[2023] KETAT 612 (KLR)

Belvacon Company Limited v Commissioner of Domestic Taxes (Miscellaneous Application E225 of 2023) [2023] KETAT 612 (KLR) (29 June 2023) (Ruling)

Neutral citation: [2023] KETAT 612 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Miscellaneous Application E225 of 2023

E.N Wafula, Chair, EN Njeru, GA Kashindi, E Komolo & AK Kiprotich, Members

June 29, 2023

Between

Belvacon Company Limited

Applicant

and

Commissioner of Domestic Taxes

Respondent

Ruling

1. The Applicant vide a Notice of Motion dated the 5th May, 2023 filed under certificate of urgency on 15th May 2023 and supported by an Affidavit sworn by David Osoro Ayora on the 12th May 2023 sought for the following Orders:-i.Spent.ii.That the Tribunal be pleased to extend the time within which the Applicant is to file the Memorandum of Appeal, Statement of Facts, Notice of Appeal and Tax decision.iii.That consequently the Memorandum of Appeal, Statement of Facts, Notice of Appeal and tax decision be deemed to have been properly filed within time.iv.That pending hearing and determination of this application, the Tribunal be pleased to issue orders lifting unconditionally the Agency Notice to the Appellant’s bank accounts.v.That the Applicant be at liberty to apply for further orders as the Tribunal deem just to grant.vi.That the costs of this application be in issue.

2. The application is premised on the following grounds:-i.That the Applicant is committed to ensure that it is compliant with the inherent tax legislation and did not intend to delay the process.ii.That in its assessment of 19th August 2020 on VAT obligation amounting to Kshs 1,415,043. 36, the Commissioner assessed one income twice due to an erroneous issuance of two VAT withholding certificates whereas the later withholding certificate had been cancelled by the withholding agent.iii.That on 25th April, 2022, the Commissioner, without any prior communication to the taxpayer went ahead and did another additional assessment on income tax amounting to Kshs 1,378,432. 50 (exclusive of interest). The basis for this assessment was the erroneous assessment done on the VAT obligation.iv.That the Applicant raised these objections in time on 18th September 2020 and 24th May 2022 and facilitated reasons and evidence for the objection including the acknowledgement receipt of Withholding VAT cancellation certificate.v.That on 4th July 2022, the Respondent issued confirmation assessment notice fully rejecting the objection without giving reasons and material facts for its decision.vi.That the Respondent rejected one of the taxpayer’s objection as being a late objection yet the objection had been done within 30 days after the Respondent’s assessment.vii.That on 28th March 2023, the Respondent went ahead to issue an Agency Notice to the banks and customers of the Applicant to enforce the recovery of the alleged taxes owed.viii.That the late appeal application was occasioned by sickness as indicated in the medical prescriptions by a doctor/physician.ix.That the Tribunal be at liberty to grant any other or further remedies that it deems just and reasonable to grant in the circumstances.

3. The Respondent opposed the application through a Replying Affidavit sworn by Boniface Kiplimo, an officer of the Respondent, on the 31st May, 2023 and filed on the same date. The grounds of opposition as highlighted in the Affidavit were as follows:-i.That on 20th January 2022, the Respondent issued the Applicant with a notice on variances in Vat turnover amounting to Kshs 18,379,098. 99. ii.That the Respondent gave the Applicant 7 days within which to provide the reconciliation of the variances. That the Respondent explained in details that if the reconciliation is not received by the Respondent by the said date, an additional assessment will be issued in line with Section 31 of the Tax Procedures Act.iii.That on 25th April 2022, the Respondent communicated to the Applicant that due to its failure to respond to the variance in VAT returns and income, the additional assessment was due and payable.iv.That the said notice was communicated to the Applicant’s known email address and which the parties had been using to communicate previously.v.That the Applicant failed to respond to the Respondents advise and since no notice of appeal was received from the Appellant, the Respondent sought to enforce collection of the assessed taxes vide the agency notice dated 28th March 2023, in line with Section 42 of the Tax Procedures Act.vi.That the enforcement measures taken by the Respondent are necessary to ensure the Applicant complies with the Constitutional duty to pay taxes.vii.That the Respondent has not faulted any procedure or acted contrary to the law. That due process has been followed by the Respondent in assessing, demanding and enforcing collection of taxes from the Appellant.viii.That it is in the interest of the public for the Respondent to recover tax in order to finance the growth and development of the nation which is a very important public duty and for which the public must have an immense interest.ix.That it is important that the Tribunal considers the circumstances of this case and balances the rights of all parties herein and in this case secure the taxes due.x.That the Respondent still advices the Applicant to pursue the reconciliation process of its ledgers with the Respondent’s credit validation project team so as to resolve this matter.

