Katebes Enterprises Limited v Commissioner of Domestic Taxes [2024] KETAT 1293 (KLR)

Full Case Text

Katebes Enterprises Limited v Commissioner of Domestic Taxes (Tax Appeal E332 of 2023) [2024] KETAT 1293 (KLR) (23 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1293 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E332 of 2023

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

August 23, 2024

Between

Katebes Enterprises Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability Company duly incorporated and registered in Kenya under the Companies Act. Its main principal activity is construction business.

2. The Respondent is the Commissioner of Domestic taxes appointed under Section 13 of the Kenya Revenue Authority Act, CAP, 469 of Kenya’s Laws. Under Section 5 (1), the Kenya Revenue Authority (the Authority) is an agency of the Government for the collection and receipt of all revenue. Further, under section 5(2) with respect to the performance of its function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 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 the Appellant with VAT assessments for an outstanding tax liability for the period December 2022 to January 2023 on 7th February 2023 of Kshs. 12,520,709. 16, Kshs. 8,991,080. 80 and Kshs. 4,513,256. 00 respectively, without carrying out a proper audit or investigations on its affairs.

4. Dissatisfied with the said assessments, the Appellant lodged an objection on 28th March 2023 which was allowed by the Respondent as a late objection. In a letter dated 25th April 2023, the Respondent invalidated the Appellant’s notice of objection and confirmed principal VAT assessment of Ksh 12,156,028. 31 in respect of December 2022.

5. On 15th May 2023, the Respondent issued an objection decision fully disallowing the objections in relation to VAT assessments of Ksh 8,991,060. 80 and Ksh 4,513,256. 96 in respect of January 2023 and February 2023 respectively.

6. On 24th May 2023 the Respondent issued confirmation assessment through the i-Tax system in respect of confirmed principal VAT assessments for December 2022 and January 2023.

7. Aggrieved with the Respondent’s objection decision dated 15th May 2023, the Appellant filed its Notice of Appeal dated 26th June 2023. The Appellant’s application to file an appeal out of time was allowed by the Tribunal through orders issued on 14th July 2023.

The Appeal. 8. The Appellant’s Appeal was premised on the following grounds as set out in the Memorandum of Appeal dated 26th June 2023 and filed on even date;(i)That the Respondent erred in law and facts by issuing additional assessments on the Appellant without conducting a proper audit on the books and records of the Appellant.(ii)That the Respondent erred in law and in fact by arbitrarily increasing the sales figures in the Appellant’s VAT returns and erroneously assessing additional VAT.(iii)That the Respondent erred in law and in fact by disregarding the VAT returns filed by the Appellant and all explanations and documentation provided by the Appellant in support of their objection and proceeding to confirm the VAT assessments.(iv)That the Respondent erred in law and in facts by assessing additional VAT on the Appellant based on arbitrary and unreasonable estimates while disregarding the actual sales and purchases made and declared in the VAT returns filed by the Appellant.(v)That the Respondent erred in law and fact by failing to review the already filed and acknowledged tax returns receipts of the Appellant that were evidence of the VAT compliance status of the Appellant.(vi)That the Respondent erred in law and in facts by disallowing the input VAT incurred and claimed by the Appellant in making of taxable supplies, thereby assessing additional VAT on the Appellant based on erroneously disallowed invoices.(vii)That the Respondent erred in law and in fact by disregarding all the income tax returns filed by the Appellant and issuing additional assessment on corporation tax without providing any basis or explanations on the foundation of the said assessment.(viii)That the Respondent erred in law and in facts by disregarding all the Pay as You Earn (PAYE) returns filed by the Appellant and issuing additional assessment in relation to PAYE without providing any basis or explanations for the assessments.

Appellant’s Case 9. The Appeal was anchored on the Appellant’s Statement of Facts dated 26th June 2023 and filed on even date.

