Mwangi v Commissioner of Domestic Taxes [2025] KETAT 206 (KLR)

Mwangi v Commissioner of Domestic Taxes (Tax Appeal E031 of 2021) [2025] KETAT 206 (KLR) (Commercial and Tax) (4 April 2025) (Ruling)

Neutral citation: [2025] KETAT 206 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal E031 of 2021

CA Muga, Chair, T Vikiru & BK Terer, Members

April 4, 2025

Between

Julius Karanja Mwangi

Applicant

and

Commissioner of Domestic Taxes

Respondent

Ruling

1. The Applicant moved the Tribunal through an application dated on 27th November, 2024 and filed on 28th November, 2024, wherein it sought the following Orders:a.Spent.b.That this Tribunal be pleased to review its Judgment dated and delivered at Nairobi on 21st November, 2024. c.That upon review this Tribunal set aside the Judgement thereto and substitute it with an appropriate Judgement that conforms with the said review.d.That this Tribunal makes such further orders as it may deem fit and just in the circumstances of the case.

2. The Application which was supported by an affidavit sworn by Mr. John Odwako Messo tax agent for the Applicant on the 27th day of November, 2024 was premised on the following grounds:a.The Applicant registered a company named Julika Automobiles Limited in 2003. It remained dormant as the Applicant operated through a sole proprietorship, Julika Automobiles, until the closure of the latter by the Registrar of Business Services in July 2019. Subsequently, the Applicant commenced operations under Julika Automobiles Limited.b.The Applicant filed objections against the VAT assessments, asserting that the Respondent based them on withholding tax certificates from customers (including government ministries/agencies and businesses) that had already been declared and accounted for in the records of Julika Automobiles Limited during the pertinent transactions.c.Unfortunately, on 1st December 2023, the Respondent rejected the Applicant's objections and issued an objection decision, citing the Applicant's failure to provide relevant supporting documents.d.The Applicant being dissatisfied with the Respondent’s decision delivered on 1st December 2023, filed a Notice of Appeal dated 29th December 2023, followed by a Memorandum of Appeal and Statement of Facts dated 10th January 2024. e.The Respondent, in response to the Appeal, filled its Statement of Facts dated 15th February 2024 and thereafter judgment was entered and delivered at Nairobi on 21st November, 2024. f.The Judgment delivered by this Tribunal on 21st November, 2024, contained errors and mistakes apparent on the face of the record, including the failure to properly consider material evidence on record and submitted by the Applicant.g.The Tribunal's finding at paragraph 48, read together with paragraphs 45, 46, and 47, that the Applicant failed to provide sufficient evidence, is erroneous. This conclusion and analysis do not reflect the full range of documents submitted to the Respondent and filed by the Applicant, including but not limited to:i.Statements, invoices, sales summaries, and a transaction list by customers.ii.Delivery note stamped by the Respondent on 25th October 2023, showing all relevant documents submitted during the objection stage.iii.Certificate of Business Cessation.iv.Financial statements, statements of financial position, analysis, and ledgers for the years 2019 and 2020. v.Detailed bank statements from Equity Bank, KCB, and Spire Bank.vi.Delivery notes and cash sale receipts.h.That the listed documents were submitted to meet the Applicant’s burden of proof but that however, the Tribunal’s decision does not reflect proper consideration of these documents, which were material to the just determination of the Appeal.i.That the Tribunal granted the Applicant leave to file additional documents, which were duly filed.j.These documents, including Withholding Tax Cancellation Certificates and other critical materials, were not considered in the Tribunal’s decision, leading to an incomplete evaluation of the case.k.That the Tribunal failed to consider the cancellation of VAT withholding certificates for the sole proprietorship and the subsequent reissuance of certificates in the name of the Applicant’s company. This omission was significant as it created the possibility of double taxation, with the Applicant potentially being liable for taxes under both the cancelled certificates and the reissued certificates. The failure to address this issue is a material error on the face of the judgment.l.The Applicant maintained that the judgment delivered by the Tribunal on 21st November, 2024, was arrived at without due consideration of the above-referred documents, despite them being duly filed.m.That the errors and omissions described above were manifest and apparent, and do not require extensive elaboration to be recognized.n.That in the interest of justice, it was imperative that this Tribunal reviews its judgment in light of the above errors and issues a new judgment that properly reflects the evidence submitted and the true position of the case.

