Sweet World Supermarket Limited v Commissioner Domestic Taxes [2023] KETAT 533 (KLR)

Sweet World Supermarket Limited v Commissioner Domestic Taxes (Tax Appeal 812 of 2022) [2023] KETAT 533 (KLR) (13 October 2023) (Judgment)

Neutral citation: [2023] KETAT 533 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 812 of 2022

RM Mutuma, Chair, EN Njeru, M Makau, BK Terer & W Ongeti, Members

October 13, 2023

Between

Sweet World Supermarket Limited

Appellant

and

Commissioner Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited company duly incorporated and registered under the Companies Act within the Republic of Kenya. Its main form of business is in the wholesale of food products and household items.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya revenue Authority Act, 1995. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5 (2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 & 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 reviewed the Appellant’s VAT returns for January to May 2018 in comparison to its suppliers and raised VAT Automated Assessments (VAA) on 15th November 2019.

4. The Appellant lodged objections to the additional assessments on 5th January 2020 and after which the Respondent issued an objection decision on 1st July 2022 partially allowing the Appellant’s objections.

5. Aggrieved by the objection decision, the Appellant filed a Notice of Appeal on 29th July 2022.

The Appeal 6. In its Memorandum of Appeal dated and filed on 3rd August 2022, the Appellant premised its Appeal on the following grounds:-a.The Respondent erred in law in failing to allow the Value Added Tax (VAT) on purchases for the months of January to May 2018. b.The Respondent erred in fact in not appreciating and considering the detailed proof documents sent to the Respondent by the Appellant to confirm the correct status of taxes pertaining to the Appellant.c.The Respondent erred in law in not applying principles of natural justice and fairness in its actions towards the Appellant by demanding taxes from the Appellant arbitrarily without giving it a chance to be heard.d.The Respondent erred in law and fact by failing to provide the Appellant with the VAA assessment detailing VAT inconsistencies which amounted to Kshs 26,659,122. 98

The Appellant’s Case 7. The Appellant set down its case in its Statement of Facts dated and filed on 3rd August 2022.

8. It stated that on 22nd January 2019, the Appellant made objections to the Respondent for VAT assessments for January to May 2018 totaling Kshs.27,084,106. 79 and a decision communicated by a letter dated 1st July 2022 in which the Respondent allowed tax for the sum of Kshs. 424,983. 81 leaving a tax payable to a total of Kshs. 26,659,122. 98.

9. It averred that the Respondent on its own motion without representation or involvement of the Appellant to present the facts held a meeting which condemned the Appellant unheard and demanded payment of Kshs. 26,659,122. 98.

10. It stated that it provided documents requested by the Respondent for VAA but the Respondent failed to avail proof of the VAT inconsistencies amounting to Kshs. 26,659,122. 98.

11. Given that the Appellant did not file any submissions with the Tribunal, the Tribunal will rely on the pleadings provided and documents attached thereto to determine its case.

The Appellant’s Prayers 12. The Appellant prayed for orders for the Tribunal to:a.Set aside the assessments raised on the Appellant in the sum of Kshs. 26,659,122. 98. b.Remove the sum from the tax register and system.c.Order the Respondent to issue a current Tax Compliance Certificate to the Appellant.d.The cost of this Appeal be borne by the Respondent.

The Respondent’s Case 13. The Respondent’s case is premised on; -i.The Statement of Facts filed on 1st September 2022; andii.The Written Submissions dated and filed on 4th April 2023.

14. It stated that Section 24 of the Tax Procedures Act allows a taxpayer to submit tax returns in the approved form and manner prescribed by the Respondent but the Respondent is not bound by the information provided therein and can assess additional taxes based on any other available information.

15. It averred that the Appellant herein filed self-assessment VAT 3 returns for the tax period January to May 2018 as required under Sections 24 and 28 of the Tax Procedures Act.

16. It reiterated that the additional VAT assessments for January to May 2018 were based on inconsistencies between the Appellant’s filed VAT returns and its suppliers.

17. It stated that the Appellant raised late objections to the additional VAT assessments stating that it had received the email notification late and the Appellant was requested to avail documentation in support of its late objection and the same were reviewed and additional assessments amended.

18. It contended that the Appellant’s late objections were partially accepted by allowing the input VAT that was fully supported with invoices and disallowing the unsupported input VAT.

19. The Respondent cited Section 24 (2) of the Tax Procedures Act and submitted that upon review of the Appellant’s VAT returns, it noted inconsistencies in the invoices used by the Appellant to claim VAT and the invoices declared by various suppliers for the tax period for the months of January to May 2018.