Analysis and Findings 4. In compliance with the directions of the Tribunal to the effect that the application was to be canvassed by way of written submissions, the Respondent filed its submissions on 2nd June 2023. The Tribunal has duly considered the written submissions of the Respondent in arriving at its determination in this Ruling.

5. The Tribunal is enjoined to determine the length and reason for the delay when considering an application for the extension of time to appeal out of time. The power to extend time is discretionary and unfettered but the same must be exercised judiciously and it is not a right to be granted to the Applicant.

6. In determining whether to extend time, the Tribunal was guided by the decision of the Court in Charles Karanja Kiiru v Charles Githinji Muigwa [2017] eKLR, where the learned Judge stated that:-“It is trite that extension of time is not a right of a party. It is an equitable remedy that is only available to a deserving party, at the discretion of the Court”

7. On the criteria of the issues to be considered when granting an extension to file an appeal out of time, the Tribunal referred to the case of Odek, JJ. A in Edith Gichugu Koine vs. Stephen Njagi Thoithi [2014] eKLR, where the Court laid out the factors as thus:-“Nevertheless, it ought to be guided by consideration of factors stated in many previous decisions of this Court including, but not limited to, the period of delay, the reasons for the delay, the degree of prejudice to the respondent if the application is granted, and whether the matter raises issues of public importance, amongst others...”

8. Further, in Sammy Mwangi Kiriethe & 2 others v Kenya Commercial Bank Ltd [2020] eKLR, the court held that:-“The Court considers the length of the delay; the reason for the delay; the chances of success of the intended appeal, and the degree of prejudice that would be occasioned to the respondent if the application is granted.”

9. The Tribunal, guided by the principles set out in John Kuria v Kelen Wahito, Nairobi Civil Application Nai 19 of 1983 April 10, 1984, referred to by the judges in the case of Wasike V Swala [1984] KLR 591, Sammy Mwangi Kiriethe & 2 others v Kenya Commercial Bank Ltd (supra) and Section 13 of the Tax Appeals Tribunal Act, 2013 used the following criteria to consider the application.a.Whether there is a reasonable cause for the delay?b.Whether the appeal is merited?c.Whether there will be prejudice suffered by the Respondent if the extension is granted?

a. Whether there is a reasonable cause for the delay 10. In considering what constitutes as a reasonable reason for delay, the court in Balwant Singh v Jagdish Singh & Ors (Civil Appeal No.1166 of 2006), held that: “The test is whether or not a cause is sufficient to see whether it could have been avoided by the party by the exercise of due care and attention”.

11. The statutory timelines and provisions to file an appeal have been clearly set out in the Tax Appeal Tribunal Act. Section 13 (3) of the Tax Appeals Tribunal Act provides as follows with regard to the statutory timelines in commencing appeal process:-“A notice of appeal to the Tribunal shall—(a)be in writing;(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.(2)The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of—(a)a memorandum of appeal;(b)statements of facts; and(c)the tax decision.”

12. For a taxpayer who has not met the timelines as provided in the above provision of the law, Section 13(4) of the Tax Appeals Tribunal Act provides the conditions that the taxpayer ought to meet to enable the Tribunal to exercise its discretion to extend time to appeal. The Section provides as follows;“An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from giving notice of appeal within the specified period.”

13. Regarding the reasons for delay, the Respondent stated that the Applicant failed to respond its advise and since no notice of appeal was received from the Appellant, the Respondent sought to enforce collection of the assessed taxes vide the agency notice dated 28th March 2023, in line with Section 42 of the Tax Procedures Act.

14. The Applicant on the other hand stated that the late appeal application was occasioned by sickness.

15. To support its averment that the managing director had been unwell, the Appellant attached two letters from a medical facility in Kitale indicating that the director had at some point in 2021 and 2022 been attended to and advised to take bed rest.

16. The Tribunal was of the view that although the actual duration of the illness and level of indisposition could not be determined, based on the evidence adduced, the Tribunal was persuaded that the director had indeed been suffering ill health.

17. Consequently, the Tribunal determined that the Applicant had demonstrated reasonable cause for delay.

b. Whether the appeal is merited? 18. The Tribunal considered whether the matter under dispute was frivolous to the extent that it would be a waste of the Tribunal’s time, or it was material to the extent that it deserved its day in the Tribunal.

