[2024] KETAT 445 (KLR)

Truecosmetics Koinaange Limited v Commissioner of Domestic Taxes (Tax Appeal E888 of 2023) [2024] KETAT 445 (KLR) (22 March 2024) (Ruling)

Neutral citation: [2024] KETAT 445 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E888 of 2023

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

March 22, 2024

Between

The Truecosmetics Koinaange Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Ruling

1. The Appellant moved this Tribunal vide a Notice of Motion dated 4th day of December 2023 and filed on 5th December 2023 and which is supported by an Affidavit sworn by Hodhan Abdalla Mbau, a Director of the Applicant, on the 4th December, 2023 sought for the following Orders:-a.Spentb.The Appellant be granted an extension of time regarding the filing of a Notice of Appeal to this Honourable Tribunal;c.The Appellant’s Notice of Appeal dated 4th December 2023 and filed on even date be admitted into the record of this Honourable Tribunal as having been filed within time.d.The Appellant files and serves herewith all documents set out under Section 13(2) of the Tax Appeals Tribunal Act.e.Costs of this application be in the cause.f.Any other Orders that this Honourable Tribunal may deem just and expedient to issue.g.That the Appellant be given leave to file the Notice of Appeal, Memorandum of Appeal and Statements of Facts.

2. The application is based on the following grounds that:-i.That On 15th November 2019, the Respondent issued four notices of assessment of Vat for the month of January 2018, February 2018, March 2018, and May 2018 dated 15th November 2019 amounting to Kshs 432,895. 94, Kshs 518,422. 98, Kshs 654,723. 45 and Kshs 543,680. 08, respectively, without communicating the basis used to raise the assessments.ii.The Appellant, through his tax representative, made an objection on 14th December 2019 for the four assessments online citing grounds for the objection.iii.The Respondent requested proof of purchase and records for payments to suppliers against the disallowed invoices via an email dated 24th February 2021 attaching a notice of invalidly lodged objection letter dated 24th February 2021. An e-mail which both the Appellant and the Appellant’s tax representative did not receive.iv.The Respondent further sent a reminder via an e-mail on 9th March 2021 requesting for the documents giving the Appellant three days within which to produce the documents. An e-mail which the Appellant did not receive as well.v.The VAT returns were done at a time when the VAA module had not been introduced by the Respondent and indeed the concept disallowing input because of matching invoices between sellers and purchasers is not hinged in the TPA. The TPA only requires a Valid invoice for input VAT to become correctly claimable.vi.On 17th March 2021, the Respondent issued an objection decision and sent to the Appellant an e-mail which the Appellant has not received to date.vii.On 24th August 2023 the Respondent issued to the Appellant a demand notice and sent the same to the Appellant via an e-mail dated 24th August 2023. As per the demand notice, the Appellant was being demanded VAT amounts for the period January 2018 to May 2018 which had been objected to and the Appellant had not received any response to the same and the VAT amount for the month of January 2019 a liability that arose as a result of the erroneous VAT Auto Assessment raised by the Respondent and the Respondent send an e-mail dated assessment was erroneous.viii.The Appellant, through his tax representative responded to the demand via a letter dated 5 September 2023 explaining there was no outstanding liability.ix.On 4th October 2023, Appellant, through his tax representative visited the Respondent’s office seeking clarification of the tax arrears and during the visit the tax representative was informed that an objection decision had already been issued to the Appellant regarding the January 2018 to May 2018 VAT assessments.x.During the visit, the Appellant through his tax representative requested that the e-mail thread communicating the objection decision be resend to the Appellant.xi.The Respondent then forwarded the email to the Appellant’s tax representative. Upon review of the mail thread it was discovered that the emails sent by the Respondent on 24th February 2021, 9th March 2021 and 17th March 2021 had been sent to supercosmetic.naco@gmail.com an e-mail which the Appellant does not have access to.xii.The Appellant has approached this Tribunal at the earliest juncture and the failure to file the Notice of Appeal within time was because of justifiable opportunity factors beyond the control of the Appellant.xiii.The Appellant has an arguable Appeal with high probability of success, which Appeal would be rendered nugatory unless the Orders sought in this application are granted. The Appellant’s substantive issues with the decision of the Commissioner is meritorious and should be canvassed at full hearing, rather than being locked out unheard on the basis of time within which to file a Notice of Appeal.xiv.The Respondent will not suffer any prejudice from the grant of the Orders sought herein.xv.The grant of the Orders sought in this application will allow for the determination of the substantive tax dispute herein on its merits, rather than on a procedural technicality.

