[2024] KETAT 1571 (KLR)

Viki Energy Limited v Commissioner of Domestic Taxes (Tax Appeal E911 of 2023) [2024] KETAT 1571 (KLR) (Commercial and Tax) (22 November 2024) (Judgment)

Neutral citation: [2024] KETAT 1571 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal E911 of 2023

Grace Mukuha, Chair, E Komolo, GA Kashindi, AM Diriye & B Gitari, Members

November 22, 2024

Between

Viki Energy Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company duly incorporated in the Republic of Kenya under the Companies Act, 2015, and whose principal business is distributing and selling LPG products.

2. The Respondent is an officer appointed under Section 13 of the Kenya Revenue Authority Act (Cap. 469). Under Section 5 (1) of the said Act, the Respondent is an agency of the government for the collection and receipt of all revenue.

3. The Respondent’s Regional Audit Centre (RAC), Northern Region, carried out an audit on the Appellant for income tax and VAT for the period 2018 to 2021, and issued audit findings on 6th July, 2023 of Kshs. 17,444,277. 00.

4. The Respondent subsequently issued the Appellant with an Assessment Order on 26th July, 2023 for income tax and VAT for the period 2018 to 2021.

5. On 11th September, 2023, the Appellant filed a late objection application on grounds of sickness and which ground was accepted by the Respondent.

6. On 31st October, 2023, the Respondent issued its Objection Decision fully rejecting the Appellant’s objection and confirming income tax and VAT of Kshs. 17, 826,722. 26 inclusive of penalty and interest as due and payable.

7. Aggrieved, the Appellant lodged this appeal vide Notice of Appeal dated 8th December, 2023 and filed on 13th December, 2023.

The Appeal 8. The Appeal is premised on the Appellant’s Memorandum of Appeal dated 12th December, 2023 and filed on 13th December, 2023 stating the following grounds: -i.That the Respondent erred in law and fact by arriving at an additional assessment for reason of errors or mistake in the apportioning of liability.ii.That the Respondent erred in law and fact by not reviewing the support documentation initially provided for Appellant’s objection and went ahead to issue an Objection Decision which in the Appellant’s opinion was not fair administration of Respondent’s duties and responsibilities.iii.That the Respondent erred in law and fact by not sharing with the Appellant documentary evidence which informed the decision to raise the Appellant’s sales from the initial original income tax return amount of Kshs. 154,210,742. 00 to Kshs. 247,019,938. 00iv.That the Respondent erred in law and fact by charging the variance between the Appellant’s sales declarations and bankings with the assumption that all deposits made in the company’s bank account constituted sales, which is not the correct position.v.That the Respondent erred in law and fact by completely disregarding documentary evidence of ownership for various motor vehicles and trailers provided to it, which led to disallowing wear and tear capital expenditure claimed in the year 2018, 2019, 2020 and 2021.

The Appellant’s Case 9. The Appellant’s case is also premised on its Statement of Facts filed on 13th December, 2023.

10. The Appellant averred that the dispute arose because of a tax review carried out by the Respondent’s Regional Audit Centre, Northern Region, where additional assessment was raised for VAT and income tax returns for the periods 2018 to 2021.

11. The Appellant further averred that pursuant to Section 56 of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, the burden of proof lies on the Appellant to demonstrate that the Respondent’s decision was incorrect, and this burden was discharged at the initial desk audit review period and documentary evidence was submitted in the form of original copies of purchase invoices and bank statements to the Respondent to support original VAT returns filed for the respective periods on iTax.

12. The Appellant contended that the said documentary evidence was rejected by the Respondent and the Appellant objected. Subsequently, on 18th September, 2023 a telephone conversation took place between the Respondent and the Appellant’s tax agent, where the Respondent requested for documentation that were attached to the objection, and which documents were already available to the Respondent as they had been attached to the initial objection.

13. The Appellant further contended that on 12th September, 2023, it provided the support documentation (bank statements, loan statements, motor vehicle logbooks and asset registers) as requested by the Respondent, and committed to provide additional support documentation in the course of time, but the Respondent proceeded to issue its Objection Decision before the documents could be provided.

