Mobisol Kenya Limited v Commissioner of Domestic Taxes (Tax Appeal E1129 of 2024) [2024] KETAT 1763 (KLR) (Commercial and Tax) (17 December 2024) (Judgment)
Neutral citation:
[2024] KETAT 1763 (KLR)
Republic of Kenya
Tax Appeal E1129 of 2024
RM Mutuma, Chair, T Vikiru, Jephthah Njagi, M Makau & D.K Ngala, Members
December 17, 2024
Between
Mobisol Kenya Limited
Appellant
and
Commissioner of Domestic Taxes
Respondent
Judgment
Background
1.The Appellant is a company incorporated under the Kenyan Companies Act whose core business is clean energy and more particularly the supply of solar panels and solar powered equipment. The Appellant’s Successor in Title ENGIE Energy Access is a company duly incorporated under the Kenyan Companies Act.
2.The Respondent is a principal officer appointed pursuant to Section 13 of the Kenya Revenue Authority Act (KRA), Act No. 2 of 1995, and KRA is empowered to enforce and administer provisions of written laws set out in Section 5 as read together with the First Schedule of the KRA Act.
3.The Respondent conducted a VAT returns desk review (VAT review) on the Appellant comparing the input tax deducted vis a vis the output tax declared by the Appellant’s various suppliers, the Respondent issued the Appellant with Value Added Tax (“VAT”) Auto Assessments (“VAA”) for the period January 2018 to March 2018 on 15th November 2019 disallowing an amount of Kshs. 1,661,888.67.
4.The Appellant objected to the Respondent’s VAA orders vide letters dated 18th November 2019.
5.The Respondent issued its Objection Decision dated 30th June 2020 disallowing input VAT of Kshs. 444,610.00.
6.The Appellant, dissatisfied with the Respondent’s decision lodged this Appeal at the Tribunal on 25th November 2020, with leave to file its Appeal out of time granted on 4th December 2020.
The Appeal
7.The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated 25th November 2020:a.That the Respondent erred in law and fact by disallowing input VAT of Kshs. 382,100.00 that was not claimed by the Appellant; and,b.That the Respondent erred in law and fact by failing to take into consideration that the Appellant made mixed supplies, being in the business of supplying solar panels and solar powered equipment. This was a fact that the Appellant had taken into account while claiming its input tax by apportioning the deductible input tax accordingly.
The Appellant’s Case
8.The Appellant’s case is premised on its;a.Statement of Facts dated 25th November 2020 together with the documents attached thereto; and,b.Written Submissions dated and filed on 22nd October 2024.
9.The Appellant averred that the dispute relates to Value Added Tax (“VAT”) Auto Assessments (“VAA”) issued by the Respondent for the period January 2018 to March 2018 after the Respondent conducted a VAT returns desk review on the Appellant, comparing the input tax deducted vis-a-vis the output tax declared by the Appellant’s various suppliers.
10.The Appellant averred that the Respondent alleged that there were inconsistencies between the input tax deducted and the output tax declared and issued VAA orders for the said period on 15th November 2019 and disallowed an amount of Kshs. 1,661,888.67.
11.The Appellant submitted that it is in the business of supplying solar panels and solar powered equipment. That during the period under review, January 2018 to March 2018, supply of solar equipment was an exempt supply under Paragraph 45 of the First Schedule to the VAT Act while solar powered equipment were subject to VAT at the standard rate of 16%. That the Appellant thus made mixed supplies.
12.The Appellant posited that at the time the Respondent conducted its desk review, it made the wrong assumption that the Appellant had deducted the entire amount of the disallowed invoices against its output. That the Appellant knew very well that its business involved making mixed supplies and could not claim a portion of its suppliers’ invoices that related to its exempt supplies.
13.The Appellant submitted that the Respondent in its Objection Decision failed to consider the fact that the Appellant apportioned and claimed input tax attributable to the taxable supplies.
14.That the Respondent erred by disallowing input tax based on the entire invoice amount before apportionment which was higher than what had been claimed by the Appellant.
15.The Appellant averred that out of the Kshs. 444,610.00 disallowed by the Respondent it restricted and deducted input VAT of Kshs. 62,510.00 being the apportioned amount relating to its vatable supplies while it did not claim input VAT amounting to Kshs. 382,100.00.
