[2023] KETAT 247 (KLR)

East African Cables PLC v Kenya Revenue Authority (Miscellaneous Application 26 of 2023) [2023] KETAT 247 (KLR) (Commercial & Admiralty) (31 March 2023) (Ruling)

Neutral citation: [2023] KETAT 247 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Admiralty

Miscellaneous Application 26 of 2023

E.N Wafula, Chair, AK Kiprotich, RO Oluoch, EN Njeru & Cynthia B. Mayaka, Members

March 31, 2023

Between

East African Cables PLC

Applicant

and

Kenya Revenue Authority

Respondent

Ruling

1. The applicant vide a notice of motion dated the December 8, 2022 and filed on February 24, 2023 and supported by an affidavit sworn by Moses Gichohi sworn on the December 8, 2022 sought for the following orders:-i.That the tribunal be pleased to extend the time in which the appellant can file and serve their notice of appeal, memorandum of appeal, statement of facts and the tax decision.ii.That upon granting prayer 1 above, the appellant’s memorandum of appeal and statement of facts, and notice of appeal deemed to have been duly and properly filed and served and form part of the tribunal’s record.iii.That the costs of this application be in the cause.

2. The application is premised on the following grounds: -i.That the statutory period for filing the appeal herein has lapsed due to unavoidable circumstances.ii.That the tribunal has the discretionary power to extend time upon which the appellant may file their appeal.iii.That no prejudice is likely to be occasioned on the respondent as the application herein has not been brought with unreasonable delay and the appellant in fact has internal administration oversight that caused the delay and the appellant avers that it has no intention to delay the matter further.iv.That the appellant verily believed that its objection was allowed as the respondent failed to communicate its objection decision within the stipulated statutory timelines.v.That the appellant was not aware of the objection decision of the respondent until it applied for a tax compliance certificate where the same could not be obtained due to the aforementioned decision.vi.That it is in the interest of justice that the tribunal allows the instant application as prayed to enable the appellant’s notice of appeal, memorandum of appeal and statement of facts be deemed properly filed and served. That this compounded by the provisions of article 159(2)(d) of the Constitution of Kenya, 2010, which provides that “justice shall be administered without undue regard to procedural technicalities”.vii.That the intended appeal raises triable issues with high chances of success.viii.That unless an order for extension of time to file a notice of appeal, memorandum of appeal, statement of facts and tax decision is granted, the appellant shall suffer substantial financial loss without being given a fair opportunity to be heard.ix.That it is just, proper and equitable in the circumstances to grant the application prayed.

3. The applicant stated that as soon as the invalidation letter was brought to its attention when it was attempting to obtain its tax compliance certificate for the year 2022, it approached its tax agent to handle the same which it did by filing the instant application.

4. That it is important to note that at the time of the purported invalidation, the country was in the midst of the covid-19 pandemic. It stated that in order to curb the spread of the disease, the applicant’s staff were working in shifts. That during the personnel movements occasioned by the shift system and staff absences as a result of illness, movement restrictions and quarantine, the applicant experienced a breakdown in internal flow of information thus some correspondences (including the invalidation letter) was not brought to the attention of the appellant’s management in good time.

