[2023] KETAT 210 (KLR)

Dallais Construction Limited v Commissioner of Domestic Taxes (Miscellaneous Application 265 of 2022) [2023] KETAT 210 (KLR) (Civ) (5 May 2023) (Ruling)

Neutral citation: [2023] KETAT 210 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Miscellaneous Application 265 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka & AK Kiprotich, Members

May 5, 2023

Between

Dallais Construction Limited

Applicant

and

Commissioner of Domestic Taxes

Respondent

Ruling

1. The Applicant vide a Notice of Motion dated the 26thSeptember, 2022 filed under certificate of urgency on 5th October 2022 and supported by an Affidavit sworn by Simon Muturi, the Accountant of the Applicant, on the 26th September, 2022sought for the following Orders:-i.That the Applicant be granted leave to file its Memorandum of Appeal and Statement of Facts out of time.ii.That the Memorandum of Appeal and Statement of Facts annexed hereto be and is hereby deemed as duly filed and served.iii.That the Respondent be at liberty to file a response if it so wishesiv.That the cost of this application be costs in the cause.

2. The application is premised on the following grounds:-i.The objection invalidation notice was not communicated through the Applicant’s accessible email handled by the accountants.ii.That the Applicant was issued with an invalidation notice without due regard to objection review process.iii.The Constitution of Kenya under Article 159(2)(d) clearly provides that, justice shall be administered without undue regard to procedural technicalities.iv.That the application will not occasion any prejudice to the Respondent as the delay is not inordinate.v.The Applicant has an arguable appeal with a high probability of success as per the Memorandum of Appeal annexed thereto. That it will therefore be highly prejudicial to the Applicant if leave is not granted to enable the applicant to argue its appeal.vi.That it is therefore in the interest of justice that the Applicant be granted leave to file its appeal out of time.

3. The Appellant stated in its supporting affidavit that the Respondent issued the Applicant with assessment orders on 15th November 2019, demanding for payment of VAT from the VAT Auto Assessment for the periods January 2018 and May 2018 amounting to Kshs 2,864,263. 36. That further on 15th November 2019, the Respondent debited the VAT account via debit assessment order for Kshs 2,864,263. 36, which meant that the Respondent already recovered more than the tax demand notice.

4. That on 21st November 2019, the Applicant objected to these assessments clearly outlining its grounds of objection to the tax demand and provided invoices and bank statements as proof of purchases for the input VAT claimed.

5. That on 17th March 2021, the Respondent issued an invalidation notice fully rejecting the objection and thereafter confirming its assessment of an amount of Kshs 2,864,263. 36 arising from the disallowed input VAT.

6. That the Applicant learnt through the invalidation notice through word of mouth while visiting KRA offices to get official update on the objection review.

7. That on 9th November 2019, the Respondent debited the VAT account via debit assessment order for Kshs 2,864,263. 36 which means the Respondent already recovered more.

8. That the Applicant enquired from the Commissioner for the basis of the invalidation notice to which the Respondent stated that the Applicant’s objection was fully rejected, and therefore the tax demanded was payable in the absence of an appeal to the Tax Appeals Tribunal.

9. That the Applicant shall suffer irreversible damage to its business operations if this application is not allowed.

Analysis and Findings 10. Though the Respondent had intimated an intention to oppose the application it did not file its response in opposition to the application and subsequently the Tribunal directed that the application will be considered on its merits.

11. The Applicant is primarily praying to the Tribunal for its appeal documents to be admitted late.

12. The power to expand time for filing an Appeal is donated by Section 13(3) of the Tax Appeals Tribunal Actwhich provides that:“The Tribunal may, upon application in writing, extend the time for filing the Notice of Appeal and for submitting the documents referred to in subsection (2).”It is therefore a discretionary power and not a right to be granted to the Applicant.

13. In determining whether to expand time, courts have in the past considered a number of factors. These factors were discussed in Leo Sila Mutiso vs Rose Hellen Wangari Mwangi, Civil Application Nai. 251 of 1997 where the judge held that:“It is now settled that the decision whether to extend the time for appealing is essentially discretionary. It is also well stated that in general the matters which this court takes into account in deciding whether to grant an extension of time are, first the length of the delay, secondly the reasons for the delay, thirdly (possibly) the chances of the appeal succeeding if the application is granted and fourthly the degree of prejudice to the respondent if the application is granted.”

14. The court in Wasike V Swala [1984] KLR 591 provided the hierarchy of the factors to consider when it stated that:“an applicant must now show, in descending scale of importance, the following factors: -a)That there is merit in his appeal.b)That the extension of time to institute and/or file the appeal will not cause undue prejudice to the respondent; andc)That the delay has not been inordinate.”

