Krish Commodities Limited v Kenya Revenue Authority [2017] KEHC 4217 (KLR) | Judicial Review | Esheria

Krish Commodities Limited v Kenya Revenue Authority [2017] KEHC 4217 (KLR)

Full Case Text

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT MOMBASA

MISC CIVIL APPLICATION NO. 59 OF 2013 (JR)

IN THE MATTER OF: ORDER 53 OF THE CIVIL PROCEDURE RULES

AND

IN THE MATTER OF: THE EAST AFRICAN COMMUNITY CUSTOMS MANAGEMENT ACT 2004

AND

IN THE MATTER OF: AN APPLICATION BY KRISH COMMMODITIES LIMITEDTO APPLY FOR ORDERS OF JUDICIAL REVIEW AGAINST THE DECISION BY THE KENYA REVENUE AUTHORITY DEMANDING KSHS. 26,215,578. 00 ON ACCOUNT OF DUTY ALLEGEDLY UNDERPAID AND ISSUING AN AGENCY NOTICE THEREFORE

BETWEEN

KRISH COMMODITIES LIMITED……..………………...…..APPLICANT

VERSUS

KENYA REVENUE AUTHORITY……………………….RESPONDENT

RULING OF THE COURT

The Application

1. The application before the Court is a Notice of Motion dated 14th  December, 2016 filed under Sections 1A & IB of the Civil Procedure Act, Articles 23(3) and 159(2) & (3) of the Constitution of Kenya,2010 by the Applicant seeking the following orders:

a)THAT the Respondent be restrained by way of an interim injunction pending appeal from collecting from the applicant Kshs. 26, 215,578. 00 on account of the claim made by it from the ex-parte Applicant on account of alleged underpayment of taxes, interest and penalties pending the hearing and determination of the Applicant’s intended Appeal against the ruling delivered herein on 6th December, 2016.

b) THATthe costs of this application be awarded to the Applicant.

2. The application is premised on the grounds set out therein and is supported by the affidavit of MITAH SHAHsworn on 14th  December, 2016 and the further affidavit of MITAH SHAH sworn on 27th March, 2017.

3. The Applicant alleges that on 6th December, 2016 this Court delivered its decision in this matter and dismissed the ex-parte Applicant’s Notice of Motion dated 8th October, 2013.   The Applicant was aggrieved by the said Ruling and instructed its advocates, Messrs. A.B. Patel & Patel, to file an appeal against the same.   The Applicant states that the intended appeal is meritorious and has good prospects of success.

4. The Applicant alleges that the Respondent has demanded and may proceed to enforce collection of the sum of Kshs. 26, 215, 578. 00 on account of interest and penalties in which case the Applicant will suffer substantial and irreparable loss if an order of injunction is not issued. The Applicant further alleges that the appeal will be rendered nugatory if an order of injunction is not issued and the Applicant’s cash flow will suffer substantially and affect the Applicant’s business operations.

5. The Applicant avers that the Respondent will not be prejudiced if an order of injunction is granted as the Respondent is and shall continue to be secured by a Bank Guarantee dated 24th October, 2013 which shall be renewed by the Applicants.

6. The Applicant states that this court is not being asked to sit on an appeal of its own orders but rather to preserve the status quo so that the Applicant’s right to appeal is preserved and not negatively or adversely affected.  The Applicant further alleges that this court is not functus officio and it retains the inherent power to ensure fairness and justice.

7. The Applicant’s case is that it would be highly unjust and prejudicial if the Applicant is required to pay such a substantial sum of money when the question of the validity of the Respondent’s claim for levy of tax has not been finally determined.  The Applicant further alleges that the Respondent engages in conduct that is highly frustrating when the Respondent has to refund monies paid which were not due to it and in most instances the Respondent has to be compelled by an Order of court to do so.

The Response

8. The application is opposed by the Respondent through a replying affidavit sworn by FRANKLIN ONJALA OMBAKAon 22nd February, 2017 and grounds of opposition filed in court on 30th January, 2017.

