[2024] KETAT 546 (KLR)

Ujenzi Consultants v Commissioner Legal Services & Board Cordination (Tax Appeal 426 of 2023) [2024] KETAT 546 (KLR) (26 April 2024) (Judgment)

Neutral citation: [2024] KETAT 546 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 426 of 2023

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

April 26, 2024

Between

Ujenzi Consultants

Appellant

and

Commissioner Legal Services & Board Cordination

Respondent

Judgment

1. The Appellant is a company incorporated under the Companies Act of the laws of Kenya and whose principal business activity is quantity surveyor and building economics.

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 issued assessments for VAT on 29th January 2018 and 14th November 2018. The Respondent further issued assessment for Corporation Tax for the periods 2015 and 2016 on 14th November 2018.

4. The Appellant lodged late objections on 14th November 2018 and 16th August 2019 and for Corporation tax. The Appellant further objected to VAT for May 2015, July 2015 and September 2015 on 19th September 2019.

5. The Respondent issued confirmation assessment notices on 4th June 2020.

6. The Appellant being dissatisfied with the Respondents decision filed this Appeal at the Tribunal on 3rd August 2023.

The Appeal 7. The Appellant’s Appeal in its Memorandum of Appeal dated 1st August 2023 and filed on 3rd August 2023 was based on the following grounds:i.That the Respondent erred in law and facts by issuing VAT assessments to the Appellant without due process on different datesii.That the Respondent erred in law and fact in assessing the Appellant based on iTax system variance of invoices and ignoring the provisions of the VAT Act which provides the basis of valid invoice for input VAT as correctly collected and claimed by the Appellant.iii.That the Responded erred in law and facts by failure to review the objection within the statutory timeline of 60 days. With no reason and communication to the Appellant.iv.That the Respondent erred in assessments of VAT with wrong basis of the sales as the reimbursements for the interest were taken as revenue and charged to tax.v.That the Respondent erred in law and fact by assessing the reimbursement income contrary to the provisions of the law.vi.That the Respondent erred in law and in fact by failing as a public officer under obligation to accord all taxpayers fair administrative action in accordance with Article 47(1) of the Constitution of Kenya, which expects it to take action among others, lawful, reasonable and procedurally fair so as to give the taxpayer a fair and reasonable opportunity to explain itself before any action can be taken since the same is likely to affect a taxpayer adverselyvii.That this Tribunal has jurisdiction to hear this Appeal pursuant to Section 13(2) of the Tax Appeals Tribunals Act, 2013.

Appellant’s Case 8. The Appellant’s case is premised on its Statement of Facts dated 1st August 2023 and filed on 3rd August 2023 together with the documents attached thereto.

9. The Appellant submitted that the Respondent issued assessment order on 14th November 2018. That it objected to assessment on 23rd November 2018.

10. That the Respondent issued the decision on 4th June 2020.

Appellant’s Prayers 11. The Appellant prayed that the Respondent’s decision be set aside and annulled or varied in such a manner as may appear just and reasonable.

Respondent’s Case 12. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal:i.The Respondent’s Statement of Facts dated 30th August 2023 and filed on 31st August 2023. ii.The Respondent’s written submissions dated 31st October 2023 and filed on 1st November 2023.

13. The Respondent stated that the preliminary findings which formed the basis of the Commissioner's audit on the Appellant and the assessments includes the following:a.The Respondent noted that the Appellant is registered on iTax since January 2015. b.That since its registration in the iTax, the Appellant (as at the time of the audit) had been a non-filer for all tax heads.c.That from the iTax Ledger, the Appellant filed most of its returns late (2015 to 2018) in the years of 2018 and 2019.

14. That upon conclusion of the audit, the Respondent issued the Appellant with assessments for VAT for the tax periods May 2015 (Kshs. 48,669,157. 34) on 30th January 2018, July 2015 (Kshs. 1,598,255. 95) on 29th January 2018 and September 2015 (Kshs. 1,142,069. 60) on 14th November 2018. That all the said tax assessment amount to KShs. 51,409,482. 89 inclusive of penalties and interest.

15. That similarly, the Respondent issued the Appellant with the assessments for the Corporation tax for the tax periods 2015 (Kshs. 28,577,600), 2016 (Kshs.36,442,265) and 2017(Kshs. 34,343,299) on 14th November 2018 all amounting to Kshs. 99,363,164.

