[2024] KETAT 1037 (KLR)

Spentech Engineering Limited v Commissioner of Domestic Taxes (Tax Appeal E474 of 2024) [2024] KETAT 1037 (KLR) (5 July 2024) (Ruling)

Neutral citation: [2024] KETAT 1037 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E474 of 2024

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

July 5, 2024

Between

Spentech Engineering Limited

Applicant

and

Commissioner of Domestic Taxes

Respondent

Ruling

1. The application which was by way of a Notice of Motion dated 15th April 2024 and filed on 6th May 2024 is supported by an Affidavit sworn by the Applicant’s Managing Director, Maurice Odhiambo Owiti, on the 15th April, 2024, sought for the following Orders:-i.Spentii.Leave be granted to the Applicant to lodge the Notice of Appeal, Memorandum of Appeal, Statement of Facts, and other accompanying documents out of timeiii.The attached Memorandum of Appeal, Statement of Facts, and Notice of Appeal be admitted on record as duly filed within time.iv.Pending the lodging, hearing, and determination of this application, an order be issued to vacate the Agency Orders conveyed by the Respondent to the Applicant’s accounts held at Consolidated Bank of Kenya dated 5th April 2024. v.Pending the hearing and determination of the substantive appeal and any other applications filed by the Applicant, the Respondent, its agents, and/or officers be barred from attaching any moveable and immovable assets of the Applicant.vi.Pending the lodging, hearing, and determination of the substantive appeal and any other applications filed by the Applicant, the Respondent, its agents, and /or officers be barred from issuing future notices against the Applicant.vii.The Applicant be at liberty to apply for further orders and the Honourable Tribunal do give any directions fit and just to grant in the circumstancesviii.Costs of this Application be in the cause.

2. The application is premised on the following grounds:-i.That the Respondent assessed the Applicant for Kshs 21,621,142 in VAT.ii.That the Applicant objected to the entirety of the assessment through a notice of objection dated 17th January 2022. iii.That the Applicant was unable to lodge the Notice of Appeal, Memorandum of Appeal, Statement of Facts, and other accompanying documents within statutory timelines due to the ill health and sickness of the Applicant.iv.That over the last two years, the Applicant’s health worsened severely, and has been in and out of the hospital for treatment.v.That the disruption resulted in the Applicant’s inability to lodge its Notice of Appeal, Statement of Facts, Memorandum of Appeal, and other accompanying documents within time. The deadline for lodging the Notice of Appeal was during the period in which the Applicant was ill.vi.That further, due to the Applicant’s ill health, it is only now that the Applicant has been able to lodge this Application when he resumed his duties at the office, though on a part-time basis.vii.The Applicant’s managing director is a known diabetes and hypertensive patient and has been on medication for the above conditions since 2021. viii.Over the last 6 months, the Applicant’s Managing Director’s health worsened and he has been in and out of hospital for treatment.ix.For that period, the company has suffered business disruption as a result of the Applicant’s managing director’s ill health. The disruption included the closure of the Applicant’s business from 3rd February 2022 to 8th December 2023, the period during which the Applicant’s director was admitted to the hospital and 9th December 2023 to 4th April 2024 being the period from which the Applicant’s managing director was recuperating from home.x.The business closure resulted in the Applicant’s ability to lodge its Notice of Appeal, Memorandum of Appeal, Statement of Facts, and other accompanying documents within time. The deadline for lodging the Notice of Appeal was during the period in which the Applicant’s business was closed.xi.Further, due to the disruption from the business closure and the Applicant’s Managing Director’s ill health, it is only now that the Applicant has been able to lodge this Application when the Managing Director resumed his duties in the office, though on a part-time basis.xii.This Application has been made within a reasonable time from the day the Applicant’s Managing Director resumed his duties.xiii.The Applicant asserts that the failure to lodge a Notice of Appeal, Memorandum of Appeal, Statement of Facts, and other accompanying documents on time was caused by sickness, and/or other reasonable cause.xiv.The Applicant has at no point admitted to the Additional VAT assessment being demanded by the Respondent.xv.The Agency Notices issued by the Respondent have led to the consequent freezing of the Applicant’s accounts thus rendering it unable to transact its daily business including payment of wages to its construction site staff and purchases of materials.xvi.The Applicant stands to suffer irreparable harm if the Agency orders, the same shall amount to a breach of the principles of natural justice since the same expressly denies the Applicant the right to fair administrative action before this Honourable Tribunal.xvii.The Applicant has urgently approached this Honourable Tribunal to preserve its right to Appeal the Objection Decision. Should this Application not be certified urgent and heard on a priority basis, the Applicant stands to lose its right of access to justice and be heard on its appeal due to circumstances that are not of its doing.xviii.The Respondent will not suffer any prejudice should the Applicant be allowed to file its appeal out of time.xix.Undoubtedly, this Honourable Tribunal has powers to extend the time of filing of pleadings as granted by Section 13(3) and (4) of the Tax Appeals Tribunal Act and Rule 10 of the Tax Appeals Tribunal Rules 2015. xx.It is in the interest of justice that this Application be allowed as prayed.

