[2018] KEHC 8701 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT NAIROBI

CONSTITUTIONAL AND HUMAN RIGHTS DIVISION

PETITION NO 155 OF 2012

Consolidated with Petition no 239 of 2012

GRAIN BULK HANDLERS LTD.........................PETITIONER

VERSUS

KENYA REVENUE AUTHORITY..............1ST RESPONDENT

COMMISSIONER OF CUSTOMS..........2ND RESPONDENT

COMMISSIONER OF INVESTIGATIONS&

ENFORCEMENT........................................3RD RESPONDENT

JUDGMENT

1. These are two consolidated petitions Nos. 155 and 239 both of 2012. They were filed by the same petitioner GRAIN BULK HANDLERS LTDagainst the same respondents, KENYA REVENUE AUTHORITY, COMMISSIONER OF CUSTOMS and COMMISSIONER OF INVESTIGATIONS AND ENFORCEMENT, the 1st, 2nd and 3rd respondents respectively.

2. The petitioner is a limited liability company which operates specialized bulk discharge and handling of terminal for grain imports located at the Port of Mombasa. The services the petitioner offers to its customers include; bulk grain vessels and bulk silos for transit and long term storage. The petitioner neither imports nor sells grains to third parties.

3. The 1st respondent is a public body established under section 3 of the Kenya Revenue Authority Act whose mandate is to assess and collect revenue on behalf of the government. The 2nd respondent is in charge of Customs, while the 3rd respondent is in charge of investigations and enforcement within the 1st respondent.

Petition No. 155 of 2016

4. In a petition dated 13th April 2012 and filed in Court on the same day the petitioner stated that the respondents issued notices dated 2nd June 2011 and 28th July 2011 under section 56(1) of the Income Tax Act (Cap 476) demanding production of books of account and other documents for examination and investigation which it provided on 11th November 2011 and clarified all the issues the respondents had raised in the letter dated 29th September 2011. The petitioner further sated after the respondents were through with investigations, they demanded 35% import duty and IDF at 2. 25 % through letter dated 13th December 2012.

5. The petitioner also stated that by letter dated 13th February, the respondents issued a further demand for custom taxes for Kshs 481,973,851 for alleged breach of various legislations under section 200(d) (ii) of EACCMA, Kshs 458, 195, 821 and Kshs 23,778,030 for falsification of documents contrary to section 203 of EACCMA. The petitioner contended that being dissatisfied with the respondents’ action it notified them of its intention to lodge a review under section 229 of EACCMA and indeed initiated the process through letter dated 8th March 2012.

6. The petitioner further stated that with regard to falsification of entry documents, it confirmed that indeed documents had been falsified by its agents, (Port Control Ltd) but offered to pay the correct tax due. It also stated that although the respondents reviewed the amount on falsification of documents downwards to Ksh14,678,925, it demanded that the petitioner pays the amount for compounding the offence yet the offence had been committed by its clearing agent.

7. The petitioner averred that the demand by the respondents for Ksh481,973,851 was based on allegations that it had concealed possession and disposal of unaccustomed goods, hence the assessed tax on the alleged uncustomed goods was arbitrary capricious and ill-conceived if not motivated against it. The petitioner contended that it may receive customer’s imported goods before documents have been lodged but does not ordinarily deliver uncustomed goods in its normal operations because it does not import grain but merely handles such grains on behalf of importers on contractual basis. The petitioner averred that It delivers cargo upon importers obtaining necessary releases on paying customs and administrative levies on the imported consignments.

8. The petitioner further stated that it only delivers imported grain on behalf of importers on evidence that duty for the imported grain has been duly paid. It averred that the respondents’ contention that it concealed, handled and disposed of uncustomed goods was legally and factually erroneous and therefore her fundamental rights were violated through the respondents’ actions.

9. The petitioner averred that any suggestion that it handled and disposed of uncustomed goods, was not only untenable but also a misapprehension of it’s operations. It was the petitioner’s case that in the execution of its duties, it enters into agreements with its clients, (importers of grain) to the effect that cargo terminal tolerance would be 0. 05% for white maize and wheat and 0. 1% for yellow maize, a standard practice for bulk cargo handlers worldwide.

10. The petitioner contended that it is the duty of importers to pay import duty including for terminal tolerance for handling purposes before grain is released. The petitioner averred that cargo terminal tolerance over which duty is paid includes dust and mix (a mixture of grain arising from operations at the petitioner premises) and moisture content variation of the grains in the process of importation of grains.

11. It averred that terminal tolerance of which duty has been paid by the importer cannot be defined as cargo so as to attract duty as per the respondents’ assessment and decision. It was also the petitioner’s case that its income is derived from handling services it provides to its customers (importers) and therefore, it does not have cargo/grain for which duty has to be paid, and could not, in law, be subjected to an assessment for customs tax.

