Charma Holdings Limited v Commissioner of Investigations and Enforcement [2024] KETAT 271 (KLR)

Charma Holdings Limited v Commissioner of Investigations and Enforcement (Tax Appeal 66 of 2023) [2024] KETAT 271 (KLR) (23 February 2024) (Judgment)

Neutral citation: [2024] KETAT 271 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 66 of 2023

E.N Wafula, Chair, RO Oluoch, Cynthia B. Mayaka, AK Kiprotich & T Vikiru, Members

February 23, 2024

Between

Charma Holdings Limited

Appellant

and

Commissioner of Investigations and Enforcement

Respondent

Judgment

Background 1. The Appellant is a limited liability company duly incorporated under the Companies Act cap 486 of laws of Kenya and whose principal business is in construction.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority (KRA) Act, and KRA is charged with the responsibility of among others, assessment, collection, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Respondent issued its tax investigation findings through a letter dated 18th March 2022. The Appellant objected vide a letter dated 28th March 2022.

4. The Respondent issued a letter of objection invalidation dated 16th June 2022.

5. The Appellant being dissatisfied with the Respondent’s decision filed this Appeal at the Tribunal on 20th January 2023.

The Appeal 6. The Appeal was based on the following grounds:i.That the Respondent erred in law, facts and issued an invalid objection decision contrary to the Tax Procedures Act 2015, Section 51(9).ii.That the Respondent erred in law and facts by demanding tax that is unreasonable and unfair as per Articles 210 and 201 (b) (i) of the Kenya Constitution.iii.That the Respondent erred in law and facts by eliminating certainty as an integral ingredient of the rule of law as stated to be the lifeline of business and business plans.iv.That the Respondent actions are contrary to legitimate expectations on the operations of the taxpayer, as per Section 15 of the Income Tax Act, and Article 47(1)(2) of the Kenya Constitution 2010.

The Appellant’s Case 7. Appellant’s case is premised on its Statement of Facts dated 19th January 2023 and filed on 20th January 2013.

8. The Appellant stated that the Respondent issued a letter dated 14th October 2020 requesting for supporting documents. That the Appellant replied and requested to submit the documents by 30th October 2020.

9. That on 30th October 2020 the Appellant submitted supporting documents as promised. That on 18th March 2022 the Respondent issued investigation findings.

10. That on 28th March 2022 the Appellant objected to the investigation findings. That on 16th June 2022 the Respondent issued its objection decision.

11. That Appellant stated that it subsequently issued a notice of intention to Appeal on 29th September 2022.

12. The Appellant was of the view that the issues for determination were;a.Whether the Respondent is correct in assessing the Appellant income tax on intercompany deposits, directors’ injection, money market funds, loan, contra entries, cash deposits and inter account transfers. The items referred to are not business income.b.Whether the Respondent is correct by charging VAT on non-vatable items precisely inter-company deposits, directors’ injection, cash deposit, money market funds, loan and contra entry.

13. It was the Appellant’s argument that inter-company deposits, directors’ injections, money market funds, loans, contra entries, cash deposits and inter account transfers do not relate to company revenue thus not chargeable to tax.

14. That directors’ injection, cash deposits, money market fund, loan and contra entry do not attract VAT and therefore should be excluded in VAT computation.

Respondent’s Case 15. The Respondent’s case is premised on its Statement of Facts dated 20th February 2023 and filed on the same date.

16. The Respondent submitted that at the first instance it was raising a preliminary objection stating that the Appeal as filed contradicted the provisions of Section 13(1) of the Tax Appeals Tribunal Act, 2015.

17. The Respondent submitted that the Appeal as filed was improper and failed to follow the procedural manner stipulated and the Respondent in the first instance was seeking to have the same struck out.

18. The Respondent averred that the Appellant had not provided any reconciliations, supporting documents or a notice of objection as per Section 51(3) of the Tax Procedure Act, 2015 to validate the objection.

19. The Respondent further averred that the Appellant undertook to provide an analysis of its correct tax position and share evidence with the Respondent as per the notice of objection dated 28th March 2022.

20. The Respondent stated that the Appellant had not provided any reconciliations, supporting documents or a notice of objection as per Section 51(3) of the Tax Procedures Act, 2015 to validate the objection.

21. That during investigations, the Appellant availed documents including copies of bank statements indicating the sources of the cash deposits, payment instructions and advices as well as invoices. That the documents were reviewed and it was established that the cash deposits initially taxed in the preliminary findings were mainly from the related companies.

