[2023] KEHC 19302 (KLR)

Ankam Auto Parts Limited v Mini Suppliers Limited; Commissioner of Domestic Taxes & another (Interested Parties) (Constitutional Petition E001 of 2023) [2023] KEHC 19302 (KLR) (Commercial and Tax) (30 June 2023) (Ruling)

Neutral citation: [2023] KEHC 19302 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Constitutional Petition E001 of 2023

A Mabeya, J

June 30, 2023

Between

Ankam Auto Parts Limited

Petitioner

and

Mini Suppliers Limited

Respondent

and

Commissioner of Domestic Taxes

Interested Party

Directorate of Criminal Investigations

Interested Party

Ruling

1. Before Court is an application dated January 12, 2023. It was brought under sections 1A, 1B & 3A of the Civil Procedure Act, Order 40 Rule 1 & Order 51 Rule 1 of the Civil Procedure Rules, and Rule 24(1) of the Constitution.

2. The applicant sought orders to prohibit the respondent and its representatives from using the name of the petitioner in the conduct of its business. It also sought for orders of mandamus to compel the respondent to declare to this Court the source of the fictitious VAT invoices and for the Court together with the 2nd interested party to conduct investigations into the business affairs of the respondent.

3. The grounds for the application were set out in the body of the Motion and in the supporting affidavit of Anne Kamau sworn on January 11, 2023. It was contended that the respondent had been filing fictitious VAT purchaser invoices/inputs using the petitioners name and PIN details without the petitioner’s consent from the year 2019 to 2022 to the tune of Kshs 5,605,732. 76.

4. That consequently, the 1st interested party vide letters dated August 24, 2022, September 15, 2022 and September 20, 2022 summoned the petitioner to carry out an audit to establish whether there was collusion with the respondent in tax evasion fraud schemes. That effort to reach the respondent to reverse the fictitious VAT transactions from its itax portal had been futile and the fictitious VAT invoices threatened the petitioner’s right to earn income due to the closure of its business and suspension of its PIN by the 1st interested party for VAT variances and non-declaration for the years 2019 and 2022.

5. That the petitioner was also at risk of prosecution by the 1st interested party if the audit revealed any collusion. It was thus contended that it was just and fair that the orders sought be issued.

6. The respondent opposed the application vide the replying affidavit of Savan Kantilal Haria sworn on February 4, 2023. It was contended that the respondent was engaged in supplying used oil. That it traded with agents of the petitioner by making various purchases in 2019 and 2022 from one Mr Jacob Onyango on his team. That these were believed to be the petitioner’s agents. It was contended that payments for the used oil supplied were made on delivery and were done directly to Jacob upon presentation of the invoices.

7. That the invoices were in the petitioner’s name. That in 2022, Jacob and his teams stopped making supplies and the respondent discovered that the said Jacob had died. That in September 2022, vide a letter dated September 20, 2022, the petitioner informed the respondent that the 1st interested party had issued it with a letter dated August 24, 2022. The petitioner claimed that it had never made any supplies to the respondent.

8. That in a subsequent meeting between the representative of the parties, the petitioner stated that Jacob and his team were not its agents. The respondent contended that claiming the input tax in the petitioner’s name was a bonafide mistake as it believed that it was trading with the petitioner through its agents. That there was no bad faith or fraud on its part in claiming the input tax incurred against the purchases made from the aforesaid Jacob and the invoices issued. That the invoices were in the name of the petitioner and were paid for.

9. It was further contended that the respondent was desirous of amending its VAT returns to exclude the claimed invoices in the petitioner’s name but the same was impossible as the 1st interested party had deactivated its pin. That upon reactivation of the pin, the respondent would amend the VAT returns.

10. That all the invoices issued in the petitioner’s name were available for perusal and the respondent had not engaged in tax evasion schemes or fraud gimmicks in filing its input tax as it genuinely believed that the goods had been supplied by the petitioner.