3. The Appellant inspite of having been granted an opportunity to canvass the application by way of written submissions did not file any submissions.

Response to the Application 4. The Respondent filed a Replying Affidavit sworn by Sharin Hadia Athman, an officer of the Respondent, on 22nd May 2024 and filed on the even date citing the following as the grounds for opposition:-a.That the Respondent carried out an audit on the Applicant for VAT covering the tax periods between November 2016 and March 2021. The audit was informed by the detected inconsistencies between the invoices declared by the Applicant and those of its alleged suppliers.b.That due to the inconsistencies noted on the Applicant’s VAT returns, the Respondent undertook a review of the same to establish the cause of the inconsistencies. Upon review, the Respondent established and made the following findings:i.That some of the Applicant’s alleged suppliers lumped their sales while submitting their monthly VAT returns and the Applicant filed its VAT returns and claimed for Input VAT for these respective months;ii.Some of the Applicant’s alleged suppliers did not declare any sales to the Applicant in their tax returns for the period under review;iii.There were variances in the Applicant’s (the Purchaser) VAT declarations and those of the declared suppliers; andiv.It was therefore impossible for the Respondent to determine whether the alleged Applicant’s suppliers sold to the Applicant and whether indeed the Applicant made the said purchases.c.That upon conclusion of the review, the Respondent sent notices of inconsistent VAT Return on March and October 2020 to the Applicant and advised the Applicant to amend its returns or request its suppliers to correspondingly amend their respective returns for the inconsistent invoices within 30 days of the notice.d.That the Applicant did not respond to the Respondent’s request and neither did it comply by amending its returns. The Respondent subsequently sent reminders to the Applicant to act on the request.e.That the Applicant similarly failed to respond or act on the Respondent’s reminders. Consequently, the Respondent issued additional assessments of Kshs. 27,790,843. 89 on 19th November 2021 to the Applicant by disallowing the input VAT claimed from the inconsistent invoices.f.That the Applicant failed to respond to the Respondent’s notices of assessments within the statutory period of thirty (30) days as provided by Section 51(2) of the Tax Procedures Act.g.That on 17th January 2022, almost two months (60 days) after the Respondent issued an assessment, the Applicant purportedly lodged an objection, However, the purported objection was late, not accompanied by the application for extension of time, and thus did not comply with the provisions of Section 51(3) and (7) of the Tax Procedures Act.h.That upon review, the Respondent immediately informed the Applicant of the invalidity of the purported objection and asked the Applicant to validate it. Despite several reminders, the Applicant failed to validate and consequently, the Respondent rejected the Applicant’s late objection on 15th March 2022. i.That the Applicant has since 2022 never lodged a proper objection and on 14th November 2023, the Applicant made an application to the Respondent seeking an extension of time to lodge a late objection.j.That the Respondent reviewed the Applicant’s application and upon review, established that the application lacked grounds of objection, the supporting documentation, and the reasons for the late objection even though indicated as sickness, was not accompanied by evidence.k.That on 21st November 2023, the Applicant was informed of the deficiencies in the application and requested to provide information and documents, including the medical reports, to support the application for acceptance of the late objection on grounds of sickness.l.That the Applicant did not respond to the request or lodge a proper application as envisaged under Section 51(7) of the Tax Procedures Act and thus it disallowed the Applicant’s application on 5th December 2023 through a letter of even date.m.That even with a subsequent follow-up on 13th December 2023, the Applicant was still unresponsive and thus the case was forwarded to the Respondent’s Corporate Taxpayer Account Management Division for enforcement/recovery of taxes which have crystalized.n.That the Respondent on 5th April 2024 issued an Agency Notice under Section 42 of the Tax Procedures Act to the Applicant’s banker in a bid to recover the taxes that have become due after the Applicant failed to lodge a proper objection.o.That it is the Respondent’s enforcement measures through the Agency Notices that have awakened the Applicant from its slumber and thus the application herein for leave to file an appeal out of time.p.That at the time of filing this application and the Appeal, the Applicant has never filed a valid notice of objection and thus the Appeal herein and the application for extension of time to lodge the same is premature and thus contrary to Section 51(1) of the Tax Procedures Act.q.That the decision issued under Section 51(7)-(7A) of the Tax Procedures Act, 2015 is not an appealable decision within the meaning of Section 3 of the Tax Procedures Act, 2015. r.That there is no valid appeal even if an extension of time is granted for the following reasons:i.The Tribunal lacks jurisdiction to entertain the Appeal herein since there is no appealable decision pursuant to Sections 51 and 52 of the Tax Procedures Act, 2015 and/or Section 13 of the Tax Appeals Tribunal Act, 2013. ii.The Respondent’s decision of 5th December 2023 is not an appealable decision within the meaning of Section 3 of the Tax Procedures Act, 2015 as it is an administrative decision amenable to review by a judicial authority other than the Tribunal.iii.The