[2024] KETAT 652 (KLR)

Hagar Construction Company Limited v Commissioner for Domestic Taxes (Tax Appeal E085 of 2023) [2024] KETAT 652 (KLR) (26 April 2024) (Judgment)

Neutral citation: [2024] KETAT 652 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E085 of 2023

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, AK Kiprotich & T Vikiru, Members

April 26, 2024

Between

Hagar Construction Company Limited

Appellant

and

Commissioner for Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company duly incorporated in Kenya under the Companies Act whose main activity is building and general construction.

2. The Respondent is a principal officer appointed pursuant to Section 13 of the Kenya Revenue Authority Act (KRA), Act No. 2 of 1995, and KRA is empowered to enforce and administer provisions of written laws set out in Section 5 as read together with the First Schedule of the Act.

3. The Respondent issued the Appellant with VAT additional assessment dated 4th June 2020. The Appellant objected to the assessment on 28th June 2020.

4. The Respondent via a letter dated 29th November 2021 invalidated the Appellant’s objection.

5. The Appellant lodged a Notice of Appeal before this Tribunal on 4th March 2022.

6. On 5th August 2022 the Tribunal granted the Appellant leave to file an appeal out of time and directed the Appellant to serve the Notice of Appeal, Memorandum of Appeal, Statement of Facts and tax decision within 15 days of the Tribunal’s order.

7. On 7th March 2023 the Respondent issued the Appellant with a demand letter for tax arrears of Kshs. 73,081,182. 00

8. The Appellant, aggrieved with the Respondent’s demand letter dated 7th March 2023 filed its Memorandum of Appeal at the Tribunal on 15th March 2023.

The Appeal 9. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated and filed on 15th March 2023:-i.That the Respondent erred in fact and in law in issuing the taxpayer with estimated VAT and Corporation tax assessments totaling to Kshs. 33,338,273. 00 for the periods 2014, 2015, 2017 and 2018. ii.That the Appellant had been filing its returns when it fell due hence there was no under-declaration.iii.That the demand notice dated 7th March 2023 has no basis as the tax therein is unknown to the taxpayer.iv.That the taxpayer is ready to produce documentary evidence for verification to the Commissioner in order to ascertain the correct tax position.

Appellant’s Case 10. The Appellant’s case is premised on its Statement of Facts dated and filed on 15th March 2023.

11. The Appellant averred that the Respondent issued it with estimated VAT and Corporation tax assessments for the periods 2014, 2015, 2017 and 2018 demanding taxes amounting to Kshs. 33,338,273. 00.

12. The Appellant averred that it objected to the assessments on 16th February 2022.

13. That the Respondent issued its objection decision (invalidation) on 31st March 2022 rejecting the Appellant’s objection for reasons that the same was improperly lodged thus invalid.

14. The Appellant averred that the Respondent in a bid to secure revenue, issued agency notices to the Appellant’s bank vide a letter dated 6th June 2022.

15. The Appellant averred further that it filed a Notice of Motion application to the Tribunal seeking leave to Appeal outside the statutory timelines on 27th July 2022, that the Tribunal allowed late Appeal vide an Order dated 5th August 2022.

16. That the Respondent issued a demand notice on 7th March 2023 demanding taxes amounting to Kshs. 73,081,182. 00, which basis is unknown to the Appellant.

Appellant’s Prayers 17. The Appellant prayed that:-i.The Respondent’s objection invalidation be declared arbitrary and unfair contrary to the administration of justice and legitimate expectations.ii.That the Respondent’s demand notice dated 3rd March 2023 be vacated forthwith in its entirety.iii.Any other remedies the Tribunal may deem just and reasonable.