3. The Respondent upon being served with the Application responded by filing a replying affidavit sworn by its officer, Ms. Polly Mbabu dated and filed on 3rd December, 2024 opposing the Application :a.That the application is a non-starter, lacking in merit and an abuse of the court process.b.That during objection stage, the Applicant was directed to provide the requisite documents in support of their objection which were as follows:i.Audited financial statements supported by source documents;ii.Detailed breakdown of the sales ledgers/purchases ledger;iii.Complete personal and business certified copies of bank statements ;iv.ETR monthly Z reports ;v.Stock movement sheets ;vi.Sales/purchases invoices ;vii.Any contractual agreements with suppliers ;viii.Proof of payment for the expenses ;ix.Contracts awarded for the period ;x.VAT - reconciliation of the various withholding certificates issued under applicant individual pin to the corresponding declaration done in the limited company i.e. a detailed breakdown of sales ledger for Julika Automobiles Limited P0513016370 showing that the specific incomes as reflected in withholding certificates under Julius are part of the total sales.c.That, since the VAT assessments were based on the withholding tax credits from the Applicant's ledger, which lacked corresponding income declarations for the period from January 2021 to February 2023, the Applicant was required to provide the Respondent with a VAT reconciliation. This reconciliation should have detailed the various withholding certificates issued under their individual accounts, compared to the corresponding sales declarations made by the limited company. Specifically, a detailed breakdown of the sales ledger for Julika Automobiles Limited ought to have been provided, showing that the specific incomes reflected in the withholding certificates under Julius are included as part of the total sales.d.That with regard to the income tax assessments, the dispute arises from the under­ declaration of income, as the Applicant was a non-filer despite having engaged in trade, as evidenced by the VAT3 returns showing sales declarations and the withholding tax credits recorded in their ledger with no corresponding income declaration for the years 2019 to 2020. The Applicant should have submitted, as requested, the audited financial statements, supported by source documents including audited accounts, a detailed breakdown of the sales and purchases ledgers, complete certified copies of personal and business bank statements, ETR monthly Z reports, stock movement sheets, sales and purchase invoices, any contractual agreements with suppliers, proof of payment for expenses, and contracts awarded for the relevant period.e.That on 10th November,2023, the Applicant provided the following documents:i.Sample VAT withholding certificates;ii.Transaction list by customer;iii.Sales invoices;iv.Daily cash analysis; andv.Bank statements.f.That vide an electronic mail dated 14th November 2023, the Respondent notified the Applicant that the documents provided were insufficient to challenge the Respondent’s assessment. Furthermore, the Applicant failed to provide a detailed breakdown of the sales ledger for Julika Automobiles Limited, showing that the specific incomes reflected in the withholding certificates issued to Julius under his individual PIN are part of the total sales of Julika Automobiles Limited. Additionally, no financial statements, detailed breakdowns of the sales and purchases ledgers, certified copies of personal and business bank statements, ETR monthly Z reports, stock movement sheets, sales and purchase invoices, contractual agreements with suppliers, proof of payment for expenses, or contracts awarded for the period were adduced in support of the bank statements.g.That the Respondent had directed the Applicant in controverting the income tax assessments to provide audited financial statements together with source documents which included: audited accounts, detailed breakdown of sales ledgers/ purchases ledger, complete personal and business certified copies of bank statement, ETR monthly Z report, stock movement sheets, sales/purchases invoices, any contractual agreement with suppliers, proof of payment for the expenses and contracts awarded for the period under review years 2019 and 2020. h.That the Respondent had further directed the Applicant, in controverting their VAT assessments, to provide a VAT reconciliation for the various withholding certificates issued under their individual accounts, corresponding to the declarations made by their limited company. Specifically, the Applicant was asked to provide a detailed breakdown of the sales ledger for Julika Automobiles Limited, showing that the specific incomes reflected in the withholding certificates under Julius were part of the total sales for the period from January 2021 to February 2023. Notwithstanding this, it was noted in their objection notice dated 5th October 2023 (bullet 10) that the Applicant stated their operations as a sole proprietor ceased on 31st December 2021, when the business was converted into a limited company.i.Therefore, the Applicant had no reason for not declaring income earned, as reflected in the withholding tax certificates, for the period from January to December 2021 under Julius. This raised concerns that the income reflected in the withholding tax certificates may not have been declared under the limited company, as stated.j.That the Applicant claimed to have provided withholding tax cancellation certificates, as permitted by the Tribunal. However, it had been found that pending withholding tax credits existed for the same period under review. Regardless of whether these certificates have been cancelled or not, the key issue remained the need to demonstrate that the income reflected in the withholding certificates has been declared, either under the individual PIN or the limited company. Reissuing the certificates to Julika Automobiles Limited would allow the limited company to benefit from the tax credits. However, it must be shown that these tax credits have been declared as income for VAT purposes, which the Applicant failed to do.k.That after a review of the CTS - online filing platform - the Applicant only filed two bundles of documents:i.Bundle beginning pg. 11827 - 11874 constituting an objection decision, a notice of appeal, certificate of incorporation, certificate of company registration, delivery note, financial statements for the year 2019 and 2020, ledgers and PIN certificate.ii.Bundle beginning 11875 - 12546 - constituting banks statements for Equity Bank, KCB Bank and Spire Bank.l.That from the online filing system, the Applicant did not file any documents consisting of source documents such as invoices, proof of payments, ETR monthly Z report contractual agreement with suppliers for the period under review. Additionally, the Applicant did not reconcile the various withholding certificates issued under their individual accounts with the corresponding declarations made by their limited company. Specifically, they did not provide a detailed breakdown of the sales ledger for Julika Automobiles Limited showing that the specific incomes reflected in the withholding certificates under Julius are part of the total sales for the period from January 2021 to February 2023. m.That by failing to provide the requested documents, the Applicant failed to sufficiently discharge his burden of proof and that the probative value of all the documents adduced was considered before arriving at a decision.

