[2023] KETAT 973 (KLR)

Narcol Aluminium Rolling Mills Limited v Commissioner of Legal Services & Board Coordination (Tax Appeal 500 of 2022) [2023] KETAT 973 (KLR) (15 September 2023) (Judgment)

Neutral citation: [2023] KETAT 973 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 500 of 2022

E.N Wafula, Chair, RO Oluoch, AK Kiprotich, Cynthia B. Mayaka, E Ng'ang'a & B Gitari, Members

September 15, 2023

Between

Narcol Aluminium Rolling Mills Limited

Appellant

and

Commissioner of Legal Services & Board Coordination

Respondent

Judgment

Background 1. The Appellant is a limited liability company registered in Kenya under the Companies Act. Its principal business is the manufacture and export of aluminium kitchenware in the sub-Sahara region.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for collecting and receiving all tax revenue. Further, under Section 5(2) of the Act, concerning the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts 1 & 2 of the First Schedule to the Act to assess, collect and account for all revenues under those laws.

3. The issue in dispute herein arose when the Appellant applied for refunds amounting to Kshs. 9,479,413. 00 for the period February to May 2011 and Kshs, 17,301,749. 88 for the period June – December 2011. The applications for refunds were made on the 26th October 2011 and 10th May 2012, respectively.

4. The Respondent considered and rejected the VAT refund claim vide a letter dated 7th April 2015 on the basis that the Applicant’s exports could not be validated.

5. The Appellant never objected to the decision by the Commissioner to reject its application within the required timelines. It thereafter made an application under Section 51(7) of the TPA on 4th February 2022 seeking leave to object out of time.

6. The Appellant’s application to object out of time was rejected by the Respondent on grounds indicated to be unreasonable delay in making the application.

7. The Appellant being dissatisfied with the decision on rejection filed a Notice of Appeal to the Tribunal on the 16th May 2022.

The Appeal 8. The Appellant’s Memorandum of Appeal which was dated the 13th May 2022 and filed on the 16th May, 2022 was premised on the following grounds:-a.That the Respondent erred in law and fact by rejecting the Appellant's VAT refund applications dated 26th of October 2011 and 10th of May 2012 amounting to Kshs 26,781,163. 00. b.The Respondent erred in law and fact by basing their rejection decision on the lack of Certificate of Exports (COEs) under guidelines issued in 2015, more than 3 years after the application for refund was made.c.That the time the refunds were lodged it was not a requirement by the Commissioner of Domestic Taxes to provide the Certificate of Exports (COEs) under Cap 476 or the VAT Regulations.d.That on the 12th of April 2013 the Commissioner issued Guidelines for Validation of Exported Goods Subject to Zero Rating, Refund and Rebates, which required that refunds arising from exported goods be supported by COEs issued by the Customs Department. The Commissioner thus erred in law and fact by applying this new requirement retrospectively to the Appellant’s refund claims lodged earlier, which was unfair, unjust and unreasonable.e.That the Appellant after receiving the Commissioners’ requirements commenced to pursue the KRA Customs Department to obtain the COEs and that due to the inefficiencies of the Departments, the issuance of the COEs was very slow, leading to an inordinate delay.f.That even though the Respondent was engaged by various manufacturers under the umbrella of the Kenya Association of Manufacturers (KAM) on the challenges that manufacturers faced in obtaining the Certificate of Exports (COEs), it still rejected the Appellant's VAT refund on the same basis.g.That it is unfair, arbitrary, and unreasonable for the Respondent to request for information to be provided and then refuse to review the information.h.That the Commissioner is empowered by the law to subject all refund claims to audit, request for additional information for his verification and satisfy himself on the correctness of the audit before rejecting the said application. For this reason, refusing to review such information when presented to him is reneging on performance of his duties and responsibilities.i.That the said decision was oppressive and in breach of the Appellant’s legitimate expectation, leading the Appellant to suffer extreme hardship, substantial and irreparable losses and cash flow problems that will adversely affect its operations.j.That before the 12th of April 2013 it was not a requirement to provide COEs in support of the exports and the company had applied for refunds in conformity with the existing requirements. Nevertheless, it made an effort to obtain most of the COEs.k.That rotation numbers, which are primary records for the production of the COE constitute part of KRA’s internal information which the Respondent deliberately refused to use or confirm with its sister Department of Customs and Border Control. The Appellant also requested the Commissioner of Domestic Taxes to assist it in obtaining the remaining COEs from their sister Department of Customs and Border Control.l.That the Respondent erred in law and fact by failing to appreciate that its actions and decisions constitute a breach of the Appellant’s right to property as enshrined under Article 40 of the Constitution of Kenya 2010. m.That the Respondent erred in law and fact by failing to appreciate that its actions and decisions constitute a breach of the Appellant’s right to fair administrative action as enshrined under Article 47 of the Constitution of Kenya 2010. n.That the Respondent erred in law and fact by failing to appreciate that its actions and decisions constitute a breach of the Appellant’s legitimate expectation to receive VAT refunds for zero-rated goods it lawfully exported.o.That the Respondent failed to consider the Appellant’s request to file a late objection despite having reasonable ground as anticipated by Section 51(7) of the Tax Procedures Act, 215. The ground in question being the inability to retrieve the Certificate of Exports from KRA’s Customs and Border Control Department as requested by the Respondent to process the Appellant’s VAT refund claim.