14. It is the Appellant’s averment that the Respondent did not review its support documentation initially provided and did not factor in any information contained in the Appellant’s initial support documentation to review the Appellant’s objection. Instead, the Respondent proceeded to issue an Objection Decision contrary to its fair administrative duties and responsibilities.

15. It is the Appellant’s further averment that it has all support documentation required for the Respondent to review its appeal and arrive at a different decision.

16. The Appellant contended that in the initial audit review, VAT returns on Appellant’s LPG suppliers was compared to VAT returns as per the Respondent. The Appellant’s supplier, Solution East Africa Ltd declared sales of Kshs. 243,623,700. 00 made to the Appellant, while the Appellant claimed purchases of Kshs. 158,942,000. 00 and sales of Kshs. 154,210,742. 00. Based on the supplier declarations and the Appellant’s reported gross margin of 1. 39%, the expected sales were raised to Kshs. 247,019,958. 00.

17. The Appellant averred that the Respondent did not share with it the documentary evidence on how that decision was arrived at to enable the Appellant to respond comprehensively to that information. Accordingly, the Appellant requested for that information to be provided by the Respondent with written communication to the supplier, Solution East Africa Ltd, to provide all purchases made to the Appellant.

18. It is the Appellant’s averment that the Respondent, after examining various source records for the years under review (2018,2019, 2020 and 2021), charged the variances by assuming that all deposits made in the Appellant’s bank account constituted sales, which is not the correct position. Indeed, some of the bank deposits constituted capital injections by the Appellant’s director, Emilio Mureithi, who was previously operating other businesses as a sole proprietor.

Appellant’s Prayers** 19. The Appellant prayed to the Tribunal for the following orders: -a.That the Appeal be allowed.b.That the Respondent’s decision to levy additional VAT and Income Tax assessments of Kshs. 17,826,722. 26 against the Appellant be set aside.c.Each party to bear its costs.d.Such other further orders or reliefs as the Honourable Tribunal may deem just and expedient.

The Respondent’s Case 20. The Respondent’s case is premised on the following documents filed before the Tribunal: -a.The Statement of Facts dated 4th April, 2024 and filed on 14th April, 2024. b.The written Submissions dated 7th August, 2024 and filed on the same date.

21. The Respondent averred that it relied on Section 24 of the Tax Procedures Act, 2015 which obligates the Appellant to submit tax returns in an approved form and manner prescribed by the Respondent, but the Respondent is not bound by the information provided therein and can assess additional taxes based on any other available information.

22. The Respondent further averred that its additional assessment of the Appellant was based on Section 31 of the Tax Procedures Act, 2015, based on available information and to the best of the Respondent’s best judgment to ensure correct taxes are assessed.

23. It is the Respondent’s averment that Sections 56(1) and 59 of the Tax Procedures Act, 2015 respectively place responsibility on the Appellant to prove that an assessment is erroneous, and provide records/supporting documents to determine its tax liability.

24. In this regard, the Respondent contended that the documentation provided by the Appellant were not enough to alter assessment raised, as the Appellant did not provide sufficient documentation.

25. The Respondent further averred that it informed the Appellant vide a letter dated 13th June, 2023 of its decision and reasons as to why the Respondent had to raise their sales from original income tax return amount of Kshs. 154,210,742 to Kshs. 247,019,938. 00

26. Finally, the Respondent averred that it did consider the documentary evidence provided by the Appellant, which led it to disallow the Appellant’s claim on wear and tear deductions. Accordingly, it is the Respondent’s position that the income tax and VAT assessments were legally and procedurally issued and that the Appellant’s objection was duly considered and objection decision made as per the law.

27. To support is case, the Respondent relied on the precedent and authorities established in Digital Box Ltd -vs- Commissioner of Investigations & Enforcement (TAT No. 115 of 2017), Bachman -vs- The Queen, 2015, TCC 51, Commissioner of Domestic Taxes -vs- Metoxide Ltd (2021) eKLR, and Osho Drapers Ltd -vs- Commissioner of Domestic Taxes (2022) eKLR, amongst others.

Respondent’s Prayers 28. The Respondent prayed to the Tribunal for the following orders: -a.That the Respondent’s Objection Decision dated on 31st October, 2023 demanding for taxes amounting to Kshs. 17,826,722. 26 be deemed as proper and in conformity with the provisions of the law.b.That the Appeal be dismissed with costs to the Respondent.

