[2023] KEHC 3942 (KLR)

Jipsy Civil and Building Contractors Limited v Commissioner of Investigations and Enforcement (Tax Appeal E122 of 2021) [2023] KEHC 3942 (KLR) (Commercial and Tax) (28 April 2023) (Judgment)

Neutral citation: [2023] KEHC 3942 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts)

Commercial and Tax

Tax Appeal E122 of 2021

DAS Majanja, J

April 28, 2023

Between

Jipsy Civil And Building Contractors Limited

Appellant

and

Commissioner Of Investigations And Enforcement

Respondent

(Being an appeal against the judgment of the Tax Appeals Tribunal at Nairobi dated 11th June 2021 in Tax Appeal No. 281 of 2020)

Judgment

Introduction and Background 1. On June 11, 2021, the Tax Appeals Tribunal (“the Tribunal”) delivered a judgment dismissing the appellant’s appeal on technical grounds that its notice of objection to the respondent (“the Commissioner”) and the subsequent appeal to the Tribunal were invalid for failing to comply with sections 51(3) and 52(2) of the Tax Procedures Act, 2015 (“the TPA”). These provisions provide as follows:51. Objection to tax decision(1)A taxpayer who wishes to dispute a tax decision shall first lodge an objection against that tax decision under this section before proceeding under any other written law.(2)A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.(3)A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—(a)the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments;(b)in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(1); and(c)all the relevant documents relating to the objection have been submitted.(4)Where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall within a period of fourteen days notify the taxpayer in writing that the objection has not been validly lodged.(5)Where the tax decision to which a notice of objection relates is an amended assessment, the taxpayer may only object to the alterations and additions made to the original assessment.(6)A taxpayer may apply in writing to the Commissioner for an extension of time to lodge a notice of objection.(7)The Commissioner shall consider and may allow an application under subsection (6) if—(a)the taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of an absence from Kenya, sickness or other reasonable cause; and(c)the taxpayer did not unreasonably delay in lodging the notice of objection.(7A)The Commissioner shall notify the taxpayer of the decision made under subsection (7) within fourteen days after receipt of the application.(8)Where a notice of objection has been validly lodged within time, the Commissioner shall consider the objection and decide either to allow the objection in whole or in part, or disallow it, and Commissioner's decision shall be referred to as an "objection decision".(9)The Commissioner shall notify in writing the taxpayer of the objection decision and shall take all necessary steps to give effect to the decision, including, in the case of an objection to an assessment, making an amended assessment.(10)An objection decision shall include a statement of findings on the material facts and the reasons for the decision.(11)The Commissioner shall make the objection decision within sixty days from the date of receipt of a valid notice of objection failure to which the objection shall be deemed to be allowed.(12)A person who is dissatisfied with the decision of the Commissioner under subsection (11) may appeal to the Tribunal within thirty days after being notified of the decision.52. Appeal of appealable decision to the Tribunal(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 of 2013).(2)A notice of appeal to the Tribunal relating to an assessment shall be valid if the taxpayer has paid the tax not in dispute or entered into an arrangement with the Commissioner to pay the tax not in dispute under the assessment at the time of lodging the notice.

2. After rejecting the appeal, the Tribunal entered judgment in respect of a partial consent filed by the parties before the Tribunal and subject to the said partial consent, upheld the Commissioner’s Objection Decision dated December 27, 2019 (“the Objection Decision”). This meant the appellant was required to pay Kshs. 455,003,944. 00 inclusive of interest as a result of the Commissioner’s tax assessments for the years of income 2013-2019.

3. The appellant is aggrieved by the tribunal’s decision and has lodged an appeal with the court through its memorandum of appeal dated July 8, 2021. The Commissioner has responded to the appeal through its statement of facts dated August 11, 2021. The appeal was canvassed by way of written submissions which are on record.

4. The facts giving rise to the Tribunal’s decision and this appeal can be traced back to investigations that the Commissioner conducted on the Appellant’s businesses between the period 2013 – 2019. In its letter dated September 24, 2019, the Commissioner communicated its findings that the Appellant was not filing and remitting Pay as You Earn (PAYE), Corporation Tax, Withholding Tax (WHT) and Value Added Tax (VAT). On October 29, 2019, the Appellant objected to this demand and additional assessments. However, in the Objection Decision, the Commissioner informed the Appellant that the objection was invalid for failure to comply with section 51(3) of the TPA.

5. The Appellant filed an appeal with the Tribunal which in upholding the Objection Decision and dismissing the appeal, reasoned that sections 51(3) and 52(2) of the TPA are couched in mandatory language and that non-compliance is not curable. The Tribunal upheld the consent that the parties had entered into and held that its hands were tied in so far as sections 51(3) and 52(2) are concerned in respect of validity at the point of objection as well as at the point of appeal as these provisions were mandatory. The Tribunal held that the Appellant’s notice of objection and the subsequent appeal was incompetent.

Analysis and Determination 6. In resolving this appeal, this court’s jurisdiction is circumscribed by section 56(2) of the TPA which provides that “An appeal to the High Court or to the Court of Appeal shall be on a question of law only”. This means that an appeal limited to matters of law does not permit the appellate court to substitute the Tribunal’s decision with its own conclusions based on its own analysis and appreciation of the facts (See John Munuve Mati v Returning Officer Mwingi North Constituency & 2 others [2018] eKLR). As is evident from the brief background, this appeal involves a matter of law as it concerns the interpretation and application of statutory provisions.

7. Even though the appellant’s memorandum of appeal raises 12 grounds of appeal, it has condensed the same to two issues in its submissions, to wit, whether an invalid notice of objection under section 51(3) of the TPA can be remedied and whether the Commissioner can make a notification under section 51(4) of the TPA on the invalidity of a notice of objection simultaneously with an objection decision.

