Hussein v Commissioner of Investigation & Enforcement [2024] KETAT 434 (KLR)

Hussein v Commissioner of Investigation & Enforcement (Tax Appeal E062 of 2023) [2024] KETAT 434 (KLR) (22 March 2024) (Judgment)

Neutral citation: [2024] KETAT 434 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E062 of 2023

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

March 22, 2024

Between

Hussein Siddik Hussein

Appellant

and

Commissioner of Investigation & Enforcement

Respondent

Judgment

Background 1. The Appellant is a sole business proprietor dealing in the purchase and sale of petroleum products.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act. The Kenya Revenue Authority is an agency of the Government of Kenya mandated with the duty of collection and receipting of all tax revenue, and the administration and enforcement of all tax laws set out in Parts 1& 2 of the First Schedule to the Act, for purposes of assessing, collecting, and accounting for all tax revenues in accordance with those laws.

3. The issue in dispute in this Appeal arose when the Respondent carried out an investigation into the affairs of the Appellant for the periods 2016 to 2021 resulting in the issuance of a demand notice for tax dated 23rd November 2021 of Kshs 1,169,151. 89.

4. The Appellant objected to this assessment vide its letters dated 12th July 2022 25th July 2022 and 28th July 2022.

5. The Respondent invalidated the said objections vide a letter dated 4th August 2022 on the grounds that the Appellant did not supply documents and relevant information to support its objection.

6. The Respondent subsequently issued a confirmation assessment dated 18th January 2023 invalidating the Appellant’s objection for contraveningSection 51(3) of the Tax Procedures Act (TPA)

7. Dissatisfied with the Appellant’s invalidation decision, the Respondent lodged a Notice of Appeal dated 15th February 2023 and filed on 16th February 2023.

The Appeal 8. The Appellant in his Memorandum of Appeal dated 24th February 2023 and filed on 28th February 2023 has set out grounds of Appeal which can be summarized, that:a.It was not able to file the 2018 income tax return and it failed to file the 2016 original tax returns in time over the 2019/2020 period because he was a partner in some other family-owned businesses which at that time had not been able to complete their accounting which arose during the Covid-pandemic.b.The VAT penalties arising hereof were settled by way of a debt payment plan agreed with the Respondent on or around 12th January 2022. c.It was unable to file the income tax returns for the years 2019 and 2020 owing to the default and additional assessments raised in the system.d.It made follow-ups to obtain clarification on these assessments without success. It was instead served with a letter dated 18th January 2023, titled confirmation of assessment which can be constructed to be the objection decision for this Appeal.e.It disputes the Respondent’s objection decisions dated 18th January 2023.

Appellant’s Case 9. The Appellant relied on its Statement of Facts dated 24th February 2023 and written submissions dated 19th September 2023 and filed on 20th September 2023.

10. The Appellant stated that he received notices of assessments on 12th July 2022 and 25th July 2022 to which he lodged his objection on 28th July 2022.

11. That he did not receive any communication from the Respondent until 18th January 2023 when he was served with a letter titled ‘confirmation of assessment’ which it construed to be an objection decision.

12. The Appellant averred that the Respondent ignored the fundamental tenets of Article 47 of the 2010 Constitution of Kenya that holds that“Every person has the right to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair.”

13. The Appellant stated that he had never been requested to provide documents for the review. That such communication was never received in his official email address from where he regularly receives communication from the Respondent without any issues.

14. The Appellant stated that he declared petroleum as an exempt product because as per the law, petroleum products were indeed exempt from VAT until 21st September 2018. That pursuant to Section B of Part 1 of the First Schedule to the VAT Act, 2013, petroleum products were classified as exempt supplies for 3 years from the commencement date of the VAT Act, 2013 which was 2nd September 2, 2023.

15. That he declared and remitted VAT of 8% on the sale of his petroleum products from September 2018, and he also declared and remitted VAT at the rate of 16% on other general products that he sold.

16. That there was no major discrepancy between the turnover numbers he declared and those compiled by the Respondent as this can easily be reconciled.

17. The Appellant averred that he had entered into a tax payment plan regarding VAT liability of Kshs 977,726. 00 on 12th January 2022. That the same was pending settlement.

18. The Appellant further averred that the additional assessment raised by the Respondent was done in a frivolous and vexatious manner contrary to the provisions of Section 31 of the TPA.