Appellant's Case 9. The Appellant has supported its Appeal with its Statement of Facts dated 13th May 2022 and filed on 16th May, 2022 and its Written Submissions dated 27th January 2023 and filed on 31st January 2023.

10. The Appellant provided the chronology of the dispute as follows, that:a.It exports aluminium kitchenware which is zero-rated and hence the reason why it is in a perpetual credit position.b.Its application for refunds giving rise to this dispute was denied because the validity of its export could not be verified through the ‘Simba’ 2005 system.c.Whereas it made its applications for refund on 26th October 2011 and 10th May 2012, the letter rejecting this refund application was dated and issued on the 7th April 2015. d.It subsequently engaged the Respondent and provided more documents at which point it was issued with a letter dated the 26th September 2017 explaining that the application was rejected because the export entries had no online export confirmation of exit of goods from Kenya.e.It was then asked to raise the issue with the Customs and Border Control Department to generate a Certificate of Exports (COE) or exit reports from the Simba system.f.Even though the requirement for COE was introduced vide guidelines published on 12th April 2015, it nevertheless proceeded to engage the Customs Department even though the Respondent’s Simba system had now been replaced with ICMS from 2017. g.This change meant that the Customs Department took longer to generate the COE. Upon receipt of the said COE, the Appellant wrote to the Respondent on 23rd January 2020 attaching the COE and other relevant documents wherein it requested the Respondent to reconsider its refund application.h.It also requested leave to file its objection out of time via a letter dated 4th February 2022. i.The Respondent affirmed that it rejected its refund claim of Kshs 26,781,163. 00 vide an email on 14th February 2022 because it had already made a Ruling on the issue on 7th April 2015. j.It objected to the decision dated 14th February 2022 vide its letter dated 10th March 2022. k.The Respondent issued its decision rejecting the application for leave to file a late objection on the 29th March 2022.

11. Based on the foregoing chronology the Appellant appealed against the decision to object to its application under the following sub-headings:

Breach of Fair Administrative Action 12. The Appellant submitted that its applications for refund dated 26th October 2011 and 10th May 2012 were rejected about 4 years later on 7th April 2015. It was its view that this was a fundamental breach of its right to fair administrative action and contrary to Article 7 of the Constitution on the right of procedural and administrative fairness.

13. The Appellant averred that the Respondent also applied the law retrospectively when it directed it to obtain a COE to process the refund and yet the law requiring an applicant to present a COE to process a refund claim was introduced on 12th April 2013 and the said law did not state that it could be applied retrospectively.