Issues for Determination 29. Having carefully reviewed the pleadings and submissions by both parties together with annexures thereto, the Tribunal is of the considered view that the following issue(s) fall for its determination: -a.Whether the Appeal is Valid.b.Whether the Respondent’s Objection Decision dated 31st October, 2023 is Proper in Law.

Analysis and Findings 30. Having identified the issue(s) for its determination, the Tribunal proceeds to analyze them as hereunder.

a.Whether the Appeal is Valid. 31. The substratum of the Appeal before us relates to the Respondent’s Objection Decision dated 31st October, 2023 confirming additional income tax and VAT assessments of the Appellant of Kshs. 17,826,722. 26 inclusive of penalties and interest. From email correspondence before us, the said Objection Decision was emailed to the Appellant by the Respondent on 1st November, 2023 at 1:48 PM.

32. Subsequently, the Appellant lodged the instant Appeal before us vide Notice of Appeal dated 8th December, 2023 and filed physically on 13th December, 2023. The Notice of Appeal is on record. The Appellant informed the Respondent, via email, on 12th December, 2023 at 1:49 PM that it had filed the instant Appeal.

33. From the above chronology of events, the Tribunal notes that the Appellant lodged the instant Appeal out of time as it was filed after lapse of 30 days prescribed in the statute, the same having been filed after 42 days.

34. Indeed, there is nothing on record to show that the Appellant sought and obtained leave of the Tribunal to lodge the Appeal out of time as envisaged under Section 13 (1) (b) and (3) of the Tax Appeals Tribunal Act, 2013.

35. It is now well settled that statutory timelines in tax matters is substantive law that parties must adhere to, and should not be treated as mere procedural technicalities. In Equity Group Holdings Limited -vs- Commissioner of Domestic Taxes [2021] eKLR, where the High Court Mativo J. (as he then was) stated that:60. Section 51(11) of the TPA is couched in peremptory terms. Having correctly found that the decision was made after the expiry of 60 days, the TAT had no legal basis to proceed as it did and to invoke article 159(2) (d). First, there was no decision at all. The decision had ceased to exist by the operation of the law. Second, the provisions of section 51 (11)(b) had kicked in. The Objection had by dint of the said provision been deemed as allowed. Third, the TAT had no discretion to either extent time or to entertain the matter further. Fourth, discretion follows the law and a Tribunal cannot purport to exercise discretion in clear breach of the Law.63. The TAT manifestly erred in law by confusing substantive with procedural law. Article 159(2)(d) of the Constitution in clear terms talks about procedural technicality. A Statutory edict is not procedural technicality. It is a law which must be complied with. Parliament in its wisdom expressly and in mandatory terms provided the consequence of failing to render a decision within 60 days. The Objection is deemed to be allowed. That being the law, the Appellant’s Objection stood allowed as a matter of law the moment the Commissioner of Domestic Taxes failed to render his decision within the 60days. This being the correct legal position, it is my finding that the 1st appeal succeeds.”

36. In the circumstances of the instant Appeal, we are constrained to find and hold that the Appeal, having been filed out of time, is therefore invalid. The Appellant will be at liberty to lodge a proper appeal, with leave of the Tribunal, as provided for by the Tax Appeals Tribunal Act, 2013.

b.Whether the Respondent’s Objection Decision dated 31st October, 2023 is Proper in Law. 37. Having determined that the Appeal was lodged outside mandatory statutory timelines and without leave of the Tribunal, the second issue for determination is therefore rendered moot.

Final Determination 38. Accordingly, it is the determination of the Tribunal that the Appeal is invalid and we proceed to issue the following orders: -a.The Appeal is hereby struck out.b.Each party to bear its costs.

74. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS…22ND DAY OF NOVEMBER 2024. ...............................................................GRACE MUKUHACHAIRPERSON……………………………. ……..............……………..DR. ERICK KOMOLO GEORGE A. KASHINDIMEMBER MEMBER………………………………………. ………………………………………..ABDULLAHI DIRIYE BERNADETTE GITARIMEMBER MEMBER