[2023] KETAT 246 (KLR)

Priyann Enterprises Limited v Commissioner of Domestic Taxes (Miscellaneous Application 8 of 2023) [2023] KETAT 246 (KLR) (Civ) (31 March 2023) (Ruling)

Neutral citation: [2023] KETAT 246 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Miscellaneous Application 8 of 2023

E.N Wafula, Chair, EN Njeru, AK Kiprotich, Cynthia B. Mayaka & RO Oluoch, Members

March 31, 2023

Between

Priyann Enterprises Limited

Applicant

and

Commissioner Of Domestic Taxes

Respondent

Ruling

1. The application which was by way of a Notice of Motion dated February 1, 2023 and filed under a certificate of urgency on February 2, 2023 is supported by anaffidavit sworn by theapplicant’s director, Naresh Kumar Dukkipati on the 30th day of January, 2023 sought for the following Orders:-a.Spentb.The Honourable Tribunal be pleased to grant theappellant leave to lodge an appeal against the Notice of Objection Invalidation dated November 24, 2021. c.Upon granting that above leave, the Honourable Tribunal be pleased to deem the attached Notice of Appeal as duly filed and properly on record.d.The costs of this application are the cause.

2. The application is premised on the following grounds:-a.That on November 15, 2019, therespondent issued Value Added Tax (VAT) Auto Assessments against the Applicant, a fact that the company directors have only recently been cognisant of.b.That Mr. Faustine Barasa Othieno, who was at all material times, the applicant’s Accountant and tax representative handled and corresponded with therespondent on the assessments.c.That on October 6, 2020, Mr. Barasa lodged an Objection against the Auto Assessments and on May 10, 2021submitted the various supporting documents as requested by the Respondent.d.That unfortunately, in September 2021, Mr. Barasa fell ill and was diagnosed with metastatic squamous cell carcinoma (neck cancer) and has been in and out of hospital since.e.That on November 24, 2021, therespondent issued a Notice invalidating the Objection on grounds that all the relevant documents relating to the Objection had not been submitted.f.That the applicant’s directors came to learn of the auto assessment late in the day and moved with speed to file a valid objection, which unfortunately could not be uploaded into iTax.g.That the applicant is ready and willing to provide all the necessary documents to assist in reconciliation.h.That it is in the interest of justice that this application is allowed to ensure that the applicant only pays for taxes that are due and owing.

3. Theapplicant in its Written Submissions dated March 1, 2023and filed before the Tribunal onMarch 2, 2023stated as hereunder.

On whether there was a reasonable reason for the delay 4. The applicant relied on the case of Thuita Mwangi v. Kenya Airways Ltd(2003) eKLR where the applicant reiterated that the Court of Appeal held the following as the precepts that a court shall examine in an appeal out of time: “a. the period of delay, b. the reason for delay; c. the arguability of the appeal; d. the degree of the prejudice which could be suffered by the respondent if the extension is granted; and e. the effect if any on the administration of justice or public interest if any is involved.”

5. It submitted that the one year delay in filing the proposed appeal was not inordinate because the objection was lodged by Mr. Barasa with documents availed to the respondent by the same Mr. Barasa which were found to be inadequate leading to a Notice of Invalidation. It added that the appeal was not inordinate because Mr. Barasa was unwell during the timelines in which the Notice of Invalidation was issued leaving the same unattended administratively.

6. It contended that the directors moved with speed as soon as they found out about the Notice of Invalidation to lodge a valid Objection which could not be uploaded on iTax, forcing them to move to the Tribunal as such, the Applicant is not guilty of laches.

7. It further cited the case ofKotille General Contractors Company Limited v Commissioner of Domestic Taxes[2020] eKLR where the Tribunal opined:“... the taxpayer upon receiving notification from the Respondent that its Notice of Objection was deemed invalid had one recourse; to appeal to the Commissioner. Once the appeal to the Commissioner was considered and a decision reached, then the Applicant would have recourse to lodge an appeal before the Tribunal.”On whether there will be any prejudice occasioned to therespondent if the Appeal is granted

8. The applicant argued that it stands to suffer high financial loss if this application is not granted as it has already paid for the erroneously assessed amounts. It undertook to provide all the supporting documents and maintained that therespondent will not suffer any prejudice or loss if the appeal is allowed other than the fact that the taxes due and owing will be determined.

