Alliance Tobacco Limited v Commissioner of Legal Services & Boarder Control [2024] KETAT 495 (KLR)

Alliance Tobacco Limited v Commissioner of Legal Services & Boarder Control (Tax Appeal 42 of 2023) [2024] KETAT 495 (KLR) (22 March 2024) (Ruling)

Neutral citation: [2024] KETAT 495 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 42 of 2023

E.N Wafula, Chair, M Makau, E Ng'ang'a, AK Kiprotich & EN Njeru, Members

March 22, 2024

Between

Alliance Tobacco Limited

Appellant

and

Commissioner of Legal Services & Boarder Control

Respondent

Ruling

1. The Appellant vide a Notice of Motion application dated 10th July, 2023 and filed on 31st August 2023 which was supported by an Affidavit of Geofrey Ndanjiwa Banda, sought for the following Orders: -i.That the Tribunal be pleased to grant leave to the Appellant to amend its Statement of Facts dated 13th January 2023 for purposes of amending factual errors and including relevant supporting documentation in terms of the Amended Statement of Facts annexed to the Affidavit in support of the application.ii.That pursuant to grant of prayer (i) above, the Amended Statement of Facts annexed herein be deemed to have been property filed upon the Tribunal allowing this application.iii.The costs of this application be provided for

2. The application is premised on the hereunder grounds: -i.That it has become necessary for the Appellant to amend its Statement of Facts dated 13th January 2023 to amend factual errors and include relevant supporting documentation to enable the Honourable Tribunal to determine all the issues in controversy as between the parties herein and reach a just conclusion of the matter.ii.That the issues that the Appellant raises in its Statement of Facts are pertinent to the determination of the dispute between the parties and it is necessary that the same be included by way of the amendments sought herein.iii.That the amendments do not raise any new issue but only seek to clarify the factual pattern of the dispute between the parties.iv.That additionally, the Appellant received further clarification from the Respondent during the ADR process that the Respondent had not disclosed to the Appellant prior to filing the Statement of Facts that are relevant to this dispute.v.That the Appellant has the burden of proving its case before the Tribunal therefore the Appellant believes it should be granted leave to provide all relevant information that it believes will assist in discharging this burden and to provide information that will be necessary to enable the Tribunal to arrive at an informed conclusion.vi.That no miscarriage of justice or prejudice will be occasioned to the Respondent whatsoever, should the orders sought herein be granted. In this regard, the Appellant contends that it is only fair and just that the application herein is heard and determined in favour of the Appellant.vii.That it is in the interest of justice that the orders be granted as prayed.viii.That the Tribunal has jurisdiction to grant the orders sought in this application.