19. The test is not whether the case is likely to succeed. Rather, it is whether the case is arguable. This was the finding in Samuel Mwaura Muthumbi V Josephine Wanjiru Ngungi & Another (2018) eKLR where the court stated that:-“Looking at the draft Memorandum of Appeal filed, I am unable to say that the intended Appeal is in arguable. Of course, all the Applicants have to show at this stage is arguability- not high probability of success. At this point the Applicant is not required to persuade the Appellate court that the intended or filed appeal has a high probability of success. All one is required to demonstrate is the arguability of the Appeal, a demonstration that the Appellant has plausible grounds of either facts or law to overturn the original verdict. The Applicants have easily met that standard. I believe that the Applicant has discharged this burden.”

20. The Tribunal was further guided by the findings of the court in Kenya Commercial Bank Limited Vs Nicholas Ombija (2009) eKLR where it was held that:“An arguable appeal is not one which must necessarily succeed, but one which ought to be argued fully before the court.”

21. Similarly, in Kenya Commercial Bank Limited Vs Nicholas Obija (2009) eKLR it was stated that “an arguable appeal is not one which must necessarily succeed, but one which ought to be argued fully before the court” that was also the position held in Stanley Kangethe Kinyanjui Vs Tony Keter & others (2013) eKLR where the court held that “on whether the appeal is arguable, it is sufficient if a single bonafide ground of appeal is raised, .. an arguable appeal is not one which must necessarily succeed, but one which ought to be argued fully before the court: one which is not frivolous.”

22. The Tribunal noted from the parties’ pleadings that the Respondent’s decisions dated 8th March 2021 and 4th July 2022 confirmed the assessments of taxes amounting to Kshs 2,793,475. 86 which the Applicant is disputing. Looking at the draft Memorandum of Appeal by the Applicant, the Tribunal noted that the Applicant had raised six grounds of Appeal that require rebuttal by the Respondent. Going by the standards set out in the Stanley Kangethe Kinyanjui Vs Tony Keter & others (2013) case the Tribunal finds that the Applicant has an arguable case which requires to be canvassed and considered on its full merits.

c. Whether there will be prejudice suffered by the Respondent if the extension is granted? 23. The courts have held that in considering whether to extend time, due regard must be given to whether the extension will prejudice the opponent. In determining this, the Judge in Patrick Maina Mwangi v Waweru Peter [2015] eKLR quoted the finding in United Arab Emirates V Abdel Ghafar & Others 1995 IR LR 243 in which it was that:“…….a plaintiff should not in the ordinary way be denied an adjudication of his claim on its merits because of a procedural default, unless the default causes prejudice to his opponent for which an award of cost cannot compensate………”

24. The test, therefore, as set out in the case above is whether the Respondent will suffer irreparable prejudice if the application is granted. However, having found that the subject matter was arguable, it is the view of the Tribunal that the Applicant’s recourse to justice now lies in an appeal to the Tribunal. Thus, the Applicant would suffer prejudice if it is not granted leave to file its appeal. The Respondent on the other had will not suffer prejudice since it will still be able to collect the taxes plus interest and penalties should the Applicant be found to be at fault.

25. The Tribunal therefore finds that the Respondent will not suffer prejudice if the extension is granted.

Disposition 26. Based on the foregoing, the Tribunal finds that the application is merited and accordingly proceeds to make the following Orders:i.The application be and is hereby allowed.ii.The Applicant is hereby granted leave to file its Notice of Appeal, Memorandum of Appeal and Statement of Facts out of time.iii.The Notice of Appeal, Memorandum of Appeal and the Statement of Facts filed before the Tribunal on the 15th May 2023 be and are hereby deemed as duly filed and served.iv.The Respondent to file its response to the Appeal within Thirty (30) days from the date of delivery of this Ruling.v.The Agency Notices dated 28th March, 2023 issued to Kenya Commercial Bank Limited requiring them to pay the Respondent the sum of Kshs 2,954,437. 00 as tax owing by the Applicant be and are hereby unconditionally lifted.vi.No orders as to costs.

DATED AND DELIVERED AT NAIROBI THIS 29TH DAY OF JUNE, 2023……………………………ERIC N. WAFULACHAIRMAN………………………ELISHAH N. NJERUMEMBER……………………………GEORGE A. KASHINDIMEMBER……………………………ERICK O. KOMOLOMEMBER……………………………ABRAHAM K. KIPROTICHMEMBER