15. The Tribunal, guided by the principles set out in Leo Sila Mutiso vs Rose Hellen Wangari Mwangi, Civil Application Nai. 251 of 1997, Wasike V Swala[1984] KLR and Section 13 of the Tax Appeals Tribunal Act 2013 used the following criteria to consider the application:a.The merits of the complained action.b.Whether there is a reasonable cause for the delay.c.Whether there will be prejudice suffered by the Respondent if the extension is granted.a.The merits of the complained action.

16. The Tribunal considered whether the matter under dispute was frivolous to the extent that it would be a waste of the Tribunal time, or it was material to the extent that it deserved its day in the Tribunal.

17. 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.”

18. 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.”

19. Similarly, inKenya 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.”

20. In the instant case, the Applicant stated that it was issued with an VAT assessment on 15th November 2019 for the sum of Kshs 2,864,263. 36 which it objected on 21st November, 2019. That it was further issued with the invalidation notice without due regard to objection review process.

21. The Tribunal noted that Respondent vide a letter dated 17th March 2021 issued a Notice of Objection Invalidation which the Applicant wishes to challenge through an appeal.

22. Ngugi J in Samuel Mwaura Muthumbi V Josephine Wanjiru Ngugi & Another (2018) eKLR as regards to a meritorious appeal stated that:-“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..”

23. Looking at the draft Memorandum of Appeal by the Applicant, the Tribunal noted that the Applicant had further raised two grounds of Appeal that requires rebuttal by the Respondent.

24. 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.b.Whether there is a reasonable cause for the delay.

25. 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”.

26. The Applicant stated that the objection invalidation notice was not communicated through the Applicant’s accessible email handled by the accountants. That it learnt about the invalidation notice through word of mouth while visiting KRA offices to get official update on the objection review.

27. That the Applicant enquired from the Commissioner for the basis of the invalidation notice to which the Respondent stated that the Applicant’s objection was fully rejected, and therefore the tax demanded was payable in the absence of an appeal to the Tax Appeals Tribunal.

28. Although there were no documents that could support such averments by the Applicant, the same was not controverted. Under the circumstances, the Tribunal was of the view that the Applicant be given the benefit of doubt since the application has been found to be meritorious.c.Whether there will be prejudice suffered by the Respondent if the extension is granted.

29. On whether there would be prejudice suffered by the Respondent if the application was granted, it is common parlance that the term “prejudice” as used in civil matters refer to injury, loss, damnification or substantial loss. Thus, a party claiming that it would suffer prejudice must demonstrate the likelihood of suffering substantial loss, such a loss need not be in pecuniary terms.

30. 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] eKLRquoted the finding in United Arab Emirates V Abdel Ghafar & Others 1995 IR LR 243 in finding 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………”

31. The test, therefore, as set out in the case above is whether the Respondent will suffer irreparable prejudice if the application is granted.

32. In the case at hand, in the absence of a rebuttal by the Respondent the Tribunal was of the view that the Respondent lost an opportunity to demonstrate how it would have suffered irreparable prejudice if an expansion of time were granted for the Appellant to file its Memorandum of Appeal and Statement of Facts before the Tribunal.

33. It was the view of the Tribunal that the Appellant’s recourse to justice lies in an appeal to the Tribunal. The Appellant on the other hand would suffer prejudice if it is not granted leave to file its appeal. In any event, the Respondent would still collect the taxes inclusive of penalties and interest should it be found to be due and payable.

34. Consequently, the Tribunal finds that the Respondent will not suffer prejudice if the extension is granted.

Disposition 35. Based on the foregoing, the Tribunal finds that the application is merited and proceeds to make the following orders:i.The application be and is hereby allowed.ii.That leave be and is hereby granted for the Applicant to file its Notice of Appeal, Memorandum of Appeal, Statement of Facts and tax decision out of time.iii.The Notice of Appeal dated 26th September, 2022 and filed on 5th October 2022 be and is hereby deemed as duly filed and servediv.The Applicant to file and serve the Memorandum of Appeal, Statement of Facts and tax decision within Fifteen days of the delivery of this Ruling.v.The Respondent to file and serve its response to the Appeal within Thirty (30) days of being served with the Appeal documents.vi.No orders as to costs.

DATED AND DELIVERED AT NAIROBI THIS 5TH DAY OF MAY, 2023. ………………………….ERIC N. WAFULACHAIRMAN……………………………………………………….. CYNTHIA B. MAYAKA ABRAHAM KIPROTICHMEMBER MEMBER