[2025] KETAT 249 (KLR)

Xrx Technologies Limited v Commissioner of Legal Services & Board Coordination (Tax Appeal E1006 of 2024) [2025] KETAT 249 (KLR) (9 May 2025) (Judgment)

Neutral citation: [2025] KETAT 249 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E1006 of 2024

CA Muga, Chair, BK Terer, EN Njeru, E Ng'ang'a & SS Ololchike, Members

May 9, 2025

Between

Xrx Technologies Limited

Appellant

and

Commissioner Of Legal Services & Board Coordination

Respondent

Judgment

Background 1. The Appellant is as a private limited company registered in Kenya whose principal business activity is printing, imaging, copying and leasing of machines performing similar activities.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws (hereinafter “the Act”). Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Respondent commenced compliance check against the Appellant in October 2020. The compliance check covered the period January 2017 to December 2022 for Corporation Tax, Value Added Tax (VAT) and Pay as You Earn (PAYE). Based on the findings, the Respondent issued the Appellant with the Compliance Check Findings for the Period January 2017- December 2022 dated 25th April 2024 under Section 31 of the Tax Procedures Act, Cap. 469B of Laws of Kenya (hereinafter “TPA”) wherein the Respondent assessed the payable tax at Kshs 169,237,030. 00

4. Aggrieved by the assessment, the Appellant filed its notice of objection dated 24th June 2024 and sought leave to file the objection out of time which the Respondent granted on 27th April 2024.

5. Based on the documents and the material provided, the Respondent reviewed the Appellant's notice of objection and upon conclusion of the review, the Respondent issued an objection decision through a Letter dated 26th July 2024 confirming a tax liability of Kshs. 172,091,565. 00.

6. Aggrieved by the Respondent's objection decision, the Appellant filed a notice of appeal dated 26th August 2024 and filed on the even date.

The Appeal 7. The Appellant lodged Memorandum of Appeal dated 9th September 2024 and filed on even date. Whereas the Memorandum of Appeal did not raise clear grounds of appeal, the Tribunal is of the view that the grounds of appeal were as follows:i.The grounds of objection raised by the Appellant and accord it the opportunity to clarify on the issues that will enable the Respondent to make necessary amendments to its records that reflect the correct position.ii.That if this assessment is allowed to proceed as it is, it would be excessive and amount to unfair administration of justice to the Appellant.

Appellant’s Case 8. The Appellant lodged its Statement of Facts dated 9th September 2024 and filed on even date. The Appellant also relied its written submissions filed on 16th April 2025 and filed on 21st April 2025.

9. The Appellant stated that it carries on the business of assembling, selling, servicing, maintenance, hiring of new and refurbished document copying and imaging equipment, digital copiers, printers, fax machines, scanners and of positioning mid-range and enterprise IT solutions based on workflow centred solutions, digitalization and providing professional services and all other related services.

10. The Respondent carried out compliance check for the period January 2017 to December 2022 on the operations of the appellant and communicated the findings through its letter of compliance check findings on 25th April 2024.

11. Upon receipt of the findings, the Appellant appointed Harun K. Mosop of Mosop & Associates, CPAK, to assist in the exercise. The tax agent sent and electronic mail to the Respondent requesting for extension to be able to file an objection to the findings since he was newly appointed and that although the Respondent's letter was dated 25th April 2024, it was forwarded to the Appellant and received via electronic mail on 13th May 2024 and the Respondent allowed the same via electronic mail. The Appellant filed an objection through its objection letter dated 24th June 2024 which was received and stamped on 27th June 2024 at the tax dispute resolution department stating the grounds of objection.

12. The Respondent and the Appellant engaged in a reconciliation exercise whereby the Appellant provided several supporting documents and reconciliations both physically and via email to the Respondent and also held several physical meetings with the Independent Review of Objections (IRO) team. However, owing to time period for which the exercise covered, some of the supporting documents could not be retrieved on time and the time required for completion of the objection process lapsed. Subsequently, the Respondent issued an objection decision in relation to income tax- company and VAT assessment of Kshs 126,289,399. 96 which together with penalties and interest all amounted to Kshs 172,091,565. 00 Corporation tax Kshs 164,880,016. 00 and VAT Kshs 7,211,549. 00 on 26th July 2024.