10. The Appellant averred that the Respondent without conducting a proper audit and reviewing the filed tax returns of the Appellant issued additional VAT, Income Tax and PAYE Assessments to the Appellant.

11. The Appellant averred that it has constantly and continuously declared and filed its VAT returns as evidenced by the various VAT returns acknowledgment receipts by the Respondent which clearly show the return summary and even the deductible input tax for each period and subsequently, the net VAT payable by the Appellant. The Appellant relied on Section 17 of the Value Added Tax Act, CAP 476 of the Laws of Kenya (hereinafter “VAT Act”) which provides for the deduction of input VAT from the output VAT within six months of supply.

12. The Appellant averred that it had produced the required documents in the filing and claim of input tax and the Respondent had erroneously assessed taxes for periods that the Appellant had diligently filed its VAT returns and the Respondent had acknowledgement receipts of the same.

13. The Appellant stated that it had been diligently filing its VAT returns and greatly contributed to ensuring the Respondent’s mandate of collecting and assessing taxes was met without much difficulty.

14. The Appellant averred that it would suffer irreparable harm if the unfair and erroneous assessment were enforced, not only would it cripple the Appellant’s business financially, but it would also reduce the collection of taxes by the Respondent if and when the Appellant's business unfairly crumbles due to the unfair burden of taxation.

15. The Appellant asserted that it had availed receipts of the periods it filed VAT returns including the period assessed. That however, it was unfortunate that the Respondent failed to consider the documents by the Appellant which were also in the Respondent’s i-Tax system.

16. The Appellant asserted that it is trite law that the burden in taxation lies on a taxpayer but the burden does not imply that the Respondent can maliciously use the provisions of Section 56 of the Tax Procedure Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”) as read together with Section 30 of the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA’) to frustrate a law-abiding taxpayer into paying unreasonable, unjustifiable taxes. The Appellant placed reliance on the case of Republic v Commissioner of Domestic Taxes Large Tax Paver's Office Ex Parte Barclays Bank of Kenya Ltd [2012] eKLR where the court held as follows:“for the proposition that the decision to tax must have a legal basis and that section 56(1) does not empower the appellant to make speculative assessments (citing Johnson v Scott (inspector of Taxes) nor was it the intention of the legislature to put the taxpayer in a position where he would be required to produce any documents that the taxman requires. (Citing Peter Bonde Nielsen v Commissioner of Domestic Tax [2016] eKLR.”

17. That contrary to the allegations by the Respondent, that it requested various documents as stated in its invalidation notice dated 25th April 2023, the Appellant did not receive the said notice and has only been cognizant to its existence during the filing of the instant Appeal. The Respondent did not ensure that the invalidation notice was delivered either physically or to the registered electronic platforms of the Appellant. The Appellant should therefore not be held accountable on an omission conducted by the Respondent.

18. The Appellant reiterated the provisions of Section 56 of the TPA as read together with Section 30 of the TATA which provide as follows;“Section 56 (1) of the TPAIn any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.Section 30 of the TATAIn a proceeding before the Tribunal, the appellant has the burden of proving -a.where an appeal relates to an assessment, that the assessment is excessive; orb.in any other case, that the tax decision should not have been made or should have been made differently.”

19. The Appellant beseeched the Tribunal to allow them prove their case and illustrate the incorrectness of the tax assessment issued. The Appellant inferred that since it had not received an objection decision after the lapse of the 60 days as stipulated in statute, the objection had been allowed only to be dismayed by the issuance of the agency notice to Kenya National Highways Authority demanding payment of Kshs. 24,442,865. 00 being tax due from the Appellant.

20. The Appellant further reiterated Section 51(11) of the TPA which stipulates as follows:“Where the Commissioner has not made an objection decision within sixty days from the date that the taxpayer lodged a notice of the objection, the objection shall be allowed.”

