Mungai v Commissioner of Domestic Taxes [2023] KETAT 551 (KLR)

Mungai v Commissioner of Domestic Taxes (Tax Appeal 970 of 2022) [2023] KETAT 551 (KLR) (1 September 2023) (Judgment)

Neutral citation: [2023] KETAT 551 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 970 of 2022

Grace Mukuha, Chair, G Ogaga, E Komolo, Jephthah Njagi & T Vikiru, Members

September 1, 2023

Between

Samuel N Mungai

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a sole proprietor and registered taxpayer operating a bookshop business and selling of agricultural produce in Nakuru County.

2. The Respondent is appointed under and in accordance with section 13 of the Kenya Revenue Authority Act, and 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 the Appellant with a VAT assessment on 24th December 2021 for Kshs. 2,496,271. 10 for the month of December 2016.

4. The assessment Order number KRA20212307XXXX dated 24th December, 2021 was sent to the Appellant on email by the Respondent’s Nakuru branch.

5. The Appellant objected to the assessment on 21st January 2022 stating that the variance was as a result of non-vatable services provided during the period under assessment which included matatu business and transportation of raw farm produce.

6. The objection application was filed on the iTax system and the Appellant received an acknowledgement receipt number KRA20220112XXXX.

7. On 22nd January 2022, the Appellant also wrote a formal letter of objection to the Respondent.

8. On 4th July 2022, the Respondent confirmed the assessment and sent a confirmation assessment notice number KRA20221313XXXX to the Appellant via iTax.

9. Aggrieved by this confirmation of assessment, the Appellant filed a Notice of Appeal to the Tribunal on 6th September 2022.

10. As the Appeal was filed out of time, the Appellant sought and was granted leave by the Tribunal for the enlargement of time to file the Appeal out of time.

The Appeal 11. The Appeal is premised on the following grounds as stated in document filed at the Tribunal on 8th September 2022. a.That the Appellant submitted his objection and reasons thereof within 30 days from the date of receipt of the assessment order as stipulated by section 51(2) of the Tax Procedures Act No. 29 of 2015. b.That he provided the appropriate supporting documents as requested by the Respondent.c.That the Respondent communicated the objection decision 173 days from the date he filed his objection application which is outside the 60 days stipulated by section 51(11) of the Tax Procedures Act No. 29 of 2015. d.That despite the Respondent acting outside the laid down procedure, they went ahead to freeze his bank account. This has aggrieved and traumatized him to an extent of deteriorating his personal health and further affecting his business operations and my day-to-day activities.e.That the additional tax estimated is erroneous and not only excessive and unreasonable, but meant to personally hurt and eventually bring down his business.f.That he would like to put in record that he is law abiding taxpayer and he faithfully and timely submit correct and appropriate tax returns and always pay taxes thereof within the stipulated period.

Appellant’s Case 12. The Appellant’s case is premised on the following documents:-a.The Appellant’s Statement of Facts filed on 8th September 2022 and the documents attached thereto.1. The Appellant averred that he was issued with a VAT assessment on 24th December 2021 for Kshs. 2,496,271. 10 for the month of December 2016. 2.That the assessment Order number KRA20212307XXXX dated 24/12/2021 was sent to the Appellant on email by the Respondent’s Nakuru Branch.3. That the Appellant objected to the assessment on 21st January 2022 stating that the variance was as a result of non-vatable services provided during the period under assessment which included matatu business and transportation of raw farm produce.4. That the objection application was filed on the iTax system and the Appellant received an acknowledgement receipt number KRA20220112XXXX.5. That on the following day, 22nd January 2022, the Appellant also wrote a formal letter of objection to the Respondent.6. That on 4th July 2022, the Respondent confirmed the assessment and sent a confirmation assessment notice number KRA20221313XXXX to the Appellant via iTax indicating that the objection was fully rejected.7. The Appellant averred that on 2nd August 2022, his bankers informed him that they had been instructed by the Respondent to collect Kshs. 2,496,271. 00 from him and submit it to the Respondent.8. That his bank account was frozen and he could not carry out any transactions.

