[2024] KETAT 1310 (KLR)

Ernie Campbell & Co. (K) Limited v Commissioner of Domestic Taxes (Tax Appeal E182 of 2020) [2024] KETAT 1310 (KLR) (12 August 2024) (Ruling)

Neutral citation: [2024] KETAT 1310 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E182 of 2020

CA Muga, Chair, BK Terer, D.K Ngala, GA Kashindi & SS Ololchike, Members

August 12, 2024

Between

Ernie Campbell & Co. (K) Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Ruling

1. The Appellant by way of a Notice of Motion dated 3rd March, 2022 and filed on 16th March, 2022 sought the following Orders:a.Notice to show cause do issue to Victor Mino and Risper Simiyu the Chief Manager- Debt Enforcement and Commissioner of Domestic Taxes respectively to appear before this Tribunal to show cause why they should not be punished for disobeying this Tribunal’s Orders issued on 30th April, 2021 and 30th July, 2021. b.That Chief Manager-Debt Enforcement and Commissioner of Domestic Taxes, be ordered to pay fines stipulated under the law and/or be committed to civil jail for such period and time as provided under the law.c.That the costs of this Application be borne by the Respondent.

2. The Application which was supported by a Replying Affidavit and Further Replying Affidavit as sworn by a director of the Appellant, Mr. Gopal Vagjiani on the 3rd of March, 2022 and 4th May, 2023 respectively was premised on the following grounds:a.That on 25th March, 2021, Mr. Victor Mino-the Chief Manager-Debt Enforcement procedurally issued agency notices to the Appellant’s banker demanding remittance of Kshs. 1,585,916. 00 ;amounts whose Appeal was still pending before the Tribunal and that this was followed by a letter dated 30th March, 2021 wherein compliance of the said agency notices were demanded.b.Vide an application dated 26th April, 2021 (hereinafter “the first application”), filed under a certificate of urgency, the Appellant successfully moved this Tribunal to issue orders lifting the said agency notice and order the Respondent to refund the said amounts.c.A copy of the said Order was served upon the Respondent on 4th May, 2021 and despite proper service of the said Order, the Respondent had until the time of filing the first application failed to refund the amount as directed.d.That this forced the Appellant to file and serve contempt proceedings dated 7th May, 2021 against the Respondent’s chief manager-Debt Enforcement Services, Mr. Victor Mino.e.That the said application for contempt was overtaken by events upon deliverance by the Tribunal of its Judgement in the main Appeal. The Tribunal held that the Appeal was merited and inter alia ordered as follows:“The amount of Kshs. 1,585,916. 00 irregularly recovered following the issuance of the agency notices dated 25th March, 2021 to be refundable to the Appellant.”f.That despite being furnished with several demand letters from the Appellant, the Respondent failed, neglected and /or refused to comply with not only the Tribunal’s Orders that had been issued earlier on 30th April, 2021 but also the Judgement.g.That it was apparent from the Respondent’s conduct and stance that it had never been its intention to comply with the Tribunal’s Orders.h.As a consequence, thereof, the authority and dignity of the Tribunal had been and continues to be exposed to ridicule and disrepute by the Respondent’s disobedience of its Orders.i.That it is fair that Victor Mino, the Chief Manager-Debt Enforcement and Risper Simiyu -The Commissioner of the Domestic Taxes department be ordered to pay fines and/or committed to civil jail for such period of time as the Tribunal may deem fit.j.That it is in the interest of justice and for the purposes of upholding the dignity and honour of the Tribunal that the Orders sought herein be granted.k.That the Appellant had no other means of enforcing the orders other than instituting contempt proceedings.l.That when the matter came up for mention on 15th July, 2022, the Respondent informed the Tribunal that they were in the process of finalising the refund approval and even went ahead and sent an approval order dated 19th September, 2022. m.That despite the intimation to the Appellant and to the Tribunal, the refund was not effected and the Appellant’s contempt application was heard and the Ruling was to be delivered on notice.n.That the Respondent continues to utterly disregard the Orders issued by the Tribunal and in their letter dated 11th November, 2022 it stated that the refund claim was approved as per an agency notice dated 12th August, 2022 which was issued in a clandestine matter.o.That the said letter dated 12th August, 2022 confirmed that the Respondent never intended to refund the amounts making its officers guilty of perjury and also that the Respondent unlawfully set off the amount against a debt which was now being claimed, notwithstanding that the Appellant was never served with the said agency notice.p.That it was in the interest of both parties that the Respondent immediately refunds the legally owed amounts so as to bring this dispute to a long awaited close.

