[2024] KETAT 475 (KLR)

Hotel Waterbuck Limited v Commissioner of Domestic Taxes (Tax Appeal E842 of 2023) [2024] KETAT 475 (KLR) (22 March 2024) (Ruling)

Neutral citation: [2024] KETAT 475 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E842 of 2023

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

March 22, 2024

Between

Hotel Waterbuck Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Ruling

1. The Appellant moved this Tribunal vide a Notice of Motion dated 21st day of November 2022 filed under a Certificate of urgency on 22nd November 2023 supported by an Affidavit sworn by Davies Kinyanjui Nderu, a Director of the Appellant, on the 21st November, 2022, seeking the following Orders:-a.Spent.b.That the Appellant be granted an extension of time with regard to filing the Notice of Appeal and Memorandum of Appeal and Statement of Facts to this Honourable Tribunal out of time.c.That the Memorandum of Appeal; Statements of Facts and Notice of Appeal dated 21st November, 2023 and filed on 21st November, 2023 be deemed as duly filed and served.d.That costs of this application be provided for.

2. The application is based on the following grounds:-a.That on 15th November, 2023, the Appellant received from Respondent a system generated late objection rejection notice dated 27 October through e-mail in relation to the VAT Automated Assessments (VAA) of 15th November 2019, which the Applicant received in e-mail.b.That the Appellant delayed in the compilation of the relevant supporting documents due to the fact that the registered e-mail used at the time, Hotelwaterbuck@yahoo.com was not in use which led limited access to the Applicant’s correspondences.b.That despite the request in writing by the Appellant to have the e-mail changed; the Respondent had not by the date of objection decision not changed the email to the correct detail.b.That the prescribed statutory time to lodge the Appeal with the Tribunal has since lapsed/expired.b.That the Appellant did not lodge the Appeal in good time and only became aware after the late objection rejection notice dated 27 October 2023 were communicated to it through its e-mail address waterbuck@waterbuck.co.ke on the 15th November 2023. b.That the Appellant urgently approached the Tribunal to preserve its right to appeal against the Objection decision. Should this application not be certified urgent and heard on priority basis, the Appellant stands to lose its right of access to justice and to be heard on its appeal due to circumstances that are not of its doing.b.That if this application is not allowed, the Appellant will suffer irreparable loss and damage if the orders sought herein are not issued because the taxes being demanded are erroneous as the input in returns disallowed has been adequately supported in form of documentary evidence and the intended Appeal is merited and stands high chances of success.b.That the delay in approaching the Tribunal for redress is not inordinate as the Appellant was not able to receive the e-mail through the companies registered e-mail and was unable to beat timelines and became aware when the late objection rejection notices were issued by the Respondent.i.That the Appellant is desirous of pursuing its Appeal with the Tribunal by availing all the documents requested for further review by this Tribunal or the ADR Department as may be directed.i.That the tax assessments by the Respondent are not only excessive and unreasonable but also fail to admit genuine input transactions as claimed by the Appellant.i.That the application will not prejudice the Respondent in any way but will provide an opportunity to this Tribunal to decide the issues in dispute on merit and ensure dispensation of justice.i.That the Respondent will not suffer any prejudice if the Orders sought are granted.i.That the Appellant stand to suffer irreparable loss and damage if the orders sought in this application are not granted as the Respondent may proceed to enforce the Agency notices.

3. In response to the application, the Respondent filed a Replying Affidavit sworn by Charles Cheruiyot, an officer of the Respondent, on the 15th December, 2023 stating as follows:a.That the Respondent’s iTax system flagged out inputs that were not reflected in the supplier’s returns.b.That the Appellant failed to amend the returns as per iTax Ledgers thus the assessments were issued on 15th September, 2019. c.That the Appellant fully objected to the raised assessments on 20th October 2020 to all for the amount of Kshs 6,156,419. 70/-.d.That the Appellant failed to provide documentary evidence to support the raised objection despite being requested by the Respondent to provide the same.d.That the VAT Automated Assessments disallowed all vatable inputs claimed by the Applicant.d.That the Respondent issued its objection decision vide a letter dated 18th December 2020. d.That the application discloses no reasonable cause of action and is totally unfounded and ought to be dismissed with costs to the Respondent.d.That the application is an afterthought and a delay tactic by the Appellant meant to delay the conclusion of the matter, which holds substantial Government revenue.d.That the Appellant has not demonstrated it deserves favourable discretion of this Tribunal and the application should be dismissed with costs to the Respondent.

4. The Respondent in its written submissions dated the 13th December, 2023 and filed on 14th December 2023 stated that Appellant has not complied with Section 13(1) and 13(2) of the Tax Appeals Tribunal Act.

5. The Respondent relied on Section 13 (3) and (4) of the Tax Appeals Tribunal Act and Rule 10 of the Tax Appeals Tribunal (procedure) Rules 2015 to submit that the Applicant has not advanced any viable reason for late filing of the intended appeal and that this Tribunal should not excuse such inordinate delay.