On whether the appeal has merit 9. It affirmed that it is ready and willing to provide all the required invoices as stipulated by the law to effect reconciliation and pay the taxes arising upon the reconciliation.

10. It cited the case of Kifaru Enterprises Limited v. Commissioner of Customs and Border Control TAT Misc Application No. 52 of 2020.

Response to the Application 11. Therespondent filed a replying affidavit sworn by Henry Rotich, an officer of therespondent, on February 9, 2023 and filed on February 18, 2023 in response to the current application citing the following as the grounds for opposition:-a.That therespondent reviewed the applicant’s returns on iTax and on November 15, 2019issued VAT Auto Assessments for the period January to May 2018 for disallowed input VAT in the sum of Kshs. 1,480,776. 24 owing to the failure of the Applicant to avail invoices and proof of payment.b.That the applicant lodged a late Objection on October 6, 2020citing limited access to the office due to COVID-19 regulations and challenges with its iTax account.c.That the respondent initiated correspondence with the applicant and made a request for additional documents in support of the objection. The applicant availed the supporting documents to the respondent on May 10, 2021. d.That the respondent made further efforts to communicate with the applicant and made a request for additional documents in support of the Objection. However, the applicant did not provide documents in support of its objection.e.That upon review of the applicant’s objection and documents provided in support, the respondent issued a Notice of Invalidation on November 24, 2021for the reason that the applicant did not submit all relevant documents in support of its objection.f.That in the Notice of Invalidation, the Respondent duly notified the Applicant of its right of appeal pursuant to the provisions of section 52 of the Tax Procedures Act, 2015. g.That the Applicant did not appeal the decision to the Tax Appeals Tribunal within 30 days of the decision as required by law.h.That in the absence of a valid appeal before the Tribunal, the Respondent is entitled to enforce collection of the taxes confirmed in the Objection Decision.i.That the application as filed is incompetent, bad in law, fatally defective, and is otherwise an abuse of this Honourable Tribunal’s process.j.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.k.That no credible reason has been advanced by the applicant to warrant an extension of time to file an appeal as provided by the law.l.That theapplicant is a limited company and thus a going concern, it is a fallacy to allege that the appeal was not filed on time because of the sickness of the Finance Manager. The applicant was at all times aware of the tax dispute with the Respondent; it ought to have followed up on the position of the matter and moved to the Tribunal within time.m.That the applicant has not rendered any explanation why it never sought to know from the respondent for more than one year; being the entire year of 2022 whether a decision had been rendered on the objection.n.That the applicant has been indolent and the Application ought not be allowed.o.That the application discloses no reasonable cause of action and is totally unfounded and ought to be dismissed with costs to the respondent.p.That the taxes demanded thus fell due on December 24, 2021and theapplicant failed to lodge an appeal within thirty days from the date of the Objection Decision as provided under the Tax Procedures Act and the Tax Appeals Tribunal Act.q.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.r.That the applicant has not demonstrated why it deserves a favorable discretion of this Honourable Tribunal and the Application should be dismissed with costs to therespondent.s.That the application is misplaced and thus ripe for striking out.

12. In its submissions dated November 29, 2022 and filed on November 30, 2022, therespondent presented as hereunder.

13. The respondent reiterated verbatim the chronology of events as narrated in itsreplying affidavit filed before the Tribunal to underpin its opposition to the application.

14. The respondent submitted that a valid appeal is one which has been filed within the confines of the laws. It quotedsection 13(3) and (4) of the Tax Appeals Tribunal Act to submit that in the absence of a valid appeal before the Tax Appeals Tribunal the Respondent is entitled to enforce collection of the taxes confirmed in the Objection Decision

15. The respondent argued that the extension of time to file an appeal is an exercise of judicial discretion and the law requires an applicant to provide a reasonable cause preventing it from filing a notice of appeal or appeal documents within the specified period.

