1. The Respondent issued the Appellant with a Penalty Order dated 25/7/2024 for the offences of selective issuance/failure to issue a proper tax invoice to all customers.
2. The Appellant objected to the penalty order on 9/8/2024, and the Respondent issued its Objection Decision on 22/8/2024, wherein it demanded from the Appellant payment of Kshs 500,000.00.
3. Being dissatisfied with the Respondent’s decision, the Appellant filed an appeal against it at the Tax Appeals Tribunal (the Tribunal).
4. Upon consideration of the appeal, the Tribunal struck out the appeal, finding that it had no jurisdiction to entertain the appeal before it.
5. The Appellant, being aggrieved by the decision of the Tribunal delivered on 11/4/2025, appealed to this court, raising some eight (8) grounds, key among them being: -
i. That the Tribunal erred in law and misdirected itself by declining jurisdiction without undertaking any substantive evaluation as to whether the Respondent’s invocation of Section 109 of the Tax Procedures Act, 2015, was legally valid.
ii. The Honourable Tribunal erred in law in failing to address the applicability of Section 86 of the Tax Procedures Act, and thereby ignored a material statutory provision affecting the outcome of the matter.
iii. The Honourable Tribunal erred in law by adopting the Respondent’s characterization of the action as a compounding order under Section 109(3)(e) of the Tax Procedures Act without evaluating whether the action satisfied the essential legal requirements of a valid compounding process.
iv. The Honourable Tribunal erred in law by disregarding the operation of Section 51(11) of the Tax Procedures Act, 2015, which provides that an objection shall be deemed allowed where no decision is made within sixty (60) days.
v. The Honourable Tribunal erred in law by failing to consider whether the Respondent’s action amounted to a penalty imposed unilaterally and without procedural fairness, thereby violating the principles of fair administrative action enshrined under Article 47 of the Constitution and Section 4 of the Fair Administrative Action Act.
vi. The Honourable Tribunal erred in law by failing to consider that the Respondent’s conduct, including the failure to issue a reasoned objection decision and the coercion of the Appellant into signing mitigation documents, amounted to a breach of the Appellant’s right to a fair hearing under Article 50(1) of the Constitution.
6. The Respondent opposed the instant appeal by filing a Statement of Facts dated 30/4/2025.
7. In its Statement of Facts, the Respondent stated that the matter arose from a penalty order issued against the Appellant for failing to issue proper tax invoices to all customers. The Appellant had opted for compounding of the offence under section 109 of the Tax Procedures Act, prompting the Respondent to issue the penalty order on 25/7/2024. The Appellant lodged an objection on 9/8/2024, within the statutory period.
8. It was averred that pursuant to the compounding process, the Appellant’s representative, Ann Wambui Ng’ang’a, appeared before the compounding committee and formally requested settlement by completing and signing the required forms. She also signed the compounding minutes, confirming her satisfaction with the process and the explanations offered. The Respondent thus contended that the penalty order, which demanded a payment of Kshs. 500,000, was lawfully issued in good faith under section 109 of the Tax Procedures Act.
9. The Appellant subsequently filed an appeal, dissatisfied with the Respondent’s decision dated 22/8/2024. The Tribunal delivered its judgment on 11/4/2025, dismissing the appeal on grounds that it lacked jurisdiction.
10. The Respondent supported the Tribunal’s finding, arguing that under section 109(3)(e) of the Act, once a taxpayer opts for compounding and signs a written admission and settlement agreement, the resulting order is final and not subject to appeal. The Respondent relied on the decision in MV Lilian S v Caltex Oil (Kenya) Ltd to support the view that once jurisdiction is lacking, the Tribunal could not proceed further.
11. It was further submitted that the compounding process had been voluntarily undertaken, and no evidence had been presented to suggest duress, coercion, or intimidation. The Respondent maintained that the objection decision was justified in law and that the Appellant had failed to discharge the legal burden of proof under sections 30 of the Tax Appeals Tribunal Act and 56(1) of the Tax Procedures Act.
12. In conclusion, the Respondent urged the court to uphold the Tribunal’s judgment and dismiss the appeal with costs.
13. The Appeal proceeded by way of written submissions. the Appellant filed their submissions dated 12/6/2025. The Respondent’s submissions are also dated the same date.