13. Upon receiving the objection decision from the Respondent and not being satisfied, the Appellant filed Notice of Intention to Appeal to the Tax Appeals Tribunal on 26th August 2024 via the Judiciary E-filing platform and is therefore appealing against the entire assessment of Kshs 172,091,565. 00 on the same grounds as stated in its objection decision and filed the supporting documents.

14. The Appellant asserted that it appealed because the Respondent did not take into account exempt and zero rated purchases which were not declared in the Appellant’s VAT returns; the Respondent duplicated imports by adding them back though the same had been declared in the monthly VAT returns; charging VAT on exempt and zero rated sales made to foreign embassies and other organizations which had tax exemptions and where the Appellant had provided and also including sales which had been returned and the amendment on the VAT returns provided.

15. The Appellant in its written submissions urged the Tribunal to waive the review for the years 2017 and 2018 as the two periods are outside the Respondent’s audit scope as provided for by the TPA.

16. The Appellant also urged the Tribunal to allow the filing of amended tax returns for the year 2022 so that it can claim the expenses related to the generation of the revenue for that period since the expenses claimed are substantiated in the financial statements for that period.

17. It submitted that it provided part of the documents but there was no sufficient time to provide all documents to the Respondent.

18. The Appellant also submitted that Respondent did not take into account exempt and zero-rated purchases which were not declared in the Appellant’s VAT returns. It submitted that the correct tax balances which are supported by the evidence indicate that there was corporation tax Credit of Kshs 27,423,051. 00; PAYE principal tax was nil; and VAT principal tax was nil.

19. In view of the explanations, facts and evidence adduced, the Appellant urged this Tribunal to grant the following Orders:a.The notice of objection be allowed;b.That the Respondent acted unreasonably, unconstitutionally and did not accord the Appellant a fair hearing hence trampling upon the Appellant’s fundamental constitutional freedoms and rights;c.That the objection decision be set aside;d.That the Tribunal be pleased to declare that the Respondent's administrative actions were unfair and ultra vires the Constitution and Fair Administrative Action Act, CAP 7L of the Laws of Kenya (hereinafter “FAAA”).e.That the Respondent be compelled to fully indemnify the cost of this appeal.

Respondent’s Case 20. In response to the appeal, the Respondent lodged a Statement of facts filed on 9th October 2024. The Respondent also filed its written submissions dated 15th April 2025 on even date.

21. The Respondent commenced compliance check against the Appellant in October 2020. The compliance check covered the period January 2017 to December 2022 for Corporation Tax, Value Added Tax (VAT) and Pay as You Earn (PAYE). The compliance check was informed by the following preliminary issues identified by the Respondent during the Appellant's tax returns review:a.There were variances between purchases declared in the VAT returns against those that were declared in the corporation tax returns;b.There were variances between employment costs subjected to the PAYE and those declared in the corporation tax returns; andc.There were variances between imports declared in the VAT returns and the customs data held by the Respondent.

22. The Respondent having noted the variance in the Appellant's tax Returns declarations, the Respondent requested the Appellant to provide several documents including:i.Audited Financial Statements for the years 2017 to 2021;ii.Asset Schedules for the years 2017-2021;iii.Bank Statements for the years 2017- 2021;iv.Exemption Certificates and Invoices for the years 2017 and 2021;v.Zero-rated Schedule for the Years 2017 and 2021; andvi.Reconciliations for the attached schedules i.e. PAYE, Purchases and Imports

23. The Respondent also invited the Appellant for a meeting on 30th June 2023 and thereafter the Respondent and the Appellant had several extensive engagements on the compliance check.