11. The petitioner filed a further affidavit sworn by Anne Kamau on February 14, 2023. It contended that the petitioner deals exclusively in motor vehicle spare parts and has never dealt with used oil as alleged. That the use of a deceased person to lay blame was an attempt to divert the Court’s attention from the real issue, and that the alleged transactions with Jacob which were on cash-on-delivery basis were enough to raise alarm over the respondent’s conduct.

12. That the attached invoices were strange to the petitioner as they did not reflect the petitioner’s invoicing system thus confirming the allegation of fraud. That the respondent had admitted the petitioner’s claims and had offered to reverse the fictitious VAT invoices and owing to such admission, the respondent ought to be directed to deposit Kshs 5,605,732. 76 claimed against the fictitious invoices.

13. That the respondent’s PIN was not deactivated at the time of filing the suit and the respondent had ample time to sort out the issue if it was genuine.

14. The interested party also opposed the application vide the replying affidavit of Mohamed Abdalla Ali sworn on February 13, 2023. It was averred that the respondent claimed purchases from the petitioner and 5 other entities who together with the petitioner did not declare any sales or invoices to the respondent in their VAT returns in July 2022. That despite enquiry into the discrepancy, the respondent was unresponsive and the 1st interested party issued an additional assessment of Kshs 7,600,896. 55 to the respondent by disallowing all the suspicious purchases claimed in its VAT returns for July 2022 and it also suspended its PIN.

15. That vide a letter dated August 24, 2022, the 1st interested party wrote to the petitioner about the invoices claimed by the respondent but not declared by the petitioner. The petitioner refuted ever trading with the respondent and provided a reconciliation of its sales listing vide a letter dated September 5, 2022.

16. That there was no threat by the 1st interested party to close the petitioner’s business or suspend its KRA PIN nor prosecute the petitioner thus the petitioner’s apprehension was unreal. That the petitioner ought to have cooperated with the 1st interested party to conduct an inquiry on the VAT inputs as opposed to coming to Court.

17. That the 1st interested party had an Investigations and Enforcements Department which investigates criminal violations of revenue laws and financial crimes. That the petitioner ought to have lodged a complaint with the Commissioner of that department instead of coming to Court and the prayer for this court to conduct investigation was an abuse of court process.

18. The application was canvassed by way of written submissions. The submissions of the petitioner were dated February 14, 2023 whereas those of the respondent and interested party were dated February 4, 2023 and February 22, 2023, respectively.

19. The main issue for determination is whether orders for prohibition and mandamus ought to issue against the respondent. In the Republic v Principal Kadhi, Mombasa Ex-parties Alibhai Adamali Dar & 2 others; Murtaza Turabali Patel (Interested Party) [2022] eKLR, the court held that: -'The legal efficacy and scope of the statutory order of Mandamus, Prohibition and Certiorari are remedies granted by High Court to persons inferred by the exercise of administrative of judicial powers. These prerogative orders are only available against public bodies. Their origins lie in the expansion of common law in England and the jurisdiction of the Court of Kings Bench to acquire Superintendence over the observance of law by officials. These orders are predicated upon the fact that without law, society cannot function with fundamental values such as social order, social justice and personal freedom. Today public authorities determine an overwhelming extent how much of these values are enjoyed. Their decision affect vast numbers of people collectively and individually 'Ipso Facto' unlawfully decision, must be available to Judicial Scrutiny hence judicial Review. The social need for how and the protection of legality is violated when a public official exceeds his/her authority or does not use his/her power in the prescribed manner.'

20. The court went further to describe the order for prohibition and mandamus and stated thus: -'The Order of 'Prohibition' issues where there are assumption of unlawful jurisdiction or excess of jurisdiction. It’s an order from the High Court directed to an inferior tribunal or body as in this case the Kadhi’s Court. Its functions is to prohibit and/or forbids encroachment into jurisdiction and further to prevent the implementation of orders issued when there is lack of jurisdiction. The order of 'Mandamus' is derived from the Latin word 'Mandare' meaning to command. It is issued in cases where there is a duty of a public or a quasi-public nature or a duty imposed by statute, it compels the fulfilment of a duty where there is a lethargy on the part of a body or officer concerned.