21. The Appellant averred that in adherence to Section 43 at the VAT Act, it had kept records and receipts in the course of its business and was willing to provide the documents and records before the Tribunal to ascertain that it had been compliant with its VAT obligation. The Appellant relied on the case of Keroche Industries Limited v Kenya Revenue Authority & 5 Others [2007] eKLR where the court held as follows:“it is no good answer for the taxman to proclaim that Kshs. 1 billion (appx) is intended to swell the public treasury because due to the application of the above principles that money is not lawfully due... Applying the same reasoning, to the matter before this court, it does not matter that the respondents say and think they are owed over a billion Kenya shillings - what matters is whether the amount is lawfully due and whether the law allows its recovery? It is not a question of impression or perception of what is owed, instead it is what if anything, is owed under the relevant law and whether its assessment and recovery is permitted by the applicable law. If rightly due, the huge amount notwithstanding the court must uphold the right of recovery regardless of its consequence to the applicant and it not due under the law it must not hesitate to disallow it and must disallow it to among other things to uphold both the law the integrity of the rule of law.”

22. The Appellant implored the Tribunal not to empower the Respondent in placing unfair, unreasonable and illegal burden of taxation on unsuspecting taxpayers in the quest to fulﬁl its mandate and meet its tax targets. That the Respondent ought to only collect what was due and owed and not a penny less or more.

23. The Appellant contended that it had demonstrated that the entire assessment was tainted by unreasonableness and to an extent malice by the Respondent as follows:a.The Respondent did not conduct a proper audit and investigations before issuing the assessments;b.The Respondent did not consider the already filed VAT returns acknowledgement receipts it issued to the Appellant on the period assessed;c.The Appellant did not receive an objection decision from the Respondent physically or electronically; andd.The Respondent had unfairly placed an agency notice to enforce the erroneous outstanding tax liability of Kshs. 24,442,865. 00.

24. The Appellant made the following prayers to the Tribunal:(i)Allows the Appeal with costs.(ii)Annuls the Respondent’s Objection Decisions dated 24th May 2023.

Respondent’s Case 25. The Respondent opposed the instant Appeal vide its Statement of Facts dated 7th August 2023.

26. The Respondent averred that it carried out an audit on the Appellant’s books of account and established that the Appellant did business with Kenya National Highways Authority and failed to declare VAT as required by law. That during the process of returns review, the Respondent performed an analysis of purchases claimed by purchasers and sales declared by suppliers which were ran on the i-Tax system wherein it was discovered that there were inconsistencies in the returns filed by the Appellant.

27. That a subsequent assessment demand was sent to the Appellant stating the basis of the assessments and the Appellant was informed on the inconsistency of the VAT3 return invoices and was required to resolve the same. That however, the Appellant failed to resolve the said inconsistencies within the stipulated timeframe.

28. As a result, the Respondent based on the existing inconsistencies raised additional VAT assessments on 7th February 2023 for the December 2022 period totaling to Kshs. 12,156,028. 31. That on 28th March 2023, the Appellant was assessed VAT of Kshs. 8,991,060. 80 and Kshs. 4,513,256. 96 for the January 2023 and February 2023 respectively including interest and penalties.

29. That the Appellant lodged a late objection on 28th March 2023 on iTax which was duly acknowledged by the Respondent contending that the assessments were erroneously ﬁled by unknown person without their authority and requested to be allowed to correct VAT returns for the three months.

30. The Respondent thereafter on 29th March 2023, wrote to the Appellant requesting them to provide clarity relating to their late objection against the December 2022 VAT assessment and documentary evidence in support of the January 2023 and February 2023 objection applications.

31. In view of the preceding facts, the Respondent issued a demand for documents in line with objection lodged through electronic mail for delivery notes, purchase invoices, supplier statements and bank statements. That the Appellant however, failed to provide the relevant supporting documents of records and invoices for the period December 2022 in support of their objection or substantiate their objection application for the tax periods January 2023 and February 2023 assessments.

