. That this is not the kind of conduct expected of a public authority. That whatever else these actions and inactions might be characterized as, neither the assessing Commissioner nor the Respondent were conducting an objective and fair verification of whether the exports took place and the goods were not consumed locally.

46. That it was claimed in the objection decision that “... Where certificates of export were not presented, the same was requested for....”. That with respect, this incorrect. That as part of its objection, UDV provided the Respondent with a schedule of Customs entries and corresponding Certificates of Export and/or Certificates of Exit. That evidently, they were not considered. That turning a blind eye on evidence, does not make them magically disappear so as to constitute non-presentation of evidence and warrant the upholding of this part of the 2nd assessment.

47. That it got worse as the Respondent was not being wholly forthright as to what it requested. That as per its email of 22nd June, 2021, what was requested was detailed data in excel format, supporting schedules in excel, correct workings and any other relevant document. That even though the documents had already been provided as part of the objection, by its email of 1st July 2021, UDV forwarded the documents in the format requested. That as they could not be sent by email, the Respondent was requested to obtain hard copies of the Certificates of Exports and export documents from then Appellant KRA Relationship Manager. That there is no acknowledgment, by the Respondent of the provision of information as sought nor referral to internal sources within KRA to obtain hard copies of material that could not be sent by email. That there is also no contemporaneous complaint by the Respondent that UDV has failed to provide any of the information it sought in its email of 22nd June, 2022.

48. That it was also claimed in the objection decision “...Certificate of Landing and Tl entries were requested to confirm the actual landing of the goods to the country of destination ...i.e. South Sudan...”. That this request too is not a bona fide attempt at verification in terms of Section 7(5) of the EDA.

49. That it is important to note that Certificates of Exports, Certificates of Landing and T1 entries are separate forms serving different purposes. That as demonstrated in paragraph 11 of Ms. Kinuthia's witness statement, it is KRA's officers at the border who issue the Certificates of Exports as proof that the goods have actually left the Country - a fact that the Appellant has since proved by provision of Certificates of Export. That on the other hand, contrary to the Respondent's averments at paragraph 13 of its Statement of Facts, it is the Respondent’s counterparts URA, that issue the T1 entry forms via the ASCYUDA System which acts as proof that the goods actually transited through Uganda on the way to their final destination.

50. That though the Appellant's requests for the Respondent's assistance to obtain the T1 entry forms from URA went unanswered, the Appellant through its own efforts managed to obtain a number which it has provided as part of its Supplementary Statement of Facts.

51. That yet again, the Respondent did not contest the authenticity or relevance of the sample URA T1 entry forms provided by the Appellant. That the Respondent’s purported justification for this part of the assessment therefore fails and should be set aside.

52. That the Respondent in its objection decision asserted that because the Appellant acknowledged in its 2nd objection that the entries that had been claimed were incorrect and indeed provided the correct ones, the same amounts to an “.. .Introduction of the new entries...” and therefore “...only confirms under declaration...”. That the same sentiments were mirrored in paragraph 11 of the Respondent’s Statement of Facts.

53. The Appellant posed the question: “Does lack of perfection qualify one to be denied a rebate on actual exports as allowed in the EDA?” It further stated that mistakes happen in the course of preparing of returns with thousands of entries. That the Appellant refers to them as typos, to which the Respondent itself is guilty as shown in the reference to the non-existent Regulation 12(3) of the VAT Regulations. That this is not a game of “gotcha” but rather a verification exercise as mandated by statute to confirm if exports took place. That once the correct entry numbers were provided, that is what should have been done, not a blanket rejection due to previous incorrect ones. That neither in the 2nd assessment, nor in the objection decision, does the Respondent confirm that the goods covered under those correct entries were not export and were locally consumed.

54. That the Appellant in its 2nd objection duly admitted to the fact that it had inadvertently claimed Excise duty rebates in respect of entries that did not reflect it as the exporter. That as part of its objection, the Appellant provided the Respondent with the correct entry numbers in respect of the claim of Kshs. 26,427,870. 00. That in complete disregard of the same, the Respondent now contends that these correct entries mean that the exports were not done by the Appellant which is false in all material particular.

55. That a cursory look at the Appellant's list of correct entries and the Respondent's table setting out the respective entries that did not have the Appellant as the exporter reveals that the particulars are the same. That the correct entries are for the same amount, invoice and to the same customer, Uganda Breweries Limited. That the provision of the correct entry numbers has not resulted in any change in the total amount claimed of Kshs. 26,427,870. 00 contrary to the Respondent's allegation at Paragraph 11 of its Statement of Facts that the “...Introduction of the new entries/correct entry numbers only confirms under­declaration...” which is aimed at misleading this Honourable Tribunal

56. That it is erroneous for the Respondent, in its objection decision, to classify the issue of “Entry numbers not provided” with certificates of export not issued together. That with respect, these are two distinct issues with the entry numbers being issued at the time the Appellant's customers' agents lodge a Customs declaration on ICMS whereas the Certificates of Exports are issued by the Respondent's officers at the time the goods leave the border for Uganda. That this distinction is key as the issue of Certificates of Exports, certificates of landing and T1 entries as relied upon in the objection decision are irrelevant for this part of the assessment.

