[2023] KETAT 634 (KLR)

Apex Communications Limited v Commissioner of Domestic Taxes (Miscellaneous Application E104 of 2023) [2023] KETAT 634 (KLR) (Commercial and Tax) (3 November 2023) (Ruling)

Neutral citation: [2023] KETAT 634 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Miscellaneous Application E104 of 2023

E.N Wafula, Chair, M Makau, EN Njeru, E Ng'ang'a & AK Kiprotich, Members

November 3, 2023

Between

Apex Communications Limited

Applicant

and

Commissioner of Domestic Taxes

Respondent

Ruling

1. The Applicant vide a Notice of Motion dated the 21st July 2023 and filed on the 10th August, 2023 that is supported by an Affidavit sworn by Joan Maritimi, the Chief Accountant of the Applicant on the 21st July 2023, sought for the following Orders:-i.That the system restriction in the Respondent‘s electronic platform (iTax) dated 5th July 2023 barring the Applicant from offsetting overpaid Corporate tax of Kshs. 5,666,218 for the year 2015, against the current and future liabilities is a tax decision by the Respondent; and this Honorable Tribunal be pleased to set it aside.ii.That the Respondent be issued with an order of Mandamus compelling it to remove the system restriction and allow the Applicant to apply for a set-off of overpaid corporate tax of Kshs. 5,666,218 for the year 2015 against current and future liabilities.

2. The application is premised on the following grounds:-i.That under Rule 2 of the Tax Appeals Tribunal (Procedure) Rules, 2015 a decision on an application by a self-assessment taxpayer is a tax decision.ii.That Section 47(1)(b) of Tax Procedures Act 2015 only sets timelines for application for refund of overpaid taxes and not offset of such overpayments against current and future liabilities.iii.That the Respondent wrongfully set up the five-year restriction in its electronic tax system (iTax) contrary to the provisions under Section 47 of the Tax Procedures Act.iv.That there was no inordinate delay in making this application as this has only been made by the Applicant upon being barred by the Respondent‘s electronic system (iTax) from applying for set-off of its 2015 corporate tax overpayment against current and future liabilities.

3. In its written submissions dated 6th September 2023 and filed on the same date the Applicant stated as hereunder:-

On whether the Honourable Tribunal is competent to hear and determine an application for Judicial Review. 4. The Applicant submitted that the Respondent did not oppose the Applicant‘s prayer( in its Notice of Motion dated 21st July, 2023 for treatment of the system restriction by the Respondent‘s electronic platform (iTax) as a tax decision. It further submitted that it is the system restriction that barred the Applicant from applying for set-off of an overpaid corporation tax against current and future liabilities.

5. It was its submission that the Respondent also has not challenged the court‘s competency to hear and determine the Applicant's application for judicial review.

6. The Applicant submitted that Section 7 of the Fair Administrative Action Act provides, inter alia, that:-―(1) Any person who is aggrieved by an administrative action or decision may apply for review of the administrative action or decision toa.A court in accordance with section 8; orb.A tribunal in exercise of its jurisdiction conferred in that regard under any written law.‖

7. The Applicant submitted that a matter cannot be thrown out simply because a petitioner or an Applicant has invoked an enabling statute, and failed to meet the procedural standards of the enabling statute.

8. The Applicant further submitted that in the case of Krystalline Salt Limited v Kenya Revenue Authority (HCC Judicial Review Application No. 359 of 2018) it was clarified that the use of the word 'any other decision' in the definition of "appealable decision' under the Tax Procedures Act significantly includes an administrative decision within the meaning of Section 2 of the Fair Administrative Actions Act and pursuant to Section 9(1), (2), (3) and (4) of the same Act. That Section 2 of the Fair Administrative Action Act defines an administrative action to include ‗any act, omission or decision of any person, body or authority that affects the legal rights or interests of any person to whom such action relates‘; and ‗decision‘ is defined as any administrative or quasi-judicial decision made, proposed to be made, or required to be made, as the case may be.