21. The Appellant submitted that the Respondent communicated the objection decision 173 days from the date he issued the objection in contravention of the section 51(11) which stipulates that the objection decision should be made within 60 days.

22. The Appellant submitted that he has moved to the Tribunal to raise his grievances and requests for a fair hearing and protection from the additional assessment and the unprocedural act of the Respondent.

Appellant’s Prayers 23. The Appellant prayed that the Tribunal vacates the confirmation assessment notice number KRA20221313XXXX.

Respondent’s Case 24. The Respondent’s case is premised on the hereunder filed documents:-a.The Respondent’s Preliminary objection dated 4th October 2022 and filed on the same date.b.The Respondent’s written submissions dated 31st March 2023 and filed on the same date.

25. The Respondent averred that it issued the Appellant with a VAT assessment on 24th December 2021 for Kshs. 2,496,271. 10 for the month of December 2016.

26. That the Appellant objected on 21st and 22nd January 2022 stating that the variance was as a result of non-vatable services provided during the period under assessment which included Matatu business and transportation of raw farm produce.

27. That the Appellant however did not avail any documents to support his assertion and the assessment was subsequently confirmed on 4th July 2022.

28. The Respondent submitted that this Appeal raises the following two issues for determination.a.Whether the Appellant's Appeal is proper and/or competent.b.Whether the Appellant's Objection is validly lodged as provided for under section 51 of the Tax Procedures Act.

29. The Respondent addressed the two issues as follows:-

a Whether The Appellant's Appeal Is Proper And/or Competent 30. The Respondent submitted that the Appellant filed a Statement of Facts giving an account of what led to the dispute. That however, contrary to the provisions of section 13(2) of the Tax Appeals Tribunal Act, 2023, the Appellant did not file a Memorandum of Appeal.

31. The Respondent submitted that the jurisdiction of the Tribunal to determine an Appeal can only be invoked by filing a Memorandum of Appeal and a Statement of Facts.

32. That section 13(2) of the TAT Act states;“13. Procedure for appeal(1)....................(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.statement of facts; andc.the tax decision.”

33. The Respondent submitted that the said Section has a mandatory provision and the Appeal is incompetent without it and the same should be struck out with costs.

b). Whether There Was, A Valid Notice Of Objection By The Appellant For The Respondent To Issue An Objection Decision. 34. The Respondent submitted that an objection decision can only be issued in response to a valid notice of objection.

35. That where no valid notice of objection has been issued, the validity of an objection decision cannot therefore lie.

36. That section 51(3) of the Tax Procedures Act provides as follows:“Objection to tax decision1. A taxpayer who wishes to dispute a tax decision shall first lodge an objection against that tax decision under this Section before proceeding under any other 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.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.”

37. That where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall immediately, notify the taxpayer in writing that the objection has not been validly lodged.

38. The Respondent submitted that the validity of a notice of objection is determined by the strict adherence to the provisions of section 51(3) of the Tax Procedures Act. That the provisions are mandatory and it is the Appellant's duty to ensure that a valid notice of objection is issued to the Commissioner for consideration and issuance of an objection decision.

39. That the Tribunal in Histoto Limited v The Commissioner Of Domestic Taxes TAT 369 of 2019 Judgement [202/] Eklr stated that a notice of objection to be considered valid must have the key elements in section 51(3) of the Tax Procedures Act. The Tribunal had this to say:“By reproducing the provision of section 51(3) of the Tax Procedure Act, 2015 above, the Tribunal notes that a Notice of Objection is considered to be validly lodged if it precisely states the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments. "

40. That Sections 51(8),(9) and (10) provide as follows;“(8)Where a notice of objection has been validly lodged within time. the Commissioner shall consider the objection and decide either to allow the objection in whole or in part, or disallow it. and Commissioner's decision shall be referred to as an "objection decision.”9. The Commissioner shall notify in writing the taxpayer of the objection decision and shall take all necessary steps to give effect to the decision. including. in the case of an objection to an assessment. making an amended assessment.10. An objection decision shall include a statement of findings on the material facts and the reasons for the decision.”