24. Upon conclusion of the compliance check, the Respondent established that the Appellant amended its Income Tax Returns for year 2017 on 11th November 2021 whereas the Tax Returns for the year 2018 were filed on 29th June 2019.

25. The Respondent also compared VAT and Income tax Purchases wherein it analysed the declarations in the Appellant's VAT and income tax returns and established the following:i.There were variances noted in the Appellant’s tax returns for the years 2017, 2018, 2019, 2020 and 2021 relating to the purchases claimed in the VAT returns and the income tax returns;ii.The Respondent shared the findings with the Appellant and despite the Respondent's invitation for reconciliation of the variance, the Appellant failed to reconcile.iii.The Respondent thus proposed to charge corporation tax on variances noted for years 2017, 2019, 2020 and 2021.

26. The Respondent also stated that it made a comparison between customs data against imports claimed by the Appellant in VAT returns and established that:i.A comparison of the customs' data against imports declared by the Appellant in the VAT returns brought out a variance of Kshs. 132,401,348. 00 for the period between the years 2017 and 2022. ii.The Respondent requested the Appellant to provide reconciliation for the same, a request which the Appellant failed to honour.iii.The Respondent thus proposed to include the variance to the purchases computation for corporation tax as computed.

27. The Respondent noted that the Appellant did not file its income tax returns for the Year 2022 on time. On being informed of this fact on 21st August 2023, the Appellant responded by requesting an extension of time to file its tax returns. The Respondent stated that the Appellant was granted leave and it filed its tax return on 27th October 2023 which it analysed and made the following findings:i.The Appellant declared a nil turnover in its filed income tax return for the year 2022 whereas in its VAT tax returns for the same period, the Appellant declared a turnover of Kshs. 342,243,365. 75;ii.The Respondent noted that the Appellant was allowed 75% expenses based on its average margins for Cost of Sales for the periods under review; andiii.The Respondent proposed to use the gross turnover in the VAT returns to determine the taxable income and compute corporation tax for the year 2022.

28. The Respondent also stated that it compared PAYE declared in PAYE returns against income tax returns. It asserted that it compared the employment expenses claimed in the income tax returns and the gross salaries and wages declared in the PAYE Returns and noted that:i.There were variances in the employment expenses claimed in the income tax returns and the gross salaries and wages declared in the PAYE returns.ii.The Appellant did not provide a reconciliation of the variances established herein. Therefore, the Respondent proposed to add back to adjusted taxable profit under the corporation tax as an over claimed salaries expenses.

29. The Respondent stated that it compared VAT and income tax turnover. It stated that it compared the turnovers declared in the corporation tax returns and the VAT returns. The comparison disclosed the following:i.That there were variances between the turnovers declared in the corporation tax returns as against those declared in the VAT Returns.ii.That for the years 2018, 2019 and 2021, the variances were negligible and the Respondent proposed to add back the variance for the year 2020 to the adjusted taxable income under the corporation tax;iii.The Respondent requested for invoices and schedules for the zero rated and exempt supplies from the Appellant. In response, the Appellant only provided exemption certificates for the year 2017 while the other periods were not reconciled; andiv.The unreconciled variances for the rest of the period (other than 2017) alleged to be exempt and/or zero-rated supplies, to the extent that they were unsupported, were charged to 16% VAT as shown on the VAT computation.

30. Upon conclusion of the investigations, the Respondent assessed corporation tax at Kshs 162,442,928. 00 and VAT at Kshs 6,794,102. 00 totalling to Kshs 169,237,030. 00.

31. The Respondent, based on the above findings issued the Appellant with the compliance check findings for the period January 2017- December 2022 on 25th April 2024. The said Letter served as formal tax assessment under Section 31 of the TPA to which the Appellant filed late notice of objection dated 24th June 2024. Upon seeking leave to object out of time, the Respondent granted the application on 27th June 2024.

