Farmers Wells Limited v Commisioner Domestic Taxes [2023] KETAT 107 (KLR)

Farmers Wells Limited v Commisioner Domestic Taxes (Tribunal Appeal 179 of 2021) [2023] KETAT 107 (KLR) (Civ) (10 February 2023) (Judgment)

Neutral citation: [2023] KETAT 107 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tribunal Appeal 179 of 2021

E.N Wafula, Chair, RO Oluoch, EK Cheluget & RM Mutuma, Members

February 10, 2023

Between

Farmers Wells Limited

Appellant

and

Commisioner Domestic Taxes

Respondent

Judgment

1. The Appellant is a private limited company based in Nakuru and deals in farm inputs, pest control product, Animal feeds.

2. The Respondent is a principal officer appointed under Section 13 the Kenya Revenue Authority Act, Cap 469 of the Laws of Kenya. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all revenues. Further, under Section 5 (2) with respect to the performance of its functions under subjection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in part 1 & 11 of the First Schedule of the Act for the purpose of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Appeal in this matter relates to additional VAT assessment on VAT for the years 2017 and 2018 amounting to Kshs 3,099,098. 00 and Kshs 3,501,249. 50 respectively, on the November 11, 2020.

4. The Appellant filed an objection against these assessments on the December 1, 2020.

5. The Respondent confirmed the assessment vide its objection decision dated the March 26, 2021.

The Appeal 6. The Appellant appealed against this decision vide its Memorandum of Appeal dated the April 15, 2021 and which is premised on the following grounds of appeal:-a.The Appellant is a private company dealing with farm inputs 80% of which are VAT exempt.b.The Appellant has regularly filed its tax returns and complied with his tax obligation.c.The Respondent failed or ignored to amend the assessments even after being furnished with details of objection dated January 1, 2022 under objection references numbers.KRA202020558294 1/12/2017-31/12/2017KRA202020558057 1/12/2017-31/12/2018 APPELANT’S CASE

7. The Appellant case is premised on the Statement of Facts dated April 15, 2021 and the Appellant’s written submissions filed on September 9, 2022.

8. The Appellant stated that the nature of its business is that of exempt goods.

9. That its sales are exempted from VAT tax as per First Schedule of the VAT Act 2013 under the following tariffs:i.Sunflower seeds tariff- 1206. 00. 08ii.Cotton seeds tariff-1207. 21. 00iii.Fertilizers tariff-1207. 21. 00iv.Maize corn seed tariff-1005. 10. 00v.Agricultural pest control products

10. That the Respondent raised its assessment on the basis of gross turn over as follows:Gross SalesYear 2017 47,801,094Year 2018 40,516,465Total 88,317. 559

11. That its business dealt in exempt sales estimated at 98% vatable sales.

12. That the Respondent’s action of bringing exempted goods to charge was in contravention of the 1st schedule of the VAT Act 2013.

13. That no VAT was due to the Respondent in the from its sales in year 2017 and 2018.

Appellant’s Prayers 14. The Appellant prays for:a.The Respondent to accept the objection raised by the Appellant on the basis of the evidence submitted to it.b.The Respondent to withdraw the tax demand of Kshs 6,600,348. 35

The Respondent’s Case 15. The Respondent responded to the Appeal vide a Statement of Facts dated May 13, 2021 and written submissions dated the July 22, 2022.

16. The Respondent stated the Appellant was assessed for VAT for the years of income 2017 and 2018 after the Respondent discovered that the Appellant had under declared its income for the years under review.

17. That the Respondent notified the Appellant of the under declarations and requested the Appellant for documents to support the position as filed by the Appellant in the iTax system.

18. That the Appellant objected to the assessment and the Respondent, in confirming Part of the assessment, noted that the Appellant had not provided documents in support of Part of the taxes.

19. That the Respondent relied on the information that was available to it to arrive at its final assessment when the Appellant failed to provide it with the documents that it requested.

20. That the burden of proof in this case lay with the Appellant and that this burden was not discharged by the Appellant.

Respondent’s Prayers 21. The Respondent prays that this Honourable Tribunal finds that:a.Its confirmed assessment be upheld.b.The taxes due and unpaid together with interest thereon be paid to the Respondent.c.The Respondent reserves the right to adduce any further oral and written evidence during the hearing of the Appeal.d.That this Appeal be dismissed.e.That the Appellant be compelled to pay costs to the Respondent.

ISSUES FOR DETERMINATION 22. The Tribunal having considered the pleadings, submissions and the documents that were presented before it is of the considered view that the issues that fall for its determination are:-a.Whether the objection decision was validly issues?b.Whether the Respondent was justified in the issuance of its VAT assessment for the years 2017 and 2018 amounting to Kshs 3,099,098. 00 and Kshs 3,501,249. 50 respectively.

ANALYSIS AND FINDINGS i. Whether the objection decision was validly issued? 23. The record in this Appeal shows that the Appellant lodged its objection with the Respondent on the December 1, 2020. The Respondent confirmed the assessment vide its objection decision dated the March 26, 2021. This response from the Respondent was made about 104 days from the date when the objection was filed.

24. Section 51(11) of the TPA provides as follows with regard to the timelines for the issuance of objection decisions:-“The Commissioner shall make the objection decision within sixty days from the date of receipt:-a.the notice of objection: orb.any further information the Commissioner may require from the tax payer failure of which the objection shall be deemed to be allowed”

25. It is not in dispute that the objection decision was issued 54 days beyond the prescribed statutory time limit. The Respondent did not provide any reason and or excuse for this inordinate delay. It did not even have and or provide records of any communication between itself and the Appellant to suggest that the parties could have been involved in any active negotiations to settle the matter in the intervening period or that there was any information sought on its part from the Appellant subsequent to the receipt of the objection.

26. When confronted with a similar situation in Nrb TAT No 255 of 2020 ESL Forwarders vs Commissioner of Domestic Taxes, this Tribunal held as follows:“24. This Tribunal is of the view that even decision to confirm the assessment is bound by the provisions of Section 51(11) (a) of the TPA. As such the Respondent should have communicated this decision within 60 days.

25. From the record before us, the Appellant filed an objection notice on December 10, 2019, which acknowledged on the iTax system. This means the Respondent should have rendered his decision within 60 days. Sixty days from December 10, 2019 lapsed on February 7, 2020. The Commission rendered this decision on 10th February after the lapse of 60 days. It was the Respondent argument that he received the objection on December 2019. Even then, considering that the final decision was rendered February 10, 2020, the Respondent was still out of time. The effect of this that the objection shall be deemed as allowed in law”

27. It thus follows, that the objection decision dated the March 26, 2021 is invalid and unlawful for contravening Section 51(11) of the TPA. The effect of which is that Respondent’s objection decision is set aside for invalidity and therefore the Appellant’s notice of objection is allowed by operation of law.

Final Decision 28. The upshot of the foregoing analysis is that the Appeal has merit and the Tribunal accordingly proceeds to make the following Orders: -a.The Appeal be and is hereby allowed.b.The Respondent’s objection decision dated the March 26, 2021 be and is hereby set aside.c.Each party to bear its own costs.

29. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 10TH DAY OF FEBRUARY, 2023. ERIC N. WAFULACHAIRMANRODNEY OLUOCHMEMBEREDWIN CHELUGETMEMBERROBERT MUTUMAMEMBER