16.The Appellant averred further that the Respondent erred in law and fact by failing to take into consideration that the Appellant made mixed supplies, being in the business of supplying solar panels and solar powered equipment. That this was a fact that the Appellant had taken into account while claiming its input tax by apportioning the deductible input tax accordingly.
17.The Appellant submitted that Section 17 (6) of the VAT Act allows it to apportion and deduct input tax attributable to Vatable supplies. That in apportioning its input related to vatable supplies vis-a- vis its exempt supplies, it relied on the formula provided under the provisions of Section 17 (6) (c) of the VAT Act.
18.The Appellant implored the Tribunal to take cognizance of the fact that the Respondent did not in its assessment or Objection Decision question the apportionment formula adopted by the Appellant.
19.The Appellant relied on the Tribunal’s decision in TAT Appeal No. 16 of 2016; ICEA Lion Life Assurance vs. Commissioner of Domestic Taxes; where the Tribunal held as follows;
20.The Appellant averred that the Respondent’s Objection Decision to the extent that it purported to disallow an amount of up to Kshs. 382,099.56 which the Appellant had not claimed as part of its input tax in the first place was without basis and ought to be vacated forthwith.
21.The Appellant posited that without prejudice to the above, while being dissatisfied with the objection decision the Appellant in its letter of 10th August 2020 it paid an amount of Kshs. 62,510.00 to the Respondent which in its view was the exposure amount arising from the VAT desk review assessment following its apportionment as above explained.
22.That the payment of Kshs. 62,510.00 comprised of an amount of Kshs. 50,812.00 relating to supplies from Solinc East Africa per invoice number INV503392 (declared as Nos. NPINV240798 and NPINV240798). The Appellant averred that the amount of Kshs. 11,698.00 related to invoices from Shalom Hotel and Green Square Mall which the Respondent disallowed.
23.The Appellant asserted that having made the payment of Kshs. 62,510.00, it had fully settled the disallowed input VAT and that the Respondent ought not to demand further payments from it.
24.The Appellant asserted further that the Respondent having not questioned the Appellant’s apportionment formula or addressed itself to the issue raised by the Appellant that it dealt with mixed supplies hence apportioned its invoices accordingly, that that implied the Respondent’s agreement with the Appellant’s computation.
25.On the issue raised that the Appellant did not meet its burden of proof, the Appellant referred the Tribunal to its handwritten letter through which it forwarded a bundle of documents that had been requested by the Respondent. The Appellant contended that Respondent’s claim that the it failed to provide information was thus unfounded.
The Appellant’s Prayers
26.The Appellant prayed the Tribunal for orders that;a.This Appeal be allowed;b.The Respondent’s decision of 30th June 2020 disallowing input VAT invoices amounting to Kshs. 2,778,812.40 with an input VAT implication of Kshs. 444,610.00 and any resultant penalties and interests be set aside;c.The costs of and incidental to this Appeal be awarded to the Appellant; and,d.Any other orders that the Tax Appeals Tribunal may deem fit.
The Respondent’s Case
27.The Respondent’s case is premised on its;a.Statement of Facts dated 23rd December 2020 together with the documents attached thereto; and,b.Written Submissions dated and filed on 5th November 2024.
28.The Respondent averred that its iTax System detected inconsistencies in the Appellant’s returns for the months of January 2018 to March 2018 between the invoices declared by the Appellant and its suppliers.
29.The Respondent submitted that as a result of the inconsistencies, it issued an assessment of Kshs. 2,443,340.96 against the Appellant for the invoices that were not found in the supplier’s VAT return.
30.The Respondent submitted that upon the Appellant’s objection and provision of supporting documents, it allowed Kshs. 1,217,278.68 and disallowed Kshs. 444,609.99 which now forms the basis of this Appeal.
31.The Respondent propounded that the Appellant admitted owing Kshs. 62,510.00 and claimed to have made the payment of the said sum. That however, the Appellant failed to attach proof of payment of the sums to prove to the Tribunal and Respondent that the sums had been remitted.
32.It was the Respondent’s position that the Appellant had not effected payment towards taxes it had admitted to be owing to the Respondent as it had failed to provide proof that payment had been made at the time of filing the Appeal as required by statute.