32. The Respondent stated that whereas the Appellant provided the Audited Financial Statements and Reconciliations for the variance between salaries and wages claimed as per the PAYE returns and the Income Tax return, no further documents were provided. It noted that even after several reminders and follow ups by the Respondent, the Appellant failed to provide the following documents/information:i.A reconciliation of the variances between purchases declared as per the VAT returns and those declared in corporation tax returns;ii.To demonstrate that all administrative expenses are vatable;iii.Expenses claimed in the audited financial statements for the period 2022;iv.A reconciliation for the variance between salaries and wages claimed as per the PAYE returns and the Income Tax return; andv.Support for the Appellant's claim that the sales were made to foreign embassies and other exempt organizations.

33. Based on the documents and the material provided, the Respondent reviewed the Appellant's notice of objection. Upon conclusion of the objection review, the Respondent issued an objection decision to the Appellant through a Letter dated 26th July 2024 confirming a tax liability of Kshs 172,091,565. 00 which led to filing this Appeal.

34. In response to the grounds set out in Paragraphs No. (i), and (ii) of the Appellant's Memorandum of Appeal, the Respondent stated that the assessments for corporation tax and VAT are valid. Contrary to what the Appellant stated, the Respondent asserted that the assessment fairly reflects the Appellant's financial standing considering that the Appellant failed to submit all the documents or information requested.

35. The Respondent asserted that the purchases claimed in the Appellant's corporation tax returns and the purchases declared in the Appellant's VAT returns should be the same even after taking into consideration the adjustments relating to business expenses with the VAT and the purchase of assets. The Respondent stated that the purchases as per the corporation tax returns were higher than those in the VAT returns.

36. The Respondent stated that the Appellant failed to provide the reconciling items, sufficient documents/information and explanation. Specifically, it noted that the Appellant failed to provide a breakdown of the purchases claimed in the corporation tax returns for the Respondent to carry out a comparison against the purchases declared in the VAT returns. As a result, the Respondent contended that it was unable to establish whether indeed, there were purchases claimed in the Appellant's corporation tax Returns that the Appellant failed to capture in the VAT returns. Therefore, the Respondent treated the variance as over claimed purchases for the purposes of lowering the taxable income and reducing the Appellant's tax liability. Consequently, the Respondent brought to charge variance.

37. The Respondent argued that despite alleging at paragraph no. (i) of the notice of objection that not all the administration expenses were vatable, the Appellant did not adduce any evidence or further details to support this assertion. Further, the Respondent maintained that the Appellant did not quantify the expenses to enable the Respondent amend the assessed taxes.

38. Whereas the Appellant asserted that it was not provided with tax computations, the Respondent asserted that this was not true as the information was shared with the Appellant through the compliance check's findings and several engagements with the Appellant. Further, the Respondent noted that even after being granted an extension of time to file it tax returns for the year 2022 out of time, the Appellant declared nil turnover for corporation tax.

39. It was the Respondent’s case that the Appellant was unable to support the expenses claimed in the audited financial statements. This being the case, the Respondent was unable to ascertain whether the expenses claimed were incurred for income generation in line with Section 15 of the Income Tax Act, Chapter 470 Laws of Kenya (hereinafter “ITA”).

40. Whereas the Appellant provided reconciliations for the variance between the salaries and wages claimed as per the PAYE returns and the income tax return, the Respondent contended that the tax review established that the Director's remuneration was not subjected to PAYE as alleged by the Appellant. The Respondent argued that what the Respondent subjected to tax was the overclaimed salaries and wages which the Appellant failed to support either by documentations or reconciliations and/or explanation. It maintained that the variance did not arise from the Director's remuneration.

41. On the issue of the VAT, the Respondent averred that it requested the Appellant for the invoices, the alleged exemption certificates and schedules for the zero rated and the exempt supplies for the period 2018, 2019 and 2021. However, the Appellant failed to produce documents to support the variance.