Respondent's Case 18. The Respondent’s case is premised on:i.Its preliminary objection dated and filed on 9th June 2023ii.Its written submissions dated and filed on 6th September 2023

19. The Respondent’s case is anchored on its preliminary objection which raised the following issues:i.That the Appellant’s Appeal does not originate from an appealable decision and offends Section 2 read together with Section 52 of the Tax Procedures Act, 2015. ii.That without prejudice to the (i) above, the Appellant’s Appeal is out of time and is in contradiction to Section 52(1) of the Tax Procedures Act, 2015 as read together with Section 13(1)(b) & (3)- of the Tax Appeals Tribunal Act, 2013 and Rule 3(1) (b) of the Tax Appeals Tribunal (Procedure) Rules, 2015 thus is defective.iii.That the Appeal is therefore an abuse of the process of the Tribunal and a waste of resources.iv.That the Appeal lacks merit and must fail.

20. The Respondent submitted that on 4th March, 2022, the Appellant lodged a Notice of Appeal wherein it intended to challenge the Respondent's invalidation decision dated 29th November, 2021.

21. That the Appellant having failed to file an appeal as per the order of the Tribunal, the Respondent consequently proceeded to enforce the taxes vide its letter dated 7th March, 2023 by issuing demand notices for all the taxes due.

22. The Respondent submitted that the Appellant, aggrieved by the enforcement process, has now moved to the Tribunal vide a Memorandum of Appeal dated 15th March, 2023 challenging the Respondent's enforcement process vide its letter dated 7th March 2023, disguised as the appealable decision.

23. The Respondent contended that its demand letter dated 7th March 2023 does not amount to an appealable decision, the Respondent cited Section 52(1) of the TPA which provides as follows:“(1)A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act, 2013 (No. 40 of2013).”

24. That further, Section 2 of the Tax Procedures Act, states as follows:“appealable decision" means an objection decision and any other decision made under a tax law other than-(a)a tax decision; or(b)a decision made in the course of making a tax decision

25. The Respondent posited that the Appeal before the Tribunal contests the Respondent's demand for taxes in its letter dated 7th March, 2023 after the Appellant failed to lodge an appeal arising from the Respondent's decisions with respect to VAT amounting to Kshs. 38,563,903. 00 and income tax of Kshs. 34,517,279. 00. That the letter itself was unequivocal to that effect.

26. The Respondent proffered that the letter dated 7th March, 2023 is not appealable in nature and what the Appellant ought to have subjected its appeal on are the Respondent's decision(s) wherein assessments were issued and confirmed.

27. That the Respondent's letter dated 7th March, 2023 cannot be a subject of appeal as it was merely enforcing the prior appealable decisions confirming VAT amounting to Kshs. 38,563,903. 00 and income tax of Kshs. 34,517,279. 00 after the Appellant failed to lodge an appeal within the timelines required.

28. The Respondent submitted that despite the Tribunal's Order dated 5th August, 2022 requiring the Appellant to provide copies of the tax decisions, the same has not been provided by the Appellant even in its current Appeal. That this in itself is contrary to section 13(2) (c) of the TAT, Act, 2013.

29. The Respondent submitted that the Appellant having been given an opportunity vide the Tribunal's Order dated 5th August, 2022 to lodge its Appeal documents and contest the Respondent's decisions that led to agency notices and other enforcement mechanisms being issued. That the appellant however failed to adhere to the timelines ordered by the Tribunal or prescribed by law.

30. The Respondent pointed out that the Tribunal in its order dated 5th August, 2022 was magnanimous and gracious to the Appellant and granted it the opportunity to lodge fresh Appeal documents being to file and serve its Notice of Appeal, Memorandum of Appeal, Statement of Facts and tax decision principally presenting it with a new lease of life to file an Appeal on any other decisions that it was dissatisfied with.

31. That an appeal thus ought to have been with respect to appealable decision(s) made by the Respondent, which should have been lodged within the timelines ordered by the Tribunal vide its Order dated 5th August, 2022. That in this respect, the appeal of decisions made giving rise to the Respondent's enforcement demand dated 7th March, 2023 in any case cannot be said to be within the timelines prescribed by law (TPA, TATA or attendant Rules)

32. The Respondent submitted that the Appellant in its Appeal has attached two distinct appealable decisions, (one dated 29th November, 2021 and the other dated 31st March, 2022). That assuming that they were the decisions and any other that the Appellant was dissatisfied with and were to be challenged in compliance with the Tribunal's orders dated 5th August, 2022, an appeal in this respect ought to have been filed on or before 21st August, 2022. That however, the Appellant failed to do so within the required timelines.