33.The Respondent averred that it takes full cognizance of the fact that the Appellant's business is diverse. That however, it asserts that the disallowed invoices were not provided for the Respondent’s review thus the assessment was upheld.
34.The Respondent relied on Section 56 (1) of the TPA which states that;
35.The Respondent averred further that it disallowed the invoices amounting to Kshs. 382,100.00 on grounds that invoices were not provided and some of the invoices did not fall into the category envisioned in Section 17 (4) (b) of the VAT Act, 2014 which provides that;Provided that no tax shall be charged on the supply where no input tax deduction was allowed on that supply under this subsection”
36.The Respondent posited that some of the input VAT claimed falls under Section 17 (4) of the VAT Act thus cannot be deducted, that despite the Appellant’s argument that the same is deductible, no proof has been offered to prove that it is deductible thus the same cannot be deducted.
37.The Respondent submitted that the Appellant’s Appeal offends the mandatory provisions Section 52 (2) of the Tax Procedures Act which provides as follows;
38.The Respondent submitted that it is not in dispute that a Taxpayer has a right to Appeal to the Tax Appeals Tribunal in relation to an Objection Decision but that such an Appeal is subject to two conditions. First, a taxpayer has to pay the tax not in dispute or secondly, they are to enter into an arrangement with the Commissioner to pay the tax not in dispute.
39.It was the Respondent's submission that Section 52 (2) of the Tax Procedures Act is unambiguous, requires no interpretation and is couched in mandatory terms. That a litigant’s Appeal to the Tribunal is only valid if the undisputed taxes are paid or if there is a payment plan.
40.The Respondent postulated that the operative word in Section 52 (2) of the Tax Procedures Act is shall. That the Black’s Law Dictionary, defines the word “shall” as follows;
41.The Respondent submitted that the Appellant having conceded to the Respondent's assessment of VAT of Kshs. 62,510.00 vide its letter dated 10th August 2020 had a statutory obligation to settle the same before filing an Appeal at the Tax Appeals Tribunal.
42.The Respondent averred that it indeed received the letter dated 10th August 2020 whereupon the Appellant alleged to have attached a payment slip of the undisputed tax in the sum of Kshs. 62,510.00. That however, there was no attached payment slip. The Respondent asserted that the Appellant had not provided evidence that it actually paid the conceded amount.
43.The Respondent submitted that in law, there is a world of a difference between assertion and proof. That whatever a party states in its case is an assertion. That the party needs to adduce evidence to support its assertion with a view to proving its case.
44.The Respondent relied on the Court of Appeal case of Mbuthia Macharia vs. Annah Mutua Ndwiga & Another [2017] eKLR. Where the court stated that;
45.The Respondent contended that the onus of proof was on the Appellant concerning its assertion that it actually paid the conceded sum of Kshs. 62,510.00. That the Appellant failed to adduce evidence to that effect, hence the Respondent implored the Tribunal to find that the Appellant's Appeal offends the mandatory provisions of Section 52 (2) of the TPA and the same should therefore be dismissed.
46.The Respondent also relied on Income Tax Appeal No.12 of 2018: Hewlett Packard East Africa Limited vs. the Commissioner of Domestic Taxes [2019] eKLR. The Court while dismissing an appeal that was lodged before payment of undisputed taxes had this to say:
47.The Respondent averred that it is mandated by Section 24 of the TPA to issue additional assessments. That the Section provides;
48.The Respondent submitted that the Appellant has the responsibility of filing tax returns but the Respondent is not bound by the returns and/or information provided by the Appellant. That Section 31 (1) of the Tax Procedure Act provides that;
49.The Respondent submitted that it followed the law in considering the available information and it was therefore justified in issuing and confirming the assessment.
50.The Respondent submitted further that Section 56 of the TPA as read together with Section 30 of the Tax Appeals Tribunal Act provides that the burden is on the Appellant to proof that the decision and/or assessment made by the Respondent is incorrect.
51.The Respondent relied on the case of Alfred Kioko Muteti vs. Timothy Miheso & Another (2015) eKLR where the court held that;
52.The Respondent proffered that the Appellant can only discharge the burden of proof that the decision and assessment made by the Respondent were incorrect and/ or that the Respondent failed to consider any or all the information and/ or considered irrelevant information and therefore arrived at a wrong decision and/or assessment; by providing sufficient, relevant and competent documents.