16. It cited the case ofJomusons Investment Limited v Commissioner of Domestic Taxes [2020] eKLR where the Honourable Tribunal held:-“The Tribunal guided by the criteria set in the case of Nicholas Kiptoo Korir Arap Salat v. Independent Electoral and Boundaries Commission & 7 others(2014) eKLR where it was held that:-“Extension of time is not a right of a party. It is an equitable remedy that is only available to a deserving party at the discretion of the court”

17. To buttress its position that theapplicant is required to advance satisfactory reasons for the court’s discretion to be exercised for grant of leave to file an appeal out of time, it cited the case ofCommissioner of Domestic Taxes v Mayfair Insurance Company Limited(2017) eKLR where the court opined that:-“One of the reasons stated under the Rule is that the court may extend time where there is reasonable cause for the delay. Effectively, the court’s powers and discretion to extend time is unlimited. It is however not to be capriciously exercised. Time, in other words, is not to be extended as a matter of right. Each case is to be viewed sui generis and on its own circumstances and facts. The starting point is that the applicant ought to advance sufficient and reasonable grounds for any delay on its part.”

18. The respondent submitted that the applicant has delayed to file the Appeal by one year and three months.

19. It cited the Jomusons Investment Limited case (supra) where the Tribunal held:“The Tribunal noted that it was not until 11th November 2019 that the applicant filed an application to appeal out of time. This was a period of one year since the applicant received the respondent’s Objection Decision. We find that the applicant slept on its laurels as the period is inordinately long…”

20. It maintained that the applicant’s inordinate delay is not excusable as no plausible reason has been given as provided by the law. It added that the applicant has been indolent and its indolence should not be excused.

21. It reiterated that the applicant has not shown any prejudice it would suffer if the orders sought are not granted and that it is every citizen’s obligation to pay taxes when they fall due. It added that the application is an afterthought and a delay tactic by the applicantmeant to delay the conclusion of the matter which holds substantial government revenue.

Analysis and Findings 22. The Tribunal is enjoined to determine the length and reason for the delay when considering an application for the extension of time to file an appeal out of time. The power to extend time is discretionary and unfettered but the same must be exercised judiciously and it is not a right to be granted to theapplicant.

23. In determining whether to extend time, the Tribunal was guided by the court in Charles Karanja Kiiru v Charles Githinji Muigwa [2017] eKLR, where the learned Judge stated that:-“It is trite that extension of time is not a right of a party. It is an equitable remedy that is only available to a deserving party, at the discretion of the Court”

24. On the criteria of the issues to be considered when granting an extension to file an appeal out of time, the Tribunal referred to the case of Odek, JJ. A in Edith Gichugu Koine v Stephen Njagi Thoithi[2014] eKLR, where the court laid out the factors thus:-“Nevertheless, it ought to be guided by consideration of factors stated in many previous decisions of this court including, but not limited to, the period of delay, the reasons for the delay, the degree of prejudice to the respondent if the application is granted, and whether the matter raises issues of public importance, amongst others...”

25. Further, in Sammy Mwangi Kiriethe & 2 others v Kenya Commercial Bank Ltd [2020] eKLR, the court held:-“The Court considers the length of the delay; the reason for the delay; the chances of success of the intended appeal, and the degree of prejudice that would be occasioned to the respondent if the application is granted.”

26. The Tribunal, guided by the principles set out in John Kuria v Kelen Wahito, Nairobi Civil Application Nai 19 of 1983 April 10, 1984, referred to by the judges in the case of Wasike V Swala [1984] KLR 591, Sammy Mwangi Kiriethe & 2 others v Kenya Commercial Bank Ltd (supra) and section 13 of the Tax Appeals Tribunal Act, 2013 used the following criteria to consider the application.a.Whether there is a reasonable cause for the delay?b.Whether the appeal is merited?c.Whether there will be prejudice suffered by the Respondent if the extension is granted?a.Whether there is a reasonable cause for the delay?

27. In considering what constitutes a reasonable reason for the delay, the court in Silas Kanyolu Mwatha v Josephine Kavive James [2021] eKLR, held that:-“The time stipulation is a requirement of the law as clearly stated ... In short, parties cannot, either unilaterally or by agreement between them, metaphorically, waive away the rules of the court. The rules of the court are meant to achieve timely and orderly commencement, progress, and proper determination of litigation of proceedings. Given the statutory limit, principally,the delay is inexcusable unless the applicant shows sufficient cause to justify the delay and that any such extension shall not prejudice the respondent.” (Emphasis added).