3. The Respondent opposed the Application through a Replying Affidavit dated and filed on 31st March, 2022 sworn by its officer, Mr. Hezron Ouma Ligare as well as his Further Replying Affidavit dated and filed on 4th May, 2024 citing the following grounds for opposing the Application:a.That the Application was brought prematurely as the Appellant had not complied with the legal regime that governs applications for tax refunds.b.That on 30th April 2021, the Tribunal made an Order that the amount paid under the Agency Notice dated 25th March 2021 be refunded to the Appellant.c.That the consequence of the orders ought to have behooved the Appellant to make the application for refund in accordance with the existing tax statutes.d.That section 47 of the Tax Procedures Act, CAP 469B of Kenya’s Laws (hereinafter “TPA”) generally provides for the procedure of refund of overpaid tax.e.That pursuant to the said provision, the Appellant to ought to have made the refund application in the approved form and the Respondent thereafter was obligated to notify the Appellant of the decision in relation to the application within ninety days of receiving the application for refund.f.That Section 47(4) of the TPA provides as follows:“That where, in relation to an application for a refund made under that section or made under any other tax Law, the Respondent is satisfied that the Appellant licant has overpaid a tax, theRespondent shall apply the overpayment in the following order in payment of any other tax owing by the taxpayer under the tax law:a.in payment of a tax owing by the taxpayer under any other tax law;b.any remainder shall be refunded to the taxpayer.c.The Respondent shall repay the overpaid tax within a period of two yearsd.from the date of application.”g.That vide Section 40 of the Finance Act No.8 of 2021, Section 47 of the TPA was amended to include the following provisions:“(4A)Where the Commissioner notifies a taxpayer that an application for a refund has been ascertained in accordance with subsection (3), and applies the refund to the payment of an outstanding tax in accordancee with subsection (4) (a) or (b), interest or penalties shall not accrue on the amount applied to the payment of the outstanding tax from the date of the notification.(4B)For the avoidance of doubt, where the Commissioner has applied a refund to the payment of an outstanding tax under subsection (4A), if there is any outstanding tax after such application, the outstanding tax shall accrue interest and penalties in accordance with this Act.(4C)Without prejudice to the provisions of this section, once the Commissioner notifies of a decision under subsection (3) and the Commissioner is satisfied that there is an overpayment of tax, the overpaid tax shall be deemed to have been offset against the taxpayer's future tax liabilities [emphasis added].”h.That Section 30 of the Value Added Tax, CAP 476 of the Laws of Kenya (hereinafter “VAT Act”) to which these proceedings specifically apply, provides as follows:“30. Refund of tax paid in errorWhere, in respect of any supply, tax has been paid in error, the Commissioner shall, except as otherwise provided by the regulations, refund such tax: Provided that no refund shall be made under this section unless a claim in respect thereof is lodged within twelve months from the date the tax became due and payable under section.”i.That in light of the above exposition, it was abundantly clear that the Respondent had all intentions to comply with the orders of this Tribunal but the Appellant was yet to set the ball of refund in motion by making the requisite application in the prescribed form as decreed by statute.j.That no evidence of application for refund had been filed before this Tribunal and therefore, the Respondent could not be said to have failed, neglected and/or refused to comply with the Tribunal's Orders.k.That without prejudice to the foregoing, the Respondent had no record of the Appellant making any refund application in respect of the subject and the same are made through the i-Tax system and such overpayment or erroneous recovery as the case may be could have been applied to tax paid in error.l.That it was not true that the authority and dignity of the Tribunal had been exposed to ridicule and disrepute by the Respondent.m.That it would be totally premature, unfair and unjust to cite Mr. Victor Mino, the Chief Manager-Debt Enforcement and Ms. Risper Simiyu, the Commissioner Domestic Taxes Department for contempt for having done no wrong nor committed any infraction of the Law.n.That courts have held severally that where statute lays down a procedure for dispute resolution, that procedure ought to be followed to exhaustion and that the Appellant was yet to initiate the procedure for refund as laid out under the TPA, The Finance Act and the VAT Act.o.The Respondent would, upon refund application by the Appellant in the prescribed form, promptly address the same within the existing legal framework.p.In its Further Replying Affidavit, the Respondent swore that on 12th August, 2022, the Appellant made an application for a refund in the prescribed form.q.That on 17th August, 2022 the claimed refund was processed for approval and that as per the debt status report from the Tax Service Office dated 12th August, 2022 the Appellant was found to have a tax liability amounting to Kshs. 53,235,896. 79. r.That consequently the amount of Kshs. 1,585,916. 00 was set off as against the outstanding debt in accordance with the provisions of section 47 of the TPA.s.That in doing so, the Respondent acted within the precincts of statute and there was no other procedure for refunds except as laid out in section 47 of the TPA and section 30 of the VAT Act. That the procedure was further fortified by the provisions of section 40 of the Finance Act No. 8 of 2021. t.That it would be a blatant breach of the existing tax laws if any other procedure was followed.