33. The Respondent postulated that the Appellant only moved to the Tribunal on 15th March, 2023, erroneously purporting to prefer an appeal on Respondent's enforcement demand letter dated 7th March, 2023 after its flagrant failure to lodge an appeal within timelines principally to camouflage non-compliance with timelines. That this ought not be allowed.

34. The Respondent relied on Nairobi H.C. Misc. Civil Application No.81 of 2011; Republic vs. The Commissioner of Customs Services; Ex-parte: SDV Transami. where the court had this to say at page 26:“It is therefore my view that the decision envisaged under Section 229(1) was made on 17th August 2010. The demand letter dated 30th December 2010 was a follow up to the previous demand made upon the Applicant and the interested party. Once the Respondent had communicated in August 2010 that tax was due, it was incumbent upon the Applicant to lodge an appeal within the stipulated or specified period under section 229. That was not done. Therefore, it was not open or available to the Applicant to lodge an appeal 5 months after the offensive decision was made. It was not within the jurisdiction and powers of the respondent to entertain an appeal outside the time allowed.”

35. To buttress the importance of observing statutory timelines, the Respondent further relied on the decisions of the Court in:i.Nicholas Kiptoo Arap Korir Salat v IEBC & 6 others [2013] eKLRii.Andrew Mukite Musangi P/A Mukite Musangi and Company Advocates V. Commissioner of Domestic Taxes.

36. The Respondent averred that the action taken by the Appellant in filing the Memorandum of Appeal and Statements of Facts late and failing to apply for leave stating adequately the reasons for the lateness, is tantamount to trying to make the Tribunal to extend time on its own motion and in doing so, that the Tribunal would be engaging in an illegality as was stated in the case of Seven Eleven Construction Limited & 2 Others V. Commissioner of Domestic Taxes where the Tribunal stated that:“...it is unlawful for the Tribunal to consider documents file out of time if leave has not been sought and granted ... "

37. The Respondent further relied on the case of Mactebac Contractors Limited V. Commissioner of Investigation & Enforcement, where this Tribunal quoted the decision in Commissioner of domestic taxes V. Local Productions (Kenya) Limited where the court held that:“...The time, manner and process of filing an appeal is governed by statute, as it is trite law that a right of appeal is a creation of statute and its exercise is governed by statutory structures governing the exercise of that right...”

38. The Respondent urged the Tribunal to uphold the procedural rules that guide it in the application of substantive justice and find that there is indeed no Appeal before it. That the Appellant herein has been indolent in prosecuting its appeal and thus the Tribunal ought not to aid it any further.

39. The Respondent postulated that even if the Tribunal were to find that the delay is not inordinate, and being clothed with discretion to admit appeals out of time, a further question must be asked whether there exists reasonable cause, that has been disclosed by the Appellant explaining the reasons for the delay. The Respondent submitted that none exists. The Respondent relied on the Court in Civil Appeal No. 142 of 2013: Dilpack Kenya Ltd vs. William Muthama Kitonyi (2018) eKLR approvingly quoted Daphne Parry vs. Murray Alexander Carson [1963] EA 546 which stated that:“Though the provision for extension of time requiring "sufficient reason" should receive a liberal construction, so as to advance substantial justice, when no negligence, nor inaction, nor want of bona fides, is imputed to the appellant, its interpretation must be in accordance with judicial principles. If the appellant had a good case on the merits but is out of time and has no valid excuse for the delay, the court must guard itself against the danger of being led away by sympathy, and the appeal should be dismissed as time-barred, even at the risk of injustice and hardship to the Appellant”

40. The Respondent submitted that it was the Appellant's decision not to follow the statutory provisions and specific orders of the Tribunal on the manner and process of filing appeals out of time.

Issues for Determination 41. The Tribunal has carefully considered the filings, submissions and documentation of both parties and is of the view that the issues that call for its determination are:-a.Whether the Appeal was properly before the Tribunal.b.Whether the Respondent was justified in its demand of assessed taxes from the Appellant.