14. It supported the foregoing avermnets with the following cases:a.Intersplav v. Ukraine, Application No. 803/02 before the European Court of Human Rights [Ruling delivered at Strasbourg on 9th January 2007], as quoted in the case of Republic V Kenya Revenue Authority Ex-Parte L.A/B International Kenya Limited [2011] EKLR.b.Judicial Service Commission v Mbalu Mutava & another [2015] eKLR.c.Samuel Kamau Macharia & Anor. Vs. Kenya Commercial Bank Ltd & 2 Others. [2012] eKLR.

b)Breach of Estoppel 15. The Appellant submitted that COE was sought at the Respondent’s insistence that the refund claim would be processed once the Appellant had furnished the same. That it relied on this representation and assertion in the letter dated 2nd September 2017 to spend its resources and time looking for these COEs.

16. It argued that the Respondent's decision in making it look for COEs as a condition precedent to the processing of the refund claim, only for it to turn around and disregard them amounted to a breach of its right to legitimate expectation and Estoppel.

17. The Appellant averred that Respondent’s email dated 14th February 2022 wherein it refused to review the information provided stating that it cannot go against the Commissioners’ decision issued in 2015, and thereafter advising it to object to this 2015 decision was not only unfair but it also breached its right to legitimate expectation and estoppel.

18. It relied on the following cases inter alia to support its arguments:a.748 Air Services vs. Theuri Munyi (2017) eKLRb.Carol Construction Engineers Limited & another v National Bank of Kenya [2020] eKLRc.Serah Njeri Mwobi v John Kimani Njoroge (2013) Eklr

c)Breach of Presumption of Regularity 19. The Appellant referred to the case of Kibos Distillers Limited & 4 others v Benson Ambuti Adega & 3 others [2020] eKLR where the principle of presumption of regularity was defined as follows:“In law, there is a presumption of regularity. Under this presumption,a court presumes that official duty has been properly discharged andall procedure duly followed until the challenger presents clear evidence to contrary.”

20. The Appellant took the position that it took the Respondent's advice/statement in good faith when it proceeded to seek and obtain the COE. It was its view that the Respondent and its officials were acting in their official capacity when they proffered this advice.

21. It submitted that the COEs were to be issued by the Respondent's Customs Department and it is thus not its mistake that obtaining these COEs took so long.

22. The Appellant posited that it was irregular and breach of estoppel for the Respondent to lead it to believe that its claim was still under consideration only for it to turn around and tell it that’s request was no longer under consideration after it had obtained the documents that had been requested of it.

23. It submitted that the decision to reject its application for late objection because of an inordinate delay was unconscionable because the delay was caused by the Respondent and or its officers when it delayed in issuing the COEs.

d)Breach of Legitimate Expectation 24. The Appellant opined that its legitimate expectation was breached because it had proceeded to painstakingly acquire the COEs that had been demanded of it, only for the Respondent to reject reviewing the said documents and the objection on grounds that the Commissioner had already made a Ruling on the matter.

25. It submitted that it relied on the Respondent's promise/representation to its detriment and the said Respondent should thus not be allowed to go back on its word and refuse to consider the COEs it had requested.

26. It relied on the following cases to support its assertions:a.Commission of Kenya & 5 others vs. Royal Media Services & 5 others.b.Ecobank Kenya Limited vs Commissioner of Domestic Taxes [2012]eKLR

Appellant’s Prayer 27. Flowing from the above assertions, the Appellant prayed that this Honourable Tribunal grants the following prayers: -a.That this Appeal be allowed.b.That the Respondent be compelled to accept the Appellant’s request to file the objection to the VAT refund application out of time based on Section 51 (7) of the Tax Procedures Act 2015. c.That the Respondent’s objection decision dated 29th March 2022 be set aside,d.That the Appellant’s VAT refund claim be allowed in its entirety.