Response To The Application 5. The respondent opposed the application through a replying affidavit sworn by Morris Mbae, an officer of the respondent, on the March 2, 2023 and filed on the same date. 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 this tribunal as they are an abuse of the court process and the applicant is undeserving of the same.ii.That the respondent issued the applicant with an assessment of VAT for Ksh 5,889,627. 07 on November 15, 2019. iii.That the applicant lodged an objection on December 2, 2019 and subsequently the respondent requested for supporting documentation to validate the objection.iv.That the appellant ignored, refused and/or failed to validate the objection as required by the provisions of section 51(3)(c) of the TPA.v.That the respondent issued notice of invalidation of the objection on March 5, 2021. vi.That following the appellant’s refusal to validate the objection, there was no objection decision issued. Therefore, there is no appealable decisionvii.That further the decision that the appellant seeks to appeal was not a notice of invalidation but rather a final reminder to the appellant to validate the objection and is therefore not an appealable decision.viii.That the appellant further failed to appeal against the said decision within thirty (30) days from the date of the decision as stipulated under section 13(1)(b) of the Tax Appeals Tribunal Act.ix.That the applicant lodged the present application for extension of time to file an appeal close to two (2) years after the said decision of the respondent.x.That the applicant alleges that the failure to file an appeal within time was occasioned by the fact that it was engaging in internal measures with the said tax decision outside the statutory timelines.xi.That the applicant has failed to provide evidence to support its assertion.xii.That mere statements that are not backed by evidence of any sort are not solid grounds that would warrant the tribunal to exercise its discretion in favor of the applicant. That the applicant has failed to lay a sufficient basis to the satisfaction of the tribunal for extension of time to file an appeal.xiii.That the fact that the applicant failed to validate its objection for more than 6 months after it was served with the request for supporting documents and a further year to appeal against the respondent’s decision is demonstration that the applicant has not been vigilant and does not warrant the exercise of the tribunal’s discretion in its favor. The appellant is guilty of laches.xiv.That the delay is unreasonable and not excusable on the grounds set out by the applicant.xv.That the application is an afterthought, brought in bad faith meant to delay the respondent from collecting taxes that are due and payable and should not be entertained by the tribunal as doing so would offend the equitable maxim of equity aids the vigilant and not the indolent and ultimately create bad precedent.xvi.That the applicant is not deserving of the orders sought in the application as the whole period of delay has not been sufficiently explained satisfactorily to the tribunal thus the application ought to be dismissed.xvii.That the respondent is merely carrying out its statutory duty under the law by issuing agency notices and consequently pray that its actions be upheld by the tribunal.xviii.That the respondent’s mandate of collection of revenue is key to the economic development of the country and consequently, the public and all the arms of government and specifically the tribunal is called upon to assist the respondent in carrying out its mandate so long as the same is within the law.xix.That in the circumstances, it is in the public interest that the tribunal dismiss the application to pave way for the respondent to collect taxes due from the applicant which are key to the economic development of the country.xx.That the indolence and negligence of the applicant should not bar the respondent from fulfilling its mandate of collecting taxes that are still due and payable.xxi.That the applicant has failed to satisfy the principles as set out in the case of Nicholas Kiptoo Arap Korir Salat v Independent Electoral and Boundaries Commission & 7 others [2014] Eklr.

6. The respondent submitted that it was not in dispute that the decision that the applicant seeks to appeal was not an objection decision but rather a notice of invalidation. That it invalidated the appellant’s objection for failure to supply documents.

7. That the actual notice of invalidation was sent on March 5, 2021 confirming the assessment of Kshs 5,889,627. 07. It submitted that the tribunal had no jurisdiction to entertain the application

Analysis And Findings 8. In compliance with the directions of the tribunal to the effect that the application was to be canvassed by way of written submissions, the appellant filed their submissions on March 10, 2023 and while the respondent filed its submissions on March 10, 2023. The tribunal has duly considered the written submissions as filed by the parties in arriving at its determination in this ruling.

9. The applicant’s application is primarily praying to the tribunal for extension of time to file an appeal out of time.

10. 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.

11. In determining whether to expand time, courts have in the past considered a number of factors. These factors were discussed in Leo Sila Mutiso v 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.”

12. 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.

13. The tribunal, guided by the principles set out in Leo Sila Mutiso v 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.

Merits Of The Complained Action 14. 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.

15. 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.”

16. The tribunal was further guided by the findings of the court in Kenya Commercial Bank Limited v 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.”

17. Similarly, in Kenya Commercial Bank Limited v 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 v 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.”

18. Regarding the merits of the appeal, the respondent stated that it issued notice of invalidation of the objection on March 5, 2021. That following the appellant’s refusal to validate the objection, there was no objection decision issued and therefore there is no appealable decision.

19. That further the decision that the appellant seeks to appeal was not a notice of invalidation but rather a final reminder to the appellant to validate the objection and is therefore not an appealable decision.

20. The appellant on its part stated that it had believed that its objection was allowed when it failed to receive an objection decision from the respondent. That it was only until when it attempted to apply for a tax compliance certificate in the year 2022 that it was made aware of the invalidation letter.

