[2023] KETAT 167 (KLR)

Sera Steel Limited v commissioner of Domestic Taxes (Appeal 464 of 2021) [2023] KETAT 167 (KLR) (Civ) (10 February 2023) (Judgment)

Neutral citation: [2023] KETAT 167 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 464 of 2021

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, AK Kiprotich & Jephthah Njagi, Members

February 10, 2023

Between

Sera Steel Limited

Appellant

and

commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a company incorporated and registered in Kenya and its principal activity is the manufacture of steel.

2. The Respondent is a principal officer appointed under the Kenya Revenue Authority Act, Cap 469 laws of Kenya and is responsible for the control and management of the Domestic Taxes Department and accounting for tax under the Income Tax and Value Added Tax Acts.

3. The Respondent issued the Appellant with additional assessments on income tax on 23rd October 2019 for Ksh. 14,050,704. 00 inclusive of interest and penalties for the period 1st July 2016 to 30th June 2017. The Appellant was also invited to object to the assessment in writing within 30 days if dissatisfied with the assessment.

4. On 19th March 2021 the Appellant made an application for leave to file an objection out of time and simultaneously objected to the Respondent’s demand.

5. The Respondent via a letter dated 21st June 2021 issued a decision, rejecting the Appellant’s application for extension to file the objection out of time. The Respondent also confirmed his position that CIT amounting to ksh.11,717,370 was outstanding.

6. The Appellant being dissatisfied with the Respondent’s decision to reject its application for extension to file the objection out of time decided to appeal against it.

The Appeal 7. The Appeal is based on the Memorandum of Appeal dated 30th July 2021 and filed on 2nd August 2021 and raises the following grounds of appeal:-i.The Respondent erred in fact and in law by rejecting the Appellant’s late objection on the basis that the same had not been validly lodged as the Appellant had failed to provide sufficient reasons and documentation for late objection contrary to the provisions of Section 51 (7) of the TPA.ii.The Respondent erred in law and in fact by failing to accept and admit the Appellant’s Notice of Objection without properly considering the reasons provided and appreciating the circumstances in which the Respondent may allow a late objection under Section 51 (7) of the TPA.iii.The Respondent erred in law and in fact by failing to consider and acknowledge that the Appellant was prevented from lodging the notice of objection within the prescribed period because the Appellant did not receive any notification regarding the iTax assessment and the Appellant had no knowledge of any tax demand until on or about 19th February 2021 during a physical meeting with the Respondent’s team on other matters.iv.The Respondent erred in law and in fact by failing to appreciate that the Appellant was prevented from lodging an objection within the prescribed period as the tax assessment dated 23rd October 2019 did not set out the basis for the alleged tax arrears contrary to Article 47 of the Constitution of Kenya.v.The Respondent erred in law and in fact by failing to consider the substantial matters raised in the notice of objection. The Respondent in their decision did not address the issue on the fact that there were no workings or periodic breakdown that were issued by the KRA in support of the assessment issued.

Appellant’s Case 8. The Appellant’s case is premised on the Statement of Facts dated 30th July 2021 and filed on 2nd August 2021 and the written submissions dated 12th August 2022 and filed on 15th August 2022.

9. The Appellant argues that it should be granted leave to object out of time because it was not aware of the existence of the assessment and there was no prior correspondence from the Respondent.

10. It states that when it became aware of the assessment, it sought leave to object out of time and requested the Respondent to provide the basis of the assessment.

11. That the Respondent rejected the Appellant’s application to file an objection out of time via its decision on 21st June 2021 and in so doing failed to consider the provisions of Section 51 (7) of the TPA.

12. It adds that the Respondent failed to consider the reasons and evidence adduced for the late objection thereby failing to establish that there was no unreasonable delay in filing of the objection.

13. The Appellant also submits that it was unaware of the existence of the assessment until on or about 19th February 2021 and there was no evidence in support of email delivery of the tax assessment.

14. It adds that it filed its application for leave to appeal out of time as well as the notice of objection within 30 days of becoming aware of the existence of the assessment and on the issue of time observation relies on the case of Ison Technologies Kenya Ltd vs. Commissioner of Domestic Taxes.