32. Further to that, the Appellant having failed to respond to the request to validate their application against the December 2022 assessment by providing all relevant documents, the Respondent proceeded to invalidate the objection application for the said period on 25th April 2023. Subsequently, the Appellant’s VAT was estimated, as this was the only reasonable basis of assessing the VAT and an objection decision was issued on 15th May 2023 of Kshs. 14,539,530. 61.

33. In response to ground, (i) of the Memorandum of Appeal and paragraph 1-8 of Statement of facts, the Respondent averred that the assessments were correctly issued and conformed to the VAT Act as the Appellant did not provide any evidence that would have altered the assessment. Furthermore, that the TPA places the onus of proof in tax objections on the taxpayer who in this case failed to avail evidence that would have supported a contrary assessment or that would have guided the Respondent at arriving to a different objection decision. In support of this assertion, the Respondent cited Section 56(1) of the TPA which provides as follows:“In any proceedings under this Part, the burden shall he on the taxpayer to prove that a tax decision is incorrect.”

34. In further response to ground (i) of the Memorandum of Appeal the Respondent asserted that even though the Appellant lodged the objection on i-Tax, the same was received and acknowledged however the same was treated as invalidly lodged as it did not have grounds of objection. The Respondent stated that the TPA empowers it to notify a party where an objection as lodged is invalid and the Appellant was notiﬁed and requested to provide documents. However, the Appellant failed to provide documents as requested. The section provides as follows:“51. Objection to tax decision(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 notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if -(a)the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments; and(b)in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute.”

35. In response to ground (ii-vi) of the Memorandum of Appeal and paragraph 9-15 of Statement of facts the Respondent insisted that the Appellant ﬁled all necessary returns and paid what they had assessed themselves to be payable. That however, the Appellant was uncooperative in the provision of relevant records and failed to respond to request for documents hence no relevant documents or records were provided to support their objection. As a result, the assessments were made based only on the available information and best judgement by the Respondent. In buffering this position, the Respondent relied on Section 59(1) of the TPA which provides as follows;“59. (1)For the purpose of obtaining full information in respect of the income of a person or class of persons, the Commissioner may, by notice in writing, require, in the case of the income of a person, that person or any other person, and in the case of a class of persons, any person -(a)to produce for examination by the Commissioner at the time and place speciﬁed in the notice, any accounts, books of account, and other documents which the Commissioner may consider necessary; and the Commissioner may inspect such accounts, books of accounts or other documents and may take copies of any entries therein.”

36. In further response to ground (iii) of the Memorandum of Appeal the Respondent averred that an in-depth examination of the records established that there were inconsistencies in the returns ﬁled by suppliers and the invoices claimed by the Appellant and this indicated a variance as per the VAT returns ﬁled and Income Tax returns ﬁled. Further to that, the Appellant provided no explanations requested on the variance hence the same was disallowed and additional assessments carried out.

37. In further response to ground (ii-vi) of the Memorandum of Appeal, the Respondent stated that the Appellant was selected for a returns review following a variance from the analysis of their returns in VAT, which were compared. The Respondent disallowed the direct purchase amount in the Appellant’s Income Tax return and instead relied on the invoice value as used in the determination of VAT payable as the true direct purchase cost. The Respondent insisted that the objection decision provided a precise and clear breakdown of the workings used to reach at the assessments.

38. In additional response to ground (ii-vi) of the Memorandum of Appeal the Respondent claimed that the assessment was issued based on the information provided and in light of the inconsistencies within the Appellant’s VAT ledgers. In buttressing this position, the Respondent relied on Section 31 of the TPA which provides as follows:“31. Amendment of assessments(1)Subject to this section, the Commissioner may amend an assessment (referred to in this section as the “original assessment") by making alterations or additions, from the available information and to the best of the Commissioner's judgement, to the original assessment of a taxpayer for a reporting period to ensure that -(a)in the case of a deﬁcit carried forward under the Income Tax Act (Cap. 470), the taxpayer is assessed in respect of the correct amount of the deﬁcit carried forward for the reporting period;(b)in the case of an excess amount of input tax under the Value Added Tax Act, 2013 (No. 35 of 2013), the taxpayer is assessed in respect of the correct amount of the excess input tax carried forward for the reporting period; or(c)in any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates.”