16. The Respondent posited that upon being served with the assessments, the Appellant did not object to the same on time as contemplated under Section 51(2) of the Tax Procedures Act, 2015. Therefore, the Appellant lodged its late notices of objection as follows:-a.On 16th August 2019 for Corporation tax for the tax periods 2015 (Kshs.28,577,600), 2016 (Kshs.36,442,265) and 2017 (Kshs. 34,343,299) dated 14th November 2018 all amounting to KShs. 99,363,164. 00. b.On 19th September 2019 for VAT for the tax periods May 2015 (Kshs.48,669,157. 34), July 2015 (Kshs. 1,598,255. 95) and September 2015 (Kshs.1,142,069. 60) issued on 30th January 2018, 29th January 2018 and 14th November 2018, respectively, all amounting to Kshs 51,409,482. 89

17. That the Appellant's reasons for late objection was that it was not aware there was any outstanding tax liability as the assessments were not communicated to them and were therefore unaware until they applied for a tax Compliance Certificate.

18. That further, the Appellant proffered a ground of objection that the assessments were based on nil filing and non-filing for both VAT and Income Tax and thus the Commissioner estimated the income for the affected periods.

19. The Respondent stated that upon receipt of the Appellant's notices of objection and considering what was stated therein, responded to the Appellant on 15th October 2019. That the Respondent allowed the Appellant's application for lodging late objection and requested the Appellant to provide documents within fourteen (14) days and grounds of objection in line with Section 51(3) of the Tax Procedures Act,

20. That the Appellant failed to respond to the Respondent's request by 29th October 2019 (that is within 14 days from 15th October 2019) and the Respondent in its magnanimity, granted the Appellant more time up to 11th November 2019 to lodge a valid notice of objection

21. That equally the Appellant failed to act on the Respondent's request of 29th October 2019 by 11th November 2019 by providing the grounds of objection and the documents to support the grounds and the notices of objection.

22. That consequently, the Respondent on 18th November 2019 invalidated the Appellant's notices of objection for failure to meet the requirements of Section 51(3) of the Tax Procedures Act, 2015 and confirmed the assessments as due and payable.

23. That other than the objected VAT and Corporation tax assessments, the Respondent issued Value Added Tax assessments which the Appellant did not and has never objected to but forms the basis of the Appeal herein.

24. That the Appellant therefore having failed to lodge any objection against the Respondent's assessments of 25th, 26th, 27th and 28th February 2020, the same were considered to have become due and payable by operation of law and thus there is no valid appeal that could prevail the said assessment pursuant Sections 42A and 51(1) of the Tax Procedures Act 2015.

25. That on 4th June 2020, based on the invalidation notice and confirmation of assessments of 18th November 2019, the Respondent updated the Appellant's tax liability status in the iTax System by confirming the assessments and rejecting the Appellant's notices.

26. In opposition to the Appellant’s grounds of Appeal, the Respondent asserted that the Appellant was trying to introduce new grounds and thus a new case at the Appeal stage that were not raised and considered during the objection review.

27. That further, the Appeal herein was incompetent on grounds that:a.It was based on an invalid notice of objectionb.The Appellant had not lodged the Notice of Appeal as required under Sections 12 and 13 of the Tax Appeals Tribunal Act, 2013 and if the Appellant lodged, it was not properly before the Tribunal by virtue of being statutory time barred and not served on the Respondent.c.That the Appeal herein does not conform to the requirements of Section 13(2) of the Tax Appeals Tribunal Act, 2013 to the extent that it is not accompanied by the impugned tax decision (objection decision.).d.The Appellant had not complied with the provisions of Section 52(2) of the Tax Procedures Act, 2015 by making payment of taxes (VAT) not in dispute as per the assessments annexed to the Statement of Facts herein or by entering into an arrangement with the Commissioner to pay the taxes not in dispute;e.There was no appealable decision that can be entertained by this Tribunal since the Appellant did not lodge any objection against additional assessment for VAT annexed to the Statement of Facts.f.The Appellant had irregularly appealed against the assessment which are not subject to the Respondent's decision of 18th November 2019 contrary to Section 51(1) of the Tax Procedures Act, 2015. These assessments include the assessments of 25th, 26th, 27th and 28th February 2020. g.The Respondent stated that the said assessment/decisions were separate and different from the Respondent's decision and thus ought to be canvassed through a separate objection process/judicial process as they relate to different and separate decisions which were not properly before the Tribunal.

28. The Respondent stated that it was 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.

29. 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.

30. That the Appellant failed to lodge a proper notice of objection within Section 51(3) of the Tax Procedures Act, 2015 and thus did not provide any valid grounds of objections and documents to support its objection.

31. That therefore, the Appellant was barred by Section 56(3) of the Tax Procedures Act, 2015 from raising new grounds of appeal which were not raised and considered by the Respondent during the objection review.