Respondent’s exercise of discretion under Section 51(7) of the Tax Procedures Act, 2015 is not subject to an appeal under the Tax Appeals Tribunal Act.iv.Therefore in view of the above and considering that the Applicant has raised issues of violation of Article 47(1) and Article 50(1) of the Constitution of Kenya, there cannot be a viable appeal to the Tribunal with the likelihood of success.v.The Applicant has not exhausted the available remedies under the Tax Procedures Act before approaching the Tribunal; andvi.The application and the Appeal herein are bad in law and an abuse of the judicial process and thus should be struck out in the first instance with costs to the Respondent.s.That despite alleging that the Applicant was ill, the Applicant has neither furnished the Honourable Tribunal nor the Commissioner with evidence that the Applicant has ever been to a Hospital or any medical facility.t.That the Applicant was requested on 21st November 2023 to produce the medical reports but none was provided despite several reminders.u.That the Applicant was informed of all these material facts and reasons forming the basis for rejecting his request for an extension of time to lodge an objection.v.That the Applicant’s allegations are mere statements with no probative value since the same are not supported by any evidence.w.That the Applicant therefore did not and has not satisfied the requirements for an extension of time to lodge an Objection under Section 51(7) of the Tax Procedures Act, 2015. x.That after being declared invalid, the Applicant’s late objection of 17th January 2022 ceased to exist and no longer had any legal effect with the Applicant being put in a position it was before the late Objection was lodged.y.That therefore, since there is no Objection, there is nothing for the Respondent’s consideration under Section 51(8) of the Tax Procedures Act, 2015 and certainly, there is no decision to be rendered under Section 51(11) of the Tax Procedures Act 2015. z.That there being no valid objection, the Respondent’s tax assessment of Kshs. 27,790,844 has crystalized and has become due and payable by the Applicant.aa.That the Agency Notices for recovery of the said taxes issued to the Applicant’s bankers on 5th April 2024 are proper and within the precincts of the lawab.That the enforcement of taxes that have become due cannot be said to be a violation of the Applicant’s Constitutional rights as the enforcement is a creature of Section 42 of the Tax Procedures Act.ac.That there is no valid appeal to this Honourable Tribunal for the reasons stated and because there is no objection and thus no appealable decision.ad.That the application for an extension of time to lodge a late appeal is misplaced and premature considering that the Appellant has not exhausted the available remedies provided by law with the Objection process.ae.That the Applicant's failure to lodge a valid Objection against the Respondent’s assessment is not a mere technicality that can be cured under Article 159(2)(d) of the Constitution of Kenya, 2010 but a deliberate omission that runs in the face of clear statutory provisions.af.That the Applicant has failed to provide valid and supported reasons for the delay in lodging the objection and the appeal herein.ag.That the fact that the Applicant delayed in approaching the Tribunal, even though it is a misplaced and ill-advised move, demonstrated how indolent and unrepentant the Applicant is in enforcing his rights.ah.That if the Applicant is of the view that its Constitutional rights have been violated, which is denied, the law has provided a mechanism for redress and the Tax Appeals Tribunal is not the appropriate forum.ai.That the Respondent followed due process of law relating to the review of Objections as demonstrated and anything to the contrary is a misrepresentation of facts and thus untrue.aj.That contrary to the Applicant’s allegations, the Respondent stands to suffer greater and irreparable loss if the Applicant is entertained to hold further the revenue that has crystallized.ak.That the Government of Kenya is in dire need of cashflows and unless the revenue is released, the Government is forced to seek external funding through loans which come with exorbitant interest and penalties in case of default.al.That whereas it can be argued that the Respondent can still collect taxes at the conclusion of the case, the penalties and interest to be collected (because of statutory capping on the same) will not be able to compensate the interest on loans sourced externally and thus it will unnecessarily strain and inconvenience the Government and its services to the citizen will be paralyzed.am.It is in the public domain and this is a matter of fact which the Tribunal can take judicial notice of, that the Government is currently servicing a huge ballooning debt.an.That therefore, justice demands that there should be an end to litigation and that the revenue that has crystalized should be released to the Government.ao.That equity aids the vigilant and not the indolent such as the Applicant hereinap.That this is a classical case of a pestering litigant who has no regard for due process of law and thus should not benefit from its own indolence.aq.That the law is that a party must be given a reasonable opportunity of being heard and once that opportunity is given and is not utilized, then the only point on which the party not utilizing the opportunity can be heard is why he did not utilize it.ar.That extension of time is not a right of a party but rather an equitable remedy that is only available to a deserving party at the discretion of the Tribunal.as.That statutory timelines give rise to substantive rights and obligations and thus the Respondent will be prejudiced by extension of time as it will not be in a position to collect taxes that have crystallized.