On whether the Applicant‘s application for an offset of overpaid corporate tax for the year 2015 should be deemed to be out of time on the basis of a repealed Section 47(1) of the Tax Procedures Act. 9. The Applicant stated that deeming its application that has been made during and in accordance with a current enabling legislation, to be out of time on the basis of a repealed law is both illegal and unconstitutional. That any change in law effected by Parliament including a repeal is ordinarily meant to change the practice after enactment of the new law. That the retroactive application of a current law made by Parliament can only be limited by the Constitution and not the provisions of a repealed law. That this was affirmed in the ruling of the case of Okiya Omtata v Cabinet Secretary, National Treasury & 3 others[2018] eKLR as follows:-67. In view of my above observations, I find that it is necessary to juxtapose the provisions of the PCTDA with the current constitution in determining its constitutionality. In doing so, I find that Section 7 of the Sixth Schedule to the Constitution is a good starting point. The said section stipulates as follows:-All law in force immediately before the effective date continues in force and shall be construed with the alterations, adaptations, qualifications, and exceptions necessary to bring it into conformity with this constitution.If, with respect to any particular matter-A law that was in effect immediately before the effective date assigns responsibility for that matter to a particular state organ or public officer; andA provision of this constitution that is in effect assigns responsibility for that matter to a different state organ or public office, the provisions of this constitution prevail to the extent of the conflict.

68. Taking a purposive approach to the interpretation of the totality of the above provision and other provisions of the Constitution relating to the power to make laws, it is clear to me that the drafters of the Constitution intended that the power to make laws be vested in Parliament except where such power is conferred by the Constitution or by legislation.

10. The Appellant concluded by submitting that the Respondent has not demonstrated any unfairness in allowing and granting the offset of an overpaid tax that is even properly reflected in its system as a tax credit

11. The Respondent replied to the application vide a Replying Affidavit sworn by Leah Olum, an officer of the Respondent, on the 22nd August 2023 and filed on the even date in which it raised the following grounds of opposition:-a.That the Applicant lodged an application on iTax to offset overpaid corporation tax for the year 2015 on the 5th July, 2023 for Kshs.5,666,218. b.That according to the Applicant, the iTax system barred it from making the application to offset overpaid corporation tax restricting the offset to 5 years.c.That Section 47(1) (a) on offsets was introduced vide the Finance Act, 2022 and the effective date of the provision was 1st July, 2022. d.That the Applicant‘s alleged overpayment arose in 2015 prior to July, 2022, the law only allowed for a refund of overpayments, and these were restricted to 5 years. That as such the Applicant‘s right to claim that overpayment was extinguished 5 years after the overpayment arose which would be in the year 2020. e.That the Applicant cannot seek to use a law on offsets that was introduced effective 1st July, 2022 to revive a claim that was already time-barred prior to 2022 and therefore extinguished pursuant to the previous Section 47(1) of the Tax Procedures Act, 2015, now repealed.f.That the prayer for mandamus sought by the Applicant is unmerited as the Applicant‘s application dated 21st July, 2023 was lodged outside the 5-year statutory timeline as provided under the repealed Section 47(1) of the Tax Procedures Act 2015.

12. In its written submissions dated and filed on the 6th September, 2023 the Respondent stated as hereunder.

On whether the Notice of Preliminary Objection is Merited. 13. The Respondent submitted that it was in agreement with the decision of the Supreme Court in the case Aviation & Allied Workers Union Kenya vs Kenya Airways Limited & 3 others [2015] eKLR where the court stated:-"Thus a preliminary objection may only be raised on a pure question of law‘ To discern such a point of law, the Court has to be satisfied that there is no proper contest as to the facts."

14. The Respondent stated that it had raised a Preliminary Objection on the grounds that the Appeal is not properly instituted and application offends the doctrine of exhaustion. It further submitted that the Applicant‘s contravention of the doctrine of exhaustion, Tax Procedures Act, and Tax Appeals Tribunal Act are points of law, and therefore the Notice of Preliminary Objection is properly instituted.

15. The Respondent further submitted that Section 47(13) of the Tax Procedures Act provides that a person aggrieved with a decision of the Commissioner under the said Section may apply to the Tribunal within 30 days after being notified of the decision.

16. The Respondent submitted that it made a decision not to allow the Applicant to claim an offset beyond the five-year statutory period. It stated that that decision was made following an application by the Applicant herein made under Section 47 of the Tax Procedures Act and is therefore a decision appealable to the Tax Appeals Tribunal.

