Shivai Hardware Limited v Commissioner of Domestic Taxes [2024] KETAT 1258 (KLR)

Shivai Hardware Limited v Commissioner of Domestic Taxes (Tribunal Appeal E331 of 2023) [2024] KETAT 1258 (KLR) (9 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1258 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal E331 of 2023

E.N Wafula, Chair, G Ogaga, Jephthah Njagi & E Ng'ang'a, Members

August 9, 2024

Between

Shivai Hardware Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company carrying out the business of sale of hardware materials in Kenya.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. For the performance of its function under Subsection (1), the Authority is mandated under Section 5(2) of the Act to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act to assess, collect, and account for all revenues under those laws.

3. The Respondent stated that it conducted an audit of the Appellant and assessed it for Value Added Tax (VAT) of Kshs. 689,668. 96 for the period of October 2021.

4. The Respondent issued a VAT additional assessment order to the Appellant on 2nd February 2023 amounting to Kshs. 689,668. 96, which assessment, the Appellant objected to in its entirety on 1st March 2023.

5. The Respondent issued its Objection decision on 14th April 2023 confirming that the VAT of Kshs. 689,668. 96 for the period of October 2021 was due and payable having fully rejected the Appellant’s objection.

6. The Appellant, being dissatisfied with the Objection decision issued by the Respondent on 14th April 2023, lodged its Notice of Appeal dated 23rd June 2023 and filed on 27th June 2023.

The Appeal 7. The Appeal is premised on the Memorandum of Appeal filed on 27th June 2023 which raised the following grounds: -a.That the Respondent erred in fact and law by wrongfully disallowing validly claimed VAT input tax.b.That the Respondent erred in fact and law in failing to fully allow the objection raised in respect of the month of October 2021. c.That the Respondent erred in fact and law in holding that the main reason for the rejection is that some of the invoices claimed lacked proof of payment as requested.d.That the Appellant does not agree to the amount payable as per the decisions dated 14th April 2023 as the amounts are excessive and that the Appellant indeed incurred cost towards the purchase of the said inputs that were disallowed.

Appellant’s Case 8. The Appellant’s case is premised on the Appellant’s Statement of Facts filed on 27th June 2023 and the documents attached to it.

9. The Appellant stated that the Respondent issued a notice of assessment of Value Added Tax (VAT) dated 2nd February 2023 amounting to Kshs. 689,668. 97 for the month of October 2021.

10. The Appellant further stated that it objected to the assessment in its entirety on 1st March 2023, attaching thereto a schedule of each of the disallowed invoices.

11. The Appellant averred that the Respondent, via email communication dated 3rd April 2023, requested for proof of purchase and records for payments to suppliers against the disallowed invoices. That the Appellant provided the requested documents on 5th April 2023 in support of the objection.

12. That the Respondent further sent an email on 11th April 2023 requesting for additional information, being copies of the delivery notes and proofs of payment for the purchase, which email, unfortunately, went to the Appellant’s spam box and the Appellant never had the chance to read and respond to the communication in a timely manner, resulting in a breakdown of communication between the Respondent and that Appellant.

13. The Appellant averred that it has the batch of documents required in the email dated 11th April 2023 and is happy to provide the same at the Respondent’s convenience.

14. It was the Appellant’s contention that the amounts payable as per the decision issued on 14th April 2023 are excessive.

Appellant’s prayers 15. The Appellant prayed for the following: -a.This Appeal be allowed.b.The Respondent be ordered to amend the assessments.

Respondent’s Case 16. The Respondent’s case is premised on the following documents:a.The Respondent’s Statement of Facts dated and filed 22nd June 2023 and the documents attached thereto;b.The Respondent’s Written Submissions dated and filed on 28th March 2024.

17. The Respondent stated that it conducted an audit of the Appellant and assessed it for Value Added Tax (VAT) of Kshs. 689,668. 96 for the period of October 2021 based on unsupported VAT input claims from Gempro Kenya Trading in October 2021.