5. The Respondent in its written submissions dated 22nd May, 2024 and filed on the even date raised several legal issues as hereunder.

a. On whether there is an appealable decision to the Tribunal 6. The Respondent submitted that the Applicant failed to lodge a timeous and valid objection against the Respondent’s assessment of 19th November 2021 thus its late objection dated 17th January 2022 was invalid for being time-barred. Nonetheless, the Respondent granted the Applicant an opportunity to seek an extension of time to lodge an objection on 21st November 2023.

7. The Respondent asserted that the Applicant failed to validate its application for extension of time as provided under Section 51(7) of the Tax Procedures Act as it was incumbent on the Applicant to produce documents/evidence to support the contention that its Director was ill or under medication.

8. It contended that it consequently confirmed the assessment on 5th December 2023 by disallowing the application for an extension of time to lodge an objection, and demanded payment of taxes, and even at the time of filing the instant application, the Applicant has never lodged a valid objection. Therefore the application herein is premature and thus contrary to Section 51(1) and (2) of the Tax Procedures Act, 2015.

9. It relied on Section 51(1) and (2) of the Tax Procedures Act, 2015 and the cases of Dripcap Irrigation Limited v Commissioner of Customs & Border Control, Nairobi TAT Appeal No. 1398 of 2022; and Medox Limited v The Commissioner for the SARS (20059/2014) [2015] ZASCA 74 and maintained that the Applicant has not exhausted the remedies available in law before approaching the Tribunal and having failed to lodge a valid notice of objection within the timeframe given, the Respondent was justified to confirm the assessment which is now final and conclusive as between the Respondent and the Applicant.