Analysis and Findings 4. Parties were to canvass the Application by way of written submissions. Both parties complied. The Appellant’s submissions dated 26th June, 2024 and filed on 27th June, 2024 were adopted by the Tribunal. The Respondent was granted leave to file its submissions dated 1st July, 2024 out of time on 2nd July, 2024; it did so and the same were adopted by the Tribunal.

5. The purport of the Orders being sought by the Appellant were first, the summoning of officers of the Respondent and secondly, Orders that the said officers of the Respondent to face the consequences of contempt for non-compliance with the Orders of the Tribunal issued on 30th April, 2021 as well as the Orders issued following the Judgement delivered on 30th July, 2021. The Respondent opposed the Appellant’s Application.

6. Section 21 of the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”) provides as follows regarding what the Tribunal would construe as Contempt:“21. Contempt of TribunalAny person who—(a)insults a member or an employee of the Tribunal in relation to the exercise of powers and functions under this Act; or(b)interrupts the proceedings of the Tribunal; or(c)creates a disturbance, or takes part in creating a disturbance in or near a place where the Tribunal is sitting; or(d)does any other act or thing that would, if the Tribunal were a court of law, constitute a contempt of that court, [emphasis ours] commits an offence and shall be liable on conviction to a fine not exceeding five hundred thousand shillings or to imprisonment for a term not exceeding six months, or to both.”

7. The Tribunal also notes the following provisions of section 30 of the Contempt of Court Act, Chapter 8F of the Laws of Kenya (hereinafter “CCA”) which provides as follows:“30. Punishment against management of State organ, government department, ministry or corporation(1)Where a State organ, government department, ministry or corporation is guilty of contempt of court in respect of any undertaking given to a court by the State organ, government department, ministry or corporation, the court shall serve a notice of not less than thirty days on the accounting officer, requiring the accounting officer to show cause why contempt of court proceedings should not be commenced against the accounting officer.(2)No contempt of court proceedings shall be commenced against the accounting officer of a State organ, government department, ministry or corporation, unless the court has issued a notice of not less than thirty days to the accounting officer to show cause why contempt of court proceedings should not be commenced against the accounting officer.(3)A notice issued under subsection (1) shall be served on the accounting officer and the Attorney-General.(4)If the accounting officer does not respond to the notice to show cause issued under subsection (1) within thirty days of the receipt of the notice, the court shall proceed and commence contempt of court proceedings against the accounting officer.(5)Where the contempt of court is committed by a State organ, government department, ministry or corporation, and it is proved to the satisfaction of the court that the contempt has been committed with the consent or connivance of, or is attributable to any neglect on the part of any accounting officer, such accounting officer shall be deemed to be guilty of the contempt and may with the leave of the court be liable to a fine not exceeding two hundred thousand shillings.(6)No State officer or public officer shall be convicted of contempt of court for the execution of his duties in good faith.”

