[2023] KETAT 237 (KLR)

Powerex Trading Company Limited v Commissioner of Investigations & Enforcement (Appeal 56 of 2019) [2023] KETAT 237 (KLR) (31 March 2023) (Ruling)

Neutral citation: [2023] KETAT 237 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 56 of 2019

E.N Wafula, Chair, RM Mutuma, Cynthia B. Mayaka & AK Kiprotich, Members

March 31, 2023

Between

Powerex Trading Company Limited

Appellant

and

Commissioner of Investigations & Enforcement

Respondent

Ruling

1. The application herein vide a Notice of Motion application was filed by the Appellant on the 27th April 2021 under Sections 18 and 29(4) of the Tax Appeals Tribunal Act and Rule 19 of the Tax Tribunal (Procedure) Rules . The application is supported by an Affidavit sworn by Furzana Arbi Ismael filed on 27th April 2021, and seeks for the following orders:-i.That the Tribunal be pleased to review its Judgment issued electronically on 23rd April 2021, by issuing orders that provide an appropriate remedy that is in tandem with the Appellant’s filed Memorandum of Appeal.ii.That the Honourable Tribunal be pleased to issue orders for the immediate lifting of the Agency Notice against the Appellant’s bankers dated 27th April 2021, until the matter herein is heard and determined.iii.That pending hearing and determination of this application, the Honourable Tribunal be pleased to issue an order restraining the Respondent from issuing any further enforcement.iv.That the Honourable Tribunal be pleased to grant any such- other orders as it may deem just.

2. The application is premised on the following grounds as stated on the face of the application and in the Affidavit of Furzana Arbi Ismael:-a. Appeal No.56 of 2019 – VAT Kshs 46,290,605. 00i.That following numerous engagements with the Respondent over the subject tax dispute, the Appellant received from the Respondent confirmed tax assessment letter dated 14th January 2019 in the sum of Kshs 46,290,505. 00 inclusive of penalties and interest with respect to VAT. The said confirmed tax assessment was subsequently posted- on the Appellant’s iTax ledger as a confirmation.ii.That on the 14th February 2019, the Appellant appealed the matter with the Tax Appeals Tribunal.iii.That on the 16th April 2019, the Appellant made an application for the matter to be referred to the Alternative Dispute Resolution (ADR).iv.That on 1st August 2019, the Appellant wrote to the TAT explaining its non-appearance in a previous mention slated for 18th July 2019, wherein the Tribunal issued its orders issuing a hearing date , but the Appellant explained its failure to attend as having not been served with the Mention Notice for the sitting of 18th July 2019. v.That on 2nd August 2019, the ADR wrote to the Appellant acknowledging receipt of the Applicant’s re-application for re-admission of the matter in ADR.vi.That on 8th August 2019, the ADR wrote to the Appellant- rejecting the Appellant’s re-application for re-admission to ADR citing the Respondent’s concerns.vii.That on 13th September 2019, the ADR wrote to the Appellant confirming admission of the matter in the ADR process.viii.That on 8th October 2019, the ADR wrote to the Appellant communicating closure of the ADR process.ix.That on 27th September 2019, the Appellant wrote to the ADR explaining that since it took so long to receive feedback from ADR on re-admission, the Appellant had complied with the orders of the Tribunal issued during mention on 18th July 2019 and proceeded to file its submissions.b.Appeal No. 272 of 2019 – Corporation Tax – Kshs 59,748,757. 00i.That the corporation tax dispute is because of the same invoices in which the Respondent relied in coming up with the VAT assessment above.ii.That the Appellant received from the Respondent assessment letter dated 5th April 2019 in the sum of Kshs 59,748,757. 00 inclusive of penalties and interest with respect to Corporation tax.iii.That on 12th April 2019, the Appellant objected to the Respondent’s corporation tax assessment above.iv.That the Respondent confirmed the Corporation tax assessment above vide their letter of 7th June 2019. v.That on 30th September 2019, the Appellant complied with the orders of the Tribunal issued on 20th August 2019 and proceeded to file its submissions.c.Consolidation of Appeal No. 56/2019 (VAT) and Appeal No. 272 of 2019 – ( Corporation tax) – Kshs 106,039,262. 00i.That on 30th September 2019, the Appellant applied for consolidation of the two matters , which application was subsequently granted by the Tribunal .ii.The consolidated Appeal became TAT No. 56 of 2019 as per the records of the Tribunal.d.Application for review of judgement on Appeal No. 56 of 2019 – Kshs 106,039,262. 00. i.The Applicant has prayed that in the interest of justice that this Tribunal reviews the application as prayed since the Appeal is procedurally before the Tribunal and be pleased to consider the Appeal together with the submissions thereon and make a determination based on the grounds enumerated.ii.That the Respondent erred in alleging that the invoices submitted by the Appellant were fictious yet the company made genuine purchases of waste oil as a raw material being cost of goods in the recycling cycle.iii.That the Respondent erred in alleging that the invoices received for waste oil from the above supplies were fictitious, yet the company made genuine purchases of waste oil as a raw material being cost of goods in the recycling cycle and for which a resultant genuine sale was declared and the Respondent proceeded to erroneously raise a corporate tax assessment.iv.That if the Appellant was not in business as alleged by the Respondent, it would not have been possible to generate taxable sales upon which taxes were paid. That the said fictitious purchases were genuine cost of goods in the production of taxable income as stipulated under Section 15 of the Income Tax Act.v.That the bulk of the raw materials of the Appellant comprises of waste oil mostly procured from the informal sector in cash. For instance, when a car owner takes his car to a garage for service, usually engine oil is changed. The engine oil that is drained from the car before filling the tank with new oil does not go to waste. The garage operators carefully drain the old oil and resell to among others, the Applicant, and since this transaction is on informal basis and is undertaken on cash basis. The Appellant is the leading dealer in this business.vi.The Appellant complied with all tax regulations during the period in question, including the filing of tax returns.vii.That once the Appellant receives goods /raw materials in the form of waste oil, the Appellant proceeds to pay for the said goods to the supplier with or without a physical location but upon receiving an invoice to support the goods delivered.