9. The deponent alleges that the court delivered a Judgment in this matter in which the Applicant’s Notice of Motion that sought to quash by way of Judicial Review the Respondent’s decision to detain the ex-parte Applicant’s consignments at the Port of Mombasa on account of a tax demand for Kshs. 26, 215, 578. 00 was rejected. The deponent further alleges that upon delivery of the Judgment, the Applicant sought, by way of an oral application, conservatory orders to stay collection of the said sum but the court declined to grant the orders.

10. The deponent alleges that since the court dismissed the Judicial Review application by the Applicant, the right recourse for the Applicant would be an appeal before the Court of Appeal to which the Applicant has filed a Notice of Appeal dated 6th December, 2016.  The deponent further alleges that the Applicant should have sought conservatory orders before the Court of Appeal.

11. The deponent alleges that since this court had already pronounced itself by way of a Judgment, this court cannot issue the order sought in this application as it is functus officio and if this court did issue the orders sought it would be sitting on an appeal on its own decision.

12. The deponent alleges that this application is brought under Article 23 and 159 of the Constitution and the injunctive order sought cannot issue in the realm of the law under which the main suit is premised. The deponent further alleges that the Applicant during the pendency of the Judicial Review application did not seek injunctive orders and therefore injunctive orders cannot be available now that the Judicial Review application has been determined.

13. The deponent states that whereas the Applicant claims that the taxes demanded by the Respondent are secured by a bank guarantee, the said bank guarantee is invalid, stale and unenforceable as the bank guarantee was valid for a period of one year which lapsed on 24th April, 2014 and the Applicant has made no effort to renew it.  The deponent further alleges that the Applicant has throughout the pendency of the Judicial Review application enjoyed conservatory orders against the Respondent and since the Judicial Review application has been determined all orders therein are spent and the Applicant cannot seek to reintroduce such conservatory orders.

14. The deponent states that it is in the interest of the Applicant that the orders sought are not granted because if the tax demanded remains unpaid, it continues to accrue interest and penalties which is to the detriment of the Applicant. The deponent also states that if the Applicant succeeds at the Court of Appeal having paid the demanded taxes, the Respondent will refund the monies paid under its elaborate tax refund mechanism.

Hearing

15. The application was canvassed by way of written submissions which were highlighted in court.  Mr. Khagram appeared for the Applicant while Mr. Ado was on record for the Respondent.   Counsel requested the Court to adopt submissions made in JR. No. 85 of 2012.  The court subsequently adopted submissions filed by the parties in JR No. 85/2012.

16. In the submissions filed in JR. No. 85 of 2012, Mr. Khagram, counsel for the Applicant, submitted that this Court has inherent powers and jurisdiction to hear this application, adding that the powers of this court are natural, innate, inborn, inbuilt and intrinsic from the moment it is constituted for it to meet the ends of justice. Counsel referred the court to Sections 1B and 3A of the Civil Procedure Act which state:

“Section 1B …the court shall handle all matters presented before it for the purposes of…the just determination of proceedings…

Section 3A, nothing in this Act shall limit or otherwise affect the inherent power of the court to make such order as may be necessary for the ends of justice or to prevent abuse of the process of the court.”

Counsel also submitted that Article 23(3) of the Constitution grants jurisdiction to this Court to uphold and/or enforce the Bill of Rights and in the course of the proceedings to grant appropriate relief including an injunction or conservatory order or an order for Judicial Review, while Article 159(2) of the Constitution enjoins this court to exercise its judicial authority in a manner that fairly administers justice.

