Apex Refrigeration and Air Conditioning Limited v Commissioner Domestic Taxes [2024] KETAT 39 (KLR)

Apex Refrigeration and Air Conditioning Limited v Commissioner Domestic Taxes (Tax Appeal 1382 of 2022) [2024] KETAT 39 (KLR) (26 January 2024) (Judgment)

Neutral citation: [2024] KETAT 39 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1382 of 2022

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

January 26, 2024

Between

Apex Refrigeration and Air Conditioning Limited

Appellant

and

Commissioner Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited Company duly incorporated and registered under the Companies Act within the Republic of Kenya.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. 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 & 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 issued a demand notice for tax arrears on 22nd February 2022.

4. On 28th June 2022, the Respondent issued the Appellant with a letter requesting it to settle its arrears of Kshs. 240,961. 00 then issued an agency notice on the same date to the Appellant’s banker, Cooperative Bank of Kenya Ltd for the taxes due.

5. On receiving the agency notice from its banker and being aggrieved, the Appellant filed the instant Appeal vide a Notice of Appeal on 16th November 2022.

The Appeal 6. In its Memorandum of Appeal dated and filed in 16th November, 2022 the Appellant premised its appeal on the following surmised grounds.a.The Respondent erred in fact and law in demanding for taxes amounting to Kshs. 240,961. 00 which taxes were unfounded, excessive and not based on any material facts that have been provided by the Respondent.b.The Respondent erred in fact and law by issuing agency notices to the Appellant’s bank without first issuing the Appellant with a demand and/or an assessment.

The Appellant’s Case 7. The Appellant’s case is premised on its Statement of Facts dated and filed on the 16th November, 2022.

8. The Appellant stated that on 27th July 2022, the Cooperative Bank of Kenya Limited who is its Bank informed it that an agency notice had been mailed to it by the Respondent and the bank has since clamped its bank accounts.

9. The Appellant averred that the agency notice is dated 28th June 2022 but was never brought to the attention of the Appellant by the Respondent up until the Appellant visited the bank and was informed of the existence of the agency notices.

10. The Appellant stated that the Respondent issued the agency notice demanding taxes amounting to Kshs. 240,961. 00 which taxes are unfounded, excessive, and not based on material facts that have been informed by the Respondent.

11. The Appellant averred that the Respondent’s actions resulted in unfair administrative actions by issuing an agency notice to the Applicant’s bank without first issuing the Appellant with a demand and/or an assessment.

12. Seeing as the Appellant did not file its submissions, the Tribunal shall rely on the available pleadings and documents attached to determine the totality of its case.

The Appellant’s Prayers 13. The Appellant subsequently prayed for the following from the Tribunal.a.The agency notice dated 28th June 2022 be vacated in its entirety.b.The demand for Kshs. 240,961. 00 contained in the agency notice dated 28th June 2022 without giving a demand notice be struck out.c.Costs of this Appeal.

The Respondent’s Case 14. The Respondent’s case is premised on its Statement of Facts dated and filed on 16th December 2022.

15. It cited Section 5 of the Kenya Revenue Authority Act and averred that it was exercising the powers conferred to it under the Act in assessing the tax payable and issuing the tax assessments and Section 24 (2) of the Tax Procedures Act allows it to assess a taxpayer’s liability using any information available to it. It added that it has operated within the confines of the law by using the data availed and thus cannot be faulted since the Appellant did not object to the notices.

16. It contended that it is guided by Section 56 (1) of the Tax Procedures Act which provides that in any proceedings relating to a tax dispute the burden shall be on the taxpayer to prove that a tax decision is incorrect.

17. The Respondent relied on Section 51 (1) and (2) of the Tax Procedures Act and the case of Misc. Application No. 185 of 2022 EMV Investment Limited vs. Commissioner of Domestic Taxes and submitted that the Appeal herein is incompetent and premature as the Appellant has appealed against additional assessments contrary to the Tax Procedures Act.

The Respondent’s prayers 18. The Respondent, therefore, prayed for orders that the Tribunal:a.Finds there is no valid appeal before it thus the said appeal cannot stand.b.Upholds the Respondent’s notice of demand dated 22nd February 2022. c.This Appeal be dismissed with costs to the Respondent as the same is devoid of merit.

Issues For Determination 19. Gleaning through the Memorandum of Appeal, the parties’ Statements of Facts, and the Respondent’s submissions, the Tribunal puts forth the following as the issue for determination:Whether the Respondent’s Agency Notice dated 28th June 2022 is proper.

Analysis And Findings 20. The Tribunal wishes to analyse the issue as herein-under.Whether the Respondent’s Agency Notice dated 28th June 2022 is proper.

21. The Respondent stated that it was exercising the powers conferred to it under the Tax Procedures Act in assessing the tax payable and issuing the tax assessments and Section 24 (2) of the Tax Procedures Act allows it to assess a taxpayer’s liability using any information available to it. The Respondent added that it has operated within the confines of the law by using the data availed and thus cannot be faulted since the Appellant did not object to the notices. It is on this basis that the Respondent issued a demand notice for tax arrears on 22nd February 2022.

22. From the chronology of events, as detailed in the background herein, the Tribunal observed that whereas the Respondent issued a notice of demand in February 2022, the Appellant did not lodge an objection to the same and thus there was another letter issued on 28th June 2022 demanding the same taxes from the Appellant which seemingly went unanswered.

23. Whereas the Appellant has painstakingly argued that the agency notices of 28th June 2022 were issued to its banker without notifying it, there is no explanation from the Appellant on why it failed to act on the letter dated 22nd February 2022.

24. On objections to tax decisions, Section 51 of the Tax Procedures Act offers the procedure as follows.1. “A taxpayer who wishes to dispute a tax decision shall first lodge an objection against that tax decision under this section before proceeding under any other written law.2. A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.…

3. A person who is dissatisfied with the decision of the Commissioner under subsection (11) may appeal to the Tribunal within thirty days after being notified of the decision.”

25. The inference from the above provision is that prior to lodging an Appeal before the Tribunal, the Appellant was to lodge an objection upon receiving an assessment from the Respondent. However, in this case, the Appellant has not demonstrated that it objected to the demand made on 22nd February 2022.

26. Given the above, the Tribunal finds that the Respondent’s action of issuing the agency notice to the Appellant’s banker proper in law.

Final Decision 27. The upshot to the foregoing is that the Appeal has no merit and the Tribunal consequently makes the following Orders; -a.The Appeal be and is hereby dismissed.b.The agency notice dated 28th June 2022 be and is hereby upheld.c.Each party to bear its own costs.

28. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF JANUARY, 2024ROBERT M. MUTUMA - CHAIRPERSONELISHAH N. NJERU - MEMBERBONIFACE K. TERER - MEMBERMUTISO MAKAU - MEMBERDR. WALTER ONGETI - MEMBER