3. In response to the application, the Respondent filed a Replying Affidavit sworn by Caroline Mumo, an officer of the Respondent, on the 20th December, 2023 in which it raised the following grounds of opposition:-i.That the Respondent issued additional VAT assessments on 15th November 2019 on the basis of inconsistency in the months of January to May 2018 between the invoices declared by the Applicant and its suppliers. Notices had been sent to the Appellant to amend its VAT returns to remove the inconsistency but same was never done.ii.That on 14th December 2019 the Applicant lodged an Objection to the assessment.iii.That Section 51 (3) (c) of the Tax Procedures Act provides that a notice of objection shall be treated as validly lodged when all the relevant documents relating to the objection have been submitted.iv.That the Appellant was advised to provide supporting documents by 14th February 2020 (which was 60 days from the date of the objection). The Applicant never responded to the request. Then a reminder on the invalidly lodged objection was shared on 24th February 2021. v.That another reminder was shared on March 2021, which the taxpayer never responded. Finally, a notice of invalidation was shared to the Appellant on 24 March 2021. vi.That the Appellant ought to have lodged a Notice of Appeal on or before 24th April 2021 however the Appeal has been filed on 6th December, 2023. vii.That the Appellant’s delay in lodging an appeal is 2 years and 8 months.viii.That Section 13 (4) of the Tax Appeals Tribunal Act, 2013 and Section 10 (3) of the Tax Appeals Tribunal (Procedure) Rules, 2015 discusses grounds upon which a party may be granted leave to file an appeal at this Tribunal out of time.ix.That the Appellant states that the delay in lodging the Appeal is due to the fact that the Appellant never received the notice dated 24th March 2021, to this the Respondent states that the same was shared via the Appellant’s itax email address supercosmetic.naco@gmail.com.x.That the Appellant was awoken by the Respondent’s demand dated 24th August 2023 and it is clear that the Applicant did not intend on resolving the dispute.xi.That in view of the foregoing the Applicant has not met the threshold to be granted orders sought

Analysis and Findings 4. The Tribunal points out from the outset that the Parties’ submissions are not on record.

5. The Tribunal is mandated 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.

6. The power to expand time for filing an appeal is donated by Section 13(3) of the Tax Appeals Tribunal Act which provides that:“The Tribunal may, upon application in writing, extend the time for filing the Notice of Appeal and for submitting the documents referred to in subsection (2)”.

7. Conditions that the Appellant has to satisfy are stipulated under Section 13(4) of the Tax Appeals Tribunal Act which provides that:-“An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period.”

8. Similarly, Rule 10 of the Tax Appeals Tribunal (Procedure) Rules reiterates the foregoing statutory provision in the following terms: -“(3)The Tribunal may grant the extension of time if it is satisfied that the Applicant was unable to submit the documents in time for the following reasons –a.absence from Kenya;b.sickness; orc.any other reasonable cause.”

9. From the provisions of Section 13 (3) and Rule 10 of the Tax Appeals Tribunal (Procedure) Rules, the power to extend time is discretionary and not a right to be granted to the Applicant.

10. The Supreme Court in Nicholas Kiptoo Arap Korir Salat v Independent Electoral and Boundaries Commission & 7 others [2014] e KLR set out the considerations to guide the court in exercising its discretion in cases of this nature. It stated as thus: -i.‘‘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;ii.A party who seeks for extension of time has the burden of laying a basis to the satisfaction of the court;iii.Whether the court should exercise the discretion to extend time, is a consideration to be made on a case-to-case basis;iv.Whether there is a reasonable reason for the delay. The delay should be explained to the satisfaction of the court;v.Whether there will be any prejudice suffered by the respondents if the extension is granted;vi.Whether the application has been brought without undue delay; andvii.Whether in certain cases, like election petitions, public interest should be a consideration for extending time."