3. The Respondent objected to the application through a Replying Affidavit sworn by Moses Ndirangu, an after of the Respondent, on the 13th September, 2023 and filed on the same date. The Affidavit raised the following grounds of opposition:-i.That the application before the Tribunal seeks for the Tribunal to countenance the procedural lapses on the part of the Appellant of failing to provide documents for review as requested by the Respondent in accordance to Section 51(3) of the Tax Procedures Act.ii.That it is not in dispute that the parties had engaged in ADR discussions and the same have since collapsed.iii.That it will be against the best interest of justice to include documentation arising from the ADR process to the Tribunal's records.iv.That the application before the Tribunal is devoid of merit as the Appellant is introducing new facts that arose from the Alternative Dispute Resolution discussions.v.That ADR meetings are held on a without prejudice basis to resolve a dispute and this Appellant cannot use the same discussions to try and introduce new facts and documents at the Tribunalvi.That the Appellant wants to provide different documents than what the Commissioner had requested and wants to arm twist the Commissioner into agreeing in an ADR agreement by force by stating it had provided documents during a refund audit.vii.That the Appellant is seeking to introduce new facts and documentation which had been previously requested during the review stage and it failed to do so.viii.That the clarification being mentioned by the Appellant in its application to be allowed to amend their Statement of Facts is nothing new other than what had been mentioned in the statement of findings in objection decision.ix.That the Respondent had informed the Appellant of the required information as per email dated 1st November 2022 and went further to request for working meeting, which was held on 9th November 2022. x.That during the working meeting the Appellant was taken through the documents required and follow up email was sent on 11th November 2022 notifying the Appellant of the required documents.xi.That the Appellant failed to provide full documentation as agreed at the time of meeting and the Respondent averred that it only provided partial documentation. The Appellant has not demonstrated that these documents were provided to the Commissioner at the time before the objection decision was issued.xii.That all the documentation provided by the Appellant at the objection stage were reviewed and considered in arriving at the objection decision. That this is evident by the fact that the objection decision was a partial vacation of the assessment where a substantial part of the assessment was dropped.xiii.That in the statement of findings as per objection notice the Appellant was notified of the missing documents and only presented them during the ADR deliberations.xiv.That the documents being proposed for introduction were not provided to the Commissioner at the objection stage and as such the Respondent did not have an opportunity to interrogate the same before issuance of the objection decision.xv.That Section 51(3)(c) of the Tax Procedures Act behoves a taxpayer to support its objection by providing all documents and information necessary for the Commissioner to arrive at the objection decision.xvi.That it would be highly prejudicial to introduce the proposed documents at this stage as, by all accounts, the Respondent has not had sight of the same during objection, has not had an opportunity to interrogate them and therefore has not had a chance to make any decision on their impact on the present assessments.xvii.That the provisions of Rule 21 of the Tax Appeals Tribunal(Procedure)Rules 2015 do not afford the Appellant the protection it seeks as not only is the Appellant trying to introduce new issues, it has also been brought after inordinate delay.xviii.That the Honourable Tribunal to take notice of the indisputable fact that that the application was only brought after the collapse of the ADR negotiations and long after the Statement of Facts by the Respondent had been filed.xix.That a cursory look at the intended amendments will lead to the conclusion that the Appellant is seeking to introduce new facts that were not in the initial appeal. To demonstrate this the Respondent stated as follows:a.That at paragraph 19 of the proposed Amended Statement of Facts, the Appellant has changed the figures of the sales, sales declarations and the declared VAT leading to a change in the variance initially appealed against. The Appellant failed to provide a satisfactory reconciliation for the variances. These findings were communicated to the Appellant as per the objection decision.b.That further, the breakdown (un-lumping of sales) provided was incomplete. For instance, the year 2017 had sales up to July 2017 (8 months were missing). This scenario was replicated for the other years too.c.That at paragraph 20, the Appellant seeks to introduce justifications of the transfer fricing adjustments based on documents provided during the ADR and not during the Objection Stage. That in particular, the assessment was not about whether the Appellant had used Full-Cost-Mark-Up(FCMU) but rather that the transfer pricing adjustment had been used to explain the variance between the VAT turnover and the income tax turnover. Therefore, the issue at point was to determine the accuracy of the transfer pricing figure and not the accuracy of the method used. That this is clearly a new ground of appeal and goes against the provisions of Rule 21. d.That further, at paragraph 20, the Appellant seeks to remove the Credit Adjustments Vouchers from the Appeal which clearly prejudices the Respondent as these formed part of the Respondent's Statement of Facts.e.That as per the email dated 11th November the Appellant was requested for the following documents: the related party transaction ledger account, the Sales invoices issued to related party the transfer pricing adjustment vouchers, proof of payment by related party mapped to the related party. That only the sales invoices and the transfer pricing adjusted vouchers were presented. That the Respondent therefore could not make any other decision as he was limited as per the information availed by the Appellant.f.That at paragraph 20 (iv) the Respondent averred that this information was not provided at objection stage and the Appellant only provided the same when the parties engaged in ADR. That the Respondent therefore did not have the benefit of these documents at the objection stage. That in any event as stated earlier, ADR engagements were held on a "without prejudice basis, That the same should be disallowed.g.That at paragraph 20(v), the Appellant tries to introduce an audit that did not form part of the objection documents and only came up during the ADR process. That there is nowhere in the notice of objection, documents provided at objection stage was there a mention of a refund audit and this matter of "refund audit" only arose during the ADR meetings,h.That as regards paragraph 21, the sales invoices and mapping which were some of the documents requested by the Respondent at the objection stage and were not provided. That the Appellant is introducing new grounds and new evidence not adduced at objection stage. That to be specific, at ADR the Appellant was informed that the lumped sales had to be broken down to specific invoice by invoice and the Respondent needed independent documentations such bank statement to demonstrate that indeed the sale took place. That the Appellant should be put to strict proof to demonstrate how this information had been provided at objection stage.i.That at paragraph 22, the Respondent reiterated that this information was not available to the Respondent at the objection stage and the Appellant should not be allowed to introduce new issues. That in particular, the Appellant failed to do a proper mapping of invoices with verifiable supporting third party documents other than its own internally generated documents both at objection and ADR process and therefore the tax assessment of Kshs 483,860,973 should be confirmed as issued. That the objection decision was issued based on the documents and information available to the Commissioner and thus for purpose of this Appeal, the Respondent averred the same had not been provided at objection stage and should be disallowed.j.That at paragraph 26, the Appellant does admit that this information was only provided at the ADR and as such should not be included at this stage.k.That further at paragraph 29, the Respondent disputes that it agreed with the Appellant's workings and that the accounting workings of credit and debit could only be done upon provision of primary documents which had been sought from the Appellant and not provided.l.That at paragraph 29 (ii) the Respondent denies that these workings were provided at the objection stage. The Respondent averred that the Appellant did not provide supporting documentation to support the reconciliation and to enable the Respondent to verify the correctness of the reconciliation as provided. That the Respondent is not bound by self-assessment return filed by the Appellant and may call for documentation to verify the accuracy of the samem.That in response to paragraph 29(ii), without a detailed breakdown of the sales as per VAT and income tax and noting the Appellant had lumped sales in the VAT return it was not possible for the Respondent to identify the specific invoices that were causing the variance or identify if the omitted invoices had a tax implication as each invoice would have a different tax implication depending on the nature of the supply. That the Appellant just stated the under-declared sales were export and thus zero rated, without providing the breakdown (both tax heads) and invoices. That the Appellant now seeks to attach the breakdown which the Respondent did not have the benefit to sight at the Objection stage.n.That on WHT on professional fees, in the absence of proper documents to support the disbursement amounts, the Respondent utilised the available information and used the percentage as seen in the sampled invoices to charge withholding tax. That this is in accordance with Section 31(1) of TPAwhich allows Commissioner to use information available at its disposal to raise an additional assessment.xx.That on the basis of these non-exhaustive examples, the Respondent averred that allowing amendment of the Statement of Facts at this stage will be highly prejudicial as the Appellant is not only introducing new grounds of appeal but also seeking to introduce documents which were not interrogated by the Respondent at the objection stage.xxi.That Section 13(6) of the Tax Appeals Tribunal limits an appeal to the grounds upon which a decision relates. That since the Respondent did not have the benefit of the intended documents and grounds, the objection decision did not delve into the same and as such it should not be allowed.xxi.The Respondent further averred that the Appellant has not even attached the intended documents to the amended Statement of Facts and it is not possible for the Commissioner to verify if the same are new or old documentation.xxi.That the Tribunal should prohibit the Appellant from relying on ADR deliberations as the Appellant noted its Appeal was flawed and now wants to introduce arguments and new documents that had not been canvassed at objection stage. That ADR is conducted on a “without prejudice basis" and introduction of arguments based on the deliberations therein will only act to weaken and water-down the process.xxi.That if the Tribunal was to allow the same then it would highly prejudice the Respondent's position as the Commissioner did not have the documents or the arguments proposed in the intended amendments while issuing the objection decision.xxi.That parties are bound by their pleadings and in this case, the Appellant should be bound by its filed Appeal and Statement of Facts and introducing new facts and grounds will go against this legal maxim.xxvi.That procedures are put in place for a reason and when one fails to take advantage of the set procedures then they alone should suffer the consequences of such failures.xxvi.That the Appellant's application and the Supporting Affidavit of Geoffrey Ndanjiwa Banda are materially defective, an abuse of the court process and go against set statutory procedures and the same should be dismissed with costs to the Respondent.xxvi.That the application is highly prejudicial, an afterthought and goes against the various provisions of the TPA, the TATAct, and the Rules thereon and this Tribunal should be extremely reluctant to interfere with by allowing the amendments and further that the Appellant has not demonstrated any good will on its part by attempting to adduce "without prejudice" negotiations.

