[2023] KETAT 358 (KLR)

Karatina Emporium Limited v Commissioner of Domestic Taxes (Miscellaneous Application E24 of 2023) [2023] KETAT 358 (KLR) (Civ) (9 June 2023) (Ruling)

Neutral citation: [2023] KETAT 358 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Miscellaneous Application E24 of 2023

E.N Wafula, Chair, Cynthia B. Mayaka, Rodney Odhiambo Oluoch, E.N Njeru & AK Kiprotich, Members

June 9, 2023

Between

Karatina Emporium Limited

Applicant

and

Commissioner of Domestic Taxes

Respondent

Ruling

1. The Applicant vide a Notice of Motion dated the 28th March, 2023 filed under certificate of urgency on 30th March, 2023 and supported by an Affidavit sworn by David Kanyi, the Director of the Applicant on the 28th March, 2023, sought for the following Orders:-i.Spentii.That pending the hearing and determination of the application inter partes, a temporary order be issued staying and/or suspending the Agency Notice dated23rd March 2023 issued to Co-operative bank of Kenya requiring the Applicant’s bankers to pay the sum of Kshs 6,343,896. 87 or any other enforcement action taken by the Respondent which the Applicant may have not been aware of at the time of making this application be stayed and the Respondent whether by itself, its officers, employees and/or agents, be stopped from taking any steps to collect any money pursuant to the said Agency Notice.iii.That the Agency Notice dated 23rd March 2023 issued to Co-operative Bank of Kenya and any other agency notice issued on any of the Applicant’s bankers, be lifted, vacated and/or set aside and the Respondent whether by itself, its officers, employees and/or agents be stopped from taking any steps or other enforcement action founded on the said assessments.iv.That the intended Appellant/Applicant be granted an extension of time with regard to filing of Notice of Appeal and Memorandum of Appeal to the Tribunal.v.That the intended Appellant/Applicant’s Notice of Appeal dated 28th March 2023 be admitted into the record of the Tribunal as having been filed within time.vi.That the cost of this application be in the cause.vii.That the Tribunal be pleased to issue any such orders as it deems just and expedient.

2. The application is premised on the following grounds:-i.That the Respondent issued the agency notices dated 23rd March 2022 to the Applicant’s/Appellant’s bankers requiring them to immediately pay a sum of Kshs 6,343,986. 87ii.That the Applicant came to know of the confirmation of the assessment notices dated 26th April 2021 when it was issued with the agency notice.iii.That being dissatisfied with the decision of the Respondent to issue agency notices to its bankers, the Appellant/Applicant has lodged an application to the Tribunal.iv.That the Agency Notices are unlawful, unreasonable, unfair and in bad faith.v.That the Applicant stands to suffer substantial loss and damage if the agency notices are not lifted, including the inability to meet its immediate and long-term financial obligations including loans, family and salary obligations.vi.That due to factors beyond the control of the Applicant it missed the statutory deadline for filing the Notice of Appeal and Memorandum of Appeal to the Tribunal. That these factors were;a.That the Applicant was not informed of the confirmation assessment notices dated 26th April 2021 by the Respondent since the same was sent to its email not to the iTax platform of the Applicant.b.That the Applicant learnt of the same on 23rd March 2023 after the issuance of the agency notice to its bank account.c.That the Applicant had objected to the confirmed assessments and the same confirmed through the system on 25th January 2020 whereby the Respondent never issued a decision within its stipulated timelines only to issue the same late and not notify the taxpayer.d.That the Applicant has approached the Tribunal at the earliest juncture and failure to file the Notice of Appeal and Appeal documents within the stipulated timelines is as a result of factors beyond the Applicant’s control.vii.That this application is brought without undue delay.viii.That the Respondent will suffer no prejudice if orders sought herein are granted.ix.That it is in the interest of justice that the Tribunal grants the orders for lifting the Agency Notice in the Co-operative Bank Limited bank account and allow the Notice of Appeal be filed out of time as sought herein.x.That unless this application is heard on a priority basis and the orders sought herein granted, the Applicant will be highly prejudiced and will suffer substantial and irreparable loss.