12. The petitioner averred that its fundamental rights and freedoms were violated, that the respondent acted ultra vires their statutory process and its right to fair administration action was violated. It sought the following reliefs;

1. A declaration that the petitioner’s right to fair administrative action as guaranteed by Article 47 of the Constitution of Kenya have been infringed by the action of the Respondents in assessing demanding the immediate payment of the sum of Kshs481,973,851 as custom tax.

2. A declaration that the petitioner’s right to fair administrative action as guaranteed by Article 47 of the Constitution of Kenya have been infringed by the action of the Respondents in acting beyond its powers as set out in the EACCMA.

3. A declaration that the petitioner’s right to fair administrative action as guaranteed by Article 47 of the Constitution of Kenya has been infringed by the action of the respondents by relying on third party information and denying the petitioner the right to present documents related to the matter in issue.

4. A declaration that the petitioner’s right to fair administrative action as guaranteed by Article 47 of the Constitution of Kenya has been infringed by the action of the respondent’s in denying the petitioner the right to be heard on the investigations related to customs tax.

5. A declaration that the petitioner’s right to fair administrative action as guaranteed by Article 47 of the Constitution of Kenya has been infringed by the action of the respondents by manner in which the application for review was dealt with by a person not authorized by the law to make such a determination.

6. A declaration that the petitioner’s right to fair administrative action as guaranteed by Article 47 of the Constitution of Kenya has been infringed by the action of the respondents adjudging that the petitioner has committed a cognizable offence under section 200(d)(iii) of EACCMA without according the petitioner the right to a trial before an impartial tribunal as envisaged by the law.

7. A declaration that the petitioner’s right to a fair hearing, to have any dispute that can be resolved by the application of law decided in a fair and public hearing before a court, or another independent impartial tribunal as guaranteed by Article 50(1) of the Constitution of Kenya by the action of the respondent to deny the petitioner access to the ordinary rights of natural justice in its application for review of the assessment.

8. A declaration that the petitioner’s right to a fair trial as guaranteed by Article 50(2)(a), which includes the right to be presumed innocent until the contrary is proved has been infringed by the determination that by the respondents that the petitioner has committed a cognizable offence under section 200(d)(iii) and the assessed taxes with interest are due and payable immediately and the petitioner should appear for compounding the offence allegedly committed.

9. A declaration that the petitioner’s right to public trial before a court established under the Constitution before conviction or determination of guilt as enshrined by Article 50 of the Constitution of Kenya has been infringed by the determination by the respondent that the petitioner has committed a cognizable offence and should appear for compounding of the offence.

10. A declaration that the respondent is not a court of law and it is not capable of determining whether the petitioner is guilty of an offence and it is not capable to impose a penalty under section 200(d)(iii) and the determination contained in the letter dated 23rd February 2012 is null and void.

11. A declaration that the assessment and demand for the sum of Kshs458,195,821 allegedly being Custom Tax against the petitioner which does not import any grains to be liable for such duty as envisaged by EACCMA is violation of Article 40 of the Constitution by intending to deprive the petitioner of private property without due process.

12. A declaration that the imposition of custom tax against the petitioner, which is not an importer of grains to be liable for payment of custom duty is an imposition of tax without legislation contrary to Article 210 of the Constitution.

13. An order of Judicial Review do issue to prohibit the respondent their agents, servants, officers, body or authority appointed for that purpose from executing, pursuing, acting upon or in any manner whatsoever effecting the demand for custom tax in the sum of Kshs.481,973,851 allegedly due and owing to the respondent through the respondents’ letter dated 23rd February 2012.

14. An order of prohibition to prohibit the respondents, their agents, servants, officers, body or authority appointed for that purpose from arresting or harassing the proprietors, Directors or Employees of the applicant pursuant to the purported assessment of customs tax allegedly due and owing to the respondent.

15. An order of certiorari do issue removing to the High Court for the purposes of being quashed the decisions hereunder:

a. The decision by the respondents’ their agents, servants or officers assessing a sum of Ksh458,195,821 on account possession, concealment and disposal of uncustomed goods and a sum of Ksh23778,030 on account presentation of false documents with regard to entry 2009MSA1620790 ad being custom tax, interest and penalties. Communicated through a letter date 13/2/2013.

b. The decision by the respondents’ their agents, servants or officers in rejecting the application for review lodged by the petitioner and demanding the immediate payment of the sum of Kssh481,973,851 and the appearance of the petitioner to compound an offence allegedly committed, communicated through a letter dated 23/3/2012.

c. The decision by the respondents’’ their agents, servants or officers in reviewing the demand related to falsification of documents of imported goods under entry 2009MSA1620790 a demand for the immediate payment of Kshs14,678,925 and for the petitioner to appear with a view to compound an offence that had allegedly been committed, communicated through a letter dated 23/3/2012.

d. The decision by the respondents, their agent, servants or officers, that a cognizable offence has been committed by the petitioner under section 200(d)(iii) and further that the petitioner appear for compounding the alleged offence.

e. The decision by the respondents, their agent, servant or offices, that an offence has been committed by the petitioner under section 203(a) and further that the petitioner appear for compounding the alleged offence.

