[2023] KETAT 874 (KLR)

Vienna Woods Holiday Inn Limited v Kenya Revenue Authority (Tax Appeal 1183 of 2022) [2023] KETAT 874 (KLR) (20 December 2023) (Judgment)

Neutral citation: [2023] KETAT 874 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1183 of 2022

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

December 20, 2023

Between

Vienna Woods Holiday Inn Limited

Appellant

and

Kenya Revenue Authority

Respondent

Judgment

Background 1. The Appellant is a private limited liability company incorporated in Kenya under the Companies Act. Its main form of business is in offering hotel and restaurant services.

2. The Respondent is established under the Kenya Revenue Authority Act, Cap 469 of the Laws of Kenya. The Kenya Revenue Authority (“KRA”) is an agency of the Government of Kenya for assessing, collecting, and accounting for all revenue.

3. The Respondent reviewed the Appellant's affairs and found that the Appellant under-declared sales for 2019 and issued a pre-assessment demand notice on 3rd February 2022 followed by an additional assessment of Kshs. 1,992,843. 70 on 31st March 2022.

4. The Appellant raised an Objection to the additional assessment on 27th April 2022 and the Respondent requested the Appellant to validate its Objection by providing supporting documents on 10th June 2022.

5. On 8th August 2022, the Respondent confirmed the assessment via its Objection decision.

6. Being dissatisfied with the Objection decision, the Appellant filed the instant Appeal.

The Appeal 7. The Appeal is premised on the following grounds deduced from the Memorandum of Appeal dated 12th October 2022 and filed on 13th October 2022: -a.When the taxpayer was filing its VAT returns, it erroneously omitted to indicate its sales on exempt products and only declared its vatable sales.b.The Appellant pointed out this omission to the Respondent and went ahead to file the amended VAT returns and included the exempt sales.c.The Respondent visited the taxpayer’s business premises and confirmed that the taxpayer offers both vatable and exempt sales.d.Despite the confirmation, the Respondent rejected the Appellant’s amended returns with no reasonable grounds.e.On 31st March the Respondent issued an assessment order for principal tax of Kshs. 1,563,296. 64 being VAT the difference of sales per the accounts and sales declared on the VAT provided.f.The Appellant raised an Objection notice on 27th April 2022 and explained to the Respondent that the taxpayer offers both vatable and exempt sales and the original VAT returns had been improperly filed having omitted the exempt sales resulting in the difference in sales between the accounts and VAT returns.g.On 8th August 2022, the Respondent wrote to the taxpayer informing it the Objection had been rejected and the amended returns were not acceptable.h.On 27th September 2022, the Respondent issued a confirmation assessment notice demanding the principal tax of Kshs. 1,563,397. 00 plus interest accrued.i.The variance of sales between the VAT returns and the accounts forming the basis of the assessment is a result of exempt sales that were omitted in the VAT returns and the taxpayer should not be penalized on the basis of omitting exempt sales on the VAT returns.j.The non-declaration of exempt sales on the VAT returns was a genuine omission by the taxpayer.

The Appellant’s Case 8. The Appellant’s case was premised on its Statement of Facts filed on 13th October 2022 wherein it reiterated verbatim its averments in the Memorandum of Appeal. The Tribunal will therefore not repeat the same to avoid duplicity.

The Appellant’s Prayers 9. The Appellant prayed that the Tribunal finds for the Appellant’s case and order that: -a.There was no undeclared tax; andb.The Respondent should allow the Appellant to amend the VAT returns to reflect the omitted exempt sales.

The Respondent’s Case 10. The Respondent’s case is premised on its;a.Statement of Facts dated and filed on 11th November 2022 together with the documents annexed thereto; andb.Written submissions dated and filed on 17th May 2023.

11. It stated that the grounds as posited by the Appellant in its Objection application were considered and on 10th June 2022, the Appellant was requested to provide audited accounts, sales ledgers, sample invoices for exempt products, and bank statements for 2019.

12. It averred that the Appellant requested more time via telephone conversation as the Appellant was operating from Nairobi and subsequently given until 8th July 2022 which was not honoured by the Appellant and led to the Respondent confirming the assessment vide an Objection decision dated 8th August 2022.

13. It cited Sections 31 (1) (c) and 51 (3) (c) of the Tax Procedures Act and averred that it has the power to amend a taxpayer’s assessment to the best of its judgment and the Appellant failed to provide documentation to support its grounds for objection.

