[2023] KETAT 630 (KLR)

Parshva Mombasa Ltd v Commissioner of Customs & Boarder Control (Miscellaneous Case E071 of 2023) [2023] KETAT 630 (KLR) (Commercial and Tax) (3 November 2023) (Ruling)

Neutral citation: [2023] KETAT 630 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Miscellaneous Case E071 of 2023

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

November 3, 2023

Between

Parshva Mombasa Ltd

Appellant

and

Commissioner of Customs & Boarder Control

Respondent

Ruling

1. The Appellant vide a Notice of Motion dated the 15th June, 2023 and filed under certificate of urgency on 7th July 2023 and supported by an Affidavit sworn by Rahul Parekh sought for the following orders:-i.Spent.ii.Pending the inter-partes hearing and determination of this application the Tribunal be pleased to stay the enforcement of the Agency Notices dated 9th June 2023 issued to Cooperative Bank, Habib Bank, Kenya Commercial Bank and Prime Bank being the Applicant's bankers.iii.Pending the inter-partes hearing and determination of this application the Tribunal be pleased to lift the Agency Notices dated 9th June 2023 issued to Cooperative Bank, Habib Bank, Kenya Commercial Bank and Prime Bank being the Applicant's bankers.iv.This Tribunal be pleased to issue any other order in the interests of justice.v.The costs of this application be provided for.

2. The application is premised on the following grounds:i.That the Respondent purported to issue agency notices to the Applicant's bankers dated 9th June 2023 (hereinafter referred to as "the impugned notices"). The impugned notices were premised on the misconstrued position that the determination by this Honorable Court rendered on 19th May 2023 was in favor of the Respondent.ii.That the impugned notices have effectively frozen the Applicant’s accounts at Cooperative Bank, Habib Bank, Kenya Commercial Bank and Prime Bank and as a result crippled the operations of the Applicant without just cause or an order of this Honorable Tribunal finding that the sum of Kshs 7,930,445 is due or payable.iii.That on 12th June 2023 the Applicant objected to the impugned notices and applied for review of the same pursuant to the provisions of Section 229(1) of the East African Community Customs Management Act (hereinafter "EACCMA").iv.That however the Respondent's agent categorically rebuffed the grounds in the application and vide an email of 12th June 2023 noted there were no stay orders stopping the recovery of the tax arrears.v.That the Respondent has issued agency notices without any finding by this Honorable Court on the liability to pay any tax. That there is no order available to this effect or evidence demonstrating liability.vi.That it is worth noting that the Respondent took the same arbitrary position exactly one year ago when it froze several accounts of parties who deal in paper and paper products including the Applicant herein and it was only upon this Tribunal's intervention that the notices were lifted.vii.That it is for this reasons that the present application ought to be determined on a priority basis in the interest of justice to ensure the Applicant is not further prejudiced.viii.That the balance of convenience requires that this Tribunal adopts the path of a lower risk of injustice by preventing the enforcement action by the Respondent, pending hearing and determination of this Application and review of the evidence before this court.ix.That the Respondent on the other hand will suffer no prejudice whatsoever if this application is allowed and the orders sought herein granted.x.That this application has been made timeously and expeditiously without any unreasonable delay.xi.That this Tribunal has jurisdiction to stay any implementation and/or enforcement actions by the Respondent and give such orders as serves the interest of justice, hence this application be allowed and the orders sought granted.

3. The Respondent upon being served with the application filed a Replying Affidavit sworn by Victor Chabala, an Advocate on record for the Respondent, filed on the 27th July, 2023 in which the Respondent opposed the application by stating, inter alia, as follows:i.That on 19th May 2023, the Tribunal delivered a judgment in TAT No 196/2022-Parshva Mombasa Ltd v Commissioner of Customs and Border Control.ii.That the Judgment was delivered in favour of the Respondent.iii.That the Tribunal struck out the Applicants Appeal for the reason that its Appeal was incompetent and unsustainable in law.iv.That the Applicant rushed to the Tribunal prematurely having not exhausted the internal dispute resolution mechanism as set out under Section 229 of the EACCMA.v.That the Applicant vide a notice of objection dated 16th February 2022, objected to the Respondent's decision to issue a demand notice date 7th February 2022. vi.That the Applicant filed an Appeal before the Respondent had issued its review decision within 30 days as stipulated under Section 229 of the EACCMA.vii.That the Applicant in the instant application prays for stay of enforcement and lifting of Agency Notices dated 9th June 2023. viii.That the Respondent is already out of time to issue its review decision for the reason the Applicant rushed to file an appeal before the lapse of the statutory timelines for the Respondent to issue its review decision.ix.That the Respondent has upheld its assessment for the reason that the Applicant jumped the gun and rushed to the Tribunal without exhausting the internal mechanisms as per law.x.That from the foregoing, the Respondent is enjoying the fruits of the judgment by enforcing Agency Notices to assist it in collection of taxes which is its mandate.xi.That it is therefore evident that the Applicant has been indolent since it only sought to file an appeal and did not await the Respondent to issue its review decision.xii.That the application is an afterthought, brought in bad faith, meant to delay the Respondent from collecting taxes that are due and payable and should not be entertained by this Tribunal.xiii.That the Applicant is not deserving of the orders sought in the application as the reason of rushing to file an appeal has not been declared and explained satisfactorily to the Tribunal thus the application ought to be dismissed.xiv.That in the circumstances, it is in the interests of justice that this Tribunal dismisses the Applicant's Notice of Motion application dated 15th June, 2023 to pave way for the Respondent to collect taxes due from the Applicant which are key to the economic development of the Country.xv.That the indolence of the Applicant should not bar the Respondent from fulfilling its mandate of collecting taxes that are due and payable.