Analysis and determination
14. I have carefully analyzed the record of appeal and the pleadings filed by the parties. I am of the view that the only issue for determination in this appeal is; whether the Tribunal erred in finding that it lacked jurisdiction to hear and determine the Appeal.
15. The Appellant submitted that the court ought to set aside the Tribunal’s finding that it lacked jurisdiction and affirm that the issues raised were justiciable and within its remit.
16. On the other hand, the Respondent submitted that the Tribunal indeed lacked jurisdiction to hear and determine the appeal based on the provisions of section 109 of the Tax Procedures Act.
17. From the parties’ arguments, it is clear that the crux of the Appellant’s case lies in its assertion that the Tribunal erred in law by failing to consider the applicability of Section 86 of the Tax Procedures Act, thereby overlooking a material statutory provision that, according to the Appellant, would have altered the outcome of the matter. The Appellant contended that the maximum penalty under Section 86(2) for failure to issue an electronic tax invoice (ETR) is limited to “two times the tax due.”
18. On this basis, the Appellant challenged the penalty of KES 500,000 imposed by the Respondent in the Penalty Decision dated 25th July 2024, and maintained in the Objection Decision of 22nd August 2024, as being contrary to the law. The Appellant argued that, based on the value of the transaction (KES 500), the VAT due was KES 68.96, and thus the maximum penalty under Section 86(2) ought to have been limited to KES 137.92 (i.e., twice the tax due).
19. Having perused the record of appeal, I note that in the present case, the Appellant was charged under Section 42 of the Value Added Tax Act, 2013, with the offence of failing to issue a proper tax invoice as required by law. This is an offence created under the VAT Act, and unless expressly provided otherwise, the applicable penalty must be located within the same Act. Section 42 of the VAT Act provides as follows: -
“42. Tax invoice
(1) Subject to subsection (2), a registered person who makes a taxable supply shall, at the time of the supply furnish the purchaser with the tax invoice containing the prescribed details for the supply.
(2) No invoice showing an amount which purports to be tax shall be issued on any supply—
(a) which is not a taxable supply; or
(b) by a person who is not registered.
(3) Any person who issues an invoice in contravention of this subsection commits an offence and any tax shown thereon shall become due and payable to the Commissioner within seven days of the date of the invoice." [emphasis added].
20. While Section 42 establishes the offence, it does not prescribe a specific penalty for failure to issue a proper tax invoice. In such circumstances, the applicable penalty must be derived from Section 63 of the VAT Act, which provides:
“A person convicted of an offence under this Act for which no other penalty is provided shall be liable to a fine not exceeding one million shillings, or to imprisonment for a term not exceeding three years, or to both.”
21. In the present case, the fine of Kshs. 500,000/- imposed by the Respondent clearly falls within the statutory maximum prescribed by Section 63. It represents half of the maximum permissible fine, and there is no provision in the VAT Act that pegs the fine to the tax amount involved. Accordingly, the penalty imposed cannot be considered illegal, excessive, or unjustified.
22. The Appellant’s contention that Section 86(2) of the Tax Procedures Act was the applicable provision is misguided. That section applies only to offences created under the Tax Procedures Act, and where the taxpayer has been charged under that Act. In this case, however, the charge arose specifically under the VAT Act, and as such, only the penalties within the VAT Act are applicable.
23. It therefore follows that this ground of appeal is devoid of merit and must fail.
24. Further, Section 109 Tax Procedures Act grants the Commissioner the power to compound offences and provides as follows: -
"S. 109 Power of the Commissioner to compound offences.
(1) The Commissioner may, where he is satisfied that a person has committed an offence under a tax law in respect of which a penalty of a fine is provided, or in respect of which anything is liable to forfeiture, compound the offence and may order that person to pay such sum of money, not exceeding the amount of the fine to which he or she would have been liable if he or she had been prosecuted and convicted for the offence, as the Commissioner may think fit and the Commissioner may order anything liable to forfeiture in connection therewith to be condemned: Provided that the Commissioner shall not exercise his or her powers under this section unless the person admits in writing that he or she has committed the offence and requests the Commissioner to deal with the offence under this section."
(2) For the purposes of subsection (1), the Commissioner shall constitute a committee of not less than three officers to consider applications for the compounding of offences.