17. Mr. Khagram submitted that Section 3A of the Civil Procedure Act does not confer inherent jurisdiction and power to this court but only reserves the jurisdiction which inheres in every court.   Counsel referred the court to the case of Ryan Investments Ltd vs. The United States of America [1970] E.A. 675and Kenya County Bus Owners’ Association vs. Cabinet Secretary for Transport & Infrastructure & 5 others [2014] eKLR. Counsel further reiterated the jurisdiction of this court in this matter and cited the case of Republic vs. The Public Procurement Complaints, Review & Appeals Board & Another Ex parte Jacorossi Impresse Spa Mombasa HCMA No. 365 of 2006 where the court held that it has:

“…power under its inherent jurisdiction to make orders that may be necessary for the ends of justice and to enable the Court maintain its character as a court of justice and that this repository power is necessary to be there in appreciation of the fact that the law cannot make express provision against all inconveniences.”

18. Mr. Khagram submitted that the above cited cases show that this court ought to address the question of an injunction pending appeal.  Counsel further submitted that if an order of injunction is not granted, the appeal will not only be rendered nugatory but also the Applicant will suffer substantial loss that will adversely affect its business and staff.

19. Mr. Khagram submitted that the amount claimed Kshs. 26, 251, 578. 00 is a colossal sum and it is not enough for the Respondent to simply state that it is in a position to refund the Applicant should the Applicants’ appeal be successful. Counsel referred the court to the case ofTata Chemicals Magadi Limited vs. Commissioner of Domestic Taxes (Large Taxpayers) [2014] eKLR where the court stated that the Respondent still continues to engage in unprogressive arrangements which characterize the operational linkage to slothful structures and that it has no justification in failing to make VAT refunds timeously as appears to be the trend such that it has to be compelled to make these refunds through an order of the court.

20. Mr. Khagram submitted that it would be highly unjust if upon succeeding in the intended appeal the Applicant has to institute further proceedings to compel the Respondent to refund the monies wrongfully recovered.  Counsel added that it would be fair if the status quo prevailing is maintained through the issuance of the orders sought on condition that the Respondent is appropriately secured by way of a Bank Guarantee as no prejudice would be suffered by the Respondent.

21. Mr. Khagram submitted that the draft Memorandum of Appeal filed herein demonstrates that the intended appeal is arguable and has very good prospects of success.

22. On his part, Mr. Ado, counsel for the Respondent, submitted that this court lacks the jurisdiction to entertain this application and referred the court to Sections 9 and 8 of the Law Reform Act Cap 26 of the laws of Kenya. Counsel submitted that the Act provides that orders issued by a Judicial Review Court are final and the only way to challenge such orders is by way of an appeal to the Court of Appeal.  The statute provides:

“(3)  No return shall be made to any such order, and no pleadings in prohibition shall be allowed, but the order shall be final, subject to the right of appeal therefrom conferred by subsection (5) of this section”

“(5) Any person aggrieved by an order made in the exercise of the civil jurisdiction of the High Court under this Section may appeal therefrom to the Court of Appeal.”

23. Mr. Ado submitted that if the Applicant appeals then the Court of Appeal will have the jurisdiction under Section 5 (2) (b) of the Appellate Jurisdiction Act to issue an order of stay subject to the Applicant satisfying the conditions set thereunder.   Counsel submitted that an Applicant is only allowed to return to the High Court where the orders complained of were interim in nature and were made ex parte and referred the court to the case of Judicial Commission of Inquiry into the Goldenberg Affair & 3 others vs. Kilach 249 [2003] KLR p.261.

24. Mr. Ado submitted that the application as drafted is bad in law and hopelessly incompetent and urged the court to look at Prayer 2 and 3 of the Notice of Motion dated 14th December, 2016 which counsel submitted show that the Applicant is not seeking stay of this Honorable Court’s order of 6th December, 2016 but is seeking an injunction (a stay) of the decision of the Respondent herein.  Counsel further submitted that a stay can only be granted at theLEAVE stage in a Judicial Review and not at this stage and that injunctive orders were never sought in the main Judicial Review application therefore no such order can be sought in this application.