57. That the Appellant in its 2nd objection duly provided the Respondent with a schedule of Excise duty rebates amounting to Kshs. 13,667,550. 00 in respect of which entry numbers were allegedly missing. That a review of the same will reveal that it bears the same amounts, invoice numbers, customers as the Respondent's list in its objection decision. That the only difference is this time round the Appellant did indicate the entry numbers which were ostensibly missing. That it is therefore unreasonable and irrational for the Respondent to disregard the same and proceed to confirm this part of the assessment.

58. That the Respondent's objection decision and case before this Honourable Tribunal stands on the flimsy argument that the Appellant has failed to provide evidence in support of its exports and therefore it is not entitled to Excise duty rebates. That as demonstrated herein, the Appellant provided the Respondent with all the documentation and/or information required and requested for. That not only does the Respondent acknowledge receipt of the same, in some instances it changes tact from it being a simple issue of “lack of documentation or evidence” to one of “the documentation and/or evidence is provided but it now confirms an under-declaration”. That the Respondent cannot and should not be allowed by this Honourable Tribunal to shift goal posts hoping that some part of its demand will succeed.

59. That the Appellant has dispensed with its burden of proving that it indeed exported the goods and is therefore entitled to the Excise duty rebate, and therefore the burden now shifts to the Respondent to not only demonstrate that the said documents were not relevant or authentic, or that the same were not proof of any exports.

60. On burden of proof, the Appellant relied on the case of Kenya Revenue Authority v Man Diesel & Turbo SC, Kenya (2021] eKLR.

61. That the Respondent needed copies of Certificates of Landing in order to verify that the goods landed in South-Sudan, the country of destination. That in the case at hand, the Appellant has numerously indicated the challenge in obtaining the said Certificates of Landing as the customer in South Sudan is not a related entity. That however, the fact that the Appellant has provided sample copies of T1 entries provided by URA as proof that the goods indeed transited through Uganda for South-Sudan should be sufficient proof of the export. That in any case, the Respondent has not at any particular time disputed the authenticity of the said T1 entry forms.

62. That in summary, it is evident that the Appellant is indeed entitled to the Excise duty rebates as it exported the goods as set out in its Excise duty returns for February, 2021. That therefore, it is illegal and unreasonable for the Respondent to now purport to raise an additional VAT assessment stemming from an erroneous and unjustified Excise duty assessment.

Appellant’s Prayers 63. The Appellant prayed:i.That this Appeal be allowed with costs.ii.That the Objection decision dated 4th January, 2022 be reversed and substituted with an order setting aside:a.The additional assessment made on 12th April, 2021. b.The Assessment Orders numbers KRA202105858822 for the Excise duty and VAT assessments as uploaded on the Appellant's i-Tax platform on 12th April 2021. iii.Such other and/or further relief as this Honourable Tribunal may deem fit and proper to grant.

Respondent’s Case 64. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal: -i.The Respondent’s Statement of Facts dated and filed on 21st March, 2022 and filed on 22nd March, 2022 together with the documents attached thereto.ii.The Respondent’s written submissions filed on 5th December, 2023.

65. That the Excise Duty Act, 2015 is an Act of Parliament to provide for the charge, assessment and collection of Excise duty, to make administrative provisions relating thereto, and for connected purposes.

66. That the information to support exports by the Appellant lacked entry numbers and could not be verified hence disallowed. That the entries Excise rebate value was Kshs 13,667,550. 00. That further, Certificates of Exit for 9 entries of Excise rebate value of Kshs. 9,672,696. 00 were not provided hence disallowed.

67. That 18 entries whose summary was provided, with an Excise rebate value of Kshs. 26,427,870 were found not to be in the name of UDV hence disallowed. That further, entries with an Excise value of Kshs. 5,575,500. 00 were found to have been claimed in the past, (double claimed) hence disallowed.

68. That the taxpayer introduced other entries to replace the ones it claimed to have submitted to the Respondent in error. That the Appellant would only have introduced the other entries purported to have been in its name by amending the return to reflect this position. That until the Commissioner pointed out, it had not done so/ indicated the intention to do so.

69. That Kenya operates a self-assessment regime where the Appellant files its return. That by including the exports not in the Appellant's names misled the Respondent in determination of the correct Excise duty payable. That further, introduction of the new entries/correct entry numbers only confirms under-declaration

70. That where Certificates of Export were not presented, the Respondent requested for the complete list of all the Certificates of Export from the Appellant to verify that the goods were exported out of the Kenya territory. That Certificates of Landing were requested from the Appellant and that this is a document well within the reach of the Appellant which shows that the purported exports landed in the importing jurisdiction.

71. That the Appellant explained that it can only access the ones it has in control of and where the exports were made to the related parties. That in cases where the exports were made to third parties i.e. in South Sudan it would not provide.

72. That for the reasons above, the Appellant could therefore not claim any rebates where the same were not proved to be due.