Respondent’s Prayers 41. The Respondent prays that this Appeal be struck out.

Issues For Determination 42. The Tribunal has carefully studied the pleadings and documentation filed by both parties and is of the respectful view that the issues that call for its determination are as follows:-a.Whether there is a valid/competent appeal before the Tribunal.b.Whether the objections filed by the Appellant on 21st and 22nd January 2022 were allowed by the operation of the law.

Analysis And Findings 43. Having determined the issues that call for its determination, the Tribunal proceeded to analyse them as hereunder:-

a.Whether There Is A Valid/competent Appeal Before The Tribunal. 44. On 4th October 2022, the Respondent filed a preliminary objection stating that:-i.That the Appeal by the Appellant offends section 13(2) of the Tax Appeals Tribunal Act, 2013 by not filing a Memorandum of Appeal.ii.That without a Memorandum of Appeal, the Respondent is unable to respond to the Appeal.iii.That the suit is fatally defective.

45. The Respondent submitted that the jurisdiction of the Tribunal to determine an Appeal can only be invoked by filing a Memorandum of Appeal and a Statement of Facts.

46. That Section 13(2) of the TAT Act states that:-“13. Procedure for appeal(1).....................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.statement of facts; andc.the tax decision.”

47. The Respondent submitted that the said Section has a mandatory provision and the Appeal is incompetent without it and the same should be struck out with costs.

48. The Tribunal has looked at the three page document filed by the Appellant on 8th September 2022 and notes that it has the following sections.a.Statement of facts which has 2 paragraphs.b.Background information which has 4 paragraphs.c.Statement of facts which has 6 paragraphs.d.Summary which has one paragraph.

49. The Tribunal notes that the Appellant repeated the heading “statement of facts” twice. Indeed the second statement of facts states the grounds of Appeal and the heading should have been either grounds of Appeal or Memorandum of Appeal.

50. The Tax Appeals Tribunal (Procedure), Rules, 2015, clause 4(1), requires that “ A memorandum of appeal referred in rule 3(2) shall_a)---------------b)Set out concisely under distinct heads, numbered consecutively, the grounds of appeal without argument or narrative:”

51. The Tribunal finds that in the document filed before it, the Appellant has numbered consecutively the six grounds of appeal although the heading does not state them as “grounds” or “memorandum of Appeal”.

52. The Tribunal notes that section 13(2) of Tax Appeals Tribunal Act, 2013, does not give a format that taxpayers should use in submitting their Statement of Facts and Memorandum of Appeal. What is important is the fact that the grounds of Appeal are spelt out in the document filed with the Tribunal.

53. The Tribunal finds that it was able to clearly pick out the grounds of Appeal from the document filed by the Appellant and during the hearing on 7th October 2022, the Tribunal directed the Respondent “to file and serve its Statement of Facts within 30 days of today.”

54. The Tribunal notes that instead of filing its Statement of Facts as directed, the Respondent opted to file the Preliminary objection.

55. The Tribunal is bound by the Constitution of Kenya, 2010 where at article 159(2)d requires the Courts and Tribunals to administer justice “without undue regard to technicalities.” If the Tribunal was to invalidate an Appeal due to adoption of a structure that it considers to be different from others, it would clearly not be operating within the spirit of this Article of the Constitution of Kenya, 2010.

56. In view of the fact that section 13(2), of the Tax Appeals Tribunal Act does not provide a format or structure for submission of the statement of facts and the memorandum of appeal, and of the fact that the Tribunal was able to clearly pick out the grounds of appeal from the document filed by the Appellant, the Tribunal finds that there is a valid and competent Appeal before it and that the Appellant should not be shut of justice due to a heading technicality.

b). Whether The Objections Filed By The Appellant On 21St And 22Nd January 2022 Were Allowed By The Operation Of The Law. 57. The Appellant submitted that he was issued with a VAT assessment on 24th December 2021.

