[2022] KEHC 555 (KLR)

Rongai Tiles & Sanitary Wares Limited v Commissioner Of Domestic Taxes (Tax Appeal 11 of 2020) [2022] KEHC 555 (KLR) (Commercial and Tax) (13 June 2022) (Ruling)

Neutral citation: [2022] KEHC 555 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Tax Appeal 11 of 2020

DAS Majanja, J

June 13, 2022

Between

Rongai Tiles & Sanitary Wares Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Ruling

1. By the Notice of Motion dated 26th January 2022, the Appellant invokes, inter alia, Order 42 rule 27 of the Civil Procedure Rules and rule 15 of the Tax Appeals Tribunal (Appeals to the High Court) Rules to seek leave to file additional documentary evidence in this Appeal. The application is supported by the affidavit and further affidavit of its director, Sumar Mohamed, sworn on 26th January 2022 and 6th May 2022. It is opposed by the Respondent through the affidavit of its officer, Eugene Wanende, sworn on 3rd March 2022.

2. The application was urged by brief oral submissions made by the parties’ advocates. The arguments mirrored the grounds outlined in their respective depositions.

3. The Tax Appeals Tribunal (“the Tribunal’) delivered its judgment on 26th February 2020 confirming the Respondent’s assessment of KES. 410,093,385. 00. Being dissatisfied with the judgment, the Appellant lodged this appeal. In the course of the proceedings, the court did suggest to the parties to explore the possibility of using the Respondent’s Alternative Dispute Resolution (‘’ADR’’) framework to resolve this matter. The Appellant presented its workings and documents to the Respondent and after negotiations, the parties entered into a partial agreement where the Income Tax liability from was reduced from KES. 168,261,906. 00 to KES. 1,553,639. 00. The parties agreed to refer the issue of input VAT deductions to the court for determination. This understanding was encompassed in an Alternative Dispute Resolution Agreement dated 2nd October 2020 (“the ADR Agreement”) executed by the Appellant’s counsel and a representative of the Respondent. Although the Respondent attempted to avoid the ADR Agreement, this court by a ruling dated 10th December 2021 adopted it as a preliminary decree of this court. The remaining issue concerning VAT was left for the court to determine in this appeal.

4. The Appellant now wishes to produce the documentary evidence it produced in the ADR process. It claims that the documents were not in its possession and it was not aware of their existence as evidence in this appeal. Mr Mohamed depones that his son, who was the Managing Director at the time material to this appeal, is now deceased and that he did not know that the evidence existed, was stolen or stored or contained in the Appellant’s business premises. He states that only after the passing away his son, the Managing Director, Mr Aslam Mohamed, did the Appellant trace the documents. He states that the Appellant had to utilize extreme processes to procure the necessary evidence.

5. The Appellant therefore contends that failure to supply the documents to the Tribunal was beyond its control, is excusable and demonstrates exceptional circumstances in this case to warrant the admission of new evidence. It urges that if the evidence is not admitted it will suffer prejudice as it is facing an exponential VAT claim. It states that the additional documents will allow the court to determine whether the Respondent was right in declining it to deduct input VAT. It further states that if it is allowed to provide the evidence, its liability would not exceed KES. 800,000. 00 as opposed to the Respondent’s claim for KES. 169,000,000. 00.

6. In opposition to the application, the Respondent states that Appellant has not made out a case for admission for new evidence in the Appeal. It states that the issue of VAT was not deliberated upon as it concerned the interpretation of section 17(2) of the VAT Act.It points out the Appellant’s request for deduction of input VAT arose from its non-compliance with the provisions of section 17(2) of the VAT Act which states that the deductions are allowable for a period not exceeding six months from the date of purchase and/or importing. In its view, the request was made outside the statutory period hence the issue of adducing new evidence does not arise at all.

7. The main issue falling for determination is whether the Appellant ought to be allowed to introduce additional evidence at this appellate stage. Under section 78 of the Civil Procedure Act, the High Court exercising appellate jurisdiction has power to to take additional evidence or to require the evidence to be taken. This position is supported by Order 42 Rule 27 of the Civil Procedure Rules which provides as follows:27. Production of additional evidence in appellate court [Order 42, rule 27. ](1)The parties to an appeal shall not be entitled to produce additional evidence, whether oral or documentary, in the court to which the appeal is preferred; but if—(a)the court from whose decree the appeal is preferred has refused to admit evidence which ought to have been admitted; or(b)the court to which the appeal is preferred requires any document to be produced or any witness to be examined to enable it to pronounce judgment, or for any other substantial cause,the court to which the appeal is preferred may allow such evidence or document to be produced, or witness to be examined.(2)Wherever additional evidence is allowed to be produced by the court to which the appeal is preferred the court shall record the reason for its admission.