19. The Appellant further averred that the Respondent raised default assessment and amended assessment in a frivolous, arbitrary and vexatious manner contrary to the provisions of Section 29 of the Tax Procedures Act particularly given that the Appellant had previously engaged with the Respondent’s officers regarding the inability to file the income tax returns.

20. The Appellant stated that he was not accorded the audience to defend himself during the assessment process contrary to the rules of natural justice.

21. It was also his view that the Respondent has not presented evidence to dispute his Statement of Facts nor did it proffer reasons for its decision, contrary to Section 49 of the Tax Procedure Act.

22. The Appellant averred that he complied with all relevant laws and hence not supposed to pay additional taxes. That he has discharged his burden of proof by producing the required evidence.

23. That the decision of the Respondent is incompetent to the extent he was not supported by a statement of reasons as envisaged by the Tax Procedures Act of 2015.

24. The Appellant averred that Respondent did not consider all the facts in the matter, it ignored relevant documents and the information provided as well as explanations offered.

Appellant’s Prayer 25. The Appellant’s prayer before the Tribunal is for orders:a.Directing the Respondent to rectify the system error in the Appellant’s iTax to allow for corrections of 2016, 2017, 2019 and 2020 returns.b.The Tribunal directs the Respondent to reverse all the assessments, and orders and accept his objection.c.Stopping the Respondent from charging interests and penalties pending the determination of the Appeal.d.Reverse all penalties and interests charged on assessments.e.For the Respondent to vacate all assessment orders raised totalling Kshs 287,606,892. 68 in principal amounts and any interests and penalties.f.For the Respondent to be restrained from taking any enforcement action.g.Costs of the Appeal

Respondent’s Case 26. The Respondent defended this Appeal with the support of its Statement of Facts dated 27th March 2023 and filed on 26th March 2023, and Submissions dated 9th October 2023 and filed on 11th October 2023.

27. The Respondent averred that it carried out an investigation into the affairs of the Appellant for the period 2016-2021 for VAT, Corporation tax and Withholding tax.

28. That an analysis of the Appellant’s records on iTax revealed that the Appellant did not file income tax returns for the years 2017 and 2018 despite being in business since 2015.

29. That on VAT, the tax investigations established that the Appellant mainly traded in petroleum products that attracted VAT at a special rate of 8% beginning 21st September 2018 and yet the Appellant had declared exempt purchases and sales under this tax head.

30. On advance tax, the Respondent averred that the Appellant had not paid advance tax in the period under review. That the applicable advance tax was thus computed accordingly.

31. That the Appellant filed nil returns for the years 2019 and 2020 even though it made sales and declared VAT returns in those respective years.

32. That based on the above, the Appellant was served with tax assessment orders dated 30th June 2022, and the Appellant filed an objection vide letters dated 12th July 2022, 25th July 2022 and 28th July 2022.

33. The Respondent averred that it invalidated the Appellant’s objection vide a letter dated 4th August 2022 wherein it requested the Appellant to supply it with documents and all the relevant information.

34. That the Appellant failed to validate his objection and therefore the Respondent issued a Confirmation of assessment on 18th January 2023.

35. The Respondent averred that it issued its decision within the stipulated time timelines as was provided for in the now repealed Section 51(11) of the Tax Procedures Act before the current amendment in 2022.

36. The Respondent submitted that the burden of proof under Section 56(1) of the Tax Procedures Act was on the Appellant to show that the tax assessment was wrong. It submitted that this burden had not been discharged in this Appeal.

37. The Respondent posited that the Appellant in this Appeal had sought to Appeal and challenge its invalidation as if it was an objection decision.

38. That the Appellant’s Appeal is incurably defective and an abuse of the court process as was stated in the cases of Misc. Appeal. No. 175 Of 2022 Valley Drillers & General Contractors Ltd V The Commissioner of Domestic Tax and Tax Appeals Tribunal Appeal No. 721 Of 2021-Manchester Outfitters Ltd –V- Commissioner of Domestic Taxes because his objection on record is not valid and also in complete contravention of Sections 52(2) and (3) of the TPA.

39. That there would be no valid objection in the absence of a valid Appeal.

40. The Respondent averred that Appellant was requested to provide any documents to enable the Respondent to correctly determine his taxable income for the years under investigation, however; the Appellant was unable to provide the same. That it was thus compelled to apply its best judgment in arriving at the assessment of the tax payable by the Appellant.

Respondent’s Prayers 41. The Respondent’s prayed to the Tribunal to find that:a.The Respondent’s confirmation of assessment dated 18th January 2023 is proper and in conformity with the provisions of the law.b.This Appeal is devoid of merit and ought to be dismissed with costs to the Respondent.