16. The Honourable Court do issue such orders and give such directions as it may deem fit to meet the ends of justice.

17. The costs of the petition be awarded to the petitioner.

Response

13. The respondents filed a replying affidavit by Daniel Wanyoike a senior Revenue officer sworn on 13th June 2012 and filed in Court on 14th June 2012. He deposed that the 1st respondent is the central agent of government for purposes of assessing and collecting government revenue and in exercise of that mandate, it is required to administer other statutes including Income Tax Act, the Valued Added Tax Act, and East Africa Community Customs Management Act, 2005 and regulation 2006 for purposes of assessing and collecting revenue.

14. Mr Wanyoike deposed that the 3rd respondent is the head of Investigations and Enforcement Department which offers complementary services to the revenue department especially where further inquiries are necessary. He deposed that the petitioner manages grain handling facilities and offers among other services, discharge of grain from vessels, storage of grains in silos, bagging of grains and delivery of grain (bulk or bagged) from terminal by road or rail and private warehousing.

15. Mr Wanyoike further deposed that by virtue of the petitioner’s business, it requires to apply to the respondents for a terminal shed which has to be gazetted as a customs area allowing the petitioner to receive and handle un customed cargo and it was gazetted as a transit shed under Gazette Notice No 3327 of 2nd January 2000.

16. It was deposed that investigations into the affairs of the petitioner were necessary when the 1st respondent undertook compliance checks on the petitioner’s tax affairs, and after the petitioner’s customers complained that they were receiving less grain on delivery than they imported and or discharged from the vessels. This, it was deposed, forced the respondents to undertake investigations to establish whether the petitioner’s income as declared for purposes of tax tallied with the volume of grain handled at the facility.

17. Mr. Wanyoike further deposition was to the effect that importers appointed an independent party who conducted independent inspections on grains upload through the petitioner which revealed that less grain than that imported was consistently released and or delivered by the petitioner to importers. According to Mr Wanyoike, this informed the respondents’ move to investigate the petitioner’s tax affairs through examination of documents on its income for purposes of determining tax compliance.

18. It was also deposed that the audit established additional taxes owing by way of corporate tax, Pay As You Earn (PAYE) and VAT, leading to issuance of additional assessment notices and that more discovery was made on undeclared customs transactions.

19. It was the respondents’ case that it also discovered that the petitioner was billed on the basis of grain bagged on a daily basis by Blue Cat Port Services Ltd which maintained a manual register for that purpose whose details included date of services, vehicle registration No, description of cargo bagged, name of importer whose cargo had been bagged, name of vessel through which cargo was imported and quality of grain bagged in Kilograms and Bags.

20. It was deposed that investigations discovered daily delivery reports from Blue Cat Port Services Ltd (Blue Cat) generated by the petitioner and used by Blue Cat for reconciliation of accounts. He deposed that the same reports are also maintained by the petitioner containing the same information. Mr Wanyoike further deposed that on request, the petitioner provided daily delivery reports and upon examination, the information in those reports tallied with that of Blue Cat. He also deposed that the daily delivery reports and manual register from Blue Cat showed the bagged grains delivered out of the transit shed had the petitioner as the importer.

21. It was also deposed, that upon reconciliation of daily delivery reports from blue cat against those from the petitioner it was established that the grain delivered on behalf of the petitioner and reflected in daily delivery reports from Blue Cat were omitted from the daily reports provided by the petitioner, which established that there was grain bagged and delivered on behalf of the petitioner.

22. Mr Wanyoike deposed that they discovered that the petitioner used casual labourers from Blue Cat to offload grains from trucks on its behalf and other importers from the transit shed and Blue Cat would provide loading services on behalf of the petitioner and other importers for delivery of grain from private go downs or ware houses to other destinations.

23. According to Mr Wanyoike, Blue Cat would then issue invoices to the petitioner showing that it as the importer, that from these documents, the respondents’ officers were able to determine grain delivered by the petitioner from the transit shed (custom area) to its private go down and that the respondents’ officers were also able to track the final destination of some of the grain loaded from the petitioner to Millet Company Kenya Ltd.

24. Mr Wanyoike went on to depose that on obtaining and examining documents from Millets Company Kenya Ltd it became clear that the petitioner was selling grain to Millet Company Kenya Ltd. He deposed that from those documents, millets Company Kenya Ltd did not appear as importer or consignee of grain hence they concluded that millets company Ltd was purchasing grain from the petitioner.