25. Mr. Ado submitted that this application had been made under the wrong provisions of the law being that Sections 8 and 9 of the Law Reform Act, Cap 26 under which an appeal from Judicial Review proceedings is allowed has not been cited anywhere in this application. Counsel submitted that apart from Order 53 of the Civil Procedure Rules, no other provisions of the Civil Procedure Act and Rules apply to proceedings of this nature and referred the Court to the case of Commissioner of Lands vs. Kunste Hotel Limited, Nakuru Civil Appeal No. 234 of 1995 and Republic vs. District Social Development Officer, Machakos & Another [2005] eKLR.

26. Mr. Ado submitted that even if this court entertained the prayers sought by the Applicant there was actually nothing to stay as the orders issued by this Court on 6th December, 2016 were negative and could not be executed by either party as no party was to do anything or refrain from doing anything. Counsel referred the court to the case of Western College of Arts and Applied Sciences (Weco) vs. Oranga [1976] KLR 63where the court stated:

“But what is there to be executed under the judgment the subject of the intended appeal? The High Court has merely dismissed the suit, with costs. Any execution can only be in respect of costs. In the instant case, the High Court has not ordered any of the parties to do anything or refrain from doing anything or to pay any sum. There is nothing arising out of the High Court judgment for this Court, in an application for stay, to ensue or to refrain by injunction.”

27. Counsel also referred to the case of Uasin Gishu Stationers & Printers Limited vs. Kenya Revenue Authority, Nairobi C.A.CA No. 320 of 2012,where the Court of Appeal stated as follows:

“The High Court did not direct the applicant to pay the assessed tax. That notwithstanding, the applicant is now asking the Court to stay execution of the tax assessment. That is tantamount to seeking an injunction to restrain the respondent from demanding the tax arrears from the applicant. This court cannot grant such an order in the circumstances.”

28. Mr. Ado submitted that the intended appeal was not arguable and that the Applicant has not attached a draft memorandum of appeal to the application.

29. Mr. Ado further submitted that the Judicial Review application was dismissed on the basis that the issues raised therein were not for a Judicial Review Court and the Applicant ought to have appealed to the Tribunal established under the revenue statutes rather than coming to the High Court for Judicial Review orders and referred the court to the case of Republic vs. National Environment Authority [2011] eKLR.  Counsel submitted that the Tax Appeals Tribunal Act, 2013 and the Tax Procedures Act, 2015 provide a dispute resolution procedure in respect of disputes arising under those Acts and the applicant did not pursue these procedures.

30. Mr. Ado submitted that even after proving the presence of an arguable appeal, an Applicant must also show that the intended appeal is likely to be rendered nugatory unless the order sought are granted.  Counsel submitted that the Applicant herein has not proved that the intended appeal will be rendered nugatory in the event that the orders sought are not granted.

31. Mr. Ado submitted that granting an order of injunction to the applicant pending determination of the intended appeal will cause greater hardship to the Respondent than the Applicant as the Respondent collects taxes on behalf of the government and the government must run therefore it is only fair that the Respondent be allowed to collect taxes for operations of the Government.  Counsel further submitted that the Applicant will benefit if the stay orders sought are not granted because an early payment of the taxes due will arrest the accrual of penalties and interest and in the event that the intended appeal fails, interests and penalties will be much higher and will likely cause serious financial burden to the applicant and in the event the intended appeal succeeds, the Respondent will refund the monies collected or the applicant may elect to utilize the monies collected to offset its future tax obligations.

Determination

32. Having carefully considered the submissions above, I find that the issue for determination by this court is whether the Applicant herein should be granted an order of injunction to restrain the Respondent from collecting from it Kshs.26, 215, 578. 00 on account of claims made by the Respondent for interest and penalties pending the determination of the Applicant’s intended appeal against the Ruling delivered on 6th December 2016.

