[2024] KETAT 1068 (KLR)

Dutch Flower Group Limited v Commissioner of Domestic Taxes (Miscellaneous Case E154 of 2024) [2024] KETAT 1068 (KLR) (12 July 2024) (Ruling)

Neutral citation: [2024] KETAT 1068 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Miscellaneous Case E154 of 2024

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

July 12, 2024

Between

Dutch Flower Group Limited

Applicant

and

Commissioner of Domestic Taxes

Respondent

Ruling

1. The Applicant vide a Notice of Motion dated the 29th January, 2024 and filed on the 7th February, 2024 and which was supported by an Affidavit sworn by James Kamau, the Finance Manager of the Applicant, on the 29th January, 2024, sought for the following Orders:-i.That this Honourable Tribunal be pleased to extend time for filing a Notice of Appeal, Memorandum of Appeal and Statement of Facts against the credit adjustment vouchers issued by the Respondent on 30th May, 2023. ii.That this Honourable Tribunal be pleased to grant the Applicant leave to file its Memorandum of Appeal and Statement of Facts.iii.That this Honourable Tribunal be pleased to issue any other/further orders as it deems necessary.iv.That the costs of this application be in the cause

2. The application is premised on the following grounds:-i.That the Applicant has a reasonable cause and plausible explanation for the delay in lodging its Notice of Appeal.ii.That the Applicant is not guilty of inordinate delay.iii.That the Applicant stands to suffer substantial loss and damage if the Application herein is not allowed as it will be deprived of an opportunity to be heard and will not be able to recover refunds which it is entitled to.iv.That on the other hand, the Respondent will not suffer any prejudice as it will be able to present its case before the Tribunal.v.That the Applicant has an arguable appeal with reasonable chances of success.vi.That the Applicant's recourse to justice lies in the appeal herein and as such, it is in the interest of justice that this application be allowed, and the Applicant be afforded an opportunity to present its case.vii.That the application herein has been brought in good faith, without undue delay and is not frivolous, vexatious or a waste of the Tribunal's time.viii.That on the 18th July, 2024, the Applicant made an application for refund for VAT amounting to Kshs 4,077,569. 00 on iTax and was allocated reference number KRA201609818532. ix.That the refund application was made under Section 17(5) of the VAT Act (2013) as the Appellant provides exported services which are zero rated.x.That on 30th May 2023, 5 years, 10 Months and 12 days after the date of the refund application, the Respondent issued credit adjustment vouchers rejecting the refund application.xi.That the issuance of a decision on the refund application close to 6 years after the date of application violates Section 47(3) of the Tax Procedures Act, which provides that an application for refund of taxes ought to be made within 90 days, failure to which it shall be deemed ascertained and approved.xii.That the Respondent ordinarily communicates refund decisions to taxpayers on email, as the same ought to be issued in writing.xiii.That the Respondent did not communicate its refund decision on email. That the Applicant was therefore not notified of the rejection of its refund claim. That it was only in December 2023 that it became aware of the issuance of the credit adjustment vouchers upon perusing the Applicant’s iTax when preparing a reconciliation of the status of the Applicant’s refund application that was pendingxiv.That it was being aggrieved by the Respondent’s rejection of its application as the same was without justification and was made outside the statutory timelines for issuance of the same.xv.That it had a reasonable cause to warrant an extension of time for filing a Notice of Appeal and Statement of Facts, in conformity with Section 13(4) of the Tax Appeals Tribunal Act (2013).xvi.That the instant application had been brought without delay upon the Applicant becoming aware of the credit adjustment vouchers issued in rejection of its application for refund.xvii.That it was therefore in the interest of justice that the Applicant’s appeal be heard and determined on merit and the Tribunal provides a fair and just determination of the appeal based on the facts presented to it, in consideration of the Applicant’s right to a fair hearing provided under Article 50 of the Constitution of Kenya.

3. The Respondent opposed the application through a Replying Affidavit sworn by Kipshaam Leteipa, an officer of the Respondent, on the 11th April, 2024 and filed on the 11th May, 2024. The grounds of opposition as highlighted in the Affidavit were as follows:-i.That the orders sought by the Applicant should not be granted by the Tribunal as they are an abuse of the Court process and the Applicant is undeserving.ii.That the power of the Tribunal to allow an appeal to be filed out of time is a discretionary power and is not a right of the Applicant. That the Tribunal has to exercise this power judiciously. That further, the Applicant has to substantiate reason why it has to be allowed to file its appeal out of time.iii.The Applicant stated that under Section 13 (3) and (4) of the Tax Appeals Tribunal Act, the appeal ought to have been filed within 30 days. That the Applicant's application was filed over 7 months after the refund decision was issued by the Respondent on 30th May 2023. iv.That the Applicant per Section 47 (13) of the Tax Procedures Act (TPA) should have appealed the decision within 30 days, which it did not.v.That the contention by the Applicant that the Respondent did not communicate its refund decision by email and that therefore it was not notified of its refund claim is misleading. That the Tribunal should note that every decision that the Respondent has given has been made on the iTax system, moreover, the Applicant's application was done on the said platform, which is available to the Applicant anytime it wishes to access. That this argument, therefore does not hold.vi.That the fact that the Applicant failed to follow up on its refund application decision for over 7 months after filing it is a demonstration of the Applicant’s indolence, hence guilty of latches and the Tribunal should not exercise discretion in its favour.vii.That the Applicant has to show that its complaint has merit. That the Applicant’s appeal has no basis since the reason for issuing the refund rejection was that its services were not exported services as was pronounced by the TAT. That the Applicant’s appeal therefore would be an exercise in futility.viii.That the Applicant has to show that without exercise of the TAT’s discretion, it would be prejudiced.ix.That the Applicant's failure to appeal within the prescribed time is not a consequence of the Respondent's actions, rather it was due to its own indolence. That the Applicant's indolence is actually denying the Respondent from collecting the taxes due. That the consequences of the Applicant's inaction should not be meted out to the Respondent.x.That the application is an afterthought, brought in bad faith, meant to delay the Respondent from collecting due and payable taxes and should not be entertained by the Tribunal.xi.That the Applicant is not deserving of the orders sought in the application as the whole period of delay has not been declared and explained satisfactorily to the Tribunal thus the application ought to be dismissed.xii.That the indolence of the Applicant should not bar the Respondent from fulfilling its mandate of collecting taxes that are due and payable.