Respondent's Case 28. The Respondent responded to this Appeal through its Statement of Facts dated and filed on 7th June 2022 and the Written Submissions dated and filed on 17th February 2023.

29. The Respondent stated that the Appellant made an application for refunds amounting to KSHS. 9,479,413 and Kshs, 17,301,749. 88 on 26th October 2011 and 10th May 2012 respectively. Both applications were rejected on the basis that the applicant’s exports could not be validated.

30. It held the view that the Appellant never objected to the decision by the Commissioner to reject its application within the required statutory timelines. Its application for an extension of time to lodge its appeal under Section 51(7) of the TPA was rejected because of unreasonable delay in making the said application.

31. It posited that its decision dated 7th April 2015 was a tax decision pursuant to the definition of a tax decision under Section 3 of the TPA and it should have been appealed against within 30 days as is provided for in Section 51(2) of the TPA.

32. It affirmed that its decision was within the ambit of Section 51(7) of the TPA because the Appellant was notified of the said decision on the 7th of April 2015 but it lodged an objection 6 years and 11 months after the decision was made when the same ought to have been made within 30 days as is provided for in law.

33. The Respondent submitted the COEs attached by the Appellant were all issued on 9th October 2017 except one which was issued on 19th February 2018. it opined that the delay in lodging the application on the 4th February 2022 was inordinate and the reason for the delay was not provided hence the reason for the dismissal of the application.

34. The Respondent relied on the following cases to support its decision to reject the application for an extension of time:a.Nicholas Kiptoo Arap Korir Salat V Independent Electoral and Boundaries Commission & 7 Others (2014) eKLRb.Weston Hotels Limited Vs Commissioner of Domestic Taxes AT No 176 of 2021 [2022] eKLR.c.Chester Insurance Brokers Limited versus Commissioner Domestic Taxes- Civil Application No. E745 of 2022.

35. The Respondent averred that the Appellant has not discharged its burden as provided under Section 56 (1) of the Tribunal Procedure Act to demonstrate that the decision of the Respondent was erroneous or to provide evidence on why it did not lodge an objection after receiving the COEs in 2017 or 2018.

Respondent's Prayer 36. Based on the above grounds, the Respondent prayed that this Honourable Tribunal.a.Dismisses this Appeal with cost to the Respondent.b.Upholds the Respondent’s decision dated 29th March 2022.

Issues For Determination 37. The Tribunal having carefully considered the pleadings filed and the evidence tendered is of the view that the Appeal herein crystallizes into a single issue for determination:a.Whether the Respondent's rejection of the Appellant's Request to lodge a Late Objection Application was justified?

Analysis And Determination Whether the Respondent's rejection of the Appellant's request to lodge a late objection was justified? 38. The crux of this dispute hinges on whether the Respondent exercised its powers judiciously and fairly under Section 51 (7) of the TPA in refusing to grant the Appellant leave to lodge its objection out of time.

39. Section 51 (7) of the TPA provides as follows regarding the Respondent's power to allow a taxpayer to lodge a notice of objection out of time:“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(b)The taxpayer did not unreasonably delay in lodging the notice ofobjection.”

40. It is clear in this Appeal that absence from Kenya or sickness has not been pleaded as the reason for the delay in making the application to lodge the objection out of time. The Appellant has instead blamed its laches on the Respondent’s alleged unreasonableness and the unreasonable delay in obtaining all its COEs.

41. It is not in dispute that the Respondent declined the Appellant’s refund claim because it did not have COEs. It thereafter advised it vide a letter dated 26th September 2017 to obtain the said COEs from its Customs Department so that its refunds could be processed.

42. The Appellant complied with the advice and proceeded to request for processing of its claims vide a letter dated 23rd January 2022 after it had obtained a majority of the said COEs. This request was however rejected vide an email dated 14th February 2022 wherein the Respondent stated that it had made a Ruling on this matter on the 7th April 2015 and it would not go against the said Ruling.