8. The appellant does not deny that it did not pay the assessed sums not in dispute as required by section 51(3)(b) of the TPA, which inaction led to its objection being invalidated by the Commissioner. However, the appellant submits that the objection, though invalid, can be cured by allowing it to pay the admitted taxes, filing a fresh objection after the taxes are paid or applying to the Commissioner to extend time within which to pay or file the objection as provided by sections 51(2) and 51(6) of the TPA. The Appellant also faults the Commissioner for not responding to its objection immediately and informing it that the same was invalid as provided by section 51(4) as it was then in 2019 before the amendment by the Finance Act, 2022.

9. In its response, the Commissioner submitted that prior to amendments introduced by the Finance Act, 2022, the law did not provide a timeline for the Commissioner to inform a taxpayer that its objection was invalid hence the Commissioner was expected to make the decision within the 60 days after which the objection, valid or not, would be accepted by operation of law in line with section 51(11) of the TPA. The Commissioner submits that an invalid objection can be remedied if a taxpayer cures the defect that makes it invalid and informs the Commissioner or restarts the objection process. Since the Appellant failed to take any steps to comply with this legal provision, the Commissioner simply invalidated the objection and informed the Appellant that the objection had to be rejected on a basis of being invalid. That in any case, the appeal filed before the Tribunal was still invalid as the taxes had neither been paid nor a payment plan entered or agreed to which is on its own was an incurable defect.

10. The Commissioner further submits that what it issued was an invalidation notice informing the Appellant that its objection could not be accepted as it was invalid. It maintains that the onus was on the Appellant to validate the objection and resubmit it but it did not do so. That the Appellant moved to the Tribunal prematurely and even then failed to pay the admitted tax making its appeal invalid. The Commissioner submits that an objection decision cannot stem from an invalid objection therefore the insistence of the Appellant on the fact that the invalidation is an objection decision is an attempt to sway the court to believe that the Commissioner acted unfairly.

11. I agree with the Tribunal that section 51(3) of the TPA is couched in mandatory terms that a notice can only be valid if all admitted taxes have been paid or an application for extension of time to pay the disputed tax has been lodged with the Commissioner. Prior to July 1, 2022, section 51(4) of the TPA read as follows; ‘Where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall immediately notify the taxpayer in writing that the objection has not been validly lodged.’ The Finance Act, 2022 then amended this provision by deleting the word “immediately” and substituting therefor the words “within a period of fourteen days”. At the time material to this appeal, the time for the Commissioner to notify a taxpayer that its objection was invalid was not time limited. The Commissioner therefore cannot be faulted for taking 58 days to notify the Appellant that its objection had not been validly lodged. In as much as it can be argued that 58 days may not have been “immediately”, at least by subjective standards, there was no infraction of the law, nevertheless. In my view, nothing turns on the time taken by the Commissioner to notify the Appellant of the invalidity of its objection since it always had the opportunity to pay the undisputed taxes or apply for extension of time to do so.

12. As regards section 52 of the TPA, it must be pointed out that appellate jurisdiction is a creature of the Constitution or statute and there is no appeal to a tribunal or from a tribunal to the High Court unless the Constitution or statute permits it (see Munene v Republic (2) [1978] KLR 105 and Judicial Service Commission and Another v Justice Kalpana H. Rawal NRB CA Civil Appl.No. 308 of 2015 [2015]eKLR). It follows therefore that the right to appeal must be express and may be circumscribed by certain conditions which an appellant must comply with before its appeal can be accepted by the court. Thus, section 52(1) of the TPA creates the right of appeal to the Tribunal and section 52(2) imposes a condition the taxpayer must comply with where it does not dispute certain taxes relating to the assessment under the appeal. The Tribunal did not err holding that since the Appellant had not complied with the mandatory provisions of section 52(2) of the TPA, then it could not proceed with the appeal before it.

13. The court has a duty to determine matters without undue regard to technicalities under Article 159(2)(d) of the Constitution. The courts have held that this provision is not a panacea for all procedural infractions and as the Supreme Court stated in Raila Odinga v Independent Electoral and Boundaries Commission and Others [2013] eKLR, “Article 159(2)(d) of the Constitution was never meant to oust the obligation of litigants to comply with procedural imperatives as they seek justice from the Court.”

14. The lapses by the Appellant are not merely procedural, they go to the jurisdiction of the Commissioner on the one hand to entertain an objection and of the Tribunal to entertain an appeal from the Commissioner’s objection decision on the other hand. These are therefore mandatory provisions whose violation cannot be condoned in the manner proposed by the Appellant as this would amount to the court re-writing the statute and granting jurisdiction where it does not exist. Unless provided for by the law, neither the Tribunal nor the court has the discretion to either extend time or entertain a matter further once it is found that there has been a clear breach of the law in such circumstances (see Equity Group Holdings Limited v Commissioner of Domestic Taxes (Civil Appeal E069 & E025 of 2020) [2021] KEHC 25 (KLR) (Commercial and Tax) (23 August 2021) (Judgment)].

15. The Tribunal was therefore correct to hold that sections 51(3) and 52(2) of the TPA are mandatory provisions and that breach thereof was not curable and that the appellant’s notice of objection and subsequent appeal were not valid and thus unsustainable in law.

Disposition 16. For these reasons, I dismiss the Appellant’s appeal. There shall be no order as to costs.

SIGNED AT NAIROBID. S. MAJANJAJUDGEDATED AND DELIVERED AT NAIROBI THIS 28TH DAY OF APRIL 2023. F. MUGAMBIJUDGECourt Assistant: Mr Michael Onyango.Mr Munyeri instructed by Kimani, Kiarie and Associates Advocates for the Appellant.Ms R. Muruka, Advocate instructed by Kenya Revenue Authority for the Respondent.