[2022] KEHC 15352 (KLR)

Aquisana Limited v Commissioner of Domestic Taxes (Tax Appeal E186 of 2021) [2022] KEHC 15352 (KLR) (Commercial and Tax) (11 November 2022) (Judgment)

Neutral citation: [2022] KEHC 15352 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Tax Appeal E186 of 2021

DAS Majanja, J

November 11, 2022

Between

Aquisana Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

(Being an appeal against the judgment of the Tax Appeals Tribunal at Nairobi dated 20th August 2021 in Tax Appeal No.256 of 2020)

Judgment

Introduction and Background 1. The appellant is a company that supplies bulk natural water to its various clients. By an email dated February 5, 2019, the Respondent (“the Commissioner”) evinced its intention to verify the records of the Appellant’s VAT operations due to accumulated credit for the period January 2016 to December 2018.

2. After the verification exercise, the Commissioner communicated its findings to the appellant through the letter dated April 8, 2019 where it held that the Appellant had failed to charge VAT on water supplies for the period. The Commissioner raised additional assessment and a demand dated 17th October 2019 for taxes for the period July 2016 to December 2018 including penalty and interests amounting to Kshs. 11,519,013. 91.

3. The appellant objected to the said demand through its letters of late objection dated February 4, 2020and February 18, 2020 which objection the Commissioner rejected through the objection decision dated May 15, 2020(“the Objection Decision”). The appellant challenged the Objection Decision at the Tax Appeals Tribunal (“the Tribunal”) where it argued, inter alia, that the Objection Decision was not made within sixty (60) days from the date the appellant lodged the notice of objection and that the Commissioner erred in not allowing the appellant’s objection contrary to the provisions of section 51(11) of the Tax Procedure Act, 2015(“the TPA”).

4. In response, the Commissioner asserted that the objection decision was rendered within time as it received the last communication from the appellant on March 23, 2020 whereby the appellant sought clarification on some of the issues raised in a meeting of the parties on March 12, 2020 and that the interval period between March 24, 2020and May 15, 2020is 53 days hence the objection decision was within the stipulated timelines.

5. In its judgment dated August 20, 2021, the Tribunal agreed that the objection decision was in fact made outside the 60-day statutory period prescribed in section 51 (11) of the TPAbut it did not deem the objection to have been allowed by dint of article 159(2) of the Constitution. The Tribunal proceeded to determine the substance of the Appellant’s appeal.

6. The appellant has appeal against the holding by the Tribunal on the ground that it erred in law by refusing to follow the very clear and mandatory provisions of section 51(11) of the TPA that the objection shall stand allowed if an objection decision is not rendered outside the 60-day period. The appeal has been canvassed by way of written submissions where the parties highlighted their positions I have already summarised above.

Analysis and Determination 7. In determining this appeal, I am cognizant of the fact that this court is exercising appellate jurisdiction that is circumscribed by section 56(2) of the Tax Procedures Act(“the TPA”) which provides that “An appeal to the High Court or to the Court of Appeal shall be on a question of law only”. This means that an appeal limited to matters of law does not permit the appellate court to substitute the Tribunal’s decision with its own conclusions based on its own analysis and appreciation of the facts (See John Munuve Mati v Returning Officer Mwingi North Constituency & 2 others[2018] eKLR).

8. The issue in this appeal is an issue of law and procedure; it is whether the objection decision was invalid having been made outside the 60-day statutory period and if this was the case, whether the appellant’s objection stood allowed.

9. It is not in dispute that the appellant lodged the objection with the Commissioner on February 6, 2020through iTax. It is also not in contention that this objection was filed out of time and that the Appellant made a request for a late objection through its letter of February 18, 2020in line with section 51(6) of the TPAthat provides that “A taxpayer may apply in writing to the Commissioner for an extension of time to lodge a notice of objection.”

10. After the application of extension of time to lodge a notice of objection has been filed, section 51(7) of the TPAprovides as follows:(7)The Commissioner shall consider and may allow an application under subsection (6) if—(a)the taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of an absence from Kenya, sickness or other reasonable cause; and(b)the taxpayer did not unreasonably delay in lodging the notice of objection.(7A)The Commissioner shall notify the taxpayer of the decision made under subsection (7) within fourteen days after receipt of the application,

11. The reading and simple interpretation of the provisions above is that the Commissioner is obligated to consider a late filing application and is also obligated to make a decision on the same within fourteen days after receipt of the application. A perusal of the record indicates that the parties had a meeting on March 12, 2020where the Commissioner allowed the late objection application. After an objection has been deemed to have been validly lodged within time, section 51(11) of the TPA goes on to provide that:Where the Commissioner has not made an objection decision within sixty days from the date that the taxpayer lodged a notice of the objection, the objection shall be allowed.

12. Having allowed the late objection application on March 12, 2020, it would mean that the Commissioner had sixty days from that date to render an objection decision which had to be made by May 12, 2020latest. The objection decision having been made onMay 15, 2020 was late by three days. I am therefore in agreement with the Tribunal up to that point.

13. I reject the Commissioner’s submission before the Tribunal that time was running from March 24, 2020 as it last heard from the appellant on March 23, 2020 when it sought some clarifications from the Commissioner. I have gone through the minutes of the said meeting and note that in as much as the Commissioner stated that the appellant ought to prove its case using further supporting documents, it did not seek such documents from the appellant at the end of the meeting. All that the Commissioner was interested in was a payment plan by the appellant for the demanded taxes.