39. In response to ground (vii) of the Memorandum of Appeal and ground 22-28 of Statement of facts, the Respondent asserted that the Appellant failed to provide the documents requested in support of their objection hence the input VAT was disallowed pursuant to Section 17 of the VAT Act which provides as follows;“17. Credit for input tax against output tax(1)Subject to the provisions of this section and the regulations, input tax on a taxable supply to, or importation made by, a registered person may, at the end of the tax period in which the supply or importation occurred, be deducted by the registered person, subject to the exceptions provided under this section, from the tax payable by the person on supplies by him in that tax period, but only to the extent that the supply or importation was acquired to make taxable supplies.(2)If, at the time when a deduction for input tax would otherwise be allowable under subsection (1), the person does not hold the documentation referred to in subsection (3), the deduction for input tax shall not be allowed until the ﬁrst tax period in which the person holds such documentation. Provided that the input tax shall be allowable for a deduction within six months after the end of the tax period in which the supply or importation occurred.

5. Charge to tax(1)A tax, to be known as value added tax, shall be charged in accordance with the provisions of this Act on -(a)a taxable supply made by a registered person in Kenya;(b)the importation of taxable goods; and(c)a supply of imported taxable services.”

40. In further response to ground (vii) of the Memorandum of Appeal the Respondent claimed that a review of the Appellant’s records was carried out due to inconsistencies in the returns of the VAT 3 wherein it was established that not all income earned by the Appellant was declared and hence the variances were brought to charge as provided for by Section 24 and 29 of TPA which provides as follows;“24 (1 )A person required to submit a tax return under a tax law shall submit the return in the approved form and in the manner prescribed by the Commissioner.

(2)The Commissioner shall not be bound by a tax return or information provided by, or on behalf of; a taxpayer and the Commissioner may assess a taxpayer's tax liability using any information available to the Commissioner.29(1)Where a taxpayer has failed to submit a tax return for a reporting period in accordance with the provisions of a tax law, the Commissioner may, based on such information as may be available and to the best of his or her judgement, make an assessment (referred to as a “default assessment.”

41. In response to ground (viii) of the Memorandum of Appeal, and paragraph 16-21 of Statement of facts the Respondent asserted that examination of the Appellant’s records established that the Appellant earned income from supply of petroleum products business in the period under audit, however, these incomes were not declared for tax purposes for the year earned. The Respondents insisted that the Appellant carried on business in contravention of the Section 42, 43 and 93 of the TPA which provides as follows:“42. Tax invoice(1)Subject to subsection (2), a registered person who makes a taxable supply shall, at the time of the supply furnish the purchaser with the tax invoice containing the prescribed details for the supply.

43. Keeping of records(1)Every registered person shall, for the purposes of this Act, keep in the course of his business, a full and true written record, whether in electronic form or otherwise, in English or Kiswahili of every transaction he makes and the record shall be kept in Kenya for a period of ﬁve years from the date of the last entry made therein.

93. Failure to maintain documents(1)A person commits an offence if the person fails to keep, retain or maintain a document that may be required to be kept, retained or maintained in accordance with a tax law without reasonable excuse during a reporting period.”

42. In further response to ground (viii) of the Memorandum of Appeal, the Respondent stated that tax was arrived at based on the information available and provided by the Appellant and the Respondent made the assessment pursuant to Section 29 of the TPA which provides as follows:“29(1) Where a taxpayer has failed to submit a tax return for a reporting period in accordance with the provisions of a tax law, the Commissioner may, based on such information as may be available and to the best of his or her judgement, make an assessment (referred to as a “default assessment.”