21. The tribunal noted that the respondent issued a letter dated March 5, 2021 titled “notice of objection invalidation” which was in relations to the applicant’s objection of an assessment of Kshs 5,889,627. 07.

22. The tribunal further noted that although the respondent averred that there was no appealable decision, the said letter of March 5, 2021 stated in part as follows: -“If you wish to appeal to the above decision to the tax appeals tribunal then please do so within 30 days from the date of service of this notice as required under section 52 of the Tax Procedures Act. Note that your appeal will not be valid unless tax not in dispute is paid in full or an arrangement for payment has been made with the Commissioner at the time of lodging the appeal notice”

23. From the above extract of the respondent’s letter it was clear to the tribunal that the respondent was advising the applicant of its rights under the law if it was dissatisfied with the respondent’s decision. The respondent has not addressed the applicant’s material contention that it did not receive the letters of invalidation of its notice of objection as were issued and that it was under an impression that its notice of objection was deemed as allowed. The respondent did not indicate how the notices were dispatched to the applicant.

24. Further, the tribunal noted that in the memorandum of appeal, the applicant has raised four grounds of appeal that require a rebuttal from the respondent. One of the grounds of appeal relates to the issuance of an objection decision upon the receipt of the notice of objection.

25. Going by the finding in the case of Stanley Kangethe Kinyanjui v Tony Keter & others (2013) eKLR cited above, the tribunal finds that the dispute is not frivolous and therefore the applicant ought to be availed an opportunity to be heard on its appeal on merits.

a. Whether There Is A Reasonable Cause For The Delay. 26. .Regarding delay, the appellant stated that it was not aware of the respondent’s decision until it applied for a Tax Compliance Certificate in 2022 and the same could not be obtained due to the aforementioned decision.

27. The appellant blamed failure to get the respondent’s communication on the fact that during the time it was issued the country was in the midst of the covid-19 pandemic. That its staff were working in shifts and the personnel movements occasioned by the shift system and staff absences it experienced a breakdown in internal flow of information thus some correspondences (including the invalidation letter) was not brought to the attention of the appellant’s management in good time.

20. The respondent on the other hand averred that the delay was unreasonable and not excusable on the grounds set out by the applicant. That the applicant was not deserving of the orders sought in the application as the whole period of delay has not been sufficiently explained satisfactorily to the tribunal thus the application ought to be dismissed.

21. From the submissions, the tribunal noted that the applicant may have been served with the respondent’s invalidation decision on March 5, 2021 and therefore it ought to have lodged a notice of appeal on or before April 4, 2021. The appellant blamed the failure to receive the communication on time to failure in its internal communication during the covid-19 containment period. That it was only when it applied for a Tax Compliance Certificate in 2022 that it was made aware.

22. It was the view of the tribunal that the explanation of the applicant was plausible in the circumstances and therefore could explain the reasons for delay. Consequently, the tribunal finds that there was a reasonable cause for delay.

Whether The Respondent Will Suffer Prejudice 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 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………”

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

25. Although the respondent had stated that the application had been brought in bad faith and was meant to delay the respondent from collecting taxes that are due, the tribunal did not find anything to demonstrate how the respondent would suffer irreparable prejudice that cannot be compensated by award of cost if the application was granted.

26. It was the view of the tribunal that the applicant’s recourse to justice lies in an appeal to the tribunal. Thus, the applicant 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.

27. The tribunal therefore finds that the respondent will not suffer prejudice if the extension is granted.

Disposition 28. Based on the foregoing, the tribunal finds that the application has merit and accordingly proceeds to make the following orders:i.The applicant be and is hereby granted leave to file an appeal out of time.ii.The applicant to file and serve its notice of appeal, memorandum of appeal, statement of facts and tax decision within 15 (fifteen) days of the date of delivery of this rulingiiiThe respondent to file its response to the appeal within the statutory period upon being served.iv.No orders as to costs.

DATED AND DELIVERED AT NAIROBI THIS 31ST DAY OF MARCH, 2023. ERIC N. WAFULACHAIRMANABRAHAM KIPROTICH CYNTHIA MAYAKAMEMBER MEMBERRODNEY O. OLUOCH ELISHAH NJERUMEMBER MEMBER