Grain Bulk Handlers v Kenya Revenue Authority, Commissioner of Customs & Commissioner of Investigations and Enforcement [2018] KECA 563 (KLR)

IN THE COURT OF APPEAL

AT NAIROBI

(CORAM: OUKO(P), WARSAME & MURGOR JJ.A)

CIVIL APPLICATION NO. NAI 17 OF 2018

BETWEEN

GRAIN BULK HANDLERS……………...…... APPLICANT

AND

KENYA REVENUE AUTHORITY.........1STRESPONDENT

COMMISSIONER OF CUSTOMS….....2NDRESPONDENT

COMMISSIONER OF INVESTIGATIONSAND

ENFORCEMENT…................................3RDRESPONDENT

(An Application for an injunction pending lodgment, hearing and determination of an intended appeal from the Ruling of the High Court of Kenya at Nairobi (E.C Mwita, J.) dated the 29thday of January 2018 in Petition No.155 of 2012)

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RULING OF THE COURT

The applicant’s consolidated petitions Nos. 155 and 239 of 2012 in the High Court at Nairobi against the respondents challenging assessment and demand for payment of customs duty at Kshs.481,973,851 and income tax in the sum of Kshs. 572,849,015 were dismissed, the learned Judge being convinced that;

“91. ….. the two petitions were not well founded. I am also unable to trace any violation of the petitioner’s right to property in terms of Article 40 of the Constitution.

92. What was presented to Court as constitutional petitions were normal disputes for resolution in accordance with the Income Tax Act and rules. There is a clear statutory mechanism through which such disputes are to be resolved first without burdening the Court with unnecessary petitions.

93. The Court will only exercise its jurisdiction under Article 165(3)(b) of the Constitution when it is called upon to determine a real question whether a right or fundamental freedom in the Bill of Rights has been denied, violated, infringed or threatened. Where there is no such violation like in this case, the option available to the Court is to decline jurisdiction.”

Aggrieved by this determination, the applicant initially evinced its intention to challenge it before this Court by filing a notice of appeal but has subsequently filed Civil Appeal No. 74 of 2018. In the meantime it has taken out a motion under Rule 5(2)(b)of the Court of Appeal Rules for orders that, pending the hearing and determination of the appeal, the respondents be restrained by injunction from issuing demands and/or notices for payment of custom duty and income tax for the years 2006 to 2011 and an order that the sum of Kshs. 40,000,000 deposited as security by consent of the parties continues being held by the respondents as security for the intended appeal.

Relying on ten grounds enumerated in the draft memorandum of appeal, the applicant through Mr. Oraro, S.C sought to persuade us that the appeal is not frivolous. On the nugatory aspect of the appeal, he expressed apprehension on behalf of the applicant that the petitions having been dismissed, the respondents may at any time demand or issue notices for the immediate payment of the taxes which are the subject of the appeal; that parties appreciating the importance of preserving the status quoagreed, by consent to a conservatory order on condition that Kshs. 40 million be deposited with the respondent. Learned Senior Counsel urged us to consider the ramifications of not restraining the respondents in the manner sought herein on account of the applicant being the only bulk grain-discharging company in Kenya; that the sum of Kshs. 1 billion that the respondents are demanding excluding penalties and interest is, by all standards, substantial, the payment of which is likely to adversely affect the applicant’s operations. On the flip side Senior Counsel demonstrated that the applicant has assets within the jurisdiction of the Court which will be available to meet its obligations under the decree should the appeal be unsuccessful. Taking into account all the relevant matters, the applicant pleads that we find that the balance of convenience is in its favour. Citing the decision of this Court in Reliance Bank Limited V Norlake Investments Ltd (2002) 1 EA 227, it submitted that to refuse to grant an order of stay would occasion hardships to it that would be disproportionate to any suffering the respondent might undergo pending hearing and determination of the applicant’s appeal.