14. Since theobjection decision was rendered late, the next issue for determination is whether the delay was fatal or whether it could be excused or cured by article 159 of the Constitution as held by the Tribunal. A similar question was put before Mativo J., (as he was then) in Equity Group Holdings Limited v Commissioner of Domestic Taxes(Civil Appeal E069 & E025 of 2020) [2021] KEHC 25 (KLR) (Commercial and Tax) (23 August 2021) (Judgment) this is what he stated:(59)The TAT rightly computed time and pronounced that the Objection decision was rendered out of time. This being the position, then by dint of the above provision, the objection decision is deemed to have been allowed. This position has been upheld in a catena of superior court decisions in this country, among them those cited by the appellant’s counsel. In Republic v Commissioner of Customs Services Ex-Parte Unilever Kenya Limited {2012} eKLR the court stated that if the Commissioner does not render a decision within the stipulated period, the objection is deemed as allowed by operation of the law. The act requires that where the Commissioner has not made an objection decision within 60 days from the date the tax payer lodged the notice of objection, the objection shall be allowed. This means that the issues that the tax payer had raised in the notice of objection will be accepted. In case of a tax assessment, it will be vacated.[60]Section 51 (11) of the TPA is couched in peremptory terms. Having correctly found that the decision was made after the expiry of 60 days, the TAT had no legal basis to proceed as it did and to invoke article 159(2) (d).First, there was no decision at all. The decision had ceased to exist by operation of the law. Second, the provisions of section 51 (11) (b) had kicked in. The Objection had by dint of the said provision been deemed as allowed. Third, the TAT had no discretion to either extent time or to entertain the matter further. Fourth, discretion follows the law and a tribunal cannot purport to exercise discretion in clear breach of the law.(61)The TAT premised its decision on the provisions of article 159 (2) (d) of the Constitution which requires courts to determine matters without undue regard to technicalities of procedure. On the face of a clear statutory dictate, I do not see how the TAT could term the express statutory edict as a matter of procedural technicality. This was a gross misapprehension of the law. Article 159 (2) (d) of the Constitution was not meant to oust express statutory provisions and to open a window for disregard of statutory requirements.(62)The TAT clearly fell into a grave error when it failed to appreciate the difference between a procedural law and substantive law. Procedural law, also called adjective law is the law governing the machinery of the courts and the methods by which rights are enforced. Procedural law prescribes the means of enforcing rights or providing redress of wrongs. It comprises rules about jurisdiction, pleadings, and practice, evidence, appeal, execution of judgments, representation in court, costs, and other matters. Procedural law is commonly contrasted with substantive law, which constitutes the great body of law and defines and regulates legal rights and duties. Thus, whereas substantive law would describe how two people might enter into a contract, procedural law would explain how someone alleging a breach of contract might seek the courts’ help in enforcing the agreement.(63)Substantive law is a statutory law that deals with the legal relationship between people or the people and the state. Therefore, substantive law defines the rights and duties of the people, but procedural law lays down the rules with the help of which they are enforced. The TAT manifestly erred in law by confusing substantive law with procedural law. Article 159(2) (d) of the Constitution in clear terms talks about procedural technicalities. A statutory edict is not procedural technicality. It’s a law which must be complied with. Parliament in its wisdom expressly and in mandatory perms provided the consequences of failing to render a decision with 60 days. The Objection is deemed to be allowed. That being the law, the appellant’s Objection stood allowed as a matter of law the moment the Commissioner of Domestic Taxes failed to render his decision within the 60 days….

15. I agree with the exposition of the law by the learned Judge. I hold that the Tribunal fell into error when it determined that the delay in section 51(11) of the TPA was a procedural technicality capable of a constitutional cure under article 159. The Tribunal does not possess any discretion or jurisdiction to extend the time or consider the matter further once it determined that the Objection Decision was made late. The matter ought to have ended there. Had the legislature intended to allow for extension, it would have clearly said so as it had in other parts of the statute. The Tribunal’s approach is a direct violation of the cardinal principle that tax statutes must be interpreted strictly leaving no room for intendment or implication. This this position has been upheld by our courts in various cases including Mount Kenya Bottlers Ltd & 3 others v Attorney General & 3 others NRB CA Civil Appeal No. 164 of 2013 [2019] eKLR, and Stanbic Bank Kenya Limited v Kenya Revenue Authority CA Civil Appeal No. 77 of 2008 [2009] eKLR.

16. The inevitable conclusion is that the Commissioner’s delay in delivering the Objection Decision within 60 days of allowing the appellant’s Notice of Objection was fatal and the Commissioner could not demand any taxes raised in its earlier assessments as the same now stood vacated by operation of law.

Disposition 17. It is for these reasons that I find that the appellant’s appeal is merited, it is allowed. The Tribunal’s decision of August 20, 2021 is set aside with the consequent effect that the respondent’s Objection Decision dated May 15, 2020 is also set aside and the Appellant’s Notice of Objection dated February 4, 2020 is deemed as allowed in accordance with section 51(11) of the Tax Procedures Act, 2015.

SIGNED AT NAIROBID. S. MAJANJAJUDGEDATED AND DELIVERED AT NAIROBI THIS 11TH DAY OF NOVEMBER, 2022. A. MABEYAJUDGECourt Assistant: Mr Michael Onyango.Mr Omollo instructed by Kamoti Omollo and Company Advocates for the Appellant.Ms M. Muthoni instructed by Kenya Revenue Authority for the Respondent.