43. In other words, the Respondent confirmed that it had made a decision rejecting the refund claim on 7th April 2015. It also went back against its representation in the letter dated 26th September 2017 wherein it had advised the Appellant that it would consider its application for refund if it obtained the COEs related to the transactions in question.

44. The Appellant's attempted to remedy this situation by lodging an application dated 4th February 2022 requesting for leave to lodge its objection out of time. Its ground for delay was that the Respondent’s Customs Department had delayed in issuing it with the COES.

45. The Respondent replied vide a letter dated 29th March 2022 stating that the reason given was not convincing and its delay in filing the application was inordinate as it was made 6 years and 11 months after the Ruling on the refund was made.

46. It is commonplace on the face of the party's pleadings that the only reason why the Appellant never filed its Appeal in time was because the Respondent had requested it to obtain COEs from the Customs Department. It was thus unreasonable for the Respondent to decline the Appellant's application for leave to file its appeal out of time when it is the party that had led and advised the Appellant to look for the COEs as condition precedent to the processing of the refund claim.

47. Indeed, the Appellant acted reasonable in the circumstances by holding its horses and working hard to obtain the COEs. Any other reasonable person in its shoes would have acted the same way because it had obtained representation that its refund application was still under consideration provided that it provides the COES.

48. There was no reason for the Appellant to lodge an appeal or an objection to the Respondent's decion when it was clear that its refund application was still active and under consideration provided that it complied with what had been requested by the Respondent.

49. It is thus clear that the Respondent is probating and reprobating in this tax dispute by advising the Appellant to provide documents for its consideration in the refund claim on the one hand, and telling the Appellant that this dispute was settled on 7th April 2015 and its gallant efforts in looking for the COEs as advised was in vain on the the other hand.

50. The Tribunal has also observed as follows in regard to this dispute:

a) Retrospective Application Of The Lawi.The Respondent compelled the Appellant to look for COEs without any legal basis. This is because the requirements for COE came into effect on the 12th of April 2013 vide a notice issued on the same day and yet the Appellant's refund claims were filed on 26th October 2011 and 10th May 2012. This request which was also mentioned as the only reason why its refund claim was rejected amounted to a retrospective application of the law which is illegal.ii.There is a latin maxim lex prospicit non respicit which encapsulates the cardinal principle that the law looks forward not backwards. This assertion found favour in the Court of Appeal in Commissioner of Income Tax v Pan African Paper Mills (E.A) Limited [2018] eKLR where the learned judges adopted and were guided by the case of Yew Bon Tew v Kenderaan Bas Mara [1982] 3 All ER 833 where the Privy Council held as follows:-“Apart from the provisions of the interpretation statutes, there is at common law a prima facie rule of construction that a statute should not be interpreted retrospectively so as to impair an existing right or obligation unless that result is unavoidable on the language used. A statute is retrospective if it takes away or impairs a vested right acquired under existing laws, or creates a new obligation, or imposes a new duty, or attaches a new disability, in regard to events already past.”iii.In the same way, the Respondent's action in compelling the Appellant to provide COEs in regards to a refund claim of 26th October 2011 and 10th May 2012 when the Guidelines which made COEs mandatory documents in processing refund claims came into effect on 12th April 2013 was unlawful and unjustified.