18. The Respondent issued a VAT additional assessment order to the Appellant on 2nd February 2023 amounting to Kshs. 689,668. 96, which assessment, the Appellant objected to in its entirety on 1st March 2023.

19. The Respondent averred that the Appellant availed partial documents for review (copies of invoices) which were not sufficient to support the grounds of objection. The Respondent stated that the Appellant failed to avail copies of delivery notes and proof of payment for the purchases claimed.

20. The Respondent issued its Objection decision on 14th April 2023 confirming that the VAT of Kshs. 689,668. 96 for the period of October 2021 was due and payable having fully rejected the Appellant’s objection.

21. Subsequently, the Appellant being dissatisfied with the Respondent’s decision, appealed against the Respondent’s Objection decision of 14th April 2023.

22. In response to Grounds No. 1, No. 2 and No. 3 of the Memorandum of Appeal, the Respondent cited Section 51(8) of the Tax Procedures Act which provides as follows: -“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 the Commissioner’s decision shall be referred to as an "objection decision".

23. The Respondent averred that the argument by the Appellant is unfounded as the Respondent received and acknowledged receipt of the Appellant’s objection but the same did not sufficiently support the claimed input VAT as only partial documents were availed for review in form of invoices which were not sufficient to support the grounds of objection.

24. Further, the Respondent contended that the Appellant failed to avail copies of delivery notes and proof of payment for the purchases claimed hence the Respondent applied its best judgment in raising and confirming the assessment.

25. In response to Ground No. 4 of the Memorandum of Appeal, the Respondent stated that in the absence of material documentation, the Respondent relied on information available to it and applied its best judgment.

26. The Respondent affirmed that the Appellant did not provide sufficient proof of VAT purchases. That no such documents such as receipts or record of expenses were submitted to the Respondent for consideration.

27. The Respondent further asserted that, it is not bound by the Appellant’s tax returns or information provided by, or on behalf of the Appellant and the Respondent may assess the Appellant’s tax liability using any information available to it in accordance with Section 31(1) of the Tax Procedures Act, 2015.

28. To buttress this point, the Respondent relied on the case of Saima Khalid vs. The Commissioner for Her Majesty's Revenue & Customs-Appeal No. TC/2017/02292) where the Court analysed the tax authority’s application of best judgment.

29. The Respondent argued that the grounds of appeal are not only spurious but also unsupported, as the Appellant has failed to discharge its burden of proof. Further, that the Appeal is brought in bad taste as the Appellant was engaged by the Respondent and given an opportunity to provide proof but failed to do so sufficiently.

30. The Respondent cited the provisions of Section 56(1) of the Tax Procedures Act, Section 30 of the Tax Appeals Tribunal Act, 2013 and Section 107 of the Evidence Act, Cap 80 Laws of Kenya and stated that the Appellant has not proven that the Respondent’s decision is incorrect or unlawful and has consequently not discharged its burden of proof. The Respondent supported its case by citing the case of Digital Box Ltd v Commissioner of Investigations and Enforcement (TAT Act 115 of 2017).

31. The Respondent also made reference to the following authorities in support of its case on where the burden of proof lies:a.Kenya Revenue Authority Vs. Man Diesel & Turbo Se, Kenya [2021] eKLR Nairobi High Court Income Tax Appeal No. E125 of 2020b.Mulherin vs Commissioner of Taxation [2013) FCAFC 115 the Federal Court of Australia

32. The Respondent argued that the Appellant’s appeal is not supported by documentary proof showing why the Respondent’s assessment and objection decision are erroneous and the same is without merit and thus ripe for dismissal.

Respondent’s prayers 33. The Respondent prayed that the Tribunal: -a.Upholds the Respondent’s decision of 14th April 2023 (confirmation of assessment) as valid and in conformity with the provisions of the law; and finds the taxes of Kshs. 689,668. 96 due and payable.b.Finds that the Appeal herein is without merit and dismiss it with costs to the Respondent.

Issue For Determination 34. The Tribunal has considered the facts of the matter and the submissions made by the parties, and considers the issue for determination as follows:Whether there is a valid Appeal on record.