The Respondent’s Prayers
53.The Respondent prays that this Tribunal finds that: -a.The Respondent's objection decision dated 30th June 2020 be upheld; and,b.This Appeal be dismissed with costs.
Issues for Determination
54.Having carefully reviewed the pleadings and submissions by both parties together with annexures thereto, the Tribunal is of the considered view that the following issues fall for its determination: -i.Whether the Appellant’s Notice of Appeal dated 25th November, 2020 is Valid;ii.Whether the Appellant discharged the burden of proof.
Analysis and Findings
55.Having identified the issues for its determination, the Tribunal proceeds to analyze them as hereunder.
i. Whether the Appellant’s Notice of Appeal dated 25th November, 2020 is Valid;
56.The genesis of the instant Appeal is a dispute relating to additional VAT assessment orders issued to the Appellant on 15th November 2015. The additional assessments were based on inconsistencies detected by the Respondent in the Appellant’s Tax returns in the iTax system for the months of January 2018, February 2018 and March 2018 between the invoices declared by the Appellant and its clients.
57.It is not in dispute that there were inconsistencies in Appellant’s tax returns and the input tax claimed, what is in dispute at this point is the amount of input tax claimed by the Appellant based on invoices that were not found in the suppliers’ VAT returns.
58.The Tribunal’s analysis of material adduced before it shows that while the Respondent assessed the additional VAT payable as a result of the inconsistencies to be Kshs. 444,609.99, the Appellant admitted to Kshs. 62,510.43 and disputed Kshs. 382,100.00 hence the instant Appeal.
59.The Appellant having conceded to the Respondent's assessment of VAT of Kshs. 62,510.23 vide its letter dated 10th August 2020 had a statutory obligation to settle the same before filing an appeal at the Tax Appeals Tribunal as provided by Section 12 (2) of the Tax Appeals Tribunals Act.
60.The Tribunal’s jurisdiction to hear and determine tax disputes is derived from Sections 52 of the TPA, 2015 (TPA) and Section 12 of the Tax Appeals Tribunal Act, 2013 (TAT). The Sections provide thus;
61.From our understanding, the plain meaning and express import of the above provisions is that the Tribunal assumes jurisdiction upon the Appellant filing a valid Notice of Appeal. The validity of the Notice of Appeal, however, is expressly conditional on, amongst others, the intended Appellant paying undisputed taxes or entering an arrangement or payment plan with the Respondent.
62.While the Appellant in its letter to the Respondent on 10th August 2020, it’s statement of facts as well as in its submissions alleges to have paid the conceded amount of Kshs. 62,510.00 it has not provided evidence that it actually paid the conceded amount.
63.The Appellant states severally that it provided the payment slip to the Respondent, on its part the Respondent maintains that the Appellant has failed to provide proof of payment of the undisputed tax.
64.Contrary to the Appellant’s assertions, is nothing on record before the Tribunal to show that the Appellant either paid the said undisputed tax or entered into payment plan with the Respondent.
65.In the circumstances, the Tribunal is constrained to find that the Notice of Appeal, as presently filed, has not met the validity test envisaged under Section 52 of the TPA as read with Section 12 of the Tax Appeals Tribunal Act. The consequence of this finding is that the Tribunal’s jurisdiction has not been properly invoked.
ii. Whether the Appellant discharged the burden of proof.
66.Having found that the Tribunal lacks jurisdiction to entertain the instant Appeal, the second issue for determination has been accordingly rendered moot at this stage.
Final Determination
67.The upshot of the foregoing is that the Appeal is incompetent and Tribunal will proceed to issue the following orders;a.The Appeal be and is hereby struck out; and,b.No orders as to costs.
68.It is so ordered.
DATED AND DELIVERED AT NAIROBI THIS 17TH DAY OF DECEMBER 2024ROBERT M. MUTUMA - CHAIRMANDR. TIMOTHY B. VIKIRU - MEMBERJEPHTHAH NJAGI - MEMBERMUTISO MAKAU - MEMBERDELILAH K. NGALA - MEMBER