[2024] KETAT 604 (KLR)

Spic Kenya Limited v Commissioner of Customs and Border Control (Appeal E632 of 2023) [2024] KETAT 604 (KLR) (22 March 2024) (Ruling)

Neutral citation: [2024] KETAT 604 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E632 of 2023

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

March 22, 2024

Between

Spic Kenya Limited

Applicant

and

Commissioner of Customs And Border Control

Respondent

Ruling

1. The application which was by way of a Notice of Motion dated 8th September 2023 and filed under a certificate of urgency on 26th September, 2023 is supported by an Affidavit and Supplementary Affidavit both sworn by the Director, Dinesh Mishra, on the 1st September, 2023 and on the 7th November, respectively, seeks for the following Orders:-a.The Honourable Tribunal be pleased to extend the time limited for filing a Notice of Appeal, Statement of Facts and Memorandum of Appeal and the requisite appeal documents out of time.b.The Notice of Appeal, Statement of Facts and Memorandum of Appeal and filed herein together with the accompanying documents be deemed as duly filed within time.c.Pending the hearing and determination of the present application and/or the main appeal and/or until further orders of this Honourable Tribunal, there be a stay of any enforcement action by the Respondent in respect of collection and/or enforcement of the alleged tax liability of Kshs. 3,318,971. 00 pursuant to its enforcement notice dated 2nd February 2023. d.The costs and incidentals of this application be cost in the Appeal.

2. The application is premised on the grounds, that:-a.Vide a letter dated 10th February 2022, Ref HQ/PCA/RRI/174/2022 the Respondent issued an assessment and demand notice in respect of the sum of Kshs 2,684,801. 00 on account of an alleged desk audit carried out between the period of 2nd August 2018 to the date of the letter for consignment of paper under tariff 4802. 56. 00 where the Respondent condemned the Appellant for applying a rate of 10% instead of 25% on import duty as per the provisions of East Africa Gazette Notice No. EAC/112/2018 dated 2. 8.2018. b.Consequently, the Respondent’s demand[ed] payment of Kshs.2,684,801 as alleged duty from the Respondent herein together with interest and penalties which it indicated will continue to accrue interest.c.The Respondent lodged a challenge/Objection to the demand vide a letter dated 11th March 2022, which was hand delivered and tax assessment was conducted by the Respondent, the Respondent did not revert on the Objection through an Objection decision within 60 days as required by the provisions of Section 51(4A) of the Tax Procedures Act.d.Pursuant to the provisions of Section 51(8) of the Tax Procedures Act, the Respondent is obliged to notify the Appellant and make an Objection decision within sixty days from the date of the receipt of a valid notice of objection failure to which the Appellant’s objection is deemed to have been allowed.e.In a complete turn of events, instead of subscribing to statutory procedure, and despite the fact that the Appellant’s Objection were deemed to have been allowed on account of failure to receive an Objection decision from the Respondent in line with Section 51(8) of the Tax Procedures Act the Appellant was served with a notice of assessment more than a year later vide a letter dated 2nd February 2023 over the same subject matter.f.The Appellant contends that instead of addressing the Appellant’s legitimate concerns and the fact that no response was made to its Objection by way of an Objection decision, the Respondent maliciously proceeded to take adverse enforcement measures against the Appellant including through a letter dated 2nd February 2023 and a follow up letter dated 7th June 2023. g.The Appellant has also received various notifications from its banks that the Respondent has proceeded to attach its bank accounts through subsequent notices despite the Appellant’s concerns remaining unaddressed including a letter addressed to Guardian Bank Limited dated 5th June 2023. h.The Appellant contends that unless time within which to lodge an appeal against the enforcement action of the Respondent is allowed out of an abundance of caution, the Appellant shall suffer substantial harm, prejudice and injustice owing to the Respondent’s failure to subscribe to statutory dispute resolution mechanisms and wantonly bypassing the same to the detriment of the Appellant.i.It is only fair and just that the Appellant be granted time within which to ventilate and address his grievance before this Honourable Tribunal and as such prays that time within which to lodge an appeal be extended in the interest of justice.j.It is only fair and just that any enforcement action by the Respondent herein be stayed in the interim pending the hearing and determination of the Application herein and the appeal.k.Unless there is a stay of enforcement action against the Respondent, the Appellant/Applicant shall be exposed to utter embarrassment, ridicule, and odium from its banking institutions and shall be rendered incapable of fulfilling its contractual obligations owing to frozen bank accounts and the enforcement action by the Respondent.l.The Respondent will not suffer any prejudice of any manner whatsoever were this Tribunal to extend the time within which to lodge and ventilate the Appeal. On the flipside, if such leave is denied, the Applicant will continue to suffer prejudice as the Respondent will proceed and collect unjustified tax demands not anchored in law, which taxes this Tribunal has termed as illegal, null and void at the peril and expense of the Applicant.m.The company continues to suffer tremendously because of the Respondent’s enforcement action of freezing its bank accounts through the Agency Notices which have crippled the Respondent’s business operations.n.It is in the interest of justice that the orders sought herein are granted in the interest of justice.