8. Further, Rule 15 of the Tax Appeals Tribunal (Appeals to the High Court) Rules, 2015 also envisages admission of further evidence by providing that “The Court may, at the time of hearing of an appeal, admit other documentary or oral evidence not contained in the statement of facts of the appellant or respondent should it consider it necessary for determination of the appeal”.

9. The decision as to whether or not to admit additional evidence on appeal is an exercise of judicial discretion which must be exercised judiciously. The Supreme Court, in Mohamed Abdi Mahamud v Ahmed Abdullahi Mohamad & 3 others; Ahmed Ali Muktar (Interested Party) SCK Petition No. 7 of 2018 [2019] eKLR laid down the governing principles on allowing additional evidence by an appellate court as follows:(a)the additional evidence must be directly relevant to the matter before the court and be in the interest of justice;(b)it must be such that, if given, it would influence or impact upon the result of the verdict, although it need not be decisive;(c)it is shown that it could not have been obtained with reasonable diligence for use at the trial, was not within the knowledge of, or could not have been produced at the time of the suit or petition by the party seeking to adduce the additional evidence;(d)Where the additional evidence sought to be adduced removes any vagueness or doubt over the case and has a direct bearing on the main issue in the suit;(e)the evidence must be credible in the sense that it is capable of belief;(f)the additional evidence must not be so voluminous making it difficult or impossible for the other party to respond effectively;(g)whether a party would reasonably have been aware of and procured the further evidence in the course of trial is an essential consideration to ensure fairness and due process;(h)where the additional evidence discloses a strong prima facie case of willful deception of the Court;(i)The Court must be satisfied that the additional evidence is not utilized for the purpose of removing lacunae and filling gaps in evidence. The Court must find the further evidence needful.(j)A party who has been unsuccessful at the trial must not seek to adduce additional evidence to, make a fresh case in appeal, fill up omissions or patch up the weak points in his/her case.(k)The court will consider the proportionality and prejudice of allowing the additional evidence. This requires the court to assess the balance between the significance of the additional evidence, on the one hand, and the need for the swift conduct of litigation together with any prejudice that might arise from the additional evidence on the other.

10. Has the Appellant established a case for production of additional evidence in this appeal? On the issue of fact, whether the Appellant has shown that it could not have been obtained with reasonable diligence for use at the trial, was not within the knowledge of, or could not have been produced at the time of the appeal before the Tribunal I hold that he Appellant has not surmounted this hurdle.

11. The Appellant has not stated when the managing director passed away. Whether he died when the audit commenced, before the Objection leading to the Appeal, during the appeal or after the appeal was decided. It is worth noting the appeal before the Tribunal is a culmination of a long process which from the Tribunal’s judgment commenced in 2017 when the Respondent commenced a compliance check and in that regard requested for documents under section 59 of the Tax Procedures Act (‘’the TPA”). It is therefore clear that from that time, the Appellant had all the opportunity to present its documents to support its case. In fact, from the judgment, the central issue regarding VAT was the obligation of the Appellant to keep and provide documents under the section 43(1) of the VAT Act. Since it was an issue, the Appellant ought to have been alive to the need to provide the documents that were at the heart of its claim.

12. Further, the Appellant has not stated how the documents were found and what extreme means it took to find these documents. This disclosure would have assisted the court determine whether in fact, there is a basis to conclude that it exercised due and reasonable diligence to retrieve the documents it wants to adduce as evidence. I find and hold that the Appellant has not established that it could not get documents despite diligence when it was required to do so during the whole process culminating in the appeal before the Tribunal.

13. I have no doubt that the document would be decisive to the Appellant’s appeal but their admission would change the tenor of the appeal. The jurisdiction of this court is circumscribed by section 56(2) of the TPA which provides that “An appeal to the High Court or to the Court of Appeal shall be on a question of law only”. An appeal limited to matters of law does not permit the appellate court to substitute the Tribunal’s decision with its own conclusions based on its own analysis and appreciation of the facts. The admission of documentary evidence in the circumstances of this case particularly where the issue of documents was a live issue before the Tribunal would require the court to engage in an analysis and appreciation of the factual issues which is a matter entirely within the province of the Tribunal.

14. The Appellant has not shown substantial cause for admission of new evidence. I therefore decline the application and dismiss the Notice of Motion dated 26th January 2022.

DATED ANDDELIVERED ATNAIROBI THIS13THDAY OF JUNE 2022. D. S. MAJANJAJUDGEMr Mola instructed by Mola, Kimosop and Njeru Advocates for the appellant.Mr Said, Advocate instructed by Kenya Revenue Authority for the Commissioner of Domestic Taxes.