25. According to Mr Wanyoike, the petitioner neither provided documents to show that it paid duty for the grain handled and delivered out of the transit shed to its private go down nor did it produce evidence to show on whose behalf it was handling that grain.

26. It was further deposed that upon examining VAT records, the respondents’ officers discovered an entry from2009 MSA/620790 for importation of machinery which the petitioner had used to claim VAT refund of Ksh13,015. 838. They further discovered that the machinery had a different customs value declared and that the actual IDF, import delivery and VAT paid was Ksh367,946/- and not Ksh13,051,838 alleged to have been paid. They also discovered a deposit slip for this amount but the cheque had bounced. Only the payment of Ksh367,948 was confirmed by the bank.

27. Mr Wanyoike deposed that on concluding investigations it was established that the petitioner had concealed possession and disposal of uncustomed grains for Ksh458,195,821 and falsified entry No 2009MSA1620790 Ksh23,778,030. It was also deposed that the respondents’ officers established that the petitioner had committed an offence contrary to section 200(d) (ii) of EACCMA (2005).

28. According to Mr Wanyoike, the petitioner lodged a review of the assessment and the respondents rendered a decision on 23rd march 2012, that the petitioner admitted falsification of entry No 2009 MSA1620790 by its agent and offered to pay the correct amount. It was deposed that after considering the petitioner’s grounds for review the amount payable was reviewed downs to Ksh14,678,925 which amount remains unpaid.

29. Mr Wanyoike deposed that this being an investigation, they were not bound to rely on documents supplied by the petitioner only as they held to test the accuracy of those documents and had a right in law to call for documents from any person who may be in possession of information relevant to that investigation. It was deposed that several meetings were held between the petitioner and respondent to discuss the findings of the investigations and various correspondence exchanged over the matter hence the claim that the petitioner was condemned unheard is untrue.

30. Mr Wanyoike further deposed that while conducting investigations the respondents’ officers were fully aware of terminal tolerance levels that cannot be bagged but its investigations focused on grains physically bagged and delivered out of the customs area as the petitioner’s property.

31. It was deposed that the cargo appearing on the daily delivery reports from Blue Cats were defined as grain and not terminal tolerance and that the petitioner did not produce evidence by way of documents to support any of its alleged mitigating grounds.

Petition No 239 Of 2012

32. This petition dated 4th June 2012 is also about investigations which the petitioner averred the respondents’ officers conducted in the months of June and July 2011 for an audit at its premises in Mombasa. The petitioner stated that the respondents’ officers were allowed unhindered access to its documents. The petitioner averred however, that the audit was not properly done and a report from the audit was not provided to it.

33. The petitioner stated that although necessary documents were availed to the respondents’ officers during the first audit, the respondent nonetheless decided to undertake a second audit and demanded more documents which the petitioner considered malicious and intended to oppress and or harass it given that no explanation was given why the second audit was necessary.

34. That notwithstanding, the petitioner stated that on 13th February 2012 the respondents purported to conduct additional assessment on tax due from the petitioner which the petitioner termed unconstitutional and a breach of its rights under Articles 47 and 50 of the Constitution. The petitioner averred that the respondents had never given notice of any claim of un declared sale of grain., that the respondents made an unfounded claim that details or records of grains handled by the petitioner were deleted from daily deliveries reports and that the respondents never audited the petitioner’s operations department in order to ascertain its workings despite the fact that her officials had full access to information.

35. For the above reasons the petitioner stated that the respondents breached the rules of natural justice by relying on documents from a third party to which the petitioner was a stranger and made a determination that it traded in grain worth over one (1) billion, which was allegedly paid to the petitioner’s managing director against whom the respondents had made a separate assessment using the same documents.

36. The petitioner further averred that the respondents committed an error of fact and law, that the respondents made the assessment on undeclared income on the basis that the petitioner sells grain yet they had no supporting documents, that the respondents relied on documents used for paying casual labourers within its terminal as evidence of transfer of grain, that the respondent did not disclose the documents used to determine the alleged market value of the goods (grain) sold and that the assessed quantities did not originate from her own documents.

37. The petitioner also stated that its contracts with customers/imports make a provision for terminal tolerance, a small percentage of the consignment which the petitioner withholds to cover for extraction of dust during handling, seeping spillage, damages and admixture of different cargo. It averred that despite serious legitimate objections raised, the respondents declined to address those objections in its letter dated 7th May 2012 which the petitioner considered null and void as the respondents failed to properly consider her objections and thus made a grave error of fact and law.