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 Applicant filed its submissions on 9th May, 2024 while the Respondent filed its submissions on 14th May 2024. The Tribunal has duly considered the written submissions in arriving at its determination in this Ruling.

5. The Applicant is primarily praying to the Tribunal to be allowed to lodge an appeal out of the permissible statutory period.

6. The power to expand time for filing an Appeal is donated by Section 13(3) of the Tax Appeals Tribunal Act which 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.

7. 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.”

8. 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.

9. 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. 10. 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.

11. 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.”

12. 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.”

13. 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”,

14. 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.”

15. The Tribunal noted that the Applicant has raised 5 substantive grounds of Appeal in the draft Memorandum of Appeal annexed to the Affidavit in support of the application. It was the view of the Tribunal that these grounds which raise some fundamental legal issues require a rebuttal by the Respondent.

16. 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 require to be canvassed and considered on its full merits.

b. Whether there is a reasonable cause for the delay. 17. 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”.

18. 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.”

19. 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.”

20. The Tribunal’s position is that for it to exercise its discretion to expand time, the Applicant ought to provide justifiable reason(s) for the delay of more than seven months for consideration by the Tribunal as provided for under Section 13(4) of the Tax Appeals Tribunal Act.

21. The Applicant stated the reason for delay as being that the Respondent did not communicate its refund decision on email. That the Applicant was therefore not notified of its refund claim.

22. That it was only in December 2023 that it became aware of the issuance of the credit adjustment vouchers upon perusing the Applicant’s iTax when preparing a reconciliation of the status of the Applicant’s refund applications that were pending.

23. The Respondent on its part stated that the contention by the Applicant that the Respondent did not communicate its refund decision by email and that therefore it was not notified of its refund claim is misleading. That the Tribunal should note that every decision that the Respondent has given has been made on the iTax system, moreover, that the Applicant's application was done on the said platform, which is available to the Applicant anytime it wishes to access. That this argument, therefore does not hold

24. It was not in dispute that the Applicant had made its VAT refund application claim amounting to Kshs 4,077,569. 00 in iTax on 18th July 2017 and the Respondent issued the rejection order through iTax on 30th May 2023 and credit adjustment vouchers on the same date to which the Applicant wishes to challenge. This application was filed on 7th February 2024 which is approximately seven months and seven days late.

25. From the information presented to the Tribunal, it was noted that although the Applicant’s reason given for the delay of seven months could not be verified in form of documentary evidence, the Tribunal was of the view that the Applicant be given the benefit of doubt now that it had been determined that it had an arguable case.

26. The Tribunal in the circumstances is persuaded that the Applicant deserved a chance at the Tribunal to vindicate its right to appeal against the Respondent’s decision noting that the delay in seeking for the enlargement of time to lodge a late appeal cannot be entirely deemed as inordinate.

c. Whether there will be prejudice suffered by the Respondent if the extension is granted. 27. 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 as thus:-“…….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………”

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

29. The Applicant stated that it stood to suffer substantial loss and damage if the application herein is not allowed as it will be deprived of an opportunity to be heard and will not be able to recover refunds which it is entitled to.

30. The Respondent on the other hand did not demonstrate that there will be any prejudice that could not be compensated by an award of penalties and interests on any principal tax ultimately found to be due and payable. The Tribunal therefore finds that the Respondent 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.

31. The Tribunal was of the view that having found that the subject matter was arguable, the Applicant’s recourse to justice now lies in an appeal to the Tribunal. Thus, the Applicant’s would suffer prejudice if it is not granted leave to file its appeal.

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

Disposition 33. Based on the foregoing analysis, 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.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 Applicant to file and serve the Notice of Appeal, Memorandum of Appeal, the Statement of Facts and tax decision within Fifteen (15) days of the date of delivery of this Ruling.iv.The Respondent to file its response to the appeal within Thirty (30) days of the date of being served with the appeal documents.v.Each party to bear its own costs.

DATED AND DELIVERED AT NAIROBI THIS 12TH DAY OF JULY, 2024. ERIC NYONGESA WAFULA- CHAIRMANEUNICE N. NG’ANG’A - MEMBERMUTISO MAKAU - MEMBERELISHAH N. NJERU - MEMBERABRAHAM K. KIPROTICH - MEMBER