42. In response to paragraph no. 8 of the Appellant's Statement of Facts, the Respondent averred that the invoices and the exemption certificates availed did not relate to the entries which the Appellant had declared in the VAT returns for the period under review. The Respondent argued that what the Appellant has produced before the Tribunal are not relevant for the following reasons:i.The Appellant did not demonstrate a nexus between the invoices, the exemption certificates and the declarations in the VAT returns.ii.The Appellant did not quantify the revenue value in the adduced invoices/exemption certificates and how they relate to the declarations in the Appellant's VAT returns.iii.The Respondent crosschecked the invoices and exemption certificates produced with those declared in the Appellant's VAT returns and the Respondent was unable locate the said invoices in the Appellant's VAT returns for the period under review.iv.Some of the documents adduced at the Appeal stage were neither produced at assessment stage nor the objection review stage.

43. In light of the above, the Respondent charged the variance alleged to be arising from exempt and zero-rated supplies to 16% VAT.

44. The Respondent also stated that the Appellant having failed to provide the documents or sufficient evidence to support the reconciling items, the Respondent was left with no choice but to disallow the Appellant's objection in its entirety. The Respondent pointed out that the Appellant admitted at paragraph 6 of the Appellant's Statement of Facts that it did not produce all the documents requested.

45. Whereas the Appellant argued that the assessments is excessive and does not reflect its correct position, the Respondent averred that cases like this are not decided on pleadings/averments but sufficient, credible and reliable evidence.

46. On account of failing to provide documents to support its case, the Respondent stated that the Appellant failed to discharged its burden of proof as required by Section 56(1) of the TPA.

47. On contention that the Respondent did not afford the Appellant a right to fair administrative action and fair hearing, the Respondent averred that these allegations are not true as the evidence shows that the Appellant was given sufficient opportunity to present documents, explanations and reconciliation to support its tax declarations.

48. In its written submissions, the Respondent submitted that the Appellant failed to sufficiently reconcile the variances noted in the Appellant's tax declarations. On the unsupported and unreconciled variances, the Respondent submitted that it properly assessed the Appellant. It cited the case of Jilao Company Limited v Commissioner of Domestic Taxes, Nairobi TAT Appeal No. 418 of 2018 to support the position that dispensing with burden of proof requires a reconciliation explaining the variances.

49. The Respondent also referred other case laws including: Histoto Limited v the Commissioner of Domestic Taxes, Nairobi TAT Appeal No. 369 of 2019;

Farm Engineering Industries Limited v Commissioner of Domestic Taxes [2024] KETAT 284 (KLR);

Sea-Tech Limited v Commissioner of Domestic Taxes [2024] KEHC 7343 (KLR); and

Style Industries Limited v Commissioner of Legal Services and Board Coordination [2024] KETAT 653 (KLR).

50. The Respondent submitted that the Appellant failed to discharge its burden of proof as it failed to produce documents to support the objection. The Respondent relied on a number of case laws including: Napro Industries Limited v Commissioner, Legal Services and Coordination Board [2024] KETAT 23 (KLR);

Commissioner of Domestic Taxes v Trical and Hard Limited [2022] KEHC 9927 (KLR);

Wincheru Construction Ltd v Commissioner Legal Services and Board Coordination [2024] KETAT 1644 (KLR); and

Gedi Boss Trading and Transportation Limited v Commissioner of Domestic Taxes, Nairobi TAT Appeal No. E661 of 2023.

51. The Respondent submitted that the assessments were based on the law and that they are proper.

52. Based on the foregoing, the Respondent urged the Tribunal to dismiss the Appeal with costs for want of merit. It urged the Tribunal to uphold the Respondent's assessments as confirmed in the objection decision dated 26th July 2024.

Issues For Determination 53. The Tribunal having considered the parties’ pleadings puts forth the following issues for determination:a.Whether the appeal is properly before the Tribunal.b.Whether the assessments are valid under section 31(4)(b) of the TPA.c.Whether the Appellant discharged its burden of proving that the objection decision of the Respondent dated 26th July, 2024 was incorrect.