Mr. Kilukumi, learned counsel for the respondent in opposing the application relied on the respondent’s replying affidavit sworn by Anthony Muita, an officer in the respondent’s Investigation and Enforcement Department. Counsel drew our attention to the manner in which a clear tax assessment dispute was disguised andclothed as a constitutional issue; that the learned Judge could not be faulted in seeing through this mischief when he made a determination that the proper forum for the dispute was the Tax Appeals Tribunal; that this fact was all along within the applicant’s knowledge having initially lodged an appeal in that Tribunal before petitioning the High Court. In accordance with the jurisprudence in the Speaker of National Assembly V Njenga Karume, Civil Application No. 92 of 1992, counsel supported the impugned decision and stressed that where there is a prescribed procedure for redress of a grievance provided by the Constitution or statute, it should strictly be followed; and in Kenya Revenue Authority V Keroche Breweries Limited, Civil Appeal No.2 of 2008, to the effect that where a claimant has objection regarding assessment and applicable tariffs the forum to resolve such disputes is the relevant tribunal under the statute. For these reasons, it was counsel’s view that the applicant has no arguable case.

On the likelihood of the appeal being rendered nugatory if an injunction is not granted, counsel insisted that the appeal cannot be rendered nugatory by the fact that the respondent is the tax collector of the Republic of Kenya and is capable of refunding any erroneous taxes that may be levied and paid as provided under section 144(1)(b)of the East African Community Customs Management Act (EACCMA);section 47(1)of the Tax Procedure Act; andsection 127F (2)and146(1)(b)of the Customs and Excise Act.

Without prejudice to these arguments Mr. Kilukumi submitted that in the event that the Court was inclined to grant the application, it ought to do so on condition that, in addition to Kshs. 40 million furnished in the court below, the applicant be ordered to provide additional security, bearing in mind the greater good of the national economy.

The principles which guide this Court in exercising its jurisdiction under Rule 5(2)(b)aforesaid are now old hat and we rehash them here not for their novelty but only for their relevance to the facts before us.

Starting with the first requirement, we stress the following strictures, in so far as this application is concerned. An application brought under Rule 5(2)(b) must satisfy the court on both arguabillity of the appeal and its nugatory aspect if the application is not granted. Secondly, it is sufficient if a single bona fide arguable ground of appeal is established. Damji Pragji Mandavia V Sara Lee Household &Body Care (K) Ltd, Civil Application No. Nai 345 of 2004. Thirdly 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. Joseph Gitahi Gachau & AnotherV. Pioneer Holdings (A) Ltd. & 2 others, Civil Application No. 124 of 2008. Finally, the court must not make definitive or final findings of either fact or law at this stage as doing so may embarrass the ultimate hearing of the appeal. Damji Pragji(supra).

Looking at the grounds raised in the draft memorandum of appeal as well as those urged before us, guided by the foregoing conditions and without expressing any firm position, we do not think arguments, such as failure by the learned Judge to find that the applicant’s rights under Article 47 of the Constitution were violated and his conclusion that the High Court lacked jurisdiction to entertain the petitions, are, idle complaints.

Whether a matter or a question involving a person’s right to property can or cannot result in a constitution dispute is a matter which needs investigation and determination by this Court. Again the trial Judge was of the view that the dispute was one that could only be resolved in accordance with the tax regime and that no question of administrative or constitutional law was involved, which without being definitive is another arguable point.

Similarly, in consideration of the amount of money demanded from the applicant, the applicant’s strategic and specialized role in dry bulk discharge and handling grain imports in the country and in the region, we think the grievance it intends to raise on appeal will be nothing but academic, and it will be boxed into a ruinous path toward financial destruction, with consequences whose effect may adversely affect the operation, running and management of the applicant, causing a ripple beyond the applicant itself, if the respondents were to proceed with recovery of the taxes it is demanding from the applicant.

The applicant having satisfied both limbs of Rule 5(2)(b), we grant orders of injunction in terms of prayer (b) of the notice of motion dated 1st February, 2018.

Instead of enhancing the security as urged by the respondent, it is mete and just to direct that Civil Appeal No.74 of 2018 be listed for hearing on priority basis, in view of the economic bearing of this dispute.

Costs will be in the appeal.

Dated and delivered at Nairobi this 18thDay of May, 2018.

W. OUKO (P)

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JUDGE OF APPEAL

M. WARSAME

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JUDGE OF APPEAL

A.K. MURGOR

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JUDGE OF APPEAL

I certify that this is a true copy of the original

DEPUTY REGISTRAR