43. In response to paragraph 14 of statement of facts, the Respondent denied that the Appellant had paid all tax due and reiterated that because of its under-declaration, the Appellant owed Kshs. 14,539,530. 61.

44. The Respondent made the following prayers to the Tribunal:a.That the objection decision dated 24th May 2023 be upheld and the outstanding tax arrears of Kshs. 14,539,530. 61 be found due and payable by the Appellant.b.That the Appeal herein be dismissed with costs to the Respondent.

Parties’ Written Submissions 45. The Appellant’s written submissions were dated and filed on 4th March 2024.

46. The Appellant referred to the provisions of Sections 17 (1),(2) and (3) of the VAT Act and submitted that it provided the Respondent with all the necessary documents which included ETR receipts of the invoices, invoices and financial statements in support of its claim for Input VAT. The Appellant relied on the case of Silver Chain Ltd v Commissioner Income Tax & 3 Others [2016] eKLR and further submitted that the Respondent arbitrarily adjusted its turnover with no basis whatsoever. The Appellant referred to the provisions of Section 56 of the TPA and contended that in as much as the taxpayer bears the burden of proving that a tax decision is wrong, the said burden is not static but swings like a pendulum.

47. Further, the Appellant cited the cases of Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] eKLR and Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR and asserted that once it complied with the provisions of Section 43 of the VAT Act and Section 23 of the TPA by producing all the relevant documentary evidence in support of its claim, the burden shifted to the Respondent to disprove the documents provided. It referred to the provisions of Section 51(4) of the TPA and argued that by the time the Respondent issued it with an invalidation notice, the 14 days period provided for thereunder had lapsed, thus the invalidation notice issued to it by the Respondent was erroneous and should be declared null and void.

48. The Respondent’s submissions were dated and filed on 23rd January 2024 wherein the Respondent relied on the provisions of Section 56 (1) of the TPA and the case of Ken Iron & Steel Limited v Commissioner Investigations and Enforcement [2021] eKLR and contended that the Appellant bears the burden of proving that the additional assessments issued by the Respondent were wrong. It submitted that the additional assessments issued were not only correct but also in conformity with the provisions of the Income Tax Act, CAP 470 of the Laws of Kenya (hereinafter” TPA”) and the TPA. It further submitted that upon receipt of the Appellant’s late objection, it notified the Appellant via email that the said objection was invalid and requested to be provided documents in support of the said objection pursuant to the provisions of Section 51 (3) and (4) of the TPA, but none was forthcoming. Consequently, the Respondent confirmed its additional assessments vide its objection decision.

49. The Respondent contended that all the Appellant’s submissions in interviews, review meetings, site inspections, document veriﬁcation meetings and documentations provided were taken into consideration before issuance of the aforesaid objection decision. That in view of the fact that the Appellant failed to comply with the request for documents in support of its objection, the assessments made by the Respondent were based on the only available information based on its best judgement. The Respondent cited the provisions of Sections 59(1) and 29 (1) of the TPA and argued that every tax payer carrying on business had a responsibility to maintain records of all transactions and produce the said records and/or documents as and when required to do so by the taxman. To buttress this position, it cited the case of Monaco Engineering Limited v Commissioner Domestic Taxes TAT Appeal No. 67 of 2017.

Issues For Determination. 50. Upon consideration of the pleadings documents and written submissions by parties, the Tribunal is of the view that the two issues that arise for determination are as hereunder;i.Whether the Respondent’s invalidation dated 25th April 2023 was justified.ii.Whether the Respondents objection decision dated 15th May 2023 was justified.

Analysis And Findings 51. Having established the issues for determination the Tribunal proceeds to analyze the sa DIVISION - me as hereunder:

(i) Whether the Respondent’s invalidation dated 25th April 2023 was justified. 52. The law stipulates what amounts to a valid notice of objection. This is provided for under Section 51(3) of the TPA which states as hereunder :“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if -a.the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments;b.in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(1); andc.all the relevant documents relating to the objection have been submitted.