8. The view of the Tribunal is that its Orders are neither mere recommendations nor suggestions. Orders of the Tribunal are commands and the same must be complied with. This view of the Tribunal is reinforced by J Mativo as he then was in the cited case of Samuel M. N. Mweru and Others V National Land Commission & 2 Others [Misc Civil Application No. 443 2017- High Court- Judicial review division] eklr, wherein the following was stated by the Judge at para 32:“I now address the question whether the applicants have established any basis for the orders sought to be granted. If courts are to perform their duties and functions effectively and remain true to the spirit which they are sacredly entrusted with, the dignity and authority of the courts has to be respected and protected at all costs. Otherwise the very cornerstone of our constitutional scheme [emphasis ours] will give way and with it will disappear the Rule of Law and a civilized life in the society. It is for this purpose that courts are entrusted with the extraordinary power of punishing those who indulge in acts whether inside or outside courts which tend to undermine their authority and bring them in disrepute and disrespect by scandalizing them and obstructing them from discharging their duties. When the court exercises this power, it does so to uphold the majesty of the law and of the administration of justice. The foundation of judiciary is the trust and confidence of the people in its ability to deliver fearless and impartial justice. When the foundation itself is shaken by acts which tend to create disaffection and disrespect for the authority of the court by creating distrust its working the edifice of the judicial system gets eroded.”

9. The Tribunal further notes the following sentiments of Mativo J as he then was in Samuel M. N. Mweru and Others V National Land Commission & 2 Others [Misc Civil Application No. 443 2017- High Court- Judicial review division] eklr, at paragraph 33:“It is essential for the maintenance of the Rule of Law and order that the authority and the dignity of courts is upheld at all times. The court will not condone deliberate disobedience of its orders and will not shy away from its responsibility to deal firmly with proved contemnors. It is the plain and unqualified obligation of every person against, or in respect of whom, an order is made by a court of competent jurisdiction, to obey it unless and until that order is discharged. The uncompromising nature of this obligation is shown by the fact that it extends even to cases where the person affected by an order believes it to be irregular or void. It is the duty of the court not to condone deliberate disobedience of its orders nor waiver from its responsibility to deal decisively and firmly with contemnors.”

10. The Tribunal does not condone disobedience of its Orders. The Tribunal stands guided by the holding in the case Samuel M. N. Mweru and Others V National Land Commission & 2 Others [Misc Civil Application No. 443 2017- High Court- Judicial review division] eklr and it does not and will not shy away from dealing with contemnors.

11. The Tribunal, pursuant to section 30 of the CCA is required to make a finding on whether there has been contempt by the Respondent before granting the first prayer of the Appellant. In other words, if the Tribunal were to make a finding that there is contempt of its proceedings by the Respondent’s officers, it would first issue a 30-day notice to the Respondent’s officers namely the Chief Manager of debt enforcement and the Commissioner of Domestic Taxes to show cause why the contempt proceedings should not proceed against them.

12. It is therefore of utmost importance that the Tribunal first establishes if the Respondent’s officers are guilty of such contempt. In Samuel M. N. Mweru and Others V National Land Commission & 2 Others [Misc Civil Application No. 443 2017- High Court- Judicial review division] [supra] it was held that it is a crime to unlawfully and intentionally disobey a court order.