6. The Respondent cited the case of Income Tax Appeal No. 31 of 2017 Commissioner _of Domestic Taxes vs Mayfair Insurance Company Limited (2017) eKLR where the court held that:-“One of the reasons stated under the Rule is that the court may extend time where there is reasonable cause for the delay. Effectively, the court’s powers and discretion to extend time is unlimited. Itis however not to be capriciously exercised. Time, in other words, is not to be extended as a matter of right. Each case is to be viewed sui generis and on its own circumstances and facts. The starting point is that the Applicant ought to advance sufficient and reasonable grounds for any delay on its part.”

7. The Respondent also submitted that the Appellant has not shown any prejudice it would suffer if the orders sought are not granted. The Respondent maintained that it is the obligation of every citizen to pay taxes as and when they fall due and that the Appellant slept on its rights for one year and nine months and was only prompted to move the Tribunal by the

Respondent’s intended enforcement action.Analysis and Findings 8. 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)”.

9. Conditions that the Appellant has to satisfy are stipulated under Section 13(4) of the Tax Appeals Tribunal Act which provides that:-‘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 filing the notice of appeal or submitting the documents within the specified period.’

10. Similarly, Rule 10 of the Tax Appeals Tribunal (Procedure) Rules reiterates the foregoing statutory provision in the following terms: -“(3)The Tribunal may grant the extension of time if it is satisfied that the Applicant was unable to submit the documents in time for the following reasons –a.absence from Kenya;b.sickness; orc.any other reasonable cause.”

11. From the provisions of Section 13 (3) and Rule 10 of the Tax Appeals Tribunal (Procedure) Rules, the power to extend time is discretionary and not a right to be granted to the Appellant.

12. The Supreme Court in Nicholas Kiptoo Arap Korir Salat v Independent Electoral and Boundaries Commission & 7 others [2014] e KLR set out the considerations to guide the court in exercising its discretion in cases of this nature. It stated as thus: -i.‘‘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;ii.A party who seeks for extension of time has the burden of laying a basis to the satisfaction of the court;iii.Whether the court should exercise the discretion to extend time, is a consideration to be made on a case-to-case basis;iv.Whether there is a reasonable reason for the delay. The delay should be explained to the satisfaction of the court;v.Whether there will be any prejudice suffered by the respondents if the extension is granted;vi.Whether the application has been brought without undue delay; andvii.Whether in certain cases, like election petitions, public interest should be a consideration for extending time."

13. Courts have considered a number of factors in determining whether to enlarge time. Some of these factors were discussed at length in the case of 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.”

-b. Whether there is a reasonable cause for the delay 15. The statutory timelines and provisions to file an appeal have been clearly set out in the Tax Appeal Tribunal Act under Section 13 (3) Section 13(4) and Rule 10 (3)(c) of the Tax Appeals Tribunal (Procedure) Rules.

16. Examination of the Appellant’s Affidavit reveals that the Appellant is seeking leave under Section 13(4) of the Tax Appeals Act and Rule 10 (3)(c) of the Tax Appeals Tribunal (Procedure) Rules on ‘‘other reasonable cause’’ although the Appellant has not expressly stated as such.

17. In Abdul Aziz Ngoma vs. Mungai Mathayo [1976] Kenya LR 61, 62, the court stated as follows with regards to ‘sufficient reason’:-“We would like to state once again that this Court’s discretion to extend time under rule 4 only comes into existence after ‘sufficient reason’ for extending time has been established and it is only then that other considerations such as the absence of any prejudice and the prospects or otherwise of success in the appeal can be considered.”

18. Further, the court in Andrew Kariuki Njoroge v Paul John Kimani Civil Application No. E049 Of 2022 held as follows at paragraph 12:-“In order to exercise its discretion whether or not to grant condonation, the court must be appraised of all the facts and circumstances relating to the delay. The applicant for condonation must therefore provide a satisfactory explanation for each period of delay. An unsatisfactory explanation for any period of delay will normally be fatal to an application, irrespective of the applicant’s prospects of success. Condonation cannot be had for the mere asking. An applicant is required to make out a case entitling him to the court’s indulgence by showing sufficient cause, and giving a full, detailed and accurate account of the causes of the delay. In the end, the explanation must be reasonable enough to excuse the default.”

19. From jurisprudence in Abdul Aziz Ngoma vs. Mungai Mathayo [1976] Kenya LR 61, 62 and Andrew Kariuki Njoroge v Paul John Kimani Civil Application No. E049 Of 2022, the Appellant has to provide a good reason or the delay.

20. The Appellant’s case is that it delayed in the compilation of the relevant supporting documents due to the fact that the registered e-mail used at the time, Hotelwaterbuck@yahoo.com was not in use which contributed to limited access to the Appellant’s correspondences. The Appellant asserted that despite the request in writing to have the e-mail changed, the Respondent had not by the date of objection decision changed the email to the correct detail. Therefore, the Appellant maintained that this contributed to delays in lodging the appeal.