38. The petitioner contended that the respondents’ action wasultra viresand that the respondents relied on documents whose authenticity had not been established contrary to section 77 of the Income Tax Act and Article 47(1) of the constitutions. The petitioner therefore accused the respondents of relying on documents that it did not originate from her but failed to allow her respond to the same thus deprived the petitioner an opportunity to prepare a valid objection despite the fact that the letter made serious allegations of tax evasion and fraudulent concealment of documents, a conduct which carries criminal consequences but which the petitioner was denied an opportunity to refute.

39. The petitioner also contended that such serious allegations forming the basis for tax assessment required advance notice and evidence forming the basis thereof in view of the presumption of innocence contemplated under Article 50(2) of the constitution. The petitioner termed the assessment un reasonable in so far as it purported to be final assessment whilst at the same time stating that further documentation was required. The petitioner sought the following reliefs:-

a) A declaration that the audit and subsequent assessments dated 13th February 2012 and 7th May 2012 are infringement of the petitioners rights contained on articles 47(1) and 50(2)(a) and 201 of the constitution.

b) An order of judicial review do issue to prohibit the respondent, their agents, servants, officers body or authority appointed for that purpose from executing pursuing acting upon or in any manner whatsoever effecting the assessments dated 13th February and 7th May 2012.

c) In the alternative, an order of mandamus do issue compelling the respondent to reconsider the points made in the petitioner’s objection of 6th march 2012 fairly and in accordance with the law and rules of natural justice.

d) Such orders and directions as the Honourable court may deem fit to meet the ends of justice.

e) Costs.

Response

40. The respondents filed a replying affidavit by Daniel Wanyoike senior revenue officer worn on 19th June 2012 and filed in Court on 20th June 2012. Mr Wanyoike deposed that investigations into the affairs of the petitioner were informed by an earlier compliance checks on the petitioner’s operations by the domestic Taxes Department which established that there was need for further inquiry into the petitioner’s affairs and complaints by importers, the petitioner’s customers, that they were receiving less grain delivery from the petitioner’s terminal.

41. Mr Wanyoike deposed therefore that the purpose of the investigation was to establish whether the petitioners’ income declaration for tax tallied with the volume of grain it handled.

42. Mr Wanyoike deposed that they relied on the documents supplied by the petitioner but that in order to test their veracity they obtained documents from third parties who had been contracted by the petitioner to provide certain services to it. He deposed that the law allows them to call for information relevant for purposes of tax assessment from any person who may have it and that the respondents’ officers conducted investigations with the full knowledge of the petitioner hence the petitioner is not correct in claiming that it was condemned unheard. It was Mr Wanyoike’s deposition that the investigation yielded additional assessment for corporate tax, import duties and Value Added Tax as well as PAYE.

43. Mr Wanyoike further deposed that the respondents dealt with the petitioner’s objection on the additional assessment for tax through its letter of 7th May 2012. He stated that the 1st respondent was exercising its statutory mandate hence did not violate the petitioner’s constitutional rights. It was deposed that after the decision of 7th May 2012, the petitioner filed a notice of intention to appeal to the local committee but as at the time of filing the petition no such appeal had been filed yet opted to file the petition despite having chosen to appeal under the Income Tax Act.

44. Mr Wanyoike deposed that the present petition is unnecessary since the respondents could not go on with enforcement the moment the petitioner filed a notice of intention to appeal against its enforcement decision until the appeal process was concluded. It was Mr Wanyoike’s contention, therefore, that the Court should decline jurisdiction to allow the process through the Income Tax Act conclude since the 1st respondent has a statutory obligation to assess and collect tax.

Petitioner’s Submissions

45. Mr Mogere, learned counsel for the petitioner, submitted highlighting their written submissions, that the petitioner does not import or sell grain but only handles grain on behalf of importers. Learned counsel submitted that the petitioner delivers grain to importers (its customers) once import duty and all other levies have been paid by the importers. He contended that the common issue in the consolidated petitions is terminal tolerance otherwise known as dust.

46. According to learned counsel, in 2011 the respondents conducted an audit and determined that the dust had not been declared as grain and from the assessment under taken by the respondents’ officers, the petitioner was allegedly found to have failed to declare grain for purposes of income tax. According to counsel, the respondents violated the petitioner’s right to fair administrative action under Article 47 of the Constitution while undertaking the assessment. Mr Mogere submitted that the respondents relied on documents from third parties who were employees of the petitioner to determine that the petitioner was selling dust to on cash basis.

47. Learned counsel contended that the respondent did not act on the objections raised by the petitioner and also failed to give consideration to the fact that the petitioner was dealing with dust of no economic value. According to counsel, the petitioner provided evidence that to show that what it dealt with as within the contracts it had with customers being terminal tolerance and that the respondents conducted the assessment after it refused to consider that this was dust.