22. That the deposits from related companies were excluded in the analysis since they were to be charged on respective companies which were equally under investigations.

23. That an analysis of the IFMIS data obtained from National Treasury revealed that the Appellant also supplied general rated goods to the Government of Kenya through Ministry of Interior and Public Service.

24. That the Respondent relied on Sections 15 and 16 of the Income Tax Act which stipulate the deductions allowed and the deductions not allowed.

25. That the Respondent further relied on Section 5 of the Value Added Tax Act which provides for the charge of tax and empowers the Respondent to enforce the same.

26. That Section 56(1) of the Tax Procedure Act, states that: “(1) In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect". That the Appellant is invited to disapprove the Respondent's decision with evidence.

Respondent’s Prayers 27. The Respondent prayed that the Tribunal finds;a.The Objection decision dated 16th June, 2022 be upheld.b.The Appeal be dismissed with costs.

Issues for Determination 28. The Tribunal upon due consideration of the pleadings filed on the part of both parties was of the view that the issues that crystalized for its determination were as follows: -a.Whether there was a valid Appeal before the Tribunal.b.Whether the Respondent erred in its assessment of tax on the Appellant.

Analysis and Determination 29. Having identified the issues for determination, the Tribunal proceeded to analyse the same as hereunder: -

a. Whether There was a Valid Appeal Before the Tribunal. 30. The Respondent submitted that at the first instance it was raising a preliminary objection stating that the Appeal as filed contradicted the provisions of Section 13(1) of the Tax Appeals Tribunal Act, 2015.

31. The Respondent added that the Appeal as filed was improper and fails to follow the procedural manner stipulated and the Respondent in the first instance was seeking to have the same struck out.

32. Section 13 of the Tax Appeals Tribunal Act provides as follows regarding Appeals to the Tribunal;“Procedure for appeal(1)A notice of appeal to the Tribunal shall—(a)be in writing;(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.(2)The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of—(a)a memorandum of appeal;(b)statements of facts; and(c)the tax decision.(3)The Tribunal may, upon application in writing, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).”(Emphasis added)

33. Given that the tax decision was issued on 16th June 2022, the Appellant ought to have filed its Notice of Appeal on or before 16th July 2022. The Tribunal took note of the fact that the Appellant filed the Notice of Appeal on the 29th September, 2022 which was about 73 days late.

34. A taxpayer who defaults in lodging an Appeal within the statutory timeline has the legal remedy to seek for leave to lodge the same out of time from the Tribunal. This is provided for under Section 13 (3) and (4) of the Tax Appeal Tribunal Act as which states as follows:-“(3)The Tribunal may, upon application in writing, 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.” (Emphasis added)

35. A perusal of the Appeal documents lodged by the Appellant clearly indicates that the Appellant did not seek leave for the enlargement of time in lodging its Appeal and there were obviously no reasons proffered for the late lodging of the Appeal.

36. The Tribunal is bound to uphold the strict statutory timelines provided by law to any party. The High Court in emphasizing the strict application of statutory timelines had this to say in Equity Group Holdings Limited v Commissioner of Domestic Taxes 2021 (eKLR):-“A statutory edict is not procedural technicality. It’s a law which must be complied with. Parliament in its wisdom expressly and in mandatory terms provided………”

37. The Tribunal further reiterated its decision in the case of W.E.C. Lines Ltd v The Commissioner of Domestic Taxes [TAT Case no 247 of 2020] where it was held that:“Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures”.

38. The Tribunal was of the view that the Appellant could not found an appeal against the tax decision out of time without applying to the Tribunal for enlargement of time. In light of the foregoing circumstances the Appeal lodged by the Appellant was found to be invalid.

39. Having found that the Appeal was invalid, the Tribunal did not delve into the substantive issue in the Appeal as it had been rendered moot.

Final Decision 40. Based on the foregoing analysis the Tribunal determined that the Appeal is incompetent and unsustainable in law. The Orders that accordingly recommend themselves are as follows: -i.The Appeal be and is hereby struck out.ii.Each party to bear its own costs.

41. It is so ordered.

DATED and DELIVERED at NAIROBI this 23rd day of February, 2024. ERIC NYONGESA WAFULACHAIRMANDR RODNEY O. OLUOCHMEMBERCYNTHIA B. MAYAKAMEMBERABRAHAM K. KIPROTICHMEMBERTIMOTHY B. VIKIRUMEMBER