4. In a further Replying Affidavit dated and filed on 4th December, 2024 the tax agent of the Applicant, outlined the following additional grounds:a.That as averred at paragraph 9 of his Supporting Affidavit the Applicant provided all relevant documents, sufficient to substantiate his case, at the Objection Stage, the Appeal, and during the ADR process.b.In response to the averments made at paragraph 5 of the Respondent’s Replying Affidavit, the Applicant submitted as follows:i.A breakdown of the sales was provided through customer statements, which the Respondent acknowledged. Refer to the delivery note stamped by the Respondent on 25th October 2023. ii.Z reports, which are detailed daily customer transaction lists, were also provided. These are documented at pages 2–8219 and were similarly acknowledged via the stamped delivery note dated 25th October 2023. iii.Stock movement sheets, which detail daily stocks (see daily summaries) (i.e., dipping/closing stock).iv.Contracts with suppliers in the petroleum business are primarily oral, as payments are made upfront (cash basis) before delivery. Given the Applicant’s flexibility in sourcing suppliers, these oral contracts are standard.v.Proof of payments are contained in bank statements, as payments were made via cheques.vi.Contracts Awarded are outlined in the LPOs.vii.VAT reconciliation of various with holding certificates: The customers’ statements, invoices and transaction list reconcile the withholding certificates with the sales and payments.c.Regarding paragraph 6 of the Respondent’s Replying Affidavit, the Applicant maintains that the customer statements and invoices provided reconcile the withholding VAT certificates with the sales and corresponding payments received.d.In response to paragraph 7 of the Respondent’s Replying Affidavit, the Applicant states that the income tax assessment issue was irrelevant at the objection stage, as no objection had been filed regarding the income tax assessment.e.In fact, this was a ground of appeal (Grounds of appeal No 10, 11 and 12); that the Respondent by passed this procedural step by issuing an Objection Decision without giving the Applicant an opportunity to object to the income tax assessment. Nonetheless, the relevant documents were subsequently provided at the ADR stage.f.In response to paragraphs 8 and 9 of the Respondent’s Replying Affidavit, the Applicant reiterated that the transaction list, Z reports, and daily cash analysis collectively detail daily sales (cash and credit), closing stock levels (dipping), and purchases.g.Regarding paragraphs 10 and 11 of the Respondent’s Replying Affidavit, the Applicant stated that the said documents, including financial statements, were provided to the Respondent on 10th October 2023 and 25 October 2023, and during the ADR stage.h.In response to paragraph 12 of the Respondent’s Replying Affidavit, the Applicant contended that when withholding VAT certificates are canceled by the customer (withholder), they undergo a validation and approval process by the Respondent as outlined in its communications dated 28th August 2024 and 29th August 2024. i.Regarding paragraph 13 of the Respondent’s Replying Affidavit, the Applicant confirms that all relevant documents were filed, as referenced in paragraph 9 of the Supporting Affidavit dated 27th November 2024 and paragraph 3 herein above.j.Further, the Applicant filed this appeal on 12th January 2024 both physically and via the CTS e-filing platform. However, the e-filing system was unable to process and upload all documents due to file size limitations (over 50 MB).k.Consequently, 5 physical copies of the Appeal were filed, alongside a flash drive containing the complete set of documents.“Annexure JOM-5 contains duly stamped cover pages of the Bundle of Documents, as well as the first pages of the Statement of Facts and Memorandum of Appeal, all duly stamped by the Tax Appeals Tribunal and the Respondent to confirm filing and service.l.​Following the successful filing of the Appeal, the Applicant served the Respondent via electronic mail on 12th January 2024 and physically on 16th January 2024. m.​Regarding paragraphs 14 and 15 of the Respondent’s Replying Affidavit, the Applicant asserts that all relevant documents, including invoices and Z reports, were provided as previously outlined. On paragraph 14, the Respondent’s misunderstanding of ETR receipts is noted. ETR receipts are customer-issued and lack duplicates; only customers can produce them. However, invoices and Z reports were duly provided as stated above.