Analysis and Findings 4. The Appellant is seeking leave to amend it pleadings for the purpose of amending factual errors and including relevant supporting documentation in terms of the Amended Statement of Facts.

5. The Respondent in opposing the application was of the view that the Appellant is seeking for the Tribunal to countenance the procedural lapses on the part of the Appellant of failing to provide documents for review as requested by the Respondent in accordance to Section 51(3) of the Tax Procedures Act. That the Appellant was introducing new facts that arose from the Alternative Dispute Resolution discussions.

6It is the Tribunal view that it is not available for it at this stage to determine the merits and the value addition the amendments sought and the documents are likely to impact on the pending Appeal.

7. The principles governing the exercise of discretion in dealing with the applications for amendment of pleadings are generally well settled and with the rule of the thumb being that such applications are to be freely allowed unless injustice is likely to be visited upon the opposite party by allowing any amendment as sought. This principle was well elucidated in the case of Harrison C. Kariuki v Blueshield Insurance Company Ltd [2006] eKLR in which the Court referred to the Court of Appeal decision in Central Kenya Ltd v Trust Bank Ltd [2003] EALR 365 and held that:-“The guiding principle in applications to amend pleadings is that the same will be liberally and freely permitted unless prejudice and injustice will be occasioned to the opposite party. There will normally be no injustice if the other party can be compensated by an appropriate award of costs for any expense, delay or bother occasioned to him. The main reason for this is that it be in the interests of justice that the amendments sought be permitted in order that the real question in controversy between the parties be determined.”

8. There has been no disclosed prejudice and/or discernible injustice manifested that is likely to be suffered and/or occasioned to the Respondents if the amendments sought on the part of the Appellant are allowed, in any event the Respondent will have its right to reply.

9. Parties before the Tribunal ought to be permitted opportunities to present and ventilate their appeals in a manner that affords a fair and just determination of the dispute, including allowing parties amend pleadings and to file such documents that the parties consider necessary in ensuring just, efficient and effective determination of the matter by the Tribunal.

Disposition 10. In the circumstances of the foregoing analysis, the Orders that commend themselves are as follows:-i.The Appellant be and is hereby granted leave to file a Supplementary Statement of Facts and additional documents.ii.The Appellant to file and serve the Supplementary Statement of Facts and additional documents within Fifteen (15) days of the date of delivery of this Ruling.iii.The Respondents is hereby granted a corresponding leave and is thus at liberty to file a Supplementary Statements of Facts and any additional documents within Fifteen (15) days of the date of being served by the Appellant.iv.No orders as to costs.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF MARCH, 2024. ERIC NYONGESA WAFULA - CHAIRMANMAKAU MUTISO - MEMBEREUNICE N. NGA’NGA - MEMBERABRAHAM K. KIPROTICH - MEMBERELISHAH N. NJERU - MEMBER