73. That as at the time of the report no Certificate of Landing had been provided.

74. That Regulation 12(3) of the VAT Regulations 2013 introduced through Legal Notice No. 54 issued on 30th March, 2017 provides as follows:“Where the Commissioner has reasonable grounds to believe that goods treated by a registered person as exported may not have been exported-(a)the Commissioner may, by notice in writing, require the registered person to produce, within the time specified in the notice, a certificate signed and stamped by a competent authority outside Kenya stating that the goods were duly landed and entered for home consumption at a place outside Kenya;(b)the supply shall not be treated as an exportation until the certificate referred to in paragraph (a) has been provided to, and accepted by the Commissioner.”

75. That the objection decision was within the 60-day period from the last date the Respondent received information from the Appellant as provided for by Section 51(11) (b) of the Tax Procedures Act.

76. That the 60th day from the date the Respondent last received information from the taxpayer was 5th January 2022. That the Respondent communicated the objection decision on 4th January 2022. That this was well within the 60 day period as stipulated by Section 51 of the Tax Procedures Act 2015.

Respondent’s Prayers 77. The Respondent prayed that:i.The Respondent's confirmation of assessment be upheld.ii.The taxes due and unpaid together with interest thereon be paid to the Respondent.iii.The Respondent reserves the right to adduce any further oral and written evidence during the hearing of the Appeal.iv.That this Appeal be dismissed.v.That the Appellant be compelled to pay costs to the Respondent.

Issues for Determination 78. The Tribunal evaluated the pleadings, documentation filed by both parties and the evidence adduced before it and is of the respectful view that the issues falling for its determination are:-i.Whether the Respondent’s objection decision was within the statutory timelines.ii.Whether the Respondent’s assessments were justified.

Analysis and Determination 79. The Tribunal having ascertained the issues for determination as set out above proceeds to deal with the same as hereunder.

i. Whether the Respondent’s objection decision was within the statutory timelines. 80. The Appellant argued that the Respondent’s objection decision was issued out of time and therefore was allowed by operation of the law.

81. The Respondent on its part argued that its objection decision was issued within the statutory timelines.

82. The Tribunal considered the parties pleadings and established that the Respondent issued its amended assessments on 12th April, 2021. The Appellant issued its objection to the same on 10th May, 2021.

83. Thereafter, the Respondent issued an objection decision on 4th January, 2022.

84. The Tribunal confirmed that there was evidence attached by the Respondent demonstrating correspondence between the parties as follows:i.An email of 22nd June, 2021 followed up by another email of 30th June, 2021, in which the Respondent requested for various documentation.ii.An email dated 1st July, 2021 wherein the Appellant sent the documents requested save for soft copies of the CoEs and export documents which were not possible to be sent by email and the Respondent was referred to the Appellant’s Relationship Manager.

85. The Tribunal further noted that, in its pleadings, the Respondent claimed that the Appellant responded via email to the Respondent’s reminder on pending documents made on 7th November, 2021. This was in response to an email by the Respondent dated 22nd October, 2021.

86. The Tribunal further noted that the Respondent attached to its pleadings, an internal email dated 19th October, 2021, forwarding a request to the Appellant (dated 27th July, 2021) for information, from one Respondent’s officer to another.

87. From the above email trail, the Tribunal confirms that indeed the last communication between the parties was 7th November, 2021. This notwithstanding, the previous communication between the parties before this date was 27th July, 2021, wherein the Respondent requested for T1 entries for certain entries it highlighted.

88. The Tribunal posits that Section 51 (11)of the TPA, in 2021, provided as follows:“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. (Emphasis ours)

89. Notably, between the email by the Respondent dated 27th July, 2021 and the next email by the Respondent dated 22nd October, 2021, there was no correspondence between the parties. A plain reading of the relevant Section 51(11) shows that the law expected that the Commissioner would issue its objection decision within 60 days of the notice of objection or any further information required of the taxpayer.

90. Further, it is notable that the timeline between 27th July, 2021 and 22nd October, 2021 when the Respondent made its final request was 87 days.

91. Notably, the Respondent, as per Section 51(11) of the TPA at the time was obligated to issue its objection decision within 60 days of the receipt on the notice of objection or such further documents that are provided by a taxpayer. To the extent that the Appellant did not provide documents after the request of 27th July, 2021 by the Respondent, and that 60 days lapsed with no information having been submitted by the Appellant, the 60 day timeline started counting on 27th July, 2021 and ended on 26th August, 2021.

92. As a result of the foregoing, the Tribunal finds that the Respondent’s objection decision was issued outside of the statutory timelines provide under the Tax Procedures Act.

ii. Whether the Respondent’s assessments were justified. 93. The Tribunal, having established that the Respondent’s objection decision was issued outside the statutory timelines, did not delve into the second issue for its determination as it was rendered moot.

Final Decision 94. In view of the foregoing, the Tribunal finds that the Appeal is merited and accordingly makes the following Orders: -i.The Appeal be and is hereby allowed.ii.The Respondent’s objection decision dated 4th January, 2022 be and is hereby set aside.iii.Each Party to bear its own costs.

95. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF APRIL, 2024. ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERDR. RODNEY O. OLUOCH - MEMBERTIMOTHY B. VIKIRU - MEMBERABRAHAM K. KIPROTICH - MEMBER