b. Actions Based On Illegalitiesi.The legal maxim “ex turpi causa non oritur actio” meaning that, “No action can arise from an illegal act” is well settled. Related to it is the principle of ex dolo malo non oritur actio, that the courts shall not aid a perpetuation of illegalities.ii.Having held that the Respondent’s actions of imposing the Guidelines retrospectively was illegal, it follows that the reason that was relied on by the Respondent in issuing its decision was illegal.Therefore, no action, including the enforcement of the impugned objection can arise from this illegal act. The Tribunal would also not aid the Respondent in perpetuating this illegality.iii.The Tribunal relies on the classicus case of Kenya Airways Limited vs. Satwant Singh Flora (2013) eKLR, where the Court of Appeal stated as thus regarding the fate of cases that fall foul of the ‘ex turpi causa non oritur actio’ principle:“Ex turpi causa non oritur action. This old and well- known legal maxim is founded in a good sense and expresses a clear and well-recognized legal principle, which is not confined to indicating offences. No court ought to enforce an illegal contract or allow itself to be made the instrument of enforcing obligations alleged to arise out of a contract or transaction which is illegal if the illegality is duly brought to the notice of the court, and if the person invoking the aid of the court is himself implicated in the illegality. It matters not whether the defendant has pleaded the illegality or whether he has not. If the evidence adduced by the plaintiff proves the illegality the court will not assist him”iv.The objection decision, therefore falls afoul of the ex turpi causa non oritur actio’ principle to the extent that it was based and or premised on an illegality. The impugned decision is thus invalid.

c. Legitimate Expectationi.The fact that the Respondent continued to engage and advise the Appellant concerning this dispute vide its letter dated 26th September 2017, even after it had issued its Ruling on 7th April 2015 confirms that in the view of the Respondent, the claim dispute was still alive. It had not been brought to finality by the said objection decision, otherwise it would have advised the Appellant as much within the content of that letter.ii.In other words, the actions of the Respondent in its letter dated 26th September 2017 created a legitimate expectation for the Appellant which it was entitled to rely on. It also estopped the Respondent from going back on its expression/promise that it would process the Appellant's refund claim if it obtains and presents the COEs for its consideration.iii.The Appellant was thus within its rights to believe that the dispute was still alive and there was therefore no need for it to file an appeal before the Tribunal or to seek leave to object out of time.iv.This conclusion by the Tribunal in holding public bodies to account for their practices and promises has found support in the case of Keroche Industries Limited vs. Kenya Revenue Authority & 5 Others Nairobi [2007] eKLR, where the court stated thus regarding legitimate expectation:“... Public authorities must be held to their practices and promises by the courts and the only exception is where a public authority has a sufficient overriding interest to justify a departure from what has been previously promised.”

d. Reasonable Cause For Delayi.The Respondent also delayed issuing the Appellant with the COEs. The Appellant even confirmed in its letter dated 4th February 2022 that it had received most but not all COES. The Tribunal has already held that the Respondent’s position that the Appellant was required to provide COES before its refund claim could be processed was unlawful because it was based on Regulations that were not in operation when the Appellant made its refund claim.ii.The Respondent’s action in leading the Appellant on a wild goose chase with the intention of winding up its time for appeal and or lodging an objection was unjustified and shall not be countenanced by this Tribunal.iii.Its ground of objection that it was not able to file its objection application in time because it was still looking for the COEs that were required by the Respondent was therefore a justifiable and reasonable cause for delay in the circumstances.

4. In the upshot, and based on the foregoing analysis, the Tribunal finds and holds that the Appellant was not justified in rejecting the Appellant’s application to lodge its objection out of time.

Final Decision 51. On the basis of the foregoing analysis, the Tribunal finds that this Appeal has merit and accordingly proceeds to make the following Orders:-a.The Appeal be and is hereby allowed.b.The Respondent‘s decision dated 29th March 2022 rejecting the Appellant’s application to lodge its objection out of time be and is hereby set aside.c.The Appellant be and is hereby granted leave to lodge its Objection to the VAT refund application within 30 days from the date of delivery of this Judgment.d.Each party is to bear its own costs.

52. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 15THDAY OF SEPTEMBER, 2023. ERIC NYONGESA WAFULA............ CHAIRMANDR. RODNEY O. OLUOCH.................MEMBERABRAHAM K. KIPROTICH................MEMBERCYNTHIA MAYAKA............................MEMBEREUNICE NG’ANG’A.............................MEMBERBERNADETTE GITARI.......................MEMBER