Republic v Kenya Revenue Authority Ex-Parte Corrugated Sheets Ltd [2017] KEHC 4211 (KLR) | Judicial Review | Esheria

Republic v Kenya Revenue Authority Ex-Parte Corrugated Sheets Ltd [2017] KEHC 4211 (KLR)

Full Case Text

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT MOMBASA

MISC. CIVIL APPLICATION NO. 85 OF 2012 (JR)

IN THE MATTER OF: ORDER 53 OF THE CIVIL PROCEDURERULES

AND

IN THE MATTER OF:  THE VALUE ADDED TAX (CAP 476, LAWSOF KENYA

AND

IN THE MATTER OF: AN APPLICATION BY CORRUGATEDSHEETS LIMITED TO APPLY FOR ORDERS OF JUDICIAL REVIEW AGAINST THE DECISION BY THE KENYA REVENUE AUTHORITY DEMANDING PAYMEMT OF ALLEGED ARREARS OF VAT TAX

BETWEEN

THE REPUBLIC………………..………………………………..APPLICANT

VERSUS

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

AND

CORRUGATED SHEETS LTD………..……..…….EX PARTE APPLICANT

RULING OF THE COURT

The Application

1. The application before the Court is a Notice of Motion dated 4th  November, 2016 filed under Section 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 injunction pending appeal from collecting from the Applicant Kshs. 50,500,743. 00 on account of the claim made by it for interest and penalties pending hearing and determination of the Applicant’s intended Appeal against the ruling delivered herein on 14th October 2016.

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

2. The application is premised on the grounds set out in the application and is supported by the affidavit of ZUHER KASSAMALI TAIBJEEsworn on 4th November 2016.

3. The Applicant alleges that on 14th October, 2016 this Court dismissed the Applicant’s Notice of Motion dated 17th October, 2012 and the applicant was aggrieved by the said Ruling and instructed its advocates to appeal the same, and that the intended appeal is meritorious and/or arguable and has a good chance of success.

4. The Applicant alleges that the Respondent has demanded and may proceed to enforce collection of the sum of Kshs. 50,500,743. 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 compelling the Applicant to review its business strategy and 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.

The Response

6. The application is opposed by the Respondent through a replying affidavit sworn by ASHA SALIM on 13th March, 2017 and grounds of opposition filed in court on 14th March, 2017.

7. The deponent avers that she is an officer of the Respondent serving in the Domestic Taxes Department where her duties include Debt Collection, follow up and review of tax disputes between the tax payers in general and the Respondent. The deponent alleges that on October 2012, the Applicant herein filed this suit challenging the decision of the Respondent (Commissioner of Domestic Taxes) demanding Kshs. 50, 500, 743. 00 in respect of VAT tax liability.

8. The deponent further alleges that after this suit was filed, it remained unprosecuted and the Court on its own motion listed the same for dismissal on 22nd July, 2015 and following a Notice to Show Cause, the matter was dismissed for want of prosecution.  The deponent claims that upon application by the Applicant herein, the matter was reinstated vide a Court Order dated 21st October, 2015 on condition that the Applicant furnishes a Bank Guarantee in an amount sufficient to cover the taxes in dispute.

9. The deponent alleges that the Applicant herein issued a Bank Guarantee of Kshs. 50, 500, 743. 00 but the Guarantee was returned by the Respondent vide a letter dated 8th March, 2016 as the Respondent was not agreeable to a portion of the Bank Guarantee that provided that the Guarantee would only become payable in the event that “THE SAID JUDICIAL PROCEEDINGS INCLUDING ANY PERMITTED APPEALS FROM THE DECISION OF THE HIGH COURT OR COURT OF APPEAL ARE DETERMINED IN YOUR FAVOUR WITH FINALITY”. The deponent further alleges that no bank guarantee in terms of the court order dated 21st October, 2015 has ever been issued in favor of the Respondent.

10. The deponent alleges that when the matter proceeded to hearing, the Judicial Review application was dismissed vide a Ruling dated 14th October 2016 with costs to the Respondent.

11. The deponent further avers that this Court lacks jurisdiction to grant the prayers/orders sought in the application and that there is no positive order issued by the Ruling dated 14th October, 2016 capable of being stayed.   The deponent further alleges that if this court grants the orders sought it would be re-litigating issues which were subject to the main Judicial Review application.

12. The deponent avers that the Applicant herein had not during the pendency of the Judicial Review application sought orders of injunction and the same cannot be available to them now after determination of the Judicial Review application.

13. The Respondent’s case is that the taxes have been outstanding since 2012 and the Applicant has enjoyed stay since then thus it is only fair, equitable and just that the Applicant pays the taxes assessed by the Respondent.   The Respondent claims that no bank guarantee currently exists in favor of the Respondent as the Applicant has refused to comply with the orders issued by this court on 21st October, 2015 and that if the Applicant succeeds at the Court of Appeal having paid the taxes, the Respondent having an elaborate tax refund mechanism premised on the law will refund the amount paid.

Hearing

14. The application was canvassed by way of written submissions which were highlighted in court.   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.

15. 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.”

16. 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.

17. Mr. Khagram submitted that the amount claimed Kshs. 50, 500, 743. 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.

18. 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.

19. 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.

20. 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.”

21. 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.

22. 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 November, 2016 which counsel submitted show that the Applicant is not seeking stay of this Honorable Court’s order of 14th October, 2016 but is seeking an injunction (a stay) of the decision of the Commissioner/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.

23. 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.

24. 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 14th October, 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.”

25. 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.”

26. 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.

27. 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.

28. 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.

29. 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

30. 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. 50, 500, 743. 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 14th October, 2016.

31. The Respondent submitted that this court does not have the jurisdiction to entertain this application and that 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 14th October, 2016 but is praying that this court issue an injunction against the Respondent to restrain it from collecting a certain sum 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 14th October, 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.

32. 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 Giela versus Cassman Brown Ltd [1973] EA 358. ”

33. The principles in the Giela 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.

34. 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 vs. 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”.

35. In this case, the Applicant annexed a draft memorandum of appeal to the affidavit of ZUHER HASSANALI TAIBJEE sworn on 4th November, 2016 and marked it as “ZKT 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 18th October, 2016 and not the entire record of appeal.

36. 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”.

37. 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. 50, 500, 743. 00 which by the Judgment of this court is owed to the Respondent which the Respondent is owed to it 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.

38. 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 ZUHER KASSAMALI TAIBJEE sworn on 4th November, 2016 and marked as “ZKT 4”), however, the Respondent returned the guarantee as it was not agreeable to a condition stipulated on the guarantee.

39. 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…”

40. 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.

41. 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. 50, 500, 743. 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 Khagram for ex parte Applicant

Mr. Ochieng holding brief Nyagah for Respondent

Mr. Kaunda Court Assistant