13. The Tribunal also cites the Supreme Court case of The Republic Vs. Ahmad Abolfathi Mohammed and Sayeed Mansoor Mousavi [Criminal Application No. 2 of 2018] where the standard of proof in contempt proceedings was reiterated at paragraph 28 as having been established by the following holding in the case of Mutitika v. Baharini Farm Limited [1985] KLR 229, 234 the Court of Appeal]:“In our view, the standard of proof in contempt proceedings must be higher than proof on the balance of probabilities, almost but not exactly, beyond reasonable doubt...The standard of proof beyond reasonable doubt ought to be left where it belongs, to wit, in criminal cases. It is not safe to extend it to an offence which can be said to be quasi-criminal in nature.”

14. The Tribunal using the principles of law established in Samuel M. N. Mweru & Others Vs National Land Commission & 2 Others [2020] eklr [supra] will proceed to test whether Respondent’s officers acted in contempt and did not follow its Orders. The following are the principles of law established to test whether there is contempt:“(a)The terms of the order were clear and unambiguous and were binding on the defendant;(b)The defendant had knowledge of or proper notice of the terms of the order;(c)The defendant has acted in breach of the terms of the order; and(d)The defendant’s conduct was deliberate;”

15. The Tribunal made Orders on 30th April 2021 and also on 30th July, 2021. The Orders made on 30th April, 2021 were as follows:“(a)That issuance of the agency notice dated 25th March, 2021 undermines the integrity of the process before the Tribunal and an order is hereby accordingly issued for the immediate lifting of the agency notice and, in the event, the same has been enforced the amount paid under the agency notice is to be refunded [emphasis ours](b)That the Respondent to immediately issue the Appellant with a Tax Compliance Certificate……..”

16. The Orders made by the Tribunal on 30th July, 2021 were as follows:“a)The Appeal is hereby allowed.b)The tax demand and objection decision dated 14th April,2020 for the sum of Kshs. 1,585,916. 00 is hereby set aside.c)The amount of Kshs. 1,585,916. 00 irregularly recovered following the issuance of the agency notice dated 25th March, 2021 to be refundable to the Appellant. [emphasis ours]d)The Appellant is hereby awarded costs of the Appeal.”

17. The Tribunal notes that the Application stems from the Order of the Tribunal to the Respondent to refund to the Appellant the sum of Kshs. 1,585,916. 00 which was irregularly recovered following the issuance of the agency notice dated 25th March, 2021. From a review of the Application and documents enclosed with it, the Tribunal finds that this is the only Order that the Respondent is accused of not complying with.

18. In applying the principles of law outlined in paragraph 14 hereto, The Tribunal finds that since the Respondent did not raise, make any assertions or provide proof that the terms of the Orders were unclear or ambiguous, the same are inferred by the Tribunal to have been clear and unambiguous and were therefore binding on the Respondent. Equally, the Tribunal finds that the Respondent had knowledge of or proper notice of the terms of the Orders because it did not controvert this principle by its pleadings or the evidence that it adduced.

19. Accordingly, the finding of the Tribunal in this regard is that the terms of the Orders were clear and unambiguous and that the Respondent was bound by them. The second finding is that the Respondent had knowledge of or proper notice of the terms of the Order.

20. The Third principle of law pursuant to the case Samuel M. N. Mweru and Others V National Land Commission & 2 Others [Misc Civil Application No. 443 2017- High Court- Judicial review division] eklr, that the Tribunal will test, is whether, the Order being clear and unambiguous to the Respondent; and the Respondent, having had proper knowledge of or proper notice of the terms of the Order, acted in breach of the terms of the Order.The Respondent was Ordered, by the Tribunal to refund the sum of Kshs. 1,585,916. 00 which had been irregularly recovered following the issuance of an agency notice on 25th March, 2021.

21. The Tribunal, at this stage, will proceed to make a finding on whether the Respondent’s action or lack of it would constitute a breach of the terms of its Orders. The Tribunal established that a refund was due to the Appellant on 30th April, 2021 and this was reinforced by the Tribunal’s Judgement and subsequent Orders on 30th July, 2021. The onus was on the Appellant to immediately pursue and make a refund application according to the procedure set out in section 47 of the TPA. The demand as set out in its letter dated 16th August, 2021 was not an application for a refund in the approved format.