3. The Applicant filed written submissions dated 8th November, 2023in which it contended as hereunder.

4. The Applicant relied on Section 13(3) of the Tax Appeals Tribunal Act and the case of Leo Sila Mutiso v Rose Hellen Wangari Mwangi, Civil Application Nai. 251 of 1997 and submitted that its application meets the criteria to be met for extension of time and must be allowed in the first instance.

5. The Applicant relied on the case of Sarrai Group Limited v Kimetto & Associates Advocates & Others Civil Application No 185 of 2023 and submitted that it received a demand notice dated 10th February 2022 from the Respondent and responded directly vide a letter dated 8th March 2022 and received by the Respondent on 9th March 2023, and followed up the same up with an Objection letter dated 11th March 2022 through its Advocates .

6. It contended that upon lodging the Objections, the Respondent did not render an Objection decision within 60 days in accordance with the provisions of Section 51(8) of the Tax Procedures Act and accordingly, its Objection was deemed to have been allowed by law and the enforcement decision taken by the Respondent is illegal, null, and void.

7. It argued that the demanded taxes are illegal, unjustified, null, and void and are not payable in the first instance because it had paid and remitted Import duty and related VAT on imported paper under HS Code 4803. 56. 00 at 10% as provided for in law and as sanctioned by the Respondent’s own systems.

8. It maintained that the Tribunal has had occasion to interrogate similar disputes on the alleged collection of short levied taxes by the Respondent under HS Code 4802. 56. 00 where the Tribunal held in the case of Tax Appeal No. 790 of 2022, Patricia Wanjiru Mwangi v. Commissioner of Customs and Border Control that the applicable duty under HS Code 4802. 56. 00 is 10% and that there was no Gazette Notice adjusting duty from 10% to 25% and that the duty of 10% was still payable at the time.The claim and demand for taxes under the same rubric as sought by the Respondent is therefore illegal and remains as such.

9. The Appellant submitted that the Respondent has not demonstrated any prejudice it is likely to suffer should the leave sought to file the Appeal out of time be granted.

10. It reiterated that it has demonstrated that the taxes being sought by the Respondent are illegal in the first instance and do not arise in law. It contended that it shall demonstrate on appeal that the Respondent has undertaken enforcement action to recover taxes not due to it and the Applicant has paid the requisite taxes at the rate provided for in law which was provided through the systems superintended by the Respondent’s online platform. It added that this Tribunal has since held in similar matters before it that there was no provision for payment of duty under the tariff at 25% thus the enforcement action is illegal, null, and void ab initio.

11. It argued that the Respondent has undertaken enforcement action through Agency notices to the Applicant’s bank account, freezing and literally crippling the business operations of the Applicant thus the Applicant stands to suffer prejudice should the application be declined as the Respondent will be afforded a blank cheque to recover unjustified taxes from the Applicant

12. It further argued that if on appeal the Tribunal were to find that the said taxes are due, the Respondent can be comfortably compensated by way of accruing interest on the principal taxes claimed thus the Respondent does not stand to suffer any prejudice.

13. The Applicant submitted that it responded to the demand by the Respondent within time as per its Objection letters dated 8th March 2022 and 11th March 2022.

14. It contended that the said responses were received by the Respondent on 9th and 11th March 2022 within the prescribed statutory timeline of 30 days but the Applicant did not hear from the Respondent despite communication and follow up with Agents of the Respondent. It argued that upon failure to make an Objection decision within 60 days from 11th March 2022, its Objection to the demand was allowed in line with the provisions of Section 51(8) of the Tax Procedures Act and it was not open to the Respondent to pursue any enforcement measures.

15. It maintained that upon receipt of the enforcement notice dated 2nd February 2023, it reached out to the Respondent’s officials to establish the position of its objection but the Respondent’s officer did not revert to the Applicant thus the Applicant’s legitimate expectation is that no adverse action would be taken against it.