48. It was submitted that the respondents made inquiry from Cereal millers Association in a letter dated 10th May 2012 after an assessment had already been done. Counsel argued that if the respondent had doubts about what terminal tolerance was the petitioner was entitled to the benefit of that doubt. He contended that tax should only be imposed where there is a legal duty and that it was unfair for the respondents to impose tax and penalties when it was itself uncertain about the subject matter.

49. Mr Mogere went on to submit that whatever response the respondents received from the millers Association, the same was not disclosed to the petitioner hence it should be taken to be adverse to the respondents. In counsel’s view, the process was unfair because a decision was made before investigations were done. He relied on several authorities to support his case including; Weinberger v Inglis [1919]AC 606, Associated Provincial Picture Houses Limited v Wednesbury Corporation [1948] 1 KB 223and Cabinet Secretary for Ministry of Interior and Co-ordination of National Government & another Ex parte Director of Immigration [2015] eKLR

Respondents’ Submissions

50. Mr Ibrahim, learned counsel for the respondents relied on their written submissions dated 29th September 2017 and filed on 2nd October 2017. Counsel submitted that the petitioner renders services to importers of grain which include; discharge, storage, bagging and delivery of imported grain to customers and as such, the premises from which the petitioner carries on business is gazetted as a transit shed and a customs area hence the handling of imported grain must comply with the customs law.

51. In that context, learned counsel submitted, section 26(2) and (3) of EACCMA places responsibility of accounting satisfaction of tax collection of all goods deposited and removed from that customs area to the owner of the shed. Learned counsel submitted that Article 209 of the Constitution permits the government to impose tax, VAT, customs duty and other levies on import and export goods hence the tax legislation is aimed at improving tax collection hence that is the duty the 1st respondent is performing pursuant to section 5(2) of the KRA Act.

52. It was submitted that investigations carried out by the respondents revealed that the petitioner was consistently delivering less grain than imported, that the petitioner used a third party to offer labour survives in the form of putting grain in bags which were then bagged and later delivered on behalf of the petitioner and that the bagged grain was moved by the petitioner from the customs area to private go downs or warehouses owned by the petitioner thus evading tax. The grain was later moved from the go downs to other destinations including millet Company Kenya Ltd and millet grains Ltd.

53. It was learned counsel’s contention that investigations revealed that the petitioner was liable to pay tax and that there had been false under declared machinery importation. From the above facts, it was submitted on behalf of the respondents, that the petitioner’s rights under Articles 40, 47, and 50 of the Constitution were not violated. It was in particular submitted, that the investigations carried out and the decisions taken, did not violate Article 47 of the Constitution since the decision to demand tax was proceeded by professional investigations.

54. According to the respondents’ counsel, investigations ascertained that the grains physically bagged and delivered out of the customs area were good grain and did not consist of broken grain, dust, admixture or such other products that do not attract customs duty. It was submitted that the process of arriving at the decisions was reasonable and took into account all relevant matters as required by law. On the petitioner’s complaint that the respondents relied on documents from third parties, it submitted that if investigations were to be solely confined to documents provided by the petitioners, it would defeat the whole purpose of an investigation.

55. The respondents held on to the position that meetings were held between the petitioner and respondents’ representatives, over the matter, and that after completion of investigations the petitioner’s tax exports Deloitte and Touché objected to the tax assessments. It was submitted that once a decision was rendered on the objection, the petitioner filed a notice of intention to appeal which deprived the petitioners’ right to come to this Court with this petition. It was therefore contended that there was no violation of the right to fair administrative action or fair hearing under Articles 47 and 50 of the Constitution. The respondents argued that the process started by filing the notice of intention for appeal was not exhausted hence the petitions are an abuse of the Court process, since there is a clear mechanism for settlement of tax disputes.

56. The respondents relied on the case of Madison Insurance Co. Ltd v Commissioner of Domestic Taxes and another [2016] eKLRfor the submissions where there exist such other dispute resolution forums, parties must strictly utilize them first before approaching the Courtsand Speaker of the National Assembly v the Hon James Njenga KarumeCivil application No 92 of 1992 [NAi 40/92 UR]for similar submissions. Reliance was also placed on the case of Peter Ocharo Anam & 3 Others v Constituency Development Fund Board & 4 Others, Petition No 3 of 2010 for the proposition that it is not right for a litigant to ignore with abandon dispute resolution mechanisms provided for in a statute and which would easily address his concerns and rush to Court under the guise of a constitutional petition alleging breach of constitutional rights under the Bill of rights.

57. The respondents further relied on the Court of Appeal decision in the case of Kenya Revenue Authority & 5 Others v Keroche Industries (Civil Appeal No 2 of 2008 (para 37)) for the proposition that in the event the respondent has objections regarding assessment and applicable tariffs, the forum to sort out tax disputes is the relevant tribunals that are set out in the statute.