(3) An order by the Commissioner in accordance with this section shall— (a) be in writing under the hand of the Commissioner and the offender, and witnessed by an officer; (b) specify the name of the offender, the offence committed, the sum of money ordered by the Commissioner to be paid, and the date or dates on which payment is to be made; c. have a copy of the written admission referred to under subsection (2) attached; d. be served on the offender; e. be final and not be subject to appeal; and; f. on production in any court, be treated as proof of the conviction of the offender for the offence specified, and may be enforced in the same manner as a decree of a court for the payment of the amount stated therein.’’
25. In this case, as noted hereinabove, the dispute arose from a penalty order issued against the Appellant for failing to issue proper tax invoices to all customers.
26. From the record, I note that the Appellant opted for settlement of the case (compounding) of the offence under section 109 of the Tax Procedures Act, prompting the Respondent to issue the penalty order on 25/7/2024. The Appellant lodged an objection against it on 9/8/2024.
27. The record of appeal indicates that the Appellant’s representative, Ann Wambui N’gang’a appeared before the compounding committee on 25th July 2024 and formally requested settlement by completing and signing the required forms. She also signed the compounding minutes, confirming her satisfaction with the process and the explanations offered.
28. Based on the foregoing, I agree with the Respondent’s assertions that the penalty order issued by it for the payment of Kshs. 500,000/- was lawfully issued in good faith under section 109 of the Tax Procedures Act.
29. Under section 109(3)(e) of the Tax Procedure Act an order by the Respondent under the section is final and not subject to appeal. It goes without saying therefore that the Tribunal did not have the jurisdiction to entertain the appeal lodged against the Respondent’s penalty order.
30. Jurisdiction is everything and without it a court must down its tools; See the locus classicus case of Owners of The Motor Vessel “Lillian S” v Caltex Oil (Kenya) Ltd (Civil Appeal 50 of 1989) [1989] KECA 48 (KLR).
31. I find, therefore, that the Tribunal was right in making a determination that it lacked jurisdiction to entertain the appeal and by rejecting to consider the substance of the appeal.
32. The upshot of the foregoing is that the appeal before this court lacks merit and is dismissed with costs.
33. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT THIS
31ST DAY OF JULY 2025
ADO MOSES
JUDGE
In the presence of: -
C/A – Moses
2. The Appellant objected to the penalty order on 9/8/2024, and the Respondent issued its Objection Decision on 22/8/2024, wherein it demanded from the Appellant payment of Kshs 500,000.00.
3. Being dissatisfied with the Respondent’s decision, the Appellant filed an appeal against it at the Tax Appeals Tribunal (the Tribunal).
4. Upon consideration of the appeal, the Tribunal struck out the appeal, finding that it had no jurisdiction to entertain the appeal before it.
5. The Appellant, being aggrieved by the decision of the Tribunal delivered on 11/4/2025, appealed to this court, raising some eight (8) grounds, key among them being: -
i. That the Tribunal erred in law and misdirected itself by declining jurisdiction without undertaking any substantive evaluation as to whether the Respondent’s invocation of Section 109 of the Tax Procedures Act, 2015, was legally valid.
ii. The Honourable Tribunal erred in law in failing to address the applicability of Section 86 of the Tax Procedures Act, and thereby ignored a material statutory provision affecting the outcome of the matter.
iii. The Honourable Tribunal erred in law by adopting the Respondent’s characterization of the action as a compounding order under Section 109(3)(e) of the Tax Procedures Act without evaluating whether the action satisfied the essential legal requirements of a valid compounding process.
iv. The Honourable Tribunal erred in law by disregarding the operation of Section 51(11) of the Tax Procedures Act, 2015, which provides that an objection shall be deemed allowed where no decision is made within sixty (60) days.
v. The Honourable Tribunal erred in law by failing to consider whether the Respondent’s action amounted to a penalty imposed unilaterally and without procedural fairness, thereby violating the principles of fair administrative action enshrined under Article 47 of the Constitution and Section 4 of the Fair Administrative Action Act.
vi. The Honourable Tribunal erred in law by failing to consider that the Respondent’s conduct, including the failure to issue a reasoned objection decision and the coercion of the Appellant into signing mitigation documents, amounted to a breach of the Appellant’s right to a fair hearing under Article 50(1) of the Constitution.