16. It submitted that in the interim period, it’s director was engaged in travels out of the Country in Arusha, Tanzania in April, July, and August in 2023 and was thus out of jurisdiction on various occasions which is a valid reason warranting the exercise the Tribunal’s discretion in favor of the Applicant.

17. It reiterated that it received communication from its bank manager at the Guardian Bank on or about 16th August 2023 that enforcement notices had been sent to its bank account prompting the Applicant to move to the Tribunal for leave to file an appeal out of time against the Respondent’s enforcement decision and demand.

18. It argued that it has been vigilant and there has not been an inordinate delay in lodging the application and the delay has been sufficiently explained by the Applicant thus the Application ought to be allowed as prayed to allow the Applicant to ventilate the Appeal.

19. It reiterated that its business remains crippled owing to the freezing of its bank accounts through the Respondent’s enforcement notice and urged the Tribunal to be guided by the case of Katrina Emporium Limited v Commissioner of Domestic Taxes (Miscellaneous Application E24 of 2023 (2023) KETAT 358 (KLR) (civ) (9 June 2023).

20. It maintained that it has remitted all due taxes as per the law and in the instant case, the taxes demanded by the Respondent have no legal or statutory justification.

Response to the Application 21. The Respondent filed a Replying Affidavit sworn by Robert Odessa, an officer of the Respondent, on 31st October 2023 and filed on 2nd November 2023 citing the following as the grounds for opposition:-a.That the Respondent on 10th July 2022 issued a demand pursuant to Section 235 and 236 of the East African Community Customs Management Act 2004 pursuant to a desk audit for the period August 2018 which revealed a short levy in import duty and resultant VAT of Kshs. 2,684,801. b.That the demand letter was issued by Mr. Franklin Ombaka from the Post Clearance Audit Division of the Customs and Border Control Department to the Applicant herein. The demand also had various contacts of staff from the said decision in case any clarification was required by the Applicant.c.That the Applicant on 11th March 2023 lodged a notice of objection to the demand and addressed it to the Commissioner of Domestic Taxes despite the same having been issued by Customs and served the same upon the Tax Dispute Resolution office in the Legal Services Department.d.That it then follows that the Respondent was not aware that the Applicant had objected to the demand since the Objection notice was not served upon the Respondent but to a different office within the Authority. The Respondent became aware of the Applicant’s Objection after the dispute had been lodged at the Tribunal.e.That the Applicant had a duty to ensure that it lodged its notice of objection to the relevant offices since the demand that it received was addressed by the Customs Department and not the Domestic Taxes. Further, the demand had contacts of the Respondents staff that the Applicant ought to have contacted to seek clarification.f.That the Applicant sought to disregard the relevant information from the Respondent’s demand thus addressed the notice of objection to the Commissioner of Domestic Taxes without any basis or justification.g.That the Respondent on 2nd February 2023 issued the Applicant with a notice of enforcement but there was no response or compliance from the Applicant.h.That the Respondent on 5th June 2023 placed Agency notices upon the Applicant’s bank account at Guardian Bank since the taxes demanded had not been paid and the Applicant had not lodged any objection as provided by Section 229(1) of the EACCMA 2004. i.That the said Section requires that a person directly affected by the decision or omission of the Commissioner or any other officer on matters relating to customs shall within thirty days of the date of the decision or omission lodge an application for review of that decision or omission.j.That even if the Applicant served the said notice of objection it was served on 11th March 2022 and the Respondent’s demand was issued on 10th February 2022 which means that the Applicant responded outside the 30 days timeline provided by Section 229(1) of EACCMA 2004. k.That it then follows that the Respondent's demand was allowed by operation of the law since the Applicant’s notice of objection was lodged outside the mandatory statutory timelines of Section 229(1) of the EACCMA 2004. l.That Section 230(1) of the EACCMA 2004 provides that a person dissatisfied with the decision of the Commissioner under Section 229 may appeal to a Tax Appeals Tribunal established in accordance with Section 231(2) to be lodged within forty five days after being served with the decision and a copy of the appeal served to the Commissioner.m.That the Applicant has not demonstrated any justifiable reason to warrant the Tribunal’s discretion to allow its appeal out of time.n.That the Applicant had not demonstrated that it followed up on a response of its Objection from the Respondent since no evidence of correspondence has been provided to show due diligence undertaken.o.That the Agency notices placed on the Applicant’s account is lawful since the Applicant failed to lodge an Objection within the statutory timelines and further did not appeal the dispute at the Tribunal as required by law.p.That the Applicant’s delay of 1 year and 7 months is inordinate and no justifiable reason has been provided for the inordinate delay in lodging the appeal, it appears that the Applicant was awoken from its deep slumber by the Agency Notices that were placed by the Respondent.q.That the Applicant is guilty of laches and has been indolent in the disposal of this matter and thus the Honourable Tribunal should not come to his aid.r.That the Respondent stands to suffer prejudice if the Agency notices are lifted unconditionally since it has demonstrated that it followed the laid down procedure in placing the Agency notices.s.That the Honourable Tribunal has the powers to direct the Applicant to furnish security as a condition for lifting the Agency notices in order to balance and protect the interests of both parties.