Analysis And Findings Whether the is properly before the Tribunal. 54. The Respondent issued its objection decision dated 26th July 2024. On the other hand, the Appellant put in notice of appeal dated 26th August 2024 and filed on the even date. Pursuant to the following provisions of Section 13 (1)(b) of TATA the procedure which a taxpayer must adhere to when lodging an appeal are outlined:‘’13. Procedure for appeal(1)A notice of appeal to the Tribunal shall—(a)…(b)Be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.’’

55. Pursuant to Section 13 (1)(b) of TATA the Appellant was statute bound to file notice of appeal on or before 25th August 2024 bearing in mind that the objection decision was issued vide a letter dated 26th July 2024 meaning that the Appellant delayed to file the appeal. Filing an Appeal without leave of the Tribunal has an effect on the ability of the Tribunal to entertain a matter. The Tribunal must first establish whether it has jurisdiction to hear the matter. The Court of Appeal Patrick Kiruja Kithinji v Victor Mugira Marete MRU CA Civil Appeal No. 48 of 2014 [2015] eKLR held as follows:‘‘It is our view, whether or not an appeal is filed on time goes to the jurisdiction of this Court. It is trite that this Court has jurisdiction to entertain appeals filed within the requisite time and/or appeals filed out of time with leave of the Court. To hold otherwise would upset the established clear principles of institution of an appeal in this Court. Consequently, we find that an appeal filed out of time is not curable under Article 159. ’’

56. The High Court has also pronounced itself on this issue in the case of Commissioner of Domestic Taxes v Lifecare International Brokers Limited [2020] eKLR as follows:“Failure to file an appeal within time and without complying with statutory conditions is not a mere technicality that can be overlooked, it goes to the competence of the appeal. Counsel for the Appellant valiantly addressed the court on why the court should validate the appeal. The issues raised are factual issues that call for the court to exercise its discretion and can only be addressed in an appropriate application which is not before the court."

57. Further, in Commissioner of Domestic Taxes v Crescent-Tech Limited (Tax Appeal E040 of 2023) [2024] KEHC 4818 (KLR) (Commercial and Tax) (8 May 2024) (Judgment), the High Court emphasised that this Tribunal lacks jurisdiction where an appeal is filed out time without leave.

58. It should be noted that in tax matters, timelines are statutorily mandated. There are statutory timelines for filing of tax returns, issuing of an assessment, objecting to the assessment and filing of appeals. Therefore, the Respondent cannot lawfully, issue its objection decision on 61st day and the Appellant, cannot lawfully, file an appeal on 31st day.

59. Whereas section 13(1) of TATA provides that the notice of appeal must be filed within 30 days of receipt of the decision of the Respondent, the Act envisages situation where a taxpayer may delay in file its/his/her appeal within 30 days and therefore, Section 13(3) provides a remedy enabling a taxpayer to seek leave to file an appeal out of time and the same can be granted where a valid reason for the delay is provided.

60. Section 13(3) and (4) of TATA provide as follows:‘‘(3)The Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).(4)An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period.’’

61. The Tribunal perused the Appellant’s pleadings and noted that the Appellant did not file an application under section 13(3) of TATA seeking leave to file it’s the instant Appeal out time.

62. In Owners of the Motor Vessel “Lillian S” v Caltex Oil (Kenya) Ltd [1969] KLR, the Court held that jurisdiction is everything and that without it, the court cannot make a move. Failure to seek leave to file an appeal out time vitiates the jurisdiction of this Tribunal to determine this appeal.

63. Consequently, the Tribunal finds and holds the Appeal was filed out of time without leave of the Tribunal having been granted and therefore the Appeal is not properly before it and ought to be struck out.

64. Having established the foregoing, the Tribunal also finds that it lacks jurisdiction to determine the remaining issues.

Final Decision 65. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is incompetent and makes the following Orders:a.The Appeal be and is hereby struck out.b.Each party to bear its own cost.

66. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 9TH DAY OF MAY, 2025. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A - MEMBEROLOLCHIKE S. SPENCER - MEMBER