6. The Respondent opposed the instant appeal by filing a Statement of Facts dated 30/4/2025.
7. In its Statement of Facts, the Respondent stated that the matter arose from a penalty order issued against the Appellant for failing to issue proper tax invoices to all customers. The Appellant had opted for compounding of the offence under section 109 of the Tax Procedures Act, prompting the Respondent to issue the penalty order on 25/7/2024. The Appellant lodged an objection on 9/8/2024, within the statutory period.
8. It was averred that pursuant to the compounding process, the Appellant’s representative, Ann Wambui Ng’ang’a, appeared before the compounding committee and formally requested settlement by completing and signing the required forms. She also signed the compounding minutes, confirming her satisfaction with the process and the explanations offered. The Respondent thus contended that the penalty order, which demanded a payment of Kshs. 500,000, was lawfully issued in good faith under section 109 of the Tax Procedures Act.
9. The Appellant subsequently filed an appeal, dissatisfied with the Respondent’s decision dated 22/8/2024. The Tribunal delivered its judgment on 11/4/2025, dismissing the appeal on grounds that it lacked jurisdiction.
10. The Respondent supported the Tribunal’s finding, arguing that under section 109(3)(e) of the Act, once a taxpayer opts for compounding and signs a written admission and settlement agreement, the resulting order is final and not subject to appeal. The Respondent relied on the decision in MV Lilian S v Caltex Oil (Kenya) Ltd to support the view that once jurisdiction is lacking, the Tribunal could not proceed further.
11. It was further submitted that the compounding process had been voluntarily undertaken, and no evidence had been presented to suggest duress, coercion, or intimidation. The Respondent maintained that the objection decision was justified in law and that the Appellant had failed to discharge the legal burden of proof under sections 30 of the Tax Appeals Tribunal Act and 56(1) of the Tax Procedures Act.
12. In conclusion, the Respondent urged the court to uphold the Tribunal’s judgment and dismiss the appeal with costs.
13. The Appeal proceeded by way of written submissions. the Appellant filed their submissions dated 12/6/2025. The Respondent’s submissions are also dated the same date.
Analysis and determination
14. I have carefully analyzed the record of appeal and the pleadings filed by the parties. I am of the view that the only issue for determination in this appeal is; whether the Tribunal erred in finding that it lacked jurisdiction to hear and determine the Appeal.
15. The Appellant submitted that the court ought to set aside the Tribunal’s finding that it lacked jurisdiction and affirm that the issues raised were justiciable and within its remit.
16. On the other hand, the Respondent submitted that the Tribunal indeed lacked jurisdiction to hear and determine the appeal based on the provisions of section 109 of the Tax Procedures Act.
17. From the parties’ arguments, it is clear that the crux of the Appellant’s case lies in its assertion that the Tribunal erred in law by failing to consider the applicability of Section 86 of the Tax Procedures Act, thereby overlooking a material statutory provision that, according to the Appellant, would have altered the outcome of the matter. The Appellant contended that the maximum penalty under Section 86(2) for failure to issue an electronic tax invoice (ETR) is limited to “two times the tax due.”
18. On this basis, the Appellant challenged the penalty of KES 500,000 imposed by the Respondent in the Penalty Decision dated 25th July 2024, and maintained in the Objection Decision of 22nd August 2024, as being contrary to the law. The Appellant argued that, based on the value of the transaction (KES 500), the VAT due was KES 68.96, and thus the maximum penalty under Section 86(2) ought to have been limited to KES 137.92 (i.e., twice the tax due).
19. Having perused the record of appeal, I note that in the present case, the Appellant was charged under Section 42 of the Value Added Tax Act, 2013, with the offence of failing to issue a proper tax invoice as required by law. This is an offence created under the VAT Act, and unless expressly provided otherwise, the applicable penalty must be located within the same Act. Section 42 of the VAT Act provides as follows: -
“42. Tax invoice
(1) Subject to subsection (2), a registered person who makes a taxable supply shall, at the time of the supply furnish the purchaser with the tax invoice containing the prescribed details for the supply.
(2) No invoice showing an amount which purports to be tax shall be issued on any supply—
(a) which is not a taxable supply; or
(b) by a person who is not registered.
(3) Any person who issues an invoice in contravention of this subsection commits an offence and any tax shown thereon shall become due and payable to the Commissioner within seven days of the date of the invoice." [emphasis added].