32. The Respondent invited the Tribunal to note that the Appellant had not placed before the Tribunal any shred of evidence to support grounds of appeal herein and thus the same remains just mere statements with no probative value.

33. That therefore, the grounds set out in the Appellant's Memorandum of Appeal were without any merit.

34. The Respondent stated that the invalidation notice of 18th November 2019 conforms to Section 51(4) of the Tax Procedures Act, 2015 as at 2019 and the same is valid for the following reasons:a.The Respondent's invalidation notice of 18th November 2019 was a decision made pursuant to Section 51(4) of the Tax Procedures Act, 2015. That therefore, the provisions of Section 51(8)-(11) of the Tax Procedures Act, 2015 do not apply since there was no valid objection for the Respondent to consider. That in light of this, the sixty days' statutory timelines applicable to Objection decisions does not apply to the impugned decision herein.b.That even if the Tribunal is to consider the Respondent's invalidation notice of 18th November 2019 as an objection decision for the purposes of Section 51(8)-(11)of the Tax Procedures Act, 2015, the same was issued within sixty days contrary to the Appellant’s allegations.c.That this was because the Appellant lodged its late notices of objections on 16th August 2019 and 19th September 2019 and subsequently requested the Commissioner's leave to be allowed to lodge the late objections. That the Commissioner granted the said leave on 15th October 2019, therefore 60 days started running from then and the Respondent having issued its decision on 18th November 2019, the same was within 60 days.d.On whether the Invalidation notice meets the requirements of Section 51(4) of the Tax Procedures Act, 2015, the Respondent stated that it granted the Appellant leave to lodge late objection on 15th October 2019. e.That the Respondent contemporaneously with granting leave, requested the Appellant to provide documents within fourteen (14) days and grounds of objection in line with Section 51(3) of the Tax Procedures Act, 2015. f.That the Appellant failed to respond to the Respondent's request by 29th October 2019 (that is within 14 days from 15th October 2019) and the Respondent in its magnanimity, granted the Appellant more time up to 11th November 2019 to lodge a valid notice of objection. Therefore, invalidation period started to count from 11th November 2019 the date the Appellant was given last chance to validate its objection.g.That the Appellant having failed to lodge a valid notice of objection by 11th November 2019 and the Respondent having issued invalidation notice on 18th November 2019, the period taken communicating the invalidity of objection to the Appellant meets the immediacy test under the Section 51(4) of the Tax Procedures Act, 2015. This is because there was lapse of seven (7) days only from the date the Appellant was given the last chance to validate the objection.h.The Respondent further placed reliance in this Tribunal’s Judgment of 4th March 2022 in KCB Bank Kenya Limited vs Commissioner of Domestic Taxes, Nairobi TAT Appeal No. 402 of 2021 and Millimo Muthomi & Co. Advocatesvs Commissioner of Domestic Taxes, Nairobi TAT Appeal No. 611 of 2020. i.That in light of the Tribunal's decision above, the Respondent having issued the decision within 7 days of lapse of the grace period given to the Appellant to validate its objection, the invalidation notice of 18th November 2019 meets the immediacy test of Section 51(4) of the Tax Procedures Act, 2015 and thus valid.

35. The Respondent further stated that the Appellant had neither provided proof nor quantified the gross income or reimbursements. That similarly, there was no proof of expenses and neither did the Appellant quantify the alleged expenses or reimbursements.

36. That in the absence of documentary evidence placed before the Tribunal, the grounds remain mere allegations as they were unsupported by both the facts and the law.

37. That contrary to the Appellant's allegation, no supporting documentation was availed to the Respondent for review. That in light of this, the Respondent reiterated its findings in the objection invalidation notice and stated that the Appellant failed to discharge its burden of proof to the required threshold.

38. The Respondent submitted that this is not the right forum for determination of whether the Respondent violated the Appellant's rights under Article 47 of the Constitution of Kenya, 2010 as the same is a preserve of the High Court of Kenya.

39. That in any event, the Respondent gave the Appellant sufficient time to lodge its objection to the assessment and provide documents via communications of 15th October 2019, 29th October 2019 and 11th November 2019.

40. That therefore, it was not true that the Respondent violated the Appellant's right to fair administrative action as the Appellant was given reasonable opportunities to lodge a valid objection and challenge the Commissioner's assessments.

41. That the only point upon which the Appellant can be heard is on why it did not utilize these opportunities.

42. The Respondent insisted that the Tribunal lacks jurisdiction to entertain the Appeal herein and urged that it should down its tools at the first instance.

43. The Respondent stated that the Appellant had not discharged its burden of proof as per 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. That therefore, the Respondent's decision was valid in law, as the Appellant had failed to prove that the same was incorrect.