28. The applicant contended that its delay in filing an appeal was occasioned by its Finance Manager’s sickness who was diagnosed with neck cancer during the time of lodging its objection thereby making it unable to follow up with the process to its completion.

29. The respondent reiterated that the respondent did not offer a satisfactory reason for the delay as, being a going concern, it is a fallacy to believe that it took it one year to notice that an objection decision had been reached.

30. Upon perusal of the documents attached with the instant application, the Tribunal observes that the applicant’s Finance Manager had experienced issues with his health from November 15, 2021with the most current document provided by the applicant from the hospital being dated April 22, 2022. The Objection Invalidation was issued on 21st November 2021.

31. The Tribunal, therefore, finds that the Objection Invalidation was issued at a period that coincided with the applicant’s Finance Manager’s sickness. It is therefore plausible that the applicant’s response to the respondent would have been affected

32. It is therefore apparent to the Tribunal that the applicant has proven its assertions and there is reasonable cause for delay advanced.b.Whether the Appeal is merited?

33. The Tribunal examined whether the actions complained of by the applicant were merited and there was an arguable appeal before the Tribunal or the appeal was frivolous to the extent that it would only result in a waste of the Tribunal’s time.

34. An appeal being merited does not mean that it should necessarily succeed rather it is arguable. The Tribunal was guided by the findings of the court in Kiu & another v Khaemba & 3 others (Civil Appeal (Application) E270 of 2021) [2021] KECA 318 (KLR) (17 December 2021) (Ruling) where it was held that:-“In law, an arguable appeal/intended appeal is one that need not succeed but one that warrants the court’s interrogation on the one hand and the courts invitation to the opposite party to respond thereto..”

35. In the instant matter, the applicant reiterated that it was unable to provide additional documents as requested by the Respondent and committed to providing the same to enable proper reconciliation of the accounts and allow for the computation of the actual taxes due. The issues for subsequent determination in any ensuing appeal are whether the invalidation of the notice of objection was proper and whether therespondent exercised its discretion properly.

36. As such, the Tribunal finds that there is an arguable Appeal and the same has triable issues that can only be gleaned at an evidentiary hearing before it.c.Whether there will be prejudice suffered by the Respondent if the extension is granted?

37. The Respondent contended that the applicant has not demonstrated how it would suffer prejudice if the current application is allowed. It reiterated that it is the responsibility of every taxpayer to pay taxes whenever they fall due and the application is a delay tactic aimed at holding government revenue.

38. The Applicant asserted that it stands to suffer high financial loss if the application is not granted as it has already paid the erroneous taxes assessed. It added that there will be no prejudice suffered by the Respondent if the appeal is allowed other than the true determination of the taxes due and owing.

39. The Tribunal finds that therespondent has not satisfactorily demonstrated how it would suffer prejudice if the prayer for an extension of time was granted.

40. The Tribunal however observes that the applicant’s recourse to justice lies in an appeal to the Tribunal. Thus, the Appellant would suffer prejudice if it is not granted leave to file its appeal considering that the amount of money claimed is of significant value.

41. It is the view of the Tribunal that the respondent would otherwise still collect the taxes together with penalties and interest should the applicant be found to be at fault.

42. The Tribunal, therefore, finds that therespondent will not suffer prejudice if the extension is granted.

43. The Tribunal in the circumstances finds that the applicant has satisfied the legal and judicial threshold for the grant of orders for the enlargement of time within which to file an appeal out of time.

Disposition 44. The Tribunal in the circumstances is persuaded to exercise its discretion in favour of the applicant and accordingly makes the following Orders:-a.The applicant be and is hereby granted leave to file an appeal out of time.b.The Notice of Appeal dated February 1, 2023be and is hereby deemed as duly filed and served.c.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.d.The respondent to file and serve its Statement of Facts within Thirty (30) days of the date of being served with the appeal documents.e.No orders as to costs.

DATED AND DELIVERED AT NAIROBI ON THIS 31ST DAY OF MARCH, 2023. ..........……………….ERIC N. WAFULACHAIRMAN……………………………………………………..ELISHAH N. NJERU ABRAHAM K. KIPROTICHMEMBER MEMBER…..………………………. …….……..……...…………CYNTHIA B. MAYAKA RODNEY O. ODHIAMBOMEMBER MEMBER