20. While Section 42 establishes the offence, it does not prescribe a specific penalty for failure to issue a proper tax invoice. In such circumstances, the applicable penalty must be derived from Section 63 of the VAT Act, which provides:
“A person convicted of an offence under this Act for which no other penalty is provided shall be liable to a fine not exceeding one million shillings, or to imprisonment for a term not exceeding three years, or to both.”
21. In the present case, the fine of Kshs. 500,000/- imposed by the Respondent clearly falls within the statutory maximum prescribed by Section 63. It represents half of the maximum permissible fine, and there is no provision in the VAT Act that pegs the fine to the tax amount involved. Accordingly, the penalty imposed cannot be considered illegal, excessive, or unjustified.
22. The Appellant’s contention that Section 86(2) of the Tax Procedures Act was the applicable provision is misguided. That section applies only to offences created under the Tax Procedures Act, and where the taxpayer has been charged under that Act. In this case, however, the charge arose specifically under the VAT Act, and as such, only the penalties within the VAT Act are applicable.
23. It therefore follows that this ground of appeal is devoid of merit and must fail.
24. Further, Section 109 Tax Procedures Act grants the Commissioner the power to compound offences and provides as follows: -
"S. 109 Power of the Commissioner to compound offences.
(1) The Commissioner may, where he is satisfied that a person has committed an offence under a tax law in respect of which a penalty of a fine is provided, or in respect of which anything is liable to forfeiture, compound the offence and may order that person to pay such sum of money, not exceeding the amount of the fine to which he or she would have been liable if he or she had been prosecuted and convicted for the offence, as the Commissioner may think fit and the Commissioner may order anything liable to forfeiture in connection therewith to be condemned: Provided that the Commissioner shall not exercise his or her powers under this section unless the person admits in writing that he or she has committed the offence and requests the Commissioner to deal with the offence under this section."
(2) For the purposes of subsection (1), the Commissioner shall constitute a committee of not less than three officers to consider applications for the compounding of offences.
(3) An order by the Commissioner in accordance with this section shall— (a) be in writing under the hand of the Commissioner and the offender, and witnessed by an officer; (b) specify the name of the offender, the offence committed, the sum of money ordered by the Commissioner to be paid, and the date or dates on which payment is to be made; c. have a copy of the written admission referred to under subsection (2) attached; d. be served on the offender; e. be final and not be subject to appeal; and; f. on production in any court, be treated as proof of the conviction of the offender for the offence specified, and may be enforced in the same manner as a decree of a court for the payment of the amount stated therein.’’
25. In this case, as noted hereinabove, the dispute arose from a penalty order issued against the Appellant for failing to issue proper tax invoices to all customers.
26. From the record, I note that the Appellant opted for settlement of the case (compounding) of the offence under section 109 of the Tax Procedures Act, prompting the Respondent to issue the penalty order on 25/7/2024. The Appellant lodged an objection against it on 9/8/2024.
27. The record of appeal indicates that the Appellant’s representative, Ann Wambui N’gang’a appeared before the compounding committee on 25th July 2024 and formally requested settlement by completing and signing the required forms. She also signed the compounding minutes, confirming her satisfaction with the process and the explanations offered.
28. Based on the foregoing, I agree with the Respondent’s assertions that the penalty order issued by it for the payment of Kshs. 500,000/- was lawfully issued in good faith under section 109 of the Tax Procedures Act.
29. Under section 109(3)(e) of the Tax Procedure Act an order by the Respondent under the section is final and not subject to appeal. It goes without saying therefore that the Tribunal did not have the jurisdiction to entertain the appeal lodged against the Respondent’s penalty order.
30. Jurisdiction is everything and without it a court must down its tools; See the locus classicus case of Owners of The Motor Vessel “Lillian S” v Caltex Oil (Kenya) Ltd (Civil Appeal 50 of 1989) [1989] KECA 48 (KLR).
31. I find, therefore, that the Tribunal was right in making a determination that it lacked jurisdiction to entertain the appeal and by rejecting to consider the substance of the appeal.
32. The upshot of the foregoing is that the appeal before this court lacks merit and is dismissed with costs.
33. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT THIS
31ST DAY OF JULY 2025
ADO MOSES
JUDGE
In the presence of: -
C/A – Moses