Edmar Enterprises Ltd v Commissioner of Domestic Taxes [2024] KETAT 724 (KLR)

Edmar Enterprises Ltd v Commissioner of Domestic Taxes (Tax Appeal 1480 of 2022) [2024] KETAT 724 (KLR) (Commercial and Tax) (9 May 2024) (Judgment)

Neutral citation: [2024] KETAT 724 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal 1480 of 2022

CA Muga, Chair, BK Terer, D.K Ngala, GA Kashindi & SS Ololchike, Members

May 9, 2024

Between

Edmar Enterprises Ltd

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company duly incorporated in Kenya.

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

3. The Appellant transacted with the County Governments of Nakuru and Nyandarua who issued Withholding certificates dated 8th July 2019, 9th July, 2019 and 15th July 2019.

4. The Appellant failed to account for the sales relating to the work done and declared nil sales for the month of July. However, it claimed withholding VAT amount of Kshs 1,340,853. 15.

5. On 24th August, 2020 the Respondent issued additional/amended assessment for Kshs 1,932,299. 35.

6. Aggrieved by the Respondent’s demand, the Appellant filed its Notice of Appeal dated 5th December,2022 on 6th December, 2022.

The Appeal 7. The Appeal was premised on the following grounds of Appeal as stated in the Appellant’s Memorandum of Appeal dated 5th December, 2022 and filed on 6th December, 2022:a.That the Respondent erred in law and fact by bringing to charge Kshs 12,076,871. 00. b.That being payment from Nyandarua County Government and Nakuru County Government both of whom are registered VAT withholding agents withheld Kshs 1,340,853. 15 from the payments and remitted to KRA.c.That the Respondent went further and did an additional assessment of Kshs 1,932,299. 36 but did not consider the withheld amounts.d.That the Respondent went further to demand Kshs 1,932,299. 36 instead of Kshs 591,446. 21 having not deducted the withheld amount of Kshs 1,340. 853. 15. e.That the Appellant has paid Kshs 1,464,283. 00 and the Respondent is still demanding Kshs 990,331. 00. f.That the Appellant paid the requisite charges for the Appeal and the proof documents attached.

The Appellant’s Case 8. The Appellant argued its case through its Statement of Facts filed on 6th December, 2022.

9. The Appellant stated that it was issued with an estimated assessment for the year of income 2019 on 24th August, 2020 and required to pay principal tax of Kshs 1,932,299. 35 and interest of Kshs 82,802. 47.

10. It stated that it objected to the Respondent’s assessment on 13th April 2021 and that contrary to its legitimate expectation the Respondent confirmed the assessment vide an assessment notice dated 11th October,2022 fully rejecting the Appellant’s objection and demanding Kshs 1,932,299. 35.

11. The Appellant averred that the Respondent erred in law and fact by demanding gross amount of VAT assessed and not deducting the amount withheld by the registered VAT agents.

Appellant’s Prayers 12. The Appellant therefore prayed that the Tribunal reverses KRA’s decision of VAT assessment amounting to Kshs 2,015,101. 81 and revoke the amount being demanded of Kshs 990,331. 00 and compel the Respondent to refund excess amount of Kshs 972,836. 79.

The Respondent’s Case 13. In responding to the Appellant’s grounds of Appeal, the Respondent filed its Statement of Facts dated 2nd January 2023 on 6th January 2023. It’s Supplementary Statement of Facts dated 31st March and filed on 4th April, 2023 was filed without leave of the Tribunal and has thus not been considered by the Tribunal.

14. The Respondent asserted that it amended the Appellant’s assessment pursuant to Section 31 of the Tax Procedures Act No. 29 of 2015 (hereinafter ‘TPA’) based on available information and its best judgment. It also relied on withholding VAT certificates in connection with the Appellant.

15. It contended that the withheld VAT amount of Kshs 1,340,853. 15 was duly recognised where the Appellant claimed the same in the month of July 2019 giving rise to a credit VAT return which was carried forward and utilized in the months of October 2019 and November 2019 where the Appellant had declared some sales.

16. The Respondent contended that contrary to the Appellant’s assertion that the withheld VAT amount was not considered, it averred that the same was in fact incorporated in the Appellant’s original return but utilized in the months of October 2019 and November 2019 effectively reducing the VAT payable for the said months.

17. The Respondent averred that iTax as constituted has a self-adjusting mechanism where a return cannot be filed without incorporating a withholding certificate that has been issued in i-Tax. It stated therefore that Withholding certificates for the assessed income were issued on i-Tax and the same were captured in the Appellant’s VAT returns. As such allowing the Appellant to claim the same credit in the month of July 2019 would amount to double claim.

18. The Respondent contended that on the mathematical premise of withheld tax under Section 42 of the TPA, it ascertained the Appellant’s tax liability by utilizing the withholding VAT certificates issued by Nyandarua and Nakuru Counties to ascertain the Appellant’s true tax liability which was determined to be additional assessment of Kshs 1,932,299. 35. It stated that this additional VAT assessment represented the balance of the 98% of the VAT payable by the Appellant from the supplies that are the subject of the withholding certificates issued by the two Counties.

19. It contended that the Appellant in its argument is not contesting the Respondent’s assessment, but rather seeks an offset for alleged overpaid taxes traced to the withholding payments issued by the two Counties. This alleged claim by the Appellant is an abuse of the court process and a strategy to derail the Respondent’s collection of the tax due. It therefore stated that the additional VAT assessment was proper and should be upheld by this Tribunal.

Respondent’s Prayers 20. The Respondent prayed that this Tribunal would:a.Uphold the Respondent’s decision dated 5th November 2021 as proper and in conformity with the provisions of the law.b.In the alternative to above, uphold the Respondent’s additional assessment dated 14th June, 2020. c.Dismiss the Appeal with costs to the Respondent as the same is devoid of any merit.