21. It thus follows that the orders sought herein are remedies which are available in judicial review against public bodies or administrative bodies or public officers. These prerogative orders are only available against public bodies or public officials.

22. In Kenya National Examination Council -vs- Republic Exparte Geoffrey Gathenji & 9 Others, Nairobi Civil Appeal No 266 of 1996, the Court held that: -'That now bring us to the question we started with, namely the efficacy and scope of mandamus, prohibition and certiorari. These remedies are only available against public bodies such as the council in this case. What does an Order of Prohibition do and when will it issue? It is an order from the High Court directed to an inferior tribunal or body which forbids that tribunal or body to continue proceedings therein in excess of its jurisdiction or in contravention of the laws of the land. It lies, not only for excess of jurisdiction or absence of it but also for a departure from the rules of natural justice. It does not, however, lie to correct the course, practice or procedure of an inferior tribunal, or a wrong decision on the merits of the proceedings – See Halsbury’s Law of England, 4th Edition vol 1 at Pg.37 paragraph 128. '

23. In the present case, the petitioner seeks prohibitory and mandamus orders against the respondent which is a legal person and not a public body. These orders cannot therefore issue and the application is fatally defective from the onset.

24. Though it was established that the respondent had unlawfully filed fraudulent invoices allegedly belonging to the petitioner, the orders sought against it cannot issue. The more appropriate orders would have both prohibitory and mandatory orders.

25. Further, the 1st interested party pleaded that there is no threat of prosecution as against the petitioner as the real suspect of revenue fraud is the respondent. It was also established that the 1st interested party has a system or procedure for the filing of complaints which are similar to the instant one, and that it had an investigations department which was well mandated to investigate the petitioner’s claims.

26. The other issue is the failure by the petitioner to exhaust the internal mechanisms of the 1st interested party before coming to court. The Doctrine of Exhaustion is defined in Blacks Law Dictionary 10thEdition as follows: -'Exhaustion of remedies. The doctrine that, if an administrative remedy is provided by statute, a claimant must seek relief first from the administrative body before judicial relief is available. The Doctrine’s purpose is to maintain comity between the courts and administrative agencies and to ensure that courts will not be burdened by cases in which juridical relief is unnecessary.'

27. The doctrine was aptly captured by the Court of Appeal in Republic v National Environment Management Authority Ex parte Sound Equipment Ltd, [2011] eKLR the Court observed: -'Where there was an alternative remedy and especially where Parliament had provided a statutory appeal procedure, it is only in exceptional circumstances that an order for judicial review would be granted and that in determining whether an exception should be made and judicial review granted, it is necessary for the court to look carefully at the suitability of the statutory appeal in the context of the particular case and ask itself what, in the context of the statutory powers, was the real issue to be determined and whether the statutory appeal procedure was suitable to determine it.'

28. The 1st interested party is a government body which is maintained by the taxes paid by Kenyans. Failing to fully take advantage of the departments and internal mechanisms therein to lodge complaints and resolve disputes is a waste of public resources.

29. It was not clear whether the petitioner’s PIN had been suspended by the 1st interested party neither was there any evidence supporting such allegation. In any case, there was no particular order that was sought against the 1st interested party to justify this Court’s intervention. The 1st interested party pleaded that there was no threat against the petitioner to close its business, suspend its PIN or prosecution.

30. Let the petitioner lodge a formal complaint with the 1st interested party as against the respondent to allow formal investigations into the matter. The 1st interested party to consider the respondent’s admittance to having filed duped invoices under the name of the petitioner and facilitate/enable the process of recalling such invoices from the respondent’s I-tax portal.

31. Accordingly, the application is found to be unmerited and is hereby dismissed. Since the petitioner is a victim of an injustice, there shall be no orders as to costs.

It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 30TH DAY OF JUNE, 2023. A. MABEYA, FCIArbJUDGE