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, both the Applicant and the Respondent filed their respective written submissions on the 28th July 2023. The Tribunal has duly considered the written submissions in arriving at its determination in this Ruling.

5. The Applicant is primarily praying for stay of enforcement and lifting of Agency Notices dated 9th June 2023. It was the Applicant’s contention that the Respondent purported to issue agency notices to the Applicant's bankers dated 9th June 2023. That the impugned notices were premised on the misconstrued position that the determination by this Honorable Court rendered on 19th May 2023 was in favor of the Respondent.

6. That the Respondent has issued agency notices without any finding by this Honorable Tribunal on the liability to pay any tax. That there is no order available to this effect or evidence demonstrating any confirmed tax liability.

7. The Respondent on the other hand stated that the Tribunal struck out the Applicant’s Appeal for the reason that its Appeal was incompetent and unsustainable in law.

8. That the Applicant rushed to the Tribunal prematurely having not exhausted the internal dispute resolution mechanism as set out under Section 229 of the EACCMA.

9. That the Applicant filed an Appeal before the Respondent had issued its review decision within 30 days as stipulated under Section 229 of the EACCMA.

10. The Tribunal perused through the parties’ pleadings and documents presented and noted that the Applicant had approached the Tribunal vide an Appeal No 195 of 2022 Parshva Mombasa Ltd v Commissioner of Customs and Boarder Control in which a Judgment was delivered by the Tribunal on 19th May 2023. The Tribunal in its Judgment struck out the Applicant’s Appeal for being premature. The Respondent was still within time allowed by law to issue a review decision.

11. The Tribunal notes from the pleadings that the Respondent subsequently on 9th June 2023 issued agency notices to the Applicant’s bankers to enforce collection of the taxes. The Respondent in issuing the agency notices cited powers donated to it by Section 42 of the Tax Procedures Act.

12. Section 42 of the Tax Procedures Act provides as follows regarding powers of the Commissioner to enforce collection of taxes;(1)This section applies when a taxpayer is, or will become liable to pay a tax and —a.the tax is unpaid tax; orb.the Commissioner has reasonable grounds to believe that the taxpayer will not pay the tax by the due date for the payment of the tax.(2)The Commissioner may, in respect of the taxpayer and by notice in writing, require a person (referred to as the "an agent")—a.who owes or may subsequently owe money to the taxpayer;b.who holds or may subsequently hold money, for or on account of, the taxpayer;c.who holds or may subsequently hold money on account of some other person for payment to the taxpayer; ord.who has authority from some other person to pay money to the taxpayer, to pay the amount specified in the notice to the Commissioner, being an amount that shall not exceed the amount of the unpaid tax or the amount of tax that the Commissioner believes will not be paid by the taxpayer by the due date.‖(Emphasis added)

13. The foregoing provisions of the TPA are clear that the Section applies only when a tax payer is, or will become liable to pay tax. Further under subsection (a) and (b) of the Section it further states that it applies only where the due tax is unpaid or in the case where the taxpayer will become liable, and the Commissioner has reasonable grounds to believe that the taxpayer will not pay the tax by the due date for the payment of the tax.

14. Given that the Tribunals’ judgement of 19th May 2023 struck out the Applicant’s Appeal for being premature, it follows that no order on the tax whether due or not was issued by the Tribunal. It was further not in dispute that the Applicant had objected to the tax assessment and no review decision had, at the time of filing of the Appeal, been issued by the Respondent.

15. Section 230 (1) and (2) of the EACCMA provides as follows regarding appeal process;(1)A person dissatisfied with the decision of the Commissioner under section 229 may appeal to a tax appeals tribunal established in accordance with section 231. (2)A person intending to lodge an appeal under this section shall lodge the appeal within forty-five days after being served with the decision and shall serve a copy of the appeal on the Commissioner‖ (Emphasis added)

16. From above provision of the law, it follows that a taxpayer upon being served with the Respondent’s decision is allowed 45 days upon which it may appeal if it is dissatisfied with the decision. The Tribunal noted that from the Respondent’s response to this application, it neither adduced evidence that it had issued a review decision and that it had accorded the Applicant the requisite 45 days upon which to appeal if the Applicant was dissatisfied with the review decision.

17. It is the Tribunal’s view that the taxes could not have been considered to have crystalized without the Respondent demonstrating that it had served the Applicant with the review decision and allowing the taxpayer the requisite time allowed by law upon which to file an appeal if dissatisfied with the decision.

18. Consequently, the Tribunal finds that the enforcement measures by the Respondent through the agency notices dated 9th June 2023 were premature and not proper in law.

Disposition 19. In light of the foregoing analysis the Orders that recommend themselves to the Tribunal are as follows:i.The application be and is hereby allowed.ii.The Respondent’s agency notices dated 9th June 2023 issued to Cooperative Bank, Habib Bank, Kenya Commercial Bank and Prime Bank be and are hereby unconditionally lifted.iii.No orders as to costs.

20. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 3RD DAY OF NOVEMBER, 2023. ERIC NYONGESA WAFULACHAIRMAN.................ELISHAH N. NJERUMEMBER.................MUTISO MAKAUMEMBER.................EUNICE N. NG’ANG’AMEMBER.................ABRAHAM K. KIPTROTICHMEMBER.................