20. The Respondent relied on the case of Tumaini Distributors Company (K) Limited and Commissioner of Domestic Taxes [2020] eKLR and averred that the Appellant lodged late objections to the additional VAT assessments on 5th January 2020 and later availed documents in support of the late objection which it considered and amended the VAT additional assessments from Kshs. 27,084,106. 79 to Kshs. 26,659,122. 98.

21. It cited Section 17 (2) and 3 (a) of the VAT Act 2013 and submitted that the input VAT of Kshs. 424,983. 81 which was found to be properly deducted met the requirements for deductions of input tax under the law.

22. It further relied on the cases of Commissioner Investigations & Enforcement v Sangyug Enterprises K Limited [2022] eKLR and Commissioner of Domestic Taxes v OnseStop Trading Limited [2021] eKLR in asserting that it disallowed the input tax claims that were unsupported through documentation and it is upon the Appellant to prove that there had been a supply of taxable goods.

23. The Respondent cited Sections 56 (1) of the Tax Procedures Act 2015, Section 107 of the Evidence Act and the decisions in the cases of Commissioner of Domestic Taxes vs. Metoxide Limited [2021]; Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] eKLR; and Mbuhia Macharia vs. Annah Mutua Ndigwa & Another [2017] eKLR to buttress its position that the Appellant did not discharge its burden of proof with regards to the disallowed input VAT claims.

The Respondent’s prayers 24. The Respondent prayed for orders from the Tribunal that:a.The objection decision dated 1st July 2022 confirming additional principal VAT assessments of Kshs 26,659,122. 98 be upheld.b.This Appeal be dismissed with costs to the Respondent as the same is without merit.

Issues for Determination 25. Gleaning through the Memorandum of Appeal, the parties’ Statements of Facts, and the Respondent’s submissions, the Tribunal puts forth the following as the issue for determination:-

Whether the Respondent’s Objection Decision for VAT was justified. Analysis and Findings 26. The Tribunal wishes to analyse the issue as hereinunder.

Whether the Respondent’s Objection Decision for VAT was justified. 27. The Appellant maintained that the Respondent on its own motion without representation or involvement of the Appellant to present the facts, held a meeting which condemned the Appellant unheard and demanded payment of Kshs. 26,659,122. 98 and that it provided documents requested by the Respondent for VAA but the Respondent failed to avail proof of the VAT inconsistencies.

28. The Respondent contended that it is not bound by the information provided in the Appellant’s self-assessments and can assess additional taxes based on any other available information and that the additional VAT assessments for January to May 2018 were based on inconsistencies between the Appellant’s filed VAT returns and those its suppliers.

29. With regard to the Respondent’s amendment of assessment, the Tribunal observes that the Appellant’s argument that the same was not procedural having been made unilaterally, is not in contravention with Section 31 of the Tax Procedures Act which provides as follows; -―(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 judgment, to the original assessment of a taxpayer for a reporting period …‖

30. It is an agreed position that the Appellant’s Objection was partially accepted by allowing part of the input VAT that was supported. The Respondent arguing that it allowed input VAT that was fully supported with invoices and disallowing the unsupported input VAT, while the Appellant held that the document’s provided by it, were sufficient to support the allowance of all the input VAT that the Respondent sought to bring to charge in its assessments.

31. The Tribunal has perused the Appellant’s Appeal bundle and did not find therein documents that would have aided the Tribunal to determine whether or not the documents provided were sufficient to cause the Respondent to allow the same for input VAT. To this, the Tribunal relies on Section 56 (1) of the TPA as read together with Section 30 Tax Appeals Tribunal Act, which provide as follows:-Section 56 reads as follows:-―(1) In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.‖Section 30 reads as follows:-―In 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.

32. It is necessary to note that Section 56 (1) of the TPA and Section 30 Tax Appeals Tribunal Act, bestows the onus of the burden of proof upon the Appellant.

33. The Tribunal, guided by the above provision of the law, finds that the Appellant has not discharged its burden of proof and Appeal has not met the requirements stipulated therein and is therefore not merited.

34. In the circumstances, the Respondent’s Objection Decision was justified.

Final Decision 35. The upshot to the foregoing is that the Appeal is not merited and the Tribunal consequently makes the following orders; -a.The Appeal be and is hereby dismissed.b.Each party to bear its own costs.

36. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 13TH DAY OF OCTOBER, 2023ROBERT M. MUTUMA - CHAIRPERSONELISHAH N. NJERU - MEMBERMUTISO MAKAU - MEMBERBONIFACE K. TERER - MEMBERDR. WALTER ONGETI - MEMBER