21. The Appellant further stated it did not lodge the Appeal in good time because it only became aware after the late objection rejection notice dated 27 October 2023 was communicated through e-mail address waterbuck@waterbuck.co.ke on the 15th November 2023. What isinteresting is that the Respondent did not deny the allegations that the Appellant raised concerning changes to email addresses.

22. The Tribunal is of the view that the use of different emails may have played a role in the delay in commencing an appeal on the part of the Appellant.

23. Under the circumstances, the Tribunal finds that there exists a reasonable cause for the delay.b.Whether the Appeal is merited

24. The Tribunal has to test whether the matter under dispute is frivolous or whether there are material facts that deserve to be heard by the Tribunal. In other words, the Tribunal has to be satisfied that the intended appeal is arguable and not its likelihood of success. In the case of Samuel Mwaura Muthumbi v Josephine Wanjiru Ngungi & Another (2018) eKLR the court stated as follows:-“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 Applicant 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.”

25. Apart from the foregoing, the court in Stanley Kangethe Kinyanjui Vs Tony Keter & others (2013) eKLR had the following to say about arguabilty of appeal:-“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.”

26. The Appellant argued that the taxes being demanded are erroneous as the input in returns disallowed has been adequately supported in form of documentary evidence. The Appellant also alleged that the tax assessments are not only excessive and unreasonable but also fail to admit genuine input transactions as claimed by the Appellant. It is the Appellant’s case that there is sufficient evidence that claimed VAT on assorted inputs are validly claimed and that the VAT Automated Assessment system failed to identify and appreciate the claims. On the contrary, the Respondent argued that the Appellant failed to provide documentary evidence to support the raised objection despite being requested by the Respondent to provide the same.

27. The Tribunal is of the view that the raised arguments and counterarguments ought to be heard and determined on merit. Under the circumstances, the Tribunal is of the view that the Appellant has an arguable case.SUBPARA c)Whether the Respondent will be prejudiced if time is extended

28. The test here is whether the Respondent will suffer irreparable prejudice if the application is granted. Courts have in numerous instances held that due regard must be given to whether the extension will prejudice the opponent. In Edith Gichungu Koine Vs Stephen Njagi Thoithi [2014] eKLR the court held that, ‘…the degree of prejudice to Respondent if the application is granted should be considered,’’ while in Patrick Maina Mwangi v Waweru Peter [2015] eKLR the Court quoted the finding in United Arab Emirates v Abdel Ghafar & Others 1995 IR LR 243 and stated as follows:‘‘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.”

29. In the instant application, the Respondent has not adduced evidence indicating how it would be prejudiced if time is extended. Therefore, the Tribunal is of the view that the Respondent will not be prejudiced if time is extended.d)Whether the delay is inordinate

30. Delays whether inordinate or not ought to be sufficiently explained. In Joseph Odide Walome v David Mbadi Akello [2022] eKLR, the High Court stated as follows:-“Where a party is aggrieved and wishes to pursue an appeal, it would be fair to exercise discretion in his favour and especially where the delay in filing the appeal is not inordinate or even if the delay is inordinate, it is explained to the satisfaction of the court and the adverse party will not be prejudiced in any way.”

31. The Appellant stated that it was until 15th November 2023 that the Appellant received from Respondent a system generated late objection rejection notice dated 27 October 2023 through email waterbuck@waterbuck.co.ke. The Respondent has not denied that it generated late objection rejection notice dated 27 October 2023.

32. The Tribunal has examined the application and notes that it was filed on 22nd November 2023 when the Appellant discovered system generated late objection rejection notice dated 27 October 2023 on 15th November 2023. This is a deference of 7 days. This is not inordinate.

33. The Tribunal notes that whereas the Respondent issued objection decision vide a letter dated 18th December 2020, the Respondent did not intimate as to when it served the said letter upon the Appellant. Time of receipt of the Respondent’s decision matters in law. This is why Section 13 (1)(b) of the Tax Appeals Tribunal ACT requires a taxpayer to submit a notice of appeal to the Tribunal within thirty days upon receipt of the decision of the Commissioner.

34. Consequently, the Tribunal finds that under the circumstances, the delay is not inordinate and that the delay has been explained sufficiently.

35. Due to the foregoing analysis and findings, the Tribunal is persuaded to grant leave to the Appellant to file an appeal out of time.

Disposition 36. In the circumstances, the Tribunal proceeds to make the following Orders:-i.The Appellant is hereby granted leave to file an Appeal out of time.ii.The Notice of Appeal dated 21st November 2023 and filed on the even date is hereby deemed as duly filed and served;iii.The Appellant to file and serve upon the Respondent the Memorandum of Appeal, Statement of Facts and tax decision within Fifteen (15) days of the date of delivery of this Ruling;iv.The Respondent to file and serve its response to the appeal within Thirty (30) days of the date of being served with the appeal documents.v.No orders as to costs.

37. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF MARCH, 2024ERIC NYONGESA WAFULA - CHAIRMANELISHAH N. NJERU - MEMBERMUTISO MAKAU - MEMBEREUNICE N. NG’ANG’A - MEMBERABRAHAM K. KIPTROTICH - MEMBER