15. The Appellant also submits that the Director was unwell during the time the assessment was issued. The Appellant avers that it provided copies of the Director’s passport records to the Respondent as proof of his travel to India for medical treatment. The delay in acquiring the medical records for the treatment in India was occasioned by the fact that it was impossible to get the doctors there to retrieve the medical records in 2019 within a short notice while at the same time dealing with the global pandemic that scourged the country. The medical records have since been submitted to the Respondent.

16. The Appellant contends that the assessment dated 23rd October 2019 did not set out the basis for the alleged tax arrears. It adds that the assessment did not indicate or specify expenses with respect to which an additional assessment was imposed, no workings or periodic breakdown were issued by the Respondent in support of the assessment and that the failure to provide the missing details amounted to the violation of the Appellant’s right to fair administrative action and in particular Section 4 (1) and (2) thereof.

17. The Appellant further argues that the principles of natural justice and the provisions of Article 47 (1) of the Constitution of Kenya accord the Appellant the right to fair administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair.

18. The Appellant submits that even if it had sighted the assessment on time, it would not have responded to the same as it did not contain any reasons for the assessment. The Appellant therefore argues that it should be accorded an opportunity to object to the assessment upon being given the basis of the tax demand and failure to which it stands to suffer irreparable harm that would affect its business operations.

19. On the issue of the interests of natural justice the Appellant relies on the case of General Medical Council v Spackman [1943] 2 ALL ER 337.

20. The Appellant argues that the Respondent will suffer no harm or prejudice if the extension is granted. The Appellant adds that in considering whether to extend time ,courts do give due regard the issue as to whether the extension will prejudice the opponent and on this issue the Appellant relies on the case of Patrick Maina Mwangi v Waweru Peter [2015]eKLR.

21. The Appellant prays that the Respondent’s decision be annulled and that it be allowed to object out of time.

Respondent’s Case 22. The Respondent’s case is grounded on the Statement of Facts dated 16th September 2021 and filed on 18th September 2021 together with the written submissions dated 29th June 2022 and filed on the same date.

23. The Respondent sets out one issue for determination and which is whether the Appellant met the criteria set out under Section 51 (7) of the Tax Procedure Act for extension of time to lodge a late notice of objection.

24. The Respondent argues that Section 51 of the TPA deals with objections and in particular the duration of lodging an objection, the requirements of a valid objection notice, procedure to be followed in case a taxpayer intends to lodge a late objection among others.

25. The Appellant contends that the objection notice dated 18th March 2022 was lodged late owing to the fact that key members of the Appellant’s Board of Director’s whose approval is required to lodge an objection notice were absent from Kenya at the time the additional assessments dated 23rd October 2019 were issued.

26. The Respondent states that as per the Appellant’s Statement of Facts, the latter alleges that a Director was absent from the country due to sickness for quite some time. The documents furnished by the Appellant prove that the Director was absent from Kenya for less than a month, that is from 5th December 2019 to 3rd January 2020. It also adds that no medical documents were provided to the Respondent or Tribunal to support the allegation of sickness and in regard to this relies on Section 107 (2) of the Evidence Act.

27. The Respondent submits that the late objection notice was an afterthought and the Appellant did not explain satisfactorily the whole period of delay. The Respondent relies on the case of Allied Wharfage Ltd vs. Ganja Mavumba Nyawa [2020] EKLR on the issue that “He who alleges must prove”.

28. The Respondent submits that the Appellant’s application to lodge a late objection notice fell short of the criteria set in Section 51 (7) of the TPA and the Tribunal lacks the jurisdiction to entertain the same and any other issues emanating from the additional assessment of income tax dated 23rd October 2022.

29. On the assertion that the Appellant did not receive a notification of the assessment on time, the Respondent submits that the Appellant was issued with an additional assessment on 23rd October 2019 on iTax. The Appellant acknowledges that the assessment was issued together with other assessments for VAA in its notice of objection dated 19th March 2021.

30. The other issue raised by the Appellant was the additional assessment by the Respondent which issue the Respondent did not consider since the main issue for consideration was the validity of the late objection notice. That having failed the test of validity, the Respondent did not address the reasons for the objection to the assessment.