5. On 20th March, 2025, the parties written submissions dated and filed on 6th and 12th December, 2024, respectively were adopted and have been carefully considered by the Tribunal.

Analysis And Findings 6. The Applicant sought a review of the decision of the Tribunal delivered on 21st November, 2024 on the basis that the Judgement of the Tribunal had an error apparent on the face of it, since the Tribunal made the decision to dismiss the Appeal on the basis that the Applicant failed to discharge its burden of proof. The Applicant was of the view that the Tribunal erred since it had indeed provided all the documents requested by the Respondent. The Respondent considered the Application an abuse of the process of the Court and swore that the Applicant did not provide the documents that it had requested and that therefore the decision of the Tribunal did not have any errors.

7. The Tribunal’s powers to review its Decrees or Orders are as set out under Section 29A of the TATA which provides as follows:“(1)a person aggrieved by a decree or an order from which no appeal has been preferred from the Tribunal to the High Court, may apply for review of the decree or the order within seven days from the date the decree or order was made by the Tribunal.(2)Applications for review of decree or orders under subsection (1) may be made –a.upon the discovery of new or important matter or evidence which after the exercise of due diligence, was not within the knowledge of the applicant or could not be produced by the applicant at the time when the decree was passed or the order was made;b.on account of some mistake or error apparent on the face of the record; orc.for any other sufficient reason.”

8. On 21st November, 2024 the Tribunal delivered its Judgement in respect of TAT Appeal No. E031 OF 2024 wherein it decreed that the Appeal lacked merit and proceeded to make its Orders as set out below:“Final Decision 50. The upshot to the foregoing is that the Appeal herein lacks merit and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 1st December, 2023 be and is hereby upheld.c.Each party to bear its own cost.

56. It is so Ordered.”

9. The Tribunal notes that the Applicant has made an application for the review by the Tribunal of its Orders within the statutory limit of seven (7) days pursuant to and in compliance with Section 29A(1) of the TATA, the Tribunal therefore has the jurisdiction to consider the Application. The TATA specifically refers to the issue of review of decrees or orders. In order for the Tribunal to consider the matter in its full merits it must consider whether it is capable of doing so first and will therefore rely on the following holding by Mativo J in the case Bethuel Omondi Okal vs. Managing Director KPLC & Co. [2017] eKLR where the decision in National Bank of Kenya Ltd vs. Ndungu Njau (1996) KLR 469 (CAK) was upheld at page 381 :“A review may be granted whenever the Court considers that it is necessary to correct an apparent error or omission on the part of the court. The error or omission must be self-evident and should not require an elaborate argument to be established.”

10. The Tribunal in this instance notes that the apparent error was the omission of the consideration in making its determination, that the Applicant raised the ground that the Respondent confirmed the income tax assessment without the Applicant herein first having objected to the income tax assessment and that therefore there was no basis for the confirmation of the income tax assessment through the objection decision dated 1st December, 2023. The Tribunal also failed to take into consideration, the fact that the Applicant filed documents at the Tribunal vide a flash disk and the Tribunal wishes to review its decision on this basis.

Disposition 11. The upshot of the foregoing is that the Application has merit and the Tribunal proceeds to make the following Orders:a.The Application be and is hereby allowed.b.The Judgement delivered by the Tribunal on 21st November, 2024 in TAT APPEAL NO. E031 of 2024 is hereby set aside.c.TAT APPEAL NO. E031 of 2024 is referred back to TAT Panel 3 for review of the Judgement.d.Each party to bear its own cost.

12. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 4TH DAY OF APRIL, 2025. CHRISTINE A. MUGA - CHAIRPERSONDR. TIMOTHY B. VIKIRU - MEMBERBONIFACE K. TERER - MEMBER