Analysis and Findings 42. Having identified the issues for determination, the Tribunal proceeds to analyse the same as follows:-

a.Whether the Appeal was properly before the Tribunal 43. The Appellant averred that it had been filing its returns when they fell due hence there was no under-declaration of taxes.

44. The Appellant averred that the Respondent’s demand notice dated 7th March 2023 had no basis as the tax therein was unknown to the taxpayer.

45. While the Appellant refers to an objection decision dated 31st March 2023 in its submissions, its Notice of Appeal filed on 4th March 2022 relates to the invalidation decision of 29th November 2021. The Tribunal restricted its analysis to the decision under Appeal being that of 29th November 2021.

46. It was the Respondent’s contention that the Appeal was incompetent as it was contrary to Section 13(1)(b) of the Tax Appeals Tribunal Act, 2013.

47. Section 13(1)(a) & (b) of the Tax Appeals Tribunal Act, 2013 provides as follows regarding the procedure for filing a Notice of Appeal;“(1)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.” (Emphasis added)

48. The above provision of the law is couched in mandatory terms that where a taxpayer has been served with a tax decision and wishes to Appeal to the Tribunal, it ought to do so within 30 days of being notified of the decision of the Commissioner.

49. A taxpayer who is late in filing its Notice of Appeal has an avenue for remedy under Section 13(3) of the Tax Appeal Tribunal Act which provides as follows;“The Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).”

50. In the instant case the Tribunal noted that the Appellant having failed to file an appeal against the Respondent’s invalidation decision of 29th November 2021 within time exercised this avenue in its application for leave from the Tribunal on 27th July 2022 whereupon it was granted leave to file and serve the Notice of Appeal, Memorandum of Appeal, Statement of Facts and tax decisions within 15 days of the Tribunal’s order. The Appellant however rested on its laurels and failed to file its Appeal within the time extended by the Tribunal.

51. It is evident that the Appellant has been indolent in pursuing its rights and only plays catch up when the Respondent deploys enforcement measures. It is the Respondent’s demand letter dated 7th March 2023 which prompted the Appellant to file its Memorandum of Appeal on 15th March 2023 in the instant Appeal.

52. From the documents presented to the Tribunal it is clear that the Appellant in filing its Memorandum of Appeal on 15th March 2023 did not seek leave from the Tribunal to file its pleadings out of time having initially failed to comply with the Tribunal’s Order of 5th August 2022 which granted it 15 days within which to file its Appeal together with the pleadings thereof.

53. The Tribunal reiterates its decision in the case of W.E.C. Lines Ltd vs. The Commissioner of Domestic Taxes [TAT Case No. 247 of 2020] where it held that:“Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures”.

54. The Tribunal finds the decision of the Supreme Court in University of Eldoret & another v Hosea Sitienei & 3 others [2020] eKLR, to be instructive in this regard: The Supreme Court held at paragraph 37 that;“Having said so, we echo our previous position that filing of the Notice of Appeal is a jurisdictional prerequisite. ……Moreover, as we noted in Nicholas Salat case, the purported filing of a Notice of Appeal and Petition of Appeal without the requisite leave cannot be sanctified by the Court, notwithstanding that a case number was issued to the applicants. The alleged Notice of Appeal and Petition of Appeal therefore have to be struck out from the Court record for having been ‘filed’ without Court sanction and out of time. The Notice of Appeal not having been filed on time, the Court cannot resuscitate anything in this matter.”

55. Based on the analysis, provisions of the law and the case laws, the Tribunal finds that the Appeal was not properly before the Tribunal.b.Whether the Respondent was justified in its demand of assessed taxes from the Appellant.

56. Having entered the above finding, the Tribunal did not delve into the other issue for its determination as it had been rendered moot.

Final Decision 57. The upshot of the foregoing is that the Appeal is incompetent and unsustainable in law and the Tribunal accordingly proceeds to make the following Orders: -a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

58. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF APRIL, 2024. ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERDR. RODNEY O. OLUOCH - MEMBERABRAHAM K. KIPROTICH - MEMBERTIMOTHY B. VIKIRU - MEMBER