53. Section 51 (3) (c) of the TPA above provides that a Notice of Objection shall be deemed to be validly lodged upon submission of all the relevant documents relating to the objection. In this case, the Respondent contended that it carried out a returns review of purchases claimed by purchasers and sales declared by suppliers for the period December 2022 and discovered that there were inconsistencies in the Appellant’s returns filed for the month of December 2022. Subsequently, the Appellant was informed of this inconsistency which resulted in additional VAT assessment for the said period of Kshs. 12,156,028. 31 on 7th February 2023. Thereafter, on 23rd March 2023 the Appellant was assessed for VAT of Kshs. 8,991,060. 80, and Kshs. 4,513,256. 96 for the periods January 2023 and February 2023 respectively including interest and penalty.

54. On 28th March 2023, the Appellant dissatisfied by the aforesaid additional assessments lodged an objection against them albeit late. Subsequently, the Respondent vide an electronic mail sent on 29th March 2023 wrote to the Appellant asking them to give reasons why they lodged their objection late and to provide documentary evidence in support of the said objection. However, the Respondent asserted that in as much as the Appellant issued reasons for the late objection, they failed to provide documents in support of their objection. Therefore, on 25th April 2023, the Respondent proceeded to invalidate the Appellant’s objection.

55. From the record, it was not disputed that indeed the Appellant lodged an objection against the additional assessments issued by the Respondent on 28th March 2023. That vide an electronic mail sent on 29th March 2023, the Respondent requested the Appellant to provide clarification on its late objection reasons and documentary evidence in support thereof, tax computation for the periods January 2023 and February 2023 with supporting transaction documents, sales ledgers for the period January 2022 to date, and certified copies of all the business bank statements for the period January 2022 to date. The aforementioned documents were to be supplied to the Respondent on or before 4th April 2023.

56. That it is evident from the letter dated 11th April 2023 annexed to the Respondent’s statement of facts that the Appellant was allowed to lodge a late objection against the Respondent’s additional assessment and was reminded to provide the documents referred to in the Respondent’s e-mail of 29th March 2023 by 18th April 2023. Notably, the Appellant neither alleged nor tendered any evidence in support of the fact that it complied with the Respondent’s request for production of documents contained in the Respondent’s email of 29th March 2023 and its letter dated 11th April 2023 nor adduced the requested documents in its Appeal record before the Tribunal.

57. Consequently, vide a letter dated 25th April 2023, the Respondent notified the Appellant that having failed to comply with its letter dated 11th April 2023, its objection application fails to meet the requirements of Section 51 (3) of the TPA, hence the principal VAT liability of Kshs. 12,156,028. 31 together with the resultant penalty and interest was due and payable as per the assessment.

58. In light of the foregoing, the Tribunal disagrees with the Appellant that the Respondent’s invalidation notice was issued out of the prescribed timelines because, the Appellant was notified twice on 29th March 2023 barely a day after it lodged its objection, and on 11th April 2023 twelve days after it had lodged its objection, of the fact that its objection application was not in compliance with the provisions of Section 51 (3) of the TPA for failure to avail documents in support of the objection, but it still failed to avail and/or produce the said documentation. In the premise, the Tribunal is convinced that the Respondent fully complied with the provisions of Section 51(4) of the TPA which states as hereunder-“Where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall within a period of fourteen days notify the taxpayer in writing that the objection has not been validly lodged.

59. Having failed to comply with the Respondent’s requests for production of documentary evidence contained in the Respondent’s electronic mail dated 29th March 2023 and the letter dated 11th April 2023, the finding of the Tribunal is that the Appellant’s objection application was invalid.