14. It averred that the Appellant had failed to meet the burden of proof contrary to Section 56 (1) of the Tax Procedures Act which provides that in any proceeding, the burden shall be on the taxpayer to prove that a tax decision is incorrect.

On whether the Respondent was right in upholding its Assessment 15. The Respondent submitted that despite objecting to the Respondent’s assessment, the Appellant has to date failed to provide documents supporting its allegations that the variances were a result of omissions of exempt sales.

16. It relied on Section 56 (1) of the Tax Procedures Act and contended that the Appellant had failed to discharge the burden of proving that the taxes assessed are excessive.

17. It asserted that due to the Appellant’s failure to provide supporting documents, it relied on available information as well as the Commissioner’s best judgment in making the assessment order and confirming the assessment per Section 31 (1) of the Tax Procedures Act.

18. The Respondent argued that while its assessment might be wrong, inaccurate, and excessive, the only party that can help it know with certainty what the true position is, is the Appellant when called upon to help the Respondent to accurately determine the tax liability.

19. It submitted that the Appellant had not discharged its burden of proof by providing the documents or evidence to show that the payment on which the Appellant was applying for a refund was for computer hardware and software and relied on the cases of Ngurumaini Traders Limited vs. Commissioner of Investigations and Enforcement, TAT No. 125 of 2017 and Digital Box Limited vs. Commissioner of Investigations and Enforcement [2020].

The Respondent’s Prayers 20. The Respondent prayed for the Tribunal to find that:-a.The Objection decision dated 8th August 2022 be affirmed;b.The taxes demanded by the Respondent from the Appellant were properly assessed in conformity with the law and the same are due and payable; andc.The Appeal be dismissed for lack of merit with costs to the Respondent.

Issues For Determination 21. After perusing the Memorandum of Appeal and parties' Statements of Facts, together with their submissions and documentation attached therewith, the Tribunal believes that the following is the main issue for determination:Whether the Respondent’s Objection Decision dated 8th August 2022 was proper in law

Analysis And Findings 22. The Tribunal wishes to analyse the issue as hereinunder.

23. The Appellant averred that when it was filing its VAT returns, it erroneously omitted to indicate its sales on exempt products and only declared its vatable sales and pointed out this omission to the Respondent then filed the amended VAT returns and included the exempt sales.

24. It averred that the Respondent visited its business premises and confirmed that the Appellant offers both vatable and exempt sales but despite the confirmation, the Respondent rejected its amended returns with no reasonable grounds.

25. The Respondent contended that the grounds as posited by the Appellant in its Objection application were considered and the Appellant was requested to provide audited accounts, sales ledgers, sample invoices for exempt products, and bank statements for 2019.

26. It added that the Appellant requested more time via a telephone conversation and was subsequently given until 8th July 2022 which was not honoured by the Appellant therefore leading to the Respondent’s confirmation of the assessment vide an Objection decision dated 8th August 2022.

27. It reiterated that despite objecting to the assessment, the Appellant failed to give documents supporting its allegations that the variances were a result of omissions of exempt sales.

28. Section 51 (3) of the Tax Procedures Act states as follows:-“(3)A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—a.the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments;b.in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(1); andc.all the relevant documents relating to the objection have been submitted.”

29. While the Appellant submitted that the Respondent visited its premises and confirmed that the Appellant provides exempt products the Respondent does not concede to the assertion nor has the same been proven before the Tribunal.

30. The Appellant is required by the law to keep proper records and issue the same to the Respondent whenever the Respondent requires, provided that the request from the Respondent is issued within the statutory timelines.

31. The Tribunal therefore finds that the Appellant has failed to discharge its burden of proving the assessment orders were incorrect and therefore the Respondent’s Objection decision was proper in law.

Final Decision 32. The upshot to the foregoing is that the Appeal is not meritorious and the Tribunal consequently makes the following Orders;-a.The appeal be and is hereby dismissed.b.The Objection Decision dated 8th August 2022 be and is hereby upheld.c.Each party to bear its own costs.

33. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 20TH DAY OF DECEMBER, 2023ROBERT MUTUMA - CHAIRPERSONELISHAH N. NJERU - MEMBERBONIFACE K. TERER - MEMBERMUTISO MAKAU - MEMBERDR. WALTER ONGETI - MEMBER