31. The Appellant further adds that its empowered to raise additional assessments as per Section 31 of the TPA.

32. The Respondent prays that the Appeal be dismissed and the additional assessment of ksh.11,717,370. 00 be allowed.

Issues For Determination 33. Having carefully considered the material placed before it by both parties, the Tribunal has framed the following issues for its determination.a.Whether the Appeal is properly before the Tribunalb.Whether the Respondent’s rejection of the Appellant’s application for extension of time was merited.a.Whether the Appeal is properly before the Tribunal

34. The Tax Procedures Act, 2015 prescribes a sequence of steps the appeal process has to take. In particular Section 51(2) of TPA guides the Appellant on what it ought to do upon receiving the Respondent’s tax demand, and it states as thus:“A taxpayer who disputes a tax decision may lodge a notice of objection against the tax decision, in writing, with the Commissioner within thirty days of being notified of the decision.’’

35. Further Section 51(6) (7) of the TPA offers remedy to the taxpayer in case there is a delay in the lodgment of the notice of objection within the statutory time allowable. The said Section provides as follows:“(6)A taxpayer may apply in writing to the Commissioner for an extension of time to lodge a notice of objection.(7)The Commissioner may allow an application for extension of time to file a notice of objection 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; andb.the taxpayer did not unreasonably delay in lodging the notice of objection.’’

36. Section 51(11) of TPA continues to elaborate on the process that may further lead to an appealable decision and it provides as thus: -“The Commissioner shall make the objection decision within sixty days from the date of receipt of –a.the notice of objection; orb.any further information the Commissioner may require from the taxpayer, failure to which the objection shall be deemed to be allowed.”

37. From the sequence of events, the Respondent issued additional assessments on the Appellant’s income tax on 23rd October 2019. The Appellant on 19th March 2021 lodged a late manual notice of objection together with an application for extension of time within which it could lodge an objection notice. The Commissioner upon reviewing the reasons for the late application determined the matter by disallowing the Appellant’s application for extension of time in a decision made on 21st June 2021. It is this decision that the Appellant is appealing against.

38. An appeal to the Tribunal against an appealable decision is provided for under Section 52(1) of the Tax Procedures Act in the following terms:-“A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act 2013. ”

39. Though the late notice of objection did not yield to an objection decision as envisaged under Section 51(11) of the Tax Procedures Act by reason of the rejection of the application for the enlargement of time to lodge the objection the decision rejecting the application is an appealable decision in itself. The Tribunal is guided by Section 3 of the Tax Appeals Tribunal Act which provides as follows:-“There is established a Tribunal to be known as the Tax Appeals Tribunal to hear appeals filed against any tax decision made by the Commissioner.” (Emphasis Added)

b. Whether the Respondent’s rejection of the Appellant’s application for extension of time was merited. 40. The Respondent rejected the Appellant’s application for extension of time to lodge a notice of objection for the reason that the application failed to satisfy the statutory threshold under Section 51(7) of the Tax Procedures Act for the Commissioner to allow such an application.

41. The Appellant made the application for the enlargement of time to lodge the notice of objection after a lapse of a period of one year and four months subsequent to the issuance of the tax assessment. The allegation that the principal Director of the company was sick during the intervening period was not properly explained. No treatment chits were provided to the Respondent to appropriately exercise its discretion under Section 51(7) of the Tax Procedures Act.

42. The Appellant has failed to demonstrate that the Respondent did not in any manner exercise its discretionary power appropriately in rejecting the application for the enlargement of time.

43. The Tribunal, on the issue of the necessity to observe the strict provisions of the law, relies on the case of W.E.C. Lines Ltd v The Commissioner of Domestic Taxes [TAT Case No. 247 Of 2020] where it was held on Para. 70 and reiterating the holding in Krystalline Salt Ltd v KRA [2019] eKLR 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. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures”. The relevant procedure here is the process of opposing an assessment by the Commissioner.”

44. From the chronology of events, the taxpayer failed to follow due process and the rejection of its application for the enlargement of time to lodge the notice of objection by the Commissioner was proper and merited.

Final Decision 45. The upshot of the above findings is that the Appeal lacks merit and the Tribunal accordingly proceeds to make the following Orders:i.The Appeal be and is hereby dismissed.ii.Each party to bear its own costs.

46. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 10TH DAY OF FEBRUARY, 2023ERIC N. WAFULA CHAIRMANCYNTHIA B. MAYAKA GRACE MUKUHA MEMBER MEMBERABRAHAM KIPROTICH JEPHTHAH NJAGI MEMBER MEMBER