17. The Respondent then stated that Section 52 of the Tax Procedures Act provides that:-"a person dissatisfied with an appealable decision may appeal the decision in accordance with the provisions of the Tax Appeals Tribunal Act, 2013"

18. The Respondent therefore submitted that the appealable decision it issued can only be challenged by filing an Appeal at the Tax Appeals Tribunal.

19. It stated that Section 13 of the Tax Appeals Tribunal Act provides for the procedure of instituting an appeal which may be done in writing or electronically and submitted to the Tribunal within 30 days of receiving the decision of the Commissioner.

20. The Respondent argued that the Appeal was lodged by filing a Notice of Motion application which does not amount to a Notice to Appeal and the application is therefore premature and incompetent before the Tribunal.

21. In submitting that the Appellant did not follow the right procedure and contravened the doctrine of exhaustion the Respondent relied on the case of R v Independent Electoral and Boundaries Commission Ex Parte National Super Alliance Kenya & 6 others [2017] where the court stated:-42. This doctrine is now of esteemed judicial lineage in Kenya. It was perhaps felicitously stated by the Court of Appeal in the Speaker of the National Assembly v Karume [1992] KLR 21 in the following oft-repeated words:Where there is a clear procedure for redress of any particular grievance prescribed by the Constitutionor 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.

On whether the Application is merited 22. The Respondent submitted that the applicant applied for set-off of overpaid corporate tax of Kshs.5,666,218 for the year 2015 against the current and future liabilities. That the corporate tax Kshs.5,666,218 was overpaid in the year 2015.

23. The Respondent stated that Section 47(1) of the Tax Procedures Act provides that;-"Where a taxpayer has overpaid a tax under any tax law, the taxpayer may apply to the Commissioner, in the prescribed form to offset the overpaid tax against the taxpayer‘s outstanding tax debts and future tax liabilities; or for a refund of overpaid tax within 5 years."

24. The Respondent submitted that Section 47 of the Tax Procedures Act is to be read wholistically in that an application made under Section 47(1)(a)(b) would have to be done within five years in case of corporation tax. That interpretation of the aforementioned Section, in any other way, would bring an absurdity to the ascertainment and determination of the application provided in subsection 2 where the Commissioner is required to offset the overpaid taxes in the event the same is not refunded.

25. The Respondent urged that the overpayment made in the year 2015 ought to have been claimed by the December 2020, failure to which the same is to be deemed forfeited.

26. The Respondent in relying on Section 9 of the Interpretation and General Regulations Act submitted that the Applicant cannot seek to use law on offsets that was introduced effective 1st July 2022 to revive a claim that was already time-barred prior to 2022 and therefore extinguished pursuant to the previous Section 47(1) of the Tax Procedures Act, 2015 now repealed.

Analysis and Findings 27. The Applicant in its Notice of Motion dated 21st July, 2023 sought an order from this Honourable Tribunal to make a finding that the system restriction in the Respondent‘s iTax platform dated 5th July, 2023 barring the Applicant from offsetting overpaid Corporate tax of Kshs.5,666,218. 00 for the year 2015, against current and future liabilities is a tax decision by the Respondent; and prayed that it be set aside.

28. The Applicant in the aforementioned Notice of Motion equally sought that the Respondent be issued with an order of mandamus compelling it to remove the system restriction and allow the Applicant to apply for set-off of overpaid corporate tax of Kshs.5,666,218. 00 for the year 2015 against current and future liabilities.

29. In this respect, the Applicant relied on Section 2 of the Tax Appeals Tribunal (Procedure)Rules, 2015 which states as thus:-tax decision meansd.A decision on an application by a self;e.a refund decision;f.a decision requiring repayment of a refund; org.a demand for a penalty.

30. In response, the Respondent in Paragraphs 10 and 11 of its Submissions, in raising a notice of preliminary objection submitted to this Honourable Tribunal that the decision it issued can only be challenged by filing an Appeal at the Tax Appeals Tribunal.