58. That on 21st January 2022 he objected to the assessment on the iTax system and was issued an acknowledgement receipt number KRA20220112XXXX.

59. That on the following day, 22nd January 2022, the Appellant also wrote a formal letter of objection to the Respondent.

60. That on 4th July 2022, the Respondent confirmed the assessment and sent a confirmation assessment notice number KRA20221313XXXX to the Appellant via the iTax platform indicating that the objection was fully rejected.

61. The Appellant submitted that the Respondent communicated its decision 173 days from the date he filed his objection which was outside the 60 days stipulated by section 51(11) of the Tax Procedures Act, 2015.

62. The Tribunal notes that the Tax Procedures Act in section 51(11) in 2021 stated that:-“The Commissioner shall make the objection decision within sixty days from the date of receipt of –a.The notice of objection; orb.Any further information the Commissioner may require from the taxpayer;failure to which the objection shall be deemed to be allowed.”

63. From the documents filed by the Respondent, the Tribunal finds that there was no communication between the Appellant and the Respondent after the filing of the formal written objection on 22nd January 2022. The Respondent did not ask for any information from the Appellant. The only communication was the confirmation of the assessment on 4th July 2022.

64. The Tribunal takes into consideration the holding in the case of Nicholas Kiptoo Arap Korir Salat v IEBC & 6 Others [2013] eKLR, where the court held that;-This Court, indeed all courts, must never provide succor and cover to parties who exhibit scant respect for rules and timelines. Those rules and timelines serve to make the process of judicial adjudication and determination fair, just, certain and even-handed. Courts cannot aid in the bending or circumventing of rules and a shifting of goal posts for, while it may seem to aid one side, it unfairly harms the innocent party who strives to abide by the rules. I apprehend that it is in the even-handed and dispassionate application of rules that courts give assurance that there is a clear method in the manner in which things are done so that outcomes can be anticipated with a measure of confidence, certainty and clarity where issues of rules and their application are concerned…”

65. 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………”

66. The Tribunal also relies on the holding in the case of Republic v Commissioner of Domestic Taxes Ex Parte Fleur Investments Limited [2020] eKLR where the Honorable Judge John M. Mativo held that:-“I find backing in Republic v Commissioner of Customs Services Ex-Parte Unilever Kenya Limited in which the court stated that if the Commissioner does not render a decision within the stipulated period, the objection is deemed as allowed by operation of the law. The act requires that where the Commissioner has not made an objection within 60 days from the date the tax payer lodged the notice of objection, the decision objection shall be allowed. This means that the issues that the tax payer had raised in the objection will be accepted”.

67. It is not in dispute that the Appellant received an assessment on 24th December 2021 through the iTax platform. It is also not in dispute that the Appellant objected to the assessment on the iTax platform on 21st January 2022 and through a formal letter on the following day. It is also not in dispute that the Respondent confirmed the assessment through the iTax platform on 4th July 2022. There is no indication of any communication requesting information from the Appellant by the Respondent.

68. Section 51(11) of the TPA, requires that the Respondent makes a decision on an objection filed by a taxpayer within 60 days and failure to which the objection shall be deemed to be allowed. The Appellant filed its objections on 21st and 22nd January 2022 while the Respondent made its decision on 4th July 2022. This was more than five months later. In line with the section 51(11) of the TPA and the case law cited above, the Appellant’s objection was allowed by the operation of the law.

Final Decision 69. The upshot of the foregoing is that the Appeal succeeds and consequently the Tribunal makes the following Orders: -a.The Appeal be and is hereby allowed.b.The Respondent’s confirmation assessment notice dated 4th July 2022 be and is hereby vacated.c.Each party to bear its own costs.

70. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 1ST DAY OF SEPTEMBER, 2023GRACE MUKUHA.......................CHAIRPERSONGLORIA OGAGA.......................MEMBERERICK KOMOLO.......................MEMBERJEPHTHAH NJAGI.......................MEMBERTIMOTHY VIKIRU.......................MEMBER