11. In Leo Sila Mutiso vs Rose Hellen Wangari Mwangi, Civil Application Nai. 251 of 1997 the court discussed the factors to be considered when considering applications for extension of time. The Judge held that:“It is now settled that the decision whether to extend the time for appealing is essentially discretionary. It is also well stated 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 reasons 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.”

12. The court in Wasike v Swala [1984] KLR 591 provided the hierarchy of the factors to consider when it stated that:“an applicant must now show, in descending scale of importance, the following factors: -a.That there is merit in his appeal.b.That the extension of time to institute and/or file the appeal will not cause undue prejudice to the respondent; andc.That the delay has not been inordinate.”

a. Whether there is a reasonable cause for the delay 13. The statutory timelines and provisions to file an appeal have been clearly set out in the Tax Appeal Tribunal Act under Section 13 (3) Section 13(4) and Rule 10 (3)(c) of the Tax Appeals Tribunal (Procedure) Rules.

14. Examination of the Applellant’s pleadings reveals that the Appellant is seeking leave under Section 13(4) of the Tax Appeals Act and Rule 10 (3)(c) of the Tax Appeals Tribunal (Procedure) Rules on ‘‘other reasonable cause’’ although the Appellant has not expressly stated as such.

15. In Abdul Aziz Ngoma vs. Mungai Mathayo [1976] Kenya LR 61, 62, the court stated as follows with regards to sufficient reason:-“We would like to state once again that this Court’s discretion to extend time under rule 4 only comes into existence after ‘sufficient reason’ for extending time has been established and it is only then that other considerations such as the absence of any prejudice and the prospects or otherwise of success in the appeal can be considered.”

16. Further, in considering what constitutes as a reasonable reason for delay, the court in Balwant Singh v Jagdish Singh & Ors (Civil Appeal No.1166 of 2006), held that:-“The test is whether or not a cause is sufficient to see whether it could have been avoided by the party by the exercise of due care and attention”.

17. The Appellant stated that the Respondent issued an objection decision which was sent to the Appellant via an e-mail, but the Appellant did not receive the e-mail. The Appellant also argued that it did not realize that the objection decision existed until the Appellant's tax representative engaged with KRA and hence the delay in filing of the application to the TAT.

18. The Tribunal is of the view that the Respondent contributed to the delay because it did not give effect to the objection decision as mandated under Section 51(9) of the Tax Procedures Act until 24th August 2023 when the Respondent purported to enforce the objection decision.

19. The Tribunal finds that the reason advanced by the Appellant is compelling.

b. Whether the Appeal is merited 20. To address this issue, the Tribunal has to test whether the matter under dispute is frivolous or whether there are material facts that deserve to be heard by the Tribunal. In other words, the Tribunal has to be satisfied that the intended appeal is arguable and not its likelihood of success. In Samuel Mwaura Muthumbi v Josephine Wanjiru Ngungi & Another (2018) eKLR the court stated as follows:“Looking at the draft Memorandum of Appeal filed, I am unable to say that the intended Appeal is in arguable. Of course, all the Applicants have to show at this stage is arguability- not high probability of success. At this point the Applicant is not required to persuade the Appellate court that the intended or filed appeal has a high probability of success. All one is required to demonstrate is the arguability of the Appeal, a demonstration that the Applicant has plausible grounds of either facts or law to overturn the original verdict. The Applicants have easily met that standard. I believe that the Applicant has discharged this burden.”

21. In Stanley Kangethe Kinyanjui Vs Tony Keter & others (2013) eKLR the court had the following to say about arguabilty of appeal:-“On whether the appeal is arguable, it is sufficient if a single bonafide ground of appeal is raised, an arguable appeal is not one which must necessarily succeed, but one which ought to be argued fully before the court: one which is not frivolous.”

22. In the annexed Memorandum of appeal, the Appellant argued that the Respondent issued an Objection decision against the Appellant outside the mandatory 60 days timelines and therefore the decision is null and void. This allegation raises matters of law because if the Respondent issued the objection decision beyond 60 days, the Applicant’s objection stood as allowed by operation of law. This is provided for under Section 51(11) of the Tax Procedures Act.

23. In Vivo Energy Kenya Limited v Commissioner of Customs & Border Control, Kenya Revenue Authority & another [2020] it was held that:-“The provisions of the TPA are clear that where the Commissioner fails to make a decision on an objection within sixty days, the objection shall be allowed.’’