58. Based on the above decisions the respondents submitted that there is a real laid down statutory tax settlement dispute mechanism which must be exhausted before turning to courts. The respondents therefore submitted that the petitioner had failed to demonstrate that there was infringement of the right to fair administrative action, that the respondents are under obligation to assess and collect tax on behalf of the government and were discharging their mandate hence there was no violation of any of the Articles of the Constitution since the petitioner was given a hearing prior to making the impugned decisions.

Analysis and determination

59. I have considered these petitions, responses thereto submissions by counsel for the parties and authorities relied on. In my view, only one issue arises for determination namely: whether the petitioner’s rights and fundamental freedoms were infringed and violated.

60. The petitioner operates a Bulk handling facility in which importers of grain have their grain stored and later delivered by the petitioner once issues of income tax and other levies have been paid. For that reason, it is gazette as a customs shed terminal thus handles uncustomed grain which is only released to importers who are the petitioner’s customers once they have complied with customs requirements by paying due tax and other levies. The 1st respondent is responsible for assessing and collecting revenue in form of customs tax, duties and VAT on behalf of the government.

61. The contention in these consolidated petitions is, as I perceive it, that the respondents started investigations against the petitioner on suspicion that the petitioner may not be declaring correct income for purposes of income tax. In the course of investigations, the respondents’ officers came across documents indicating that the petitioner though not directly importing grain, was nonetheless processing grain for sale and, according to the respondents, this fact was bone by documents obtained from third parties operating with the petitioner.

62. With this discovery, the respondents made assessments and demanded more income tax from the petitioner in the sum of Ksh458 195 821. The respondents further discovered falsified documents of imported goods and demanded payment of Ksh23 778 030. The petitioner was notified through demand notices dated 13th February 2012.

63. With these demands, the petitioner filed these petitions contending that the respondents violated its right to fair administrative action and right to hearing, contending that it was not given an opportunity to respond to the issues raised, more so given that the respondents used documents from the third parties.

64. The respondents on their part contended that the petitioners were given a chance to be heard and even held meetings with the respondents over the issues raised in the petitions, hence there was no violation of the petitioner’s rights not even the right to fair administrative action.

65. The 1st respondent is established under section 3(1) of the KRA Act as the central agent of government for purposes of assessing and collecting tax. It is responsible as part of its mandate to enforce other legislations relating to tax including the Income tax Act, the value Added Tax Act and the EACCMA Act.

66. From the evidences on record, the petitioner’s facility is a gazetted customs terminal shed which handles grain whose customs tax and other levies have not been paid and the grain is released only after tax and other levies have been paid.

67. It is not in dispute that the petitioner does not import grain but handles grain on behalf of its customers and according to the petitioner, it delivers the grain to its customers only upon customs duty and other taxes have been paid, and what remains is dust which does not attract customs tax.

68. The issue in the twin petitions revolves around the petitioner’s activities in so far as the terminal dust is concerned. Whereas the petitioner says it does not deal in grain, the respondents hold a contrary view. The respondents contended that in the course of investigations, they came across documents which showed that the petitioner was engaged in the delivery of grain through third parties and which grain ended up in the petitioner’s go downs and later delivered to other companies and invoices were issued in the petitioner’s name . According to the respondents, this information was contained in the documents obtained from some of the companies the petitioner was dealing with in the delivery of its grain.

69. Although the petitioner denied this, the only explanation it offered was that some of the persons involved were offering labour services and had nothing to do with bagging and delivering its own grain Cargo to other companies other than importers.

70. Even though this was the contention by the petitioner, the petitioner did also state and there was evidence to that effect, that it enters into contracts with importers to deliver grain less some percentage weight which confirms the claim that the petitioner delivers less grain than that imported and handled in the terminal facility. This seemed to corroborate the respondents’ contention that it had also received complaints by importers that less grain than that imported was delivered to them by the petitioner.

71. If indeed the petitioner delivers less grain than imported, and contracts with its customer allow this, what does it do with the retained grain? This, in my view, gives credence to the respondents’ contention that the petitioner had a clandestine way of processing, bagging and delivering its grain without paying customs duty. If the petitioner’s contention is that the grain retained would have had duty paid by importers, there would still be the question of income tax; that is whether the petitioner declares correct income for purposes of income tax.

72. The petitioner contended that in conducting investigations and making divisions, the respondents violated its right to fair administrative action under Article 47 of the Constitution.

73. Fair administrative action is a constitutional right. Article 47(1) of the Constitution requires that administrative actions be expeditious, efficient, lawful, reasonable and procedurally fair. Sub Article 2 makes it even clearer thatif a right or fundamental freedom of a person has or is likely to be adversely affected by administrative, the person has the right to be given written reasons for such action.