22. The Tribunal notes the following provisions of Section 47 of the TPA [as at 2021] on how to ensure that overpaid taxes are refunded:“Refund of overpaid tax(1)When a taxpayer has overpaid a tax under a tax law the taxpayer may apply to the Commissioner, in the approved form, for a refund of the [emphasis ours] overpaid tax within five years of the date on which the tax was paid.Provided that for value added tax the period of refund shall be as provided for under the Value Added Tax Act, 2013 (No. 35 of 2013).(2)The Commissioner may, for purposes of ascertaining the validity of the refund claimed, subject the claim to an audit.(3)The Commissioner shall notify in writing an applicant under subsection (1) of the decision in relation to the application within ninety days of receiving the application for a refund.(4)Where, in relation to an application for a refund made under this section or made under any other tax law, the Commissioner is satisfied that a taxpayer has overpaid a tax, the Commissioner shall apply the overpayment in the following order—(a)in payment of any other tax owing by the taxpayer under the tax law;(b)in payment of a tax owing by the taxpayer under any other tax law; and(c)any remainder shall be refunded to the taxpayer.(4A)Where the Commissioner notifies a taxpayer that an application for a refund has been ascertained in accordance with subsection (3), and applies the refund to the payment of an outstanding tax in accordance with subsection (4)(a) or (b), interest or penalties shall not accrue on the amount applied to the payment of the outstanding tax from the date of the notification.(4B)For the avoidance of doubt, where the Commissioner has applied a refund to the payment of an outstanding tax under subsection (4A), if there is any outstanding tax after such application, the outstanding tax shall accrue interest and penalties in accordance with this Act.(4C)Without prejudice to the provisions of this section, once the Commissioner notifies of a decision under subsection (3) and the Commissioner is satisfied that there is an overpayment of tax, the overpaid tax shall be deemed to have been offset against the taxpayer’s future tax liabilities.(5)The Commissioner shall repay the overpaid tax within a period of two years from the date of application, failure to which the amount due shall attract an interest of 1% per month or part thereof of such unpaid amount after the period of two years.”

23. The Tribunal having sighted and reviewed the letter of the Appellant dated 16th August, 2021 notes that it was not in the approved format for applying for a refund. Section 47 of the TPA as outlined above, lays down the procedure to be followed for applying and processing of a refund of overpaid tax. The Appellant did not adduce evidence to prove that it made an application for the refund in the required format.

24. The Tribunal in making a finding has to consider whether the Respondent acted in breach of the terms of its Orders. In the instant case, there was no refund application in the set format and therefore there was no basis for action by the Respondent to comply with the Orders of the Tribunal. The Tribunal’s view is that on the face of it, it would appear that the Respondent acted in breach of the terms of its Orders. However, from the preceding paragraphs it is clear that the actions of the Respondent were neither deliberate nor wilful because the Respondent could only act on the Tribunal’s Orders once an application for refund in the required format was made by the Appellant as stipulated in Section 47 of the TPA.

25. The finding of the Tribunal is that the officers of the Respondent were not contemnors and accordingly the Tribunal sees no reason to grant the prayer of the Appellant by issuing a Notice to Show Cause pursuant to section 30 of the CCA.

Disposition 31. Based on the foregoing analysis the Tribunal finds that the Application for Notice to the Respondent to Show Cause lacks merit and proceeds to make the following Orders:a.The Application is hereby struck out.b.No orders as to costs.

34. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 12TH DAY OF AUGUST, 2024. …………………………………CHRISTINE A. MUGA - CHAIRPERSON…………………………………BONIFACE K. TERER - MEMBER…………………………………DELILAH K. NGALA - MEMBER…………………………………GEORGE KASHINDI - MEMBER…………………………………OLOLCHIKE S. SPENCER - MEMBER