60. The Tribunal therefore finds that the Respondent’s invalidation dated 25th April 2023 was justified.

ii. Whether the Respondents objection decision dated 15th May 2023 was justified. 61. In addition to invalidating the Appellant’s objection application against the VAT assessment for KShs. 12,156,028. 31 for the period of December 2022, the Respondent on 15th May 2023 issued an objection decision in relation to VAT assessments of KShs. 8,991,060. 80 and KShs. 4,513,256. 96 for January 2023 and February 2023 respectively. In that decision, the Respondent fully disallowed the objection applications for the VAT assessments for January and February 2023.

62. The reasons for the Respondent’s decision were that the Appellant failed to submit VAT self-assessments for the period of January and February 2023 by the due dates as required by Section 24 of the TPA. The Respondent issued default assessments based on available information to the best of the Commissioner’s judgment and in this case the Respondent used value of work the Appellant had done with Kenya National Highways Authority (KenHA) to make the assessment.

63. The Respondent stated that even though the Appellant averred that the assessments were erroneous and requested to be allowed to correct the VAT returns for the assessed period, the Appellant failed to provide documentary evidence in support of its application. Specifically, the Respondent requested the Appellant to provide sales ledgers, certified copies of all the business bank statements for the period January 2022 to March 2023 and VAT computation for the periods January 2023 to February 2023 together with supporting transaction documents. The Respondent contended that these documents were critical in verifying the Appellant’s objection grounds but the Appellant did not provide the said documents despite telephone reminders on 24th and 25th April 2023.

64. In view of the foregoing, the Tribunal finds that the Appellant did not discharge its burden of proof as provided for under Section 56(1) of the TPA which states that a taxpayer, in this case the Appellant, bears the burden of proving that a tax decision is wrong. In arriving at this finding, the Tribunal relies on the Court’s holding in the case of Tumaini Distributors Company (K) Limited v Commissioner of Domestic Taxes [2020] eKLR where the court held as follows;“under Section 56(1) of the TPA, the company bears the burden of demonstrating that the Commissioner’s decision in reaching the assessments complained of was incorrect.”

65. Again, in respect to the objection decision dated 15th May 2023, the Appellant has not alleged and/or tendered in any evidence in support of the fact that it complied with the Respondent’s request for production of documents nor adduced the requested documents in its Appeal record before the Tribunal.

66. Having failed to comply with the Respondent’s requests for production of documentary evidence to support its objection applications for VAT assessments for January and February 2023, the Tribunal finds that the Respondent was justified in its decision to fully disallow the applications.

67. Regarding the question as to whether the objection decision of 15th May 2023 was issued within the statutory timelines, the Tribunal notes that it is trite that an objection decision should be issued within sixty days from the date that the taxpayer lodged a notice of the objection as provided for under Section 51 (11) of the TPA.

68. The Tribunal notes that the Appellant in this case lodged an objection against the Respondent’s additional assessment on 28th March 2023. Vide an email sent on 29th March 2023 and after several other telephone and electronic mail reminders, the Appellant was requested to provide documentary evidence in support of its objection application but failed to do so.

69. For this reason, the Tribunal opines that time within which the Respondent was required to issue its objection decision started running on 28th March 2023. This means that the Respondent’s objection decision ought to have been issued on or before 30th May 2023. It is noteworthy to the Tribunal that the Respondent’s objection decision was issued on 15th May 2023 which was well within the prescribed timelines.

70. In the circumstance, this Tribunal finds that the Appellant failed to discharge its burden of proof and as a result, the Respondent’s objection decision dated 15th May 2023 was justified as aforesaid.

Final Decision 71. The upshot of the foregoing is that the Appeal is bereft of merit and the Tribunal makes the following Orders:a.The Appeal be and is hereby dismissed.b.That the Respondent’s invalidation decision dated 25th April 2023 be and is hereby upheld.c.That the Respondent’s objection decision dated 15th May 2023 be and is hereby upheld.d.Each party to bear its own costs.

72. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 23RD DAY OF AUGUST, 2024. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER- MEMBERDELILAH K. NGALA - MEMBERGEORGE KASHINDI OLOLCHIKE - MEMBERS. SPENCER - MEMBER