33. The Respondent submitted that this court does not have the jurisdiction to entertain this application and rather the Applicant should institute an appeal in the Court of Appeal as orders issued by a Judicial Review court are final. It is important to note that the applicant herein is not challenging “any orders” issued by this court in its Ruling on 6th December, 2016 but is praying that this court issue an injunction against the Respondent to restrain it from collecting a certain some of money until the Applicant’s intended appeal is determined.  The Applicant is not asking this court to sit as an appellant court and review the decision of this court issued on 6th December, 2016.  Further, Order 40 Rules 1 and 2 provide that this court may grant an order of injunction, while Section 3A of the Civil Procedure Act provides that nothing in the Act shall limit or otherwise affect the inherent power of the court to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the court.  Therefore it is safe to say that this court has the jurisdiction to entertain this matter.

34. Having established jurisdiction of this court over this matter, the attention will now shift to whether this court can grant the order of injunction sought by the Applicant.  When a court is considering an application for an injunction pending appeal, it should be guided by certain principles which were stated in the case of Patricia Njeri & 3 others vs. National Museum of Kenya [2004] eKLRwhere Visram J stated the principles as:

“a) an order of injunction pending appeal is a discretionary one and the discretion will be exercised against an applicant whose appeal is frivolous.

b) The discretion should be refused where it would inflict greater hardship that it would avoid.

c) The applicant must show that to refuse the injunction, would render the appeal nugatory.

d) The court should also be guided by the principles in Giella versus Cassman Brown Ltd [1973] EA 358. ”

35. The principles in the Giella case (supra) are that the applicant should have aprima facie case with a probability of success; the Applicant should show that he is likely to suffer irreparable damage that cannot be compensated by an award of damages; and if the court is still in doubt the court should decide the case on a balance of convenience.

36. In deciding whether an Applicant has a prima facie case the court should consider whether the appeal has any prospects of succeeding. In the case of Bilha Mideva Buluku versus Everlyne Kanyere [2016] eKLR, Mwita J stated that:

“the court while trying to ascertain if an appeal is arguable or put differently whether the appeal raises serious questions for determination, the court does not have to go deeply into the appeal itself and should bear in mind that the appeal is yet to be heard and avoid comments that may prejudice the trial of the appeal itself. The court should only consider the grounds raised in the memorandum of appeal vis a vis the impugned decision and form its own opinion whether there is an arguable appeal to warrant the status quo maintained”.

37. In this case, the applicant annexed a draft memorandum of appeal to the affidavit of MITAH SHAHsworn on 14th December, 2016 and marked it as “MS-3”. I have perused the aforementioned draft memorandum of appeal and find that it does raise arguable issues before the appellate court and as such I find that the applicant has established a prima faciecase with a probability of success.  However, it should be noted that the Applicant has only filed in court the Notice of Appeal dated 8th December, 2016 and not the entire record of appeal.

38. The applicant herein is also required to show that if the order of injunction is not granted the intended appeal is likely to be rendered nugatory.  In the case ofCharter House Bank Limited vs. Central Bank of Kenya [2007] eKLR, the Court of Appeal held with regard to granting of injunctions pending appeal:

“The purpose of granting an injunction pending appeal is to preserve the status quo and to prevent the appeal, if successful, from being rendered nugatory”.

39. The Applicant herein contends that if the order of injunction is not granted the appeal will not only be rendered nugatory but also that the Applicant will suffer substantial loss and this will have an adverse effect on its cash flow and subsequently on its business and staff.  This court notes that the dispute between the Applicant and the respondent is pegged on a sum of Kshs. 26, 215, 578. 00 which by the Judgment of this court is owed to the Respondent by the Applicant. The court notes that the Applicant herein has not provided this court with any relevant evidence, for example, its balance sheet, to show that if it were to pay the Respondent herein its cash flow and business may be affected adversely. However, despite this, if the Applicant is to pay the aforementioned sum to the Respondent and the applicant succeeded in the intended appeal then the appeal will be rendered nugatory and the Applicant will have to claim a refund from the Respondent.