44. That it was therefore without doubt that the Respondent's assessments and decision enjoys the presumption of correctness as provided under Section 50(1)(a) of the Tax Procedures Act, 2015.

45. The Respondent thus reiterated that the additional assessments of 30th January 2018, 29th January 2018 and 14th November 2018 as confirmed in the decision of 18th November 2020 were valid and correct as they are grounded in law.

Respondent’s Prayers 46. Based on the above, the Respondent prayed that the Tribunal;a.Upholds the additional assessments of 30th January 2018, 29th January 2018 and 14th November 2018 as confirmed in the decision of 18th November 2020 as valid and in conformity with the provisions of the Law.b.Finds that the Appeal herein is without merit and dismiss it with costs to the Respondent.

Issues for Determination 47. The Tribunal upon due consideration of the pleadings, documents and the written submissions filed on the part of both parties was of the view that the issues that crystalized for its determination are as follows: -a.Whether there was a valid Appeal before the Tribunal.b.Whether the Respondent was justified in invalidating the Appellant’s objection notices.

Analysis and Determinationa.Whether there was a valid Appeal before the Tribunal.

48. The Respondent submitted that the Appeal was incompetent fo the following reasons;a.The Appellant had not lodged the Notice of Appeal as required under Sections 12 and 13 of the Tax Appeals Tribunal Act, 2013 to the extent that it is not accompanied by the impugned tax decision (objection decision).b.That in the event that it was lodged, then it was not properly before the Tribunal by virtue of being statutorily time barred and not served on the Respondent.

49. Sections 12 and 13 of the Tax Appeals Tribunal Act provide as follows regarding Appeals to the Tribunal;“12. A person who disputes the decision of the Commissioner on any matter arising under the provisions of any tax law may, subject to the provisions of the relevant tax law, upon giving notice in writing to the Commissioner, appeal to the Tribunal:

Provided that such person shall before appealing, pay a non-refundable fee of twenty thousand shillings.Procedure for appeal 13. (1)A notice of appeal to the Tribunal shall—

(a)be in writing;(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.(2)The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of—(a)a memorandum of appeal;(b)statements of facts; and(c)the tax decision.(3)The Tribunal may, upon application in writing, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).”(Emphasis added)

50. Section 13(1) of the Tax Appeals Tribunal Act cited above is couched in mandatory terms and therefore a taxpayer must comply. It is the Notice of Appeal that invokes the Tribunal‘s jurisdiction, without it the Tribunal has no jurisdiction to determine the dispute. 51. From the documents presented to the Tribunal it was noted the Appellant did not attach a Notice of Appeal. It thus follows that the Appellant has not invoked the jurisdiction of the Tribunal to hear this Appeal. There is thus no proper Appeal before the Tribunal.

52. The Tribunal has held in many occasions that procedure must be adhered to as per the holding in W.E.C. Lines Ltd vs. The Commissioner of Domestic Taxes [TAT Case No. 247 of 2020] where it was held at Paragraph 70 while reiterating the holding in Krystalline Salt Ltd vs KRA [2019] eKLR that: -“Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures. The relevant procedure here is the process of opposing an assessment by the Commissioner.”

53. The Tribunal is further guided by the case of The Owners of the Motor Vessel ―Lillian S‖-vs-Caltex Oil (Kenya) Ltd (1989) KLR (as reported in Peter Lai Muthoka-vs-Standard Group [2017] eKLR) Nyarangi J.A., held as follows with regard to jurisdiction:-“Jurisdiction is everything. Without it, a court has no power to make one more step. Where a court has no jurisdiction, there would be no basis for a continuation of proceedings pending other evidence. A court of law downs tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction.”

54. In light of the foregoing circumstances, the Tribunal finds and holds that the Appeal lodged by the Appellant is invalid for failure to file a Notice of Appeal.

55. Having found that the Appeal was invalid, the Tribunal could not delve into the other issue falling for determination in the Appeal as it had been rendered moot.

Final Decision 56. Based on the foregoing analysis the Tribunal determines that the Appeal is incompetent and the Orders that accordingly recommend themselves are as follows: -i.The Appeal be and is hereby struck out.ii.Each party to bear its own costs.

57. It is so ordered.

DATED and DELIVERED at NAIROBI this 26th Day of April, 2024. ERIC NYONGESA WAFULACHAIRMANDR. RODNEY O. ODHIAMBO CYNTHIA B. MAYAKAMEMBER MEMBERABRAHAM K. KIPROTICH TIMOTHY B. VIKIRUMEMBER MEMBERJUDGMENT TAT APPEAL NO. 426 OF 2023 UJENZI CONSULTANTS Page 17