3. The Respondent opposed the application through its grounds of opposition dated 30th March, 2023 and supported by an affidavit of Fred Mwanzia Ndeleva an officer of the Respondent, sworn on the 11th April, 2023 and filed on 12th April, 2023, on the following grounds:-i.That the iTax system detected inconsistencies in the months of January to May 2018 between the invoices declared by the Applicant and its suppliers. That notices were sent to the taxpayer and supplier to amend their VAT returns and remove the inconsistency, but the Applicant did not make the necessary amendments.ii.That on 15th November, 2019 the Appellant was issued with VAT assessment invoices.iii.That on 25th January 2020 the Applicant lodged late notices of objection without stating precise grounds of objection and without providing supporting documents.iv.That an email was sent to the Applicant on 12th January 2021, to the email address provided by the taxpayer on iTax (Karatinaemporiumlimited@gmail.com), requesting the taxpayer to provide documents within 7 days. That another email was sent to the Applicant on 23rd February 2021, informing the Applicant of the intention to disallow the disallowed invoices.v.That the Applicant never responded to any of the emails and consequently failing to validate its objection.vi.That the Respondent thereafter proceeded to invalidate the objection and confirmed the assessments on 5th March, 2021. vii.That the emails forwarding the notice of invalidation to the Applicant’s address was deemed correctly served as email service is an accepted mode of communication.viii.That the Applicant’s failure to accurately move to the Tribunal at first instance should not be a ground for extension of filing out of time.ix.That the Applicant did not appeal the decision to the Tax Appeals Tribunal within thirty days of the decision as required in law.x.That in absence of a valid appeal before the Tribunal, the Respondent is entitled to enforce collection of the taxes confirmed in the objection decision.xi.That the application as filed is incompetent, bad in law, fatally defective and is an abuse of the Tribunal’s process.xii.That extension of time to file an appeal is an exercise of judicial discretion and Section 13(4) of the Tax Appeals Tribunal Act requires an Applicant to provide a reasonable cause which may have prevented the Applicant from filing the Notice of Appeal or submitting the documents within the specified period.xiii.That no credible reason has been advanced by the Applicant to warrant extension of time to file an appeal as provided at Section 13(4) of the Tax Appeals Tribunal Act.xiv.That the Applicant being a participant in an objection subject to Section 51 of the Tax Procedures Act had an obligation to be diligent, follow up with the Respondent and ensure that it was aware of the status of the objection.xv.That there is no explanation tendered as to why the Applicant never sought to know from the Respondent for two years; being the entire year of 2022 whether a decision had been rendered on the objection.xvi.That the Applicant has been indolent and the application ought not to be allowed.xvii.That the Notice of Motion application discloses no reasonable cause of action and is totally unfounded and ought to be dismissed with costs to the Respondent.xviii.That the taxes demanded thus fell due on 5th April, 2021 when the Applicant failed to lodge an appeal within thirty days from the date of the objection decision as provided under the Tax Procedures Act and Tax Appeals Tribunal Act.xix.That upon lapse of the statutory timelines to lodge an appeal at the Tax Appeals Tribunal the Respondent vide a letter dated 23rd March 2023 sought to institute enforcement measures.xx.That the agency notices placed on the Applicant’s account are lawful since the Applicant has never appealed against the decision by the Respondent in its objection decision of 5th March 2021. xxi.That the Respondent issued enforcement measures as provided under Section 42 of the Tax Procedures Act 2015. That the Respondent is allowed under Section 42 of the Tax Procedures Act to place an agency notice where the tax due has crystallized and the taxpayer has failed to make payment.xxii.That the Applicant is guilty of laches and has been indolent in the disposal of this matter and thus the Tribunal should not come to its aid.xxiii.That the Respondent stands to suffer prejudice if the agency notices are lifted unconditionally since it has demonstrated that it followed the laid down procedures in placing the agency notices.xxiv.That if the Tribunal is inclined in any way to allow the Appeal out of time, the Tribunal has the powers to direct that the Applicant to furnish security as a condition for lifting the agency notices in order to balance and protect the interests of both parties.xxv.That the instant application is misconceived, as the Applicant has not demonstrated that it has met the provisions of Section 13(4) of the Tax Appeals Tribunal Act. The Appellant has not demonstrated to the Tribunal why the orders sought should be granted.xxvi.That the Applicant has not demonstrated why it deserves a favourable discretion of the Tribunal and the application should be dismissed with costs to the Respondent.xxvii.That the application dated 28th March 2023 is misplaced and thus ripe for striking out.

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 dated 12h April 2023 and filed on 13th April 2023. The Respondent did not file any submissions. The Tribunal has duly considered the Applicant’s written submissions in arriving at its determination in this Ruling.

5. The application is primarily praying to the Tribunal for extension of time to file an appeal out of time.

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 WasikevSwala [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 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 inSamuel Mwaura MuthumbivJosephine 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 Limitedvs 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.” That was also the position held in Stanley Kangethe Kinyanjuivs 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.”