40. The court notes that the applicant herein had been earlier ordered by this Court to issue a Bank Guarantee in favor of the Respondent for the sum demanded (a copy of the Bank Guarantee issued is annexed to the affidavit of MITAH SHAHsworn on 14th December, 2016 and marked as “MS-4”), however, the said bank guarantee expired on 24th April, 2014.

41. While this court has wide powers under Sections 1B and 3A of the Civil Procedure Act to give such orders that may ensure the dispensation of justice, it is to be noted, and as correctly submitted by Mr. Ado, after a Judicial Review application the only recourse open to a party is to appeal.  There is no jurisdiction to grant injunction.  That is more so true considering that the Judicial Review case from which this matter emanates did not have the power to grant injunction.  Indeed in this matter the Applicant is not seeking a stay of any orders arising from the Judicial Review case.  The issue is whether this court can grant an order of injunction when such a prayer was not in the Judicial Review proceedings.  Mr. Khagram has referred to Article 23(3) and 159 of the Constitution and submitted that the application fits these articles.  However, I have looked at those articles.   Article 23(3) only applies to Constitutional Petitions and in circumstances of constitutional violations stated under Article 22.  The jurisdiction of the High Court relating to issuance of further orders after a judicial review process was considered in the case of Cortec Mining Kenya Limited v. Cabinet Secretary, Attorney General & 8 others [2015] eKLR, where the Court of Appeal held that:

“Perusal of the provisions of Appellate jurisdiction Act and the Law Reform Act shows that while the former statute governs all appeals to this Court, the latter statute focuses on civil actions and prerogative orders, to wit, orders of mandamus, certiorari and prohibition. These are the only orders in judicial review that the High Court is enjoined to grant. By virtue of Article 165 (6) of the Constitution, the High Court is vested with supervisory judicial power over the subordinate courts, and any person, body or authority exercising judicial or quasi-judicial function but not over a superior court. In conferring this constitutional mandate to the High Court, Parliament did not expand the amplitude of the reliefs under Section 8 of the Law Reform Act beyond the three orders and consequently the jurisdiction of the High Court in this regard remains confined to that set by section 7 of the Administration of Justice (Miscellaneous Provisions) Act, 1938 of the United Kingdom…”

42. However, Section 8 and 9 of the Law Reform Act does not stop grant of any other order from the Judicial Review court.  It only forbids proceedings like review.  It directs that after the proceedings have ended the only way is in appeal. This means that there is a right of appeal after Judicial Review proceedings.  It is also clear that even the Fair Administrative Act now gives the right to appeal.  The issue to address is this: What is the value of the right to appeal if the subject matter of appeal cannot be secured pending the intended appeal?  A right of appeal cannot be given and exercised in vacuum, and without a remedy at the end.  Every court, especially this court has residual and inherent powers to do justice.  In this case, if the subject matter of the intended appeal is lost, then there is no appeal, in which case the right to appeal which is provided at the end of Judicial Review proceedings is not really a right.  This is the reason that I hold that this court has residual powers to grant temporary conservatory order.  But because there is a court, the Court of Appeal, which is expressly given the jurisdiction on appeal, the order I will grant herein will be limited and only for the purpose of allowing the Applicant to make appropriate application for either injunction or stay in the Court of Appeal which has the jurisdiction to hear an appeal from the Judicial review proceedings.

43. To that end, I make the following orders:

a) THAT an Order of injunction be and is hereby issued for a period of sixty (60) days restraining the Respondent from collecting from the Applicant Kshs. 26, 215, 578. 00 on an account of the claim made by it for interest and penalties pending the filing of appropriate application by the Applicant in the Court of Appeal.

b) Costs of the application to follow the outcome of the intended appeal.

Dated, Signed and Delivered in Mombasa this 20th day of July,

2017.

E. K. O. OGOLA

JUDGE

In the presence of:

Mr. Mohamed holding brief Mr. Khagram for Applicant

Mr. Ochieng for Respondent

Mr. Kaunda Court Assistant