22. The Respondent filed its written submissions dated 31st October, 2023 in which it contended as hereunder.

23. The Respondent submitted that Section 230(1) of the EACCMA 2004 provides that a person dissatisfied with the decision of the Commissioner under Section 229 may appeal to a Tax Appeals Tribunal established in accordance with Section 231(2) to be lodged within forty five days after being served with the decision and a copy of the appeal served to the Commissioner.

24. It relied on Section 13(1) and (2) of the Tax Appeals Tribunal Act and the case of Nicholas Kiptoo Korir Arap Salat v Independent Electoral and Boundaries Commission & 7 Others [2014] eKLR and asserted that the Applicant failed to Object to the Respondent’s demand within the 30 days provided under Section 229(1) of the EACCMA 2004 thus the Applicant’s demand was allowed by operation of the law and the Appellant’s reason has no legal basis and must fall.

25. It cited the case of TAT No. 31 of 2017 Commissioner of Domestic Taxes v Mayfair Insurance Company Limited (2017) eKLR and contended that it issued a demand on 10th February 2022 and later lodged an application on 17th October 2023, 1 year and 7 months later thus the Applicant’s delay is inordinate and no justifiable reason has been advanced for the delay and the Tribunalshould not exercise its discretion in favour of an indolent party. It further relied on the case of Kaplan & Straton v L.Z. Engineering Construction Limited & 2 Others [2000] eKLR.

26. The Respondent argued that allowing the appeal is prejudicial since the Applicant has not demonstrated any reason to warrant the extension and the taxes the Respondent demands had crystallized since the Applicant’s demand was allowed by operation of the law. It added that the Applicant has not met the threshold for grant of extension of time thus undeserving of the orders sought.

27. The Respondent submitted that it followed the proper procedure before placing Agency notices and that it stands to suffer great prejudice since the taxes herein had crystallized by operation of the law and failure of the Applicant to lodge an appeal within the required timelines. It cited the case of Doshi Ironmongers v Commissioner for Domestic Taxes & Another [2009] eKLR.

Analysis and Findings 28. 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. 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 the Applicant.

29. In determining whether to extend time, the Tribunal was guided by the decision in the case of Leo Sila Mutiso -vs- Rose Hellen Wangari Mwangi - Civil Application No. Nai. 255 of 1997 (unreported), where the Court expressed itself as thus:-“It is now well settled that the decision whether or not to extend the time for appealing is essentially discretionary. It is also well settled that in general the matters which this court takes into account in deciding whether to grant an extension of time are: first, the length of the delay; secondly, the reason for the delay; thirdly (possibly), the chances of the appeal succeeding if the application is granted; and, fourthly, the degree of prejudice to the respondent if the application is granted.”

30. The Tribunal is guided by the principles set out in John Kuria v Kelen Wahito, Nairobi Civil Application Nai 19 of 1983 April 10, [1984] where the court 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 the application for extension has been brought without undue delay?d.Whether there will be prejudice suffered by the Respondent if the extension is granted?

a) Whether there is a reasonable cause for the delay? 31. In considering what constitutes a reasonable reason for the delay, the court in Paul Wanjohi Mathenge v Duncan Gichane Mathenge [2013] eKLR, held that:-“...it is clear that the discretion to extend time is indeed unfettered. It is incumbent upon the applicant to explain the reasons for delay in making the application for extension and whether there are any extenuating circumstances that can enable the Court to exercise its discretion in favour of the applicant.”

32. The Applicant submitted that it could not file the appeal in time because it did not receive the Respondent’s Objection decision within the stipulated time frame thus it assumed that its Objection was deemed to have been allowed by operation of law.

33. It further contended that while it had delivered its Objection to the wrong office, it was directed to deliver the same to the office of the Dispute Resolution Department which it did and even at that, the two are Departments within the same body thus should be deemed as properly served on the Respondent.