3. The Applicant cited in support of its application the case of Shreeji Enterprises (K) ltd v – Commissioner of Investigations, and Enforcement TAT 58 /186 of 2019, where the Tribunal stated that:-“… although the burden of proof rests on the taxpayer to prove the payment of tax or that an assessment is wrong, the burden shifts to the Kenya Revenue Authority to the point where issues of VAT fraud are raised.”

4. In its submissions dated 11th August 2022 and filed on even date, the Appellant / Applicant stated that the Tax Appeals Tribunal issued a judgement on the Consolidated Appeal No. 56 of 2019 and upon the Appellant/applicant reading through the said judgement, it was crystal clear that despite the two appeals being consolidated, the Tribunal erred in failing to pronounce itself with respect to the grounds of appeal on one of the two matters ie. the Appeal No. 272 of 2019 with respect to income tax.b.That it is on the basis of the foregoing that the Appellant made the application dated 27th April 2022 for review of judgement of the Tribunal.c.That the issues for determination are;-i.Whether the Tribunal did admit Appeal No.56 of 2019 as a consolidated appeal of Appeal No 56 /2019 and Appeal No. 272 of 2019. ii.Whether the Tribunal pronounced itself with respect to the grounds of Appeal with respect with income tax in its judgement of 23rd April 2021 (Initially filed as TAT No. 272 of 2019).

5. The Applicant has prayed to the Tribunal to review its judgement issued electronically on 23rdApril 2021 by deconsolidating the two appeals and issuing orders that provide an appropriate remedy that is in tandem with the Appellant’s filed Memorandum of Appeal.

Respondent’s Response 6. The Respondent opposed the Notice of Motion application by filing its Grounds of Opposition on 28th April 2022 and written submissions on 5th August 2022.

7. The Respondent submitted that the Tribunal lacks the jurisdiction to entertain this application as it was rendered functus officio upon delivery of its judgment on 23rd April 2021. The Respondent stated that the real contention of the Tribunal’s lack of jurisdiction is hinged on doctrine of functus officio and the basis that enabling statute does not donate to it powers to issue the prayers sought.

8. The Respondent relied on the case of Telkom Kenya Ltd v John Ochanda[2014]eKLR , where the Court of Appeal held that:-“Functus officio is an enduring principle of law that prevents the reopening of a matter before a court that rendered the final decision thereon. It is a doctrine that has been recognized in the common law tradition from as long as the later part of the 19th Century.”