Submissions of the Parties 21. As at the date of the hearing on 21st November, 2023 the Appellant had not filed its Written submissions. The Tribunal will therefore only consider the Respondent’s Written Submission dated 12th July 2023 and filed on 14th July,2023. In its submissions, the Respondent raised two issues for determination which it analysed as follows:

a.Whether the Appellant’s Notice of Objection is valid and whether the subject Appeal is premised on an Appealable decision. 22. The Respondent submitted that the Appellant filed an invalid objection on the following grounds:i.Failing to provide relevant documents in support of the objection decision.ii.The subject objection is irreparably defective being lodged out of time. The Respondent issued its assessment on 31st July 2019 while the Appellant objected eleven (11) months later on 13th April 2021. iii.The Appellant’s objection was not anchored on any substantive objection or proposed amendments.

23. The Respondent submitted that the right of Appeal under the TPA is not absolute and is conditional on the Appellant to firstly lodge a valid appeal pursuant to Section 51(1) and (3) of the TPA. Further, that under Section 51(2) of TPA, a dissatisfied taxpayer is required to file its objection within 30 days from the date of the decision.

24. The Respondent relied on the Tribunal’s decision in Misc No.178 of 2022 Transfix Ltd vs Commissioner of Domestic Taxes where it noted the consequences of absence of a valid objection by a taxpayer as follows:“….There was no decision issued by the Commissioner that could possibly form a basis for an appeal before the Tribunal ….In the circumstances the Tribunal finds that there is no conceivable appeal with merit that could be possibly filed by the Applicant for appropriate determination by the Tribunal.”

25. The Respondent also relied on the case of Bin Abbulrahim & Sons vs KenyaRevenue Authority (2017) eKLR where it was held as follows;“Any objection which the Applicant may have had, as a result of the suit, been overtaken by time as an objection to a tax decision ought to be lodged within thirty days”.

26. The Respondent therefore submitted that at the time of the Appellant lodging its late objection, no evidence was provided in support of the objection.

(b) Whether the Respondent charge of VAT taxes of the Appellant is erroneous or excessive 27. It was the Respondent’s submission that the amendment to the Appellant’s assessment was done pursuant to Section 31(c) of the TPA based on the available information and the Respondent’s best judgement. It also relied on Withholding VAT certificates in connection with the Appellant.

28. The Respondent submitted that through computation of the Appellant’s assessment, it established that VAT credits from the returns filed in July 2019, were utilized to offset the Appellant’s tax liability in the months of October and November 2019 during which time the Appellant declared sales but failed to file VAT returns for the specific transactions. It contended therefore that the Appellant failed to prove that the Respondent’s decision was in any way inconsistent, based on extraneous factors, excessive or incorrect contrary to the burden of proof as provided for under Section 56 (1) of the TPA. The Respondent relied on the case of Pearson vs Belcher CH.M (Inspector of Taxes) Tax cases Volume 38 which was referred to by Justice D.S Majanja in PZ Cussons East Africa Ltd vs Kenya Revenue Authority (2023) eKLR to buttress its argument.

Issues for Determination 29. The Tribunal has considered the parties pleadings, documentation and the Respondent’s submissions and is of the view that this Appeal raises two issues for determination;a.Whether there is an appealable decision before the Tribunalb.Whether the additional assessment is due and payable.

Analysis and Findings 30. Having identified the two issues for determination, the Tribunal will proceed to analyse them as hereunder.a.Whether there is an appealable decision before the Tribunal.

31. The chronology of events indicate that the Appellant was issued with an amended assessment on 24th August, 2020 to which it objected to on 13th April 2021. Section 51(1) and (2) of the Tax Procedures Act prescribes the sequence and the timelines within which the Appellant ought to operate. It provides as follows:-“(1)A taxpayer who wishes to dispute a tax decision shall first lodge an objection decision against the tax decision under this section before proceeding under any 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.”

32. Further to the above, Section 2 and 13(1)(b) of the Tax Appeals Tribunal Act No. 40 of 2013 (hereinafter ‘TAT’) qualifies what an appeal is and the procedure to lodge it. It provides as follows:“(2)Appeal means an appeal to the Tribunal against a decision of the Commissioner under any of the tax laws 13 (1) (b)“A notice of appeal to the Tribunal shall –b.be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.”

33. The Section 13(2)(c) of the TAT stipulates that the tax decision of the Respondent is one of the mandatory documents to be filed when lodging an appeal.

34. The Tribunal has perused though the documentation availed and considered the chronology of events leading to this Appeal, and notes that no objection decision was issued. Further the validity of this Appeal is doubtful considering the Appellant was required to object to the Respondent’s demand within thirty (30) days However, it objected to the Respondent’s demand of 24th August, 2020 on 13th April, 2021 more than seven months after it received the assessment contrary to Section 51(2) of the TPA.

35. The Tribunal relies on the holding in the Court of Appeal case of Speaker of the National Assembly vs James Njenga Karume(1992) eKLR where the Court of Appeal held as follows:“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”

36. Consequent to the above analysis the Tribunal lacks jurisdiction to entertain the Appeal and will therefore proceed to down its tools considering that there is no appealable decision before it.

37. In the view of the foregoing, the Tribunal will not delve into the second issue as the same has been rendered moot.

Final Decision 38. The upshot of the above is that the Appeal is incompetent and the Tribunal accodingly proceeds to make the following final Orders:a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

39. It so ordered

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF MAY, 2024CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERDELILAH K. NGALA - MEMBERGEORGE KASHINDI - MEMBERSPENCER S. OLOLCHIKE - MEMBER