34. The Applicant also argued that when it found out about the enforcement notice from the Respondent, it commenced communication with the Respondent’s Officer without any response and since its manager had been out of the County on various dates within the months of April, June and July, it was not able to seek redress from the Tribunal within the appropriate time.

35. The Respondent contended that the Applicant did not serve its Objection to the proper office of the Respondent thus it never received the Applicant’s Objection and deemed its demand as allowed per the law.

36. The Applicant contended that it had commenced communication with the Respondent’s officer upon receipt of the enforcement notice from the Respondent via telephone but got no response after which it’s director was out of the Country for a few months until the month of August 2023 where it instructed the Advocates to institute the instant Application with the Tribunal.

37. The Respondent on the other hand contended that it issued a demand on 10th February 2022 and the Applicant later lodged an application on 17th October 2023, 1 year and 7 months later thus the Applicant’s delay is inordinate and no justifiable reason has been advanced for the delay and the court should not exercise its discretion in favour of an indolent party.

38. From the foregoing events, and upon looking through the documents provided, the Tribunal notes that the Applicant was indeed in communication with the Respondent’s officer concerning the notice of objection and that its director was out of the Country per its passport copy with the most recent entry stamp showing 2nd August 2023.

39. It is therefore clear to the Tribunal that the Appellant approached the Tribunal at the earliest possible time after its director arrived in the Country from his travels.

40. The Tribunal, consequently finds the Applicant is not culpable of laches in the filing of the application and it came to the Tribunal as soon as he possibly could.

b. Whether the Appeal is merited? 41. 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.

42. 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 George Boniface Mbugua v Mohammed Jawayd Iqbal (Personal representative of the Estate of the late Ghulam Rasool Jammohamed) [2021] eKLR where it was held that:-“It must be remembered that the question whether an appeal is arguable, does not call for the interrogation of the merit of the appeal, and the Court, at this stage must not make any definitive findings of either fact or law. An arguable appeal is not one which must necessarily succeed, but one which ought to be argued fully by the Court.”

43. In the instant case, the Applicant raised an issue with the fact that the Respondent never issued an Objection decision within the statutorily provided timelines thus making its Objection to be deemed to have been allowed by law.

44. The Respondent contended that the Applicant issued its Objection to the wrong Department thus the Commissioner of Customs and Border Control was not privy to the Objection thus leaving its demand notice to be deemed to have been conceded by the Applicant.

45. The Applicant also contended that it had already paid the requisite taxes at the legal rate of 10% and the short- levied taxes demanded by the Respondent of 25% for goods imported under tariff code 4802. 56. 00 is illegal, null, and void.

46. The Tribunal finds that there are various triable issues as relates to both the legal validity of the notice of objection and the objection decision and the Appeal is to that extent arguable Appeal and triable issues can only be appropriately and conclusively determined through the hearing of the ensuing appeal on its proper merits.

c. Whether there will be prejudice suffered by the Respondent if the extension is granted? 47. The Respondent argued that allowing the appeal is prejudicial since the Applicant has not demonstrated any reason to warrant the extension and the taxes the Respondent demands had crystallized since the Applicant’s demand was allowed by operation of the law. It added that the Applicant has not met the threshold for grant of extension of time thus undeserving of the orders sought.

48. The Applicant contended that it will suffer prejudice as its business has been crippled by the freezing of its accounts occasioned by the Respondent’s Agency notice issued to its bank account but the Respondent would only be fully restored with penalties and interest that arise should it be found on appeal that the taxes demanded are due.

49. The Respondent did not demonstrate how it would suffer prejudice if the prayer for expansion of time was granted.

50. The Tribunal observes that the Appellant’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.

51. It is the view of the Tribunal, in concurrence with the Applicant that the Respondent would otherwise still collect the taxes together with penalties and interest should the Applicant be ultimately found to be at fault.

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

Disposition 53. The Tribunal in the circumstances finds that the application is meritorious 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 and the Appeal documents filed on the 26th September, 2023 be and are hereby deemed as duly filed.c.The Respondent to file and serve its Statement of Facts within Thirty (30) days of the date of delivery of this Ruling.d.No orders as to costs.

54. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF MARCH, 2024ERIC NYONGESA WAFULA - CHAIRMANELISHAH N. NJERU - MEMBERMUTISO MAKAU - MEMBEREUNICE N. NG’ANG’A - MEMBERABRAHAM K. KIPROTICH - MEMBER