9. The Respondent equally submitted that the Honourable Tribunal can only exercise jurisdiction which has been donated to it by Statute and cannot arrogate to itself jurisdiction exceeding that which is conferred by law. Jurisdiction is everything as it goes to the heart of the dispute.

10. The Respondent further submitted that there is no provision, either in the Tax Appeals Tribunal Act, 2013 or the rules thereunder, conferring the Tribunal jurisdiction to reopen a matter once it delivers a judgement.

11. The Respondent further submitted that there is a clear procedure under the Tax Appeals Tribunal Act ( Appeal to the High Court Rules ) on how to deal with the prayers sought by the Applicant. Unless there it hinges on an error apparent on the face of the record, which can only be remedied by an application for review by the Honourable Tribunal, the High Court is thus the proper forum , upon an appeal being lodged , to grant the orders sought by the Applicant.

12. It was also a submission of the Respondent that where a statute has provided a remedy to a party, the Tribunal must exercise restraint and give an opportunity to the relevant bodies or state to deal with the dispute as provided in the relevant statute.

13. That the principle is well articulated in the case of Speaker of National Assembly v Njenga Karume [2008] 1 KLR 425, where the court held:-“Irrespective of the practical difficulties enumerated ... these should not in our view be used as a justification for circumventing the statutory procedure …In our view , there is considerable merit in the submission that where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament , that procedure should be strictly followed.”

14. That the Respondent therefore submitted that having established that the Applicant cannot base its application under the Tax Appeals Tribunal Act or any rules made thereunder, the application amounts to an abuse of the court process and urged the Tribunal to dismiss the same with costs.

Analysis and Findings 15. The Tribunal has been moved vide the Applicant’s Notice of Motion application filed on 27th April 2021 to review its judgment delivered on 23rd April 2021 , on the grounds that the second limb of the appeal had not been determined.

16. The Judgment which is the subject of the review application was delivered on 23rd April 2021 on the consolidated appeal No.56 of 2019.

17. The Appellant has submitted that the TAT 56 of 2019, consolidated two appeals to wit;i.TAT NO, 56 of 2019 – with subject matter of VAT – Kshs 46,290,505. 00ii.TAT NO. 272 of 2019 – with subject matter of Corporation tax – Kshs 106,039,262. 00. The Applicant applied to the Tribunal to consolidate the two matters on 30th September 2019 which application was allowed by the Tribunal and the consolidated appeal became TAT NO. 56 of 2019, upon which the Tribunal issued a Judgment on 23rd April 2021.

18. The Applicant further stated that it is upon reviewing the said judgement that it became clear to it that despite the two appeals being consolidated, the Tribunal erred in failing to pronounce itself with respect to the grounds of appeal on one of the two consolidated matters ie, TAT No. 272 of 2019 in respect to Corporation tax.

19. It is on the foregoing basis that the Applicant has made an application for review of the judgement of the Tribunal.

20. Having reviewed the grounds of review and opposition and submissions filed by the parties , two issues emerge for consideration ;i.Whether the Tribunal is vested with jurisdiction to entertain the Appellant’s application.ii.Whether the Tribunal pronounced itself with respect to the grounds of appeal in respect to the second limb of the consolidated appeal , to wit, Appeal No. 272 0f 2019 , and whether the review is merited.

i. On the issue of jurisdiction 21. The Respondent has submitted in detail that the Tribunal lacks the jurisdiction to entertain the Applicant ‘s application as the court was rendered functus official when the judgement was delivered.

22. The Respondent further submitted that the enabling provisions the Applicant has based its application on are not proper thus the application is not proper in law , and the Tribunal lacks the statutory mandate to entertain the same.

23. However, the Applicant cited the case of Subru Motors v Commissioner of Domestic Taxes (TAT 109 of 2016) , where the Tribunal stated:-“The Tribunal considers itself functus officio upon delivery of Judgement or ruling except where it is moved to exercise its powers to review its decision to correct an error or a mistake. The mistake should not be one that requires great reasoning in deciding, but would be what is known as a “slip of the pen” , in judicial circles .”