14. The Respondent in this case issued the objection decision on 5th March, 2021 that required the Applicant to settle tax amounting to Kshs 3,898,788. 38 which the Applicant is disputing. The Applicant is challenging the Respondent’s decision on issues relating to statutory timelines. Based on the existence of such ground the Tribunal finds that the Applicant has an arguable case. Although it is not mandatory to have more than one ground, the Tribunal was of the view that the Applicant had demonstrated existence of sufficient grounds for appeal as set out above in the Stanley Kangethe Kinyanjui Vs Tony Keter case.

15. Consequently, the Tribunal finds that the Applicant has an arguable case and therefore deserves its day in the Tribunal.

b. Whether there is a reasonable cause for the delay. 16. Regarding delay, the Respondent contended that on 25th January 2020 the Applicant lodged late notices of objection without stating the precise grounds of objection and without providing supporting documents.

17. That further, an email was sent to the Applicant on 12th January 2021, to the email address provided by the taxpayer on iTax Karatinaemporiumlimited@gmail.com), requesting the taxpayer to provide documents within 7 days. That another email was sent to the Applicant on 23rd February 2021, informing the Applicant of the intention to disallow the disallowed invoices.

18. That the Applicant never responded to any of the emails and consequently failing to validate its objection.

19. The powers to extend time is donated to the Tribunal by Section 13(3) & (4) of the Tax Appeals Tribunal Act which provides as follows;(3)The Tribunal may, upon application in writing, extend the time for submitting the documents referred to in subsection (2).(4)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 noted that the Respondent issued confirmation of assessments via iTax on 26th April 2021 and a formal letter for the objection decision dated 5th March 2021. The Tribunal further noted from the documents filed by the Applicant that it had filed its objection notices via iTax on 25th January 2020. The Applicant in this case approached the Tribunal with this Notice of Motion on 30th March 2023 after the Respondent issued it with Agency Notice to its bank account at Co-operative bank.

21. The Applicant stated that it had objected to the assessments and the same confirmed through the system on 25th January 2020 whereby the Respondent never issued a decision within its stipulated timelines only to issue the same late and not notify the taxpayer. The Applicant added that it came to know of the confirmation of the assessment notices dated 26th April 2021 when it was issued with the agency notice.

22. The Tribunal noted that the parties had made correspondences mainly via iTax during the assessment and the objection. However, there were long and unclear lapses in time leading to the objection decision of 5th March 2021 and the manner in which the decision was served to which the Applicant is challenging. Owing to such unclear circumstances in the correspondences and timelines and having determined that the Applicant had an arguable case, it was the view of the Tribunal that for the interest of justice the matter was better determined on its full merit through an appeal process.

23. The Tribunal’s in its finding is persuaded by the Ugandan Case of Ojara v Okwera (Miscellaneous Civil Application-2017/23) [2018] UGHCCD 42 it was stated that;“An order for enlargement of time to file the appeal should ordinarily be granted unless the applicant is guilty of unexplained and inordinate delay in seeking the indulgence of the Court”

24. The Tribunal in the circumstances finds the Applicant’s explanation for delay plausible.

c. Whether the Respondent will suffer prejudice if the extension is granted. 25. 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 inPatrick Maina Mwangi v Waweru Peter [2015] eKLR quoted the finding in United Arab EmiratesvAbdel Ghafar & Others1995 IR LR 243 in which it was stated:-“…….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………”

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

27. The Applicant averred that it stands to suffer substantial loss and damage while on the other hand the Respondent stated that it stands to suffer prejudice if the agency notices are lifted unconditionally since it had demonstrated that it followed the laid down procedures in placing the agency notices.

28. The Tribunal however did not find anything to demonstrate how the Respondent would suffer irreparable prejudice that cannot be compensated by award of interest if the application was granted.

29. 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.

30. The Tribunal therefore finds that the Respondent will not suffer prejudice if the extension is granted.

Disposition 31. Based on the foregoing, the Tribunal finds that the application has merit and 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’s Notice of Appeal dated 28th March 2023 and filed on 30th March 2023 be and is hereby deemed to be duly filed and served.iii.The Applicant to file and serve 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 the statutory timelines upon being served with the Appeal documents.v.The Agency Notice dated 23th March 2023 be and is hereby unconditionally lifted.vi.No orders as to costs.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF JUNE, 2023. ..............................ERIC N. WAFULACHAIRMAN..............................CYNTHIA B. MAYAKAMEMBER..............................RODNEY O. OLUOCHMEMBER..............................ELISHAH NJERUMEMBER..............................ABRAHAM K. KIPROTICHMEMBER