24. The Tribunal is of the view that the raised arguments and counterarguments ought to be heard and determined on merit. Under the circumstances, the Tribunal is of the view that the Appellant has an arguable case.

c. Whether the Respondent will be prejudiced if time is extended 25. The test here is whether the Respondent will suffer irreparable prejudice if the application is granted. Courts have in numerous instances held that due regard must be given to whether the extension will prejudice the opponent. In Edith Gichungu Koine Vs Stephen Njagi Thoithi [2014] eKLR the court held that, ‘…the degree of prejudice to Respondent if the application is granted should be considered,’’ while in Patrick Maina Mwangi v Waweru Peter [2015] eKLR the Court quoted the finding in United Arab Emirates v Abdel Ghafar & Others 1995 IR LR 243 and stated as follows:‘‘a plaintiff should not in the ordinary way be denied an adjudication of his claim on its merits because of a procedural default, unless the default causes prejudice to his opponent for which an award of cost cannot compensate.”

26. The Tribunal has examined the Respondent’s Replying Affidavit and notes that the Respondent has not adduced evidence indicating how it would be prejudiced if time is extended. Therefore, the Tribunal is of the view that the Respondent will not be prejudiced if time is extended.

d. Whether the delay is inordinate 27. Delays whether inordinate or not ought to be sufficiently explained. In Joseph Odide Walome v David Mbadi Akello [2022] eKLR, the High Court stated as follows:-“Where a party is aggrieved and wishes to pursue an appeal, it would be fair to exercise discretion in his favour and especially where the delay in filing the appeal is not inordinate or even if the delay is inordinate, it is explained to the satisfaction of the court and the adverse party will not be prejudiced in any way.”

28. In its supporting affidavit, the Appellant stated that the Respondent issued an objection decision dated 17th March, and sent to the Appellant via an e-mail, an e-mail which the Appellant did not receive. The Appellant also deponed that the Respondent issued a demand notice on 24th August 2023 and sent the same to the Appellant via an e-mail based on an “objection decision”

29. The Appellant also deponed that tax representative visited Respondents offices to seek further clarification regarding the lax in arrears demand letter received by the Appellant and further engaged with Kenya Revenue Authority through a letter dated 5th September 2023 and an e-mail dated 4th October 2023 regarding the objection decision. The Appellant also stated that it did not realize that the objection decision existed until the Appellant's tax representative engaged with KRA and hence the delay in its application to the TAT.

30. On the other hand, the Respondent stated that the Appellant’s delay in lodging an appeal is 2 years and 8 months. The Respondent also stated that it shared objection decision via the Appellant’s itax email address supercosmetic.naco@gmail.com.

31. The Tribunal has examined pleadings and agrees with the Respondent that 2 years and 8 months amounts to an inordinate delay. However, the Tribunal is of the view that the Appellant explained the delay to the reasonable satisfaction of the Tribunal.

32. Apart from the foregoing, Section 51(9) of the Tax Procedures Act provides that-“The Commissioner shall notify in writing the taxpayer of the objection decision and shall take all necessary steps to give effect to the decision, including, in the case of an objection to an assessment, making an amended assessment.”The Tribunal is of the view that whereas the Respondent issued the decision in writing, the Respondent failed to timeously give effect to the decision. If the Respondent had given immediate effect to the decision, the Appellant would have known much earlier that the decision had been issued. Therefore, the Respondent is equally to blame for the delay.

33. Consequently, the Tribunal finds that under the circumstances, the delay has been explained sufficiently.

34. Under the circumstances, the Tribunal finds that there exists a reasonable cause for the delay

Disposition 35. In the circumstances, the Tribunal proceeds to make the following orders:i.The Appellant be and is hereby granted leave to file its Notice of Appeal, Memorandum of Appeal, Statement of Facts and tax decision out of time.ii.The Appellant’s Notice of Appeal dated and filed on the 4th day of December, 2023 be and is hereby deemed as duly filed and served.iii.The Memorandum of Appeal, Statement of Facts and tax decision filed on 6th December 2023 be and are hereby deemed as duly filed and served;iv.The Respondent to file and serve its response to the appeal within the statutory period upon its being served with the appeal documents.v.No orders as to costs.

36. It is so ordered.

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