Analysis And Findings 35. The Tribunal analysed the issue that calls for its determination as hereunder, having reviewed all the pleadings, information and documents adduced by the Appellant and the Respondent concerning the impugned decision.

36. The Respondent stated that it conducted an audit of the Appellant and assessed it for Value Added Tax (VAT) of Kshs. 689,668. 96 for the period of October 2021.

37. The Respondent issued a VAT additional assessment order to the Appellant on 2nd February 2023 amounting to Kshs. 689,668. 96, which assessment, the Appellant objected to in its entirety on 1st March 2023.

38. The Respondent issued its Objection decision on 14th April 2023 confirming that the VAT of Kshs. 689,668. 96 for the period of October 2021 was due and payable having fully rejected the Appellant’s objection.

39. The Appellant, being dissatisfied with the Objection decision issued by the Respondent on 14th April 2023, filed its Notice of Appeal on 27th June 2023.

40. The Tribunal notes that the procedure for appeal provided in Section 13(1)(b) of the Tax Appeals Tribunal (TAT) Act requires that a Notice of Appeal be submitted to the Tribunal within thirty (30) days upon receipt of the decision of the Commissioner.

41. Section 13(3) of the TAT Act provides the remedy to any party who wishes to lodge an Appeal out of time, being that any such intended Appellant may seek leave of the Tribunal in writing, seeking an extension of time and leave to file an Appeal out of time. The provision reads: -“The Tribunal may, upon application in writing, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).”

42. The Tribunal’s position is that the Appellant ought to have lodged its Notice of Appeal within thirty (30) days from 14th April 2023. The Tribunal observes from the documents on record that the Appellant filed its Notice of Appeal on 27th June 2023, which was on a date later than thirty (30) days of receiving the Respondent’s decision of 14th April 2023.

43. The Tribunal is of the considered view that the timelines for appealing the Commissioner’s decisions are clearly set in the law, and all parties are liable to comply with the timelines, save for when unavoidable circumstances prevent a party from fulfilling its obligations as envisioned in Section 13(4) of the TAT Act which states: -“(4)An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period.”

44. The Tribunal further notes that the Appellant failed to apply for leave to file its Notice of Appeal out of time as required under Section 13(3) of the TAT Act which provides:“(3)The Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).”

45. The Tribunal refers to the case of W.E.C. Lines Ltd vs. The Commissioner of Domestic Taxes [TAT Case No. 247 of 2020] where it was held at paragraph 70 while reiterating the holding in Krystalline Salt Ltd vs KRA [2019] eKLR that: -“Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures. The relevant procedure here is the process of opposing an assessment by the Commissioner.”

46. The Tribunal is further guided by TAT Appeal No. 1321 of 2022 CKL Africa Limited v Commissioner of Domestic Taxes where it was held as thus: -“63. The law makes provisions under Section 13 (3) of the Tax Appeals Tribunal Act for any party who lodges its appeal out of time and with reasonable grounds, to seek leave of the Tribunal to file its appeal out if time, the Appellant did not move the Tribunal seeking such Orders.

64. The timelines provided under Section 47 (13) of the Tax Procedures Act and Section 13 (1) of the Tax Appeals Tribunal Act demand strict adherence and are not discretional to any party lodging an appeal before the Tribunal.

65. It is the Tribunal’s position that there is no proper and valid Appeal before the Tribunal for the exercise of its jurisdiction.”

47. The Tribunal finds that the Notice of Appeal herein was lodged beyond the statutorily prescribed period and is therefore incompetent and untenable in law. The Appeal is therefore not validly and properly before the Tribunal.

Final Decision 48. The upshot of the above analysis is that the Tribunal finds that the Appeal is incompetent and accordingly proceeds to make the following orders:a.The Appeal be and is hereby struck out.b.Each party to bear its costs.

49. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF AUGUST, 2024. ERIC NYONGESA WAFULA- CHAIRMANGLORIA A. OGAGA - MEMBERJEPHTHAH NJAGI - MEMBEREUNICE N. NG’ANG’A- MEMBER