24. The Tribunal takes judicial notice that at the time of filing this application, Section 19 A which expressly provides for review of judgements, decrees and orders had not been enacted. Section 2b provides that :-“Applications for review of decree or orders under subsection 1 may be made …on account of some mistake or error apparent on the face of the record.”

25. The foregoing notwithstanding, Rule 19 of the Tax Appeals Tribunal ( procedure ) Rules , 2015 provides:-“19. 19. Upon an application by the Applicant, the Tribunal, stating its reasons , may set aside , vary or review a decision made under these Rules.”Suffice it to say that judgements, such as this one which is subject of the review application, are made under rules 23 and24 of these rules.Accordingly, the Tribunal finds that Rule 19 as at the time of filing this application is a sufficient enabling provision upon which the Applicant has anchored its application.

26. In view of the foregoing the Tribunal finds and holds that it is conferred with the requisite statutory mandate, and therefore has jurisdiction to entertain the Applicant’s application.

ii. On whether the Tribunal pronounced itself on the second limb of the consolidated appeal, and whether the review is merited 27. The Applicant has stated that on 30th September 2019 it applied to the Tribunal for consolidation of two matters, to wit;i.TAT Appeal No. 56 of 2019 – VAT – Kshs 46,290,505. 00ii.TAT Appeal No. 272 of 2019 – corporation tax – Kshs 59,748,757

28. The application was granted and the two matters consolidated into TAT Appeal No. 56 of 2019 , and the Judgment that was issued on 23rdApril 2021 on the basis of the consolidated appeal.

29. The Applicant has also stated that despite the two appeals being consolidated, the Tribunal erred in failing to pronounce itself with respect to the grounds of appeal in the second limb of the consolidated appeal, being the Appeal No. 272 of 2019.

30. The Tribunal has meticulously reviewed its judgement issued on 23rd April 2021, and made a finding that the judgment only addressed the VAT assessment of Kshs 46,290,505. 00 issued to the Applicant by the Respondent on 14th January 2019, which constituted the first limb of the appeal initially filed as Appeal No. 56 of 2019, and proceeded to determine the same based on the issue as to whether the Appeal was properly before the Tribunal.

31. The Tribunal has also noted that the second limb of the consolidated appeal, founded on the Respondent’s objection decision dated 7th June 2019 , initially filed as Appeal No. 272 of 2019 and consolidated with Appeal No. 56 of 2019, was not considered and pronounced upon.

32. Going through the record, it is apparent that this was a mistake and an error manifest on the face of the record.

33. Rule 19 of the TAT ACT (Procedure) Rules, 2015, has enabled the Tribunal to provide a remedy for such mistakes or errors, through a review. The current Section 29 A of the TAT Act also provides the statutory mandate to provide a remedy through a review.

34. Consequently, the Tribunal makes a finding that the second limb of the appeal constituting Corporation tax in the sum of Kshs 59,748,757. 00 initially filed under Appeal No. 272 of 2019, and consolidated into Appeal No. 56 of 2019 was neither considered nor pronounced upon in the subject judgment , which was a mistake or an error.

35. In view of the foregoing, the Tribunal finds that this is a matter in which review is merited and accordingly proceeds to allow the application for review of the Judgment issued on 23rd April 2021 as prayed in the application.

Disposition 36. The upshot of the foregoing is that the application is merited and the Tribunal accordingly proceeds to issue the following Orders:-a.The Notice of Motion application dated 27th April 2021 be and is hereby allowed.b.The Tax Appeal No. 272 0f 2019 be and is hereby deconsolidated from the Appeal No. 56 of 2019 for hearing and determination.c.The remainder of the Tax Appeal No.56 of 2019 stands as fully determined in the subject Judgment delivered on the 23rd April, 2021. d.The Tax Appeal No. 272 of 2019 to be listed for Mention on the 13th day of April, 2023 for any further appropriate pre-trial directions and fixing for hearing.e.No orders as to costs.

37. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 31ST DAY OF MARCH, 2023. ...........................................ERIC N. WAFULACHAIRMAN...........................................ROBERT M. MUTUMA CYNTHIA MAYAKAMEMBER MEMBER...........................................ABRAHAM K. KIPROTICHMEMBER