31. The Respondent relied on Section52(2) of the Tax Procedure Act which provides that:-A person who is dissatisfied with an appealable decision may appeal the decision in accordance with the provisions of the Tax Appeals Tribunal Act, 2013

32. The Respondent contended that the Tax Procedures Act provides for the procedure for lodging of an appeal against an appealable decision and did not envisage procedure by way of an application to set aside such a decision. The Respondent further submitted that the Applicant filed a Notice of Motion which does not amount to a Notice of Appeal and that the application is therefore premature and incompetent before the Tribunal.

33. The Tribunal noted that both parties were in contention as to whether the system restriction in the Respondent‘s iTax platform dated 5th July, 2023 barring the Applicant from offsetting overpaid corporate tax of Kshs.5,666,218 for the year 2015, against current and future liabilities is a tax decision or an appealable decision by the Respondent.

34. The Tribunal is in congruence with the Applicant that the system restriction in the Respondent‘s iTax platform dated 5th July, 2023 barring the Applicant from offsetting overpaid corporate tax of Kshs.5,666,218 for the year 2015, against current and future liabilities falls within the scope of the meaning of a ‗tax decision‘ as defined under Section 2 of the Tax Procedures Act, 2015. The particular provisions therein states that:-tax decision means—a.an assessment;b.a determination under section 17(2) of the amount of tax payable or that will become payable by a taxpayer;c.a determination of the amount that a tax representative, appointed person, director or controlling member is liable for under Section 15, Section 17, and Section 18;d.a decision on an application by a self-assessment taxpayer under section 31(2);e.deleted by Act No. 4 of 2023, s. 49 (a);f.a decision under section 48 requiring repayment of a refund; org.a demand for a penalty or late payment interest.

35. It is not contested by either party that the Applicant is a self-assessment taxpayer or that the system restriction on the Respondent‘s iTax platform followed an application by the Applicant.

36. In addition, Section 3 of the Tax Procedures Act defines an appealable decision as follows;appealable decision means an objection decision and any other decision made under a tax law other than—a.a tax decision; orb.a decision made in the course of making a tax decision;

37. The Tribunal is of the view that this application does not have the requisite ingredients to sustain an appeal at the Tribunal due to lack of an appealable decision.

38. The Tribunal notes the provisions of Sections 50(4) and 51(1) and (2) of the Tax Procedures Act as outlined hereunder:-50 (4)In this section, "proceedings under this Part" means—a.an objection made under section 51;b.an appeal made to the Tribunal under section 52 in relation to an appealable decision;c.an appeal made to the High Court under section 53 in relation to a decision of the Tribunal; ord.an appeal made to the Court of Appeal under section 53 in relation to a decision of the High Court.

51. Objection to tax decision1. A taxpayer who wishes to dispute a tax decision shall first lodge an objection against that tax decision under this section before proceeding under any other written law.2. A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.

39. The aforementioned provisions lay out the procedure for a taxpayer following a tax decision by the Commissioner that they are aggrieved by.

40. The applicant's prayer for the Respondent to be issued with an order of mandamus compelling it to remove the system restriction and allow the Applicant to apply for set-off of overpaid corporate tax of Kshs.5,666,218 for the year 2015 against current and future liabilities therefore fails, as it is premature before the Tribunal and the Honorable Tribunal cannot turn a blind eye to the already laid down procedure in the Tax Procedures Act.

41. This Honourable Tribunal relies on the case of R vs Independent Electoral and Boundaries Commission Ex Parte National Super Alliance Kenya & 6 Others, in this matter the High Court stated that:-This doctrine is now of esteemed juridical lineage in Kenya. It was perhaps most felicitously stated by the Court of Appeal in Speaker of National Assembly v Karume [1992] KLR 21 in the following oft- repeated words: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.

Disposition 34. Based on the foregoing analysis, the Tribunal finds that the application lacks merit for want of proper procedure to vindicate against the Respondent‘s decision and the Orders that commend themselves are as follows:-a.The application be and is hereby dismissed.

b.No orders as to costs.

35. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 3RD DAY NOVEMBER, 2023ERIC NYONGESA WAFULA - *CHAIRMANMUTISO MAKAU - MEMBERELISHAH NJERU - MEMBEREUNICE NG‘ANG‘A - MEMBERABRAHAM KIPROTICH - MEMBER