10. The Respondent argued that its confirmation of the assessment vide letter dated 5th December 2023 was final and not subject to an appeal to the Tribunal and if aggrieved, the Applicant can only review the same by way of judicial review to the High Court.

11. It relied on the case of Commissioner of Investigations & Enforcement v Vyas t/a Rocon Enterprises (Income Tax Appeal E144 of 2021) [2022] KEHC 16027 (KLR) and further argued that there is no valid appeal that could lie to this Honourable Tribunal and thus the Tribunal does not only lack the jurisdiction to entertain the intended Applicant’s Appeal but also the application for extension of time to lodge the said appeal out of time.

b. On whether the Applicant has satisfied grounds for an extension of time to file a late appeal 12. The Respondent cited the case of Transfix Limited v Commissioner of Domestic Taxes Nairobi TAT Misc. App No. 178 of 2022 and asserted that the first issue on the jurisdiction of the Tribunal is dispositive of the application herein and therefore the Tribunal need not proceed further to consider whether the Applicant has satisfied grounds for extension of time to file a late appeal.

Analysis and Findings 13. The Tribunal is enjoined to determine the length and reason for the delay when considering an application for the extension of time to appeal out of time.

14. Before the Tribunal pronounces itself on the issue of the application for an extension of time, there exists an argument from the Respondent that the Tribunal lacks the jurisdiction to hear the current application as there exists no appealable decision since the Respondent never issued an Objection decision because the Appellant does not have any valid objection lodged.

15. The Applicant contended that it was unable to lodge a valid Objection because of its Director’s ill health.

16. Section 51 (6) and (7) of the Tax Procedures Act provides as follows with regard to lodging late notices of objection:-“(6)A taxpayer may apply in writing to the Commissioner for an extension of time to lodge a notice of objection.(7)The Commissioner shall consider and may allow an application under subsection (6) 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.”

17. The Respondent has asserted, without any rebuttal from the Applicant, that the Applicant was informed of both the invalidity of its Objection and the absence of documentation to support the cause for delay in timeously lodging the notice of objection but it never did anything to cure the defect and omission.

18. It is clear that the Applicant failed to provide documents to attest to the fact that its Director was unwell and thus incapacitated in attending to the tax assessment at the time it was issued and served upon the Applicant. The late notice of objection having been properly rejected the Applicant has no cause to challenge the rejection.

19. The Applicant has equally not provided any documents in support of the application for the enlargement of time to file an appeal out of time and more particularly on the illness of the Director and to provide an explanation on the fact that there were no other Directors or principal officers to attend to the Respondent’s rejection decision in the absence of the Director said to have been indisposed.

20. In the absence of a valid objection to be considered by the Respondent the tax assessment crystallized for enforcement by the Respondent and thus the agency notices were properly issued.

21. Having established that the Applicant never lodged a valid and timeous notice of objection, the Tribunal is left with no option but to find that there is no appealable decision for the Tribunal to consider.

22. The Tribunal notes that the appellant filed the application simultaneously with the Notice of Appeal and the Appeal documents on the very 6th May, 2024. To the extent that the Tribunal has made a finding that there is no appealable decision. The appeal filed therewith is incompetent and unsustainable in law.

Disposition 23. The Tribunal in the circumstances finds the application to be unmeritorious and the Appeal to be incompetent and accordingly proceeds to make the following Orders;-a.The application be and is hereby dismissed;b.The Appeal be and is hereby struck out.c.No orders as to costs.

DATED AND DELIVERED AT NAIROBI THIS 5TH DAY OF JULY, 2024ERIC NYONGESA WAFULACHAIRMANEUNICE N. NG’ANG’A MUTISO MAKAUMEMBER MEMBERELISHAH N. NJERU ABRAHAM K. KIPTROTICHMEMBER MEMBER