Issues For Determination 42. The Tribunal having considered the parties’ pleadings, submissions and documents is of the view that the Appeal herein distils into two issues for determination namely:a.Whether the Appeal is validb.Whether the Respondent was justified in demanding additional tax from the Appellant.

Analysis And Determination a. Whether the Appeal is valid 43. The Appellant in this Appeal contended that the Respondent served him a letter dated 18th January 2023 titled ‘confirmation of assessment’ which he considers to be the objection decision.

44. He contended that the said objection decision was invalid and contravened Section 51(10) of the TPA, to the extent that the said decision did not include a statement of findings on the material facts and the reasons for the decision.

45. The Respondent on its part averred that the letter dated 18th January 2023 was a a confirmation of the invalidation that was issued on 4th August 2022 under Section 51(3) of the TPA. It was its further view that in the absence of a valid objection, the instant Appeal was invalid and incurably defective because the Appellant had failed to comply with Section 51(2) and (3) of the TPA.

46. Section 51 (3) of the TPA provides as follows regarding a valid objection:“A notice of objection shall be treated as validly lodged by a taxpayer under section (2) if –a.…b.…c.all the relevant documents relating to the objection have been submitted.”

47. It is thus clear that a notice of objection would be deemed valid only if the Appellant has provided sufficient documents that can help the Respondent make its decision.

48. Section 56 (1) of the TPA provides as follows regarding the burden of proof in tax matters:“In any proceedings under this part, the burden shall be on the Appellant to prove that a tax decision is incorrect.”

49. The Appellant thus bore the burden of proving that he had supplied documents that were required to help the Respondent to make its decision. The burden of proof in tax matters lies on the Appellant who is complaining that the Respondent made an incorrect decision.

50. The Tribunal has looked at the documents attached by the Appellant in support of his objection and it did not find any documents that were attached to his objection letters and correspondences.

51. On the face of it therefore, it apparent that the Appellant did not support his objection with any documents. The Respondent was thus right to request him for documents to support his objection failure to which it was left with no option other than to invalidate the objection.

52. The Tribunal has also looked at the Respondent's letter dated 4th August 2022 and the letter of 18th January 2023 and has concluded that these were invalidation notices.

53. More specifically, the letter dated 4th August 2022 invalidated the objection but it gave the Appellant a window period of 7 days to validate his objection. The Appellant failed to validate his objection within 7 days and the Respondent subsequently served him with a letter of 18th January 2023 confirming the invalidation and demanding for the tax that had fallen due and payable.

54. The letter of 18th January 2023 was thus not an objection decision to which Section 51(10) of the TPA applies. It was an invalidation notice issued under Section 51(3) of the TPA.

55. Flowing from the above analysis, the Tribunal finds and holds that the Appellant’s objection breached the express provisions of Section 51(3)(c) of the TPA. The Respondent was thus justified to confirm its assessment vide a letter dated 8th January 2023 for the reason the Appellant’s objection was not validly lodged.

56. The Tribunal held as follows in Judgment – Tat No. 1288 Of 2022 Moto Commodities Limited V. Commissioner of Domestic Taxes on what should follow once the Tribunal has held that the Respondent’s objection was valid.“In the circumstances, the Appellant did not have a valid objection on record and it followed that the Respondent’s assessment stood confirmed, in which case there did not exist an objection from which the Appellant could lodge an Appeal to the Tribunal. The presentAppeal is thus invalid as it lacks the legs to stand, crawl or walk on.”

57. Guided by this decision of the Tribunal, it follows that the Respondent’s invalidation decision as contained in its confirmation of assessment letter dated 18th January 2023 was justified. The notice of objection was thus invalid.

b. Whether the Respondent was justified in demanding additional tax from the Appellant. 58. Having held that the notice of objection was invalid, the Tribunal will not delve into this issue as it has been rendered moot.

Final Decision 59. On the basis of the foregoing analysis, the Tribunal finds that this Appeal lacks merit and accordingly proceeds to make the following Orders: -a.The Appeal be and is hereby dismissed.b.The Respondent’s invalidation decision dated 18th February 2023 be and is hereby upheld.c.Each party is to bear its own costs.

60. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF MARCH, 2024ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERDR.RODNEY O. OLUOCH - MEMBERTIMOTHY B. VIKIRU - MEMBERABRAHAM K. KIPROTICH - MEMBER