74. Moreover, the Fair Administrative Act, 2015 is clear in section 7 that (1) any person who is aggrieved by an administrative action or decision may apply for review of the administrative action or decision to (a) Court in accordance with section 8; or(b) a tribunal in exercise of its jurisdiction conferred in that regard under any written law. Section 8 allows a person aggrieved by an administrative action to apply for judicial review either in the High Court or the subordinate Court. However Section 9(2) states that the High Court or a subordinate Court shall not review an administrative action or decision under the Act unless the mechanisms including internal mechanisms for appeal or review and all remedies available under any other written law are first exhausted. The Court could however hear a party notwithstanding that he has not exhausted the alternative remedy if there are special circumstances that may force the Court to do so.

75. In the case of Judicial Service Commission v Mbalu Mutava & another[2014] eKLR, the Court of Appeal had the following to say with regard to the right to fair administrative action under Article 47 of the Constitution;

“Article 47(1) marks an important and transformative development of administrative justice for, it not only lays a constitutional foundation for control of the powers of state organs and other administrative bodies, but also entrenches the right to fair administrative action in the Bill of Rights. The right to fair administrative action is a reflection of some of the national values in article 10 such as the rule of law, human dignity, social justice, good governance, transparency and accountability. The administrative actions of public officers, state organs and other administrative bodies are now subjected by Article 47(1) to the principle of constitutionality rather than to the doctrine of ultra vires from which administrative law under the common law was developed.”(emphasis)

76. In Dry Associates Ltd v Capital Markets Authority and Another,[2012] eKLR the Court observed that the intention of Article 47 is to subject administrative actions to constitutional processes and discipline so that the right to a hearing is no longer be left to the realm of common law of judicial review under the Law Reform Act (Cap 26 of the Laws of Kenya).It is now to be measured against the Constitutional test of expeditiousness, efficiency, lawfulness, reasonableness and procedural fairness.

77. It follows, therefore, that where a person claims that his right to fair administrative action has been violated, he has the onerous duty to demonstrate to the satisfaction of the Court that there was such a right and that it was in deed violated or is threatened. It is not enough for one to merely allege of such violation without evidence. It is a cardinal principle of law that he who alleges must. This is a legal burden espoused in section 107 of the Evidence Act which states that(1)Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist; and that (2) When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person.

78. Looking at the circumstances of these petitions and the evidence placed before Court, I am unable to agree with the petitioner that its right to fair administrative action was in any way violated. There was evidence that that the petitioner was involved in meetings with the respondents over the issues raised in the assessment notices. There was further evidence that the petitioner had some import documents falsified by its agent and had agreed to pay the understated amount. That being the case, there would be no justification for the petitioner to claim that its right to fair administrative action or fair hearing was violated

79. In any case the right to fair hearing under Article 50 (1) of the Constitution is intended to ensure that there is fairness in every dispute resolution and that no one is condemned unheard. Article 50(2) which the petitioner invoked relates to criminal trials and therefore, has no application to civil disputes. I say so because the Sub Article is clear on this when it states thatevery accused person has a right to fair hearing which includes among others, the right to be presumed innocent until the contrary is proved.. The petitioner’s contention that it was not given a fair hearing during the assessments and the subsequent decisions cannot therefore be true because the evidence on record shows otherwise.

80. As I have stated above, the right to fair hearing contemplated in Article 50 (2) of the Constitution relates to criminal cases. Such a destination is important to avoid confusing the right to hearing associated with criminal matters to that in civil matters.

81. More importantly, the respondents submitted that the petitioner was required to seek resolution of his dispute through an established mechanism under the Income Tax Act. According to the respondents, after the assessments and notification of the decisions, the petitioner filed a notice of intention to appeal to the local committee and was therefore under obligation to pursue the dispute through that mechanism and not through a constitutional petition.

82. I have perused the pleadings herein and in particular the replying affidavit of Daniel Wanyoike sworn on 19th June 2012 together with annexture DW2 to that affidavit being a letter dated 5th June 2012 from Delloitte & Touche, the tax consultants of the petitioner. The letter referred to the respondent’s letter of 7th May 2012 on the confirmation of revised assessments for the year 2006 to 2010. The letter notified the respondents of the petitioner’s intention to appeal against the revised assessments and asked the respondents to issue forms LC 10 as required by rule 6(1)(c) of the Income Tax Act/ local committee Rules. This is an acknowledgment of the fact that there is a mechanism established under the Income Tax Act for resolving Tax assessment issues.

83. Part X of the Act (Sections 82 -91A) provides for objections, appeals and reliefs for mistakes in the assessment of tax through local committees established by the Minister who is also required to make rules for the performance of committee’s duties. A tribunal is also established under section 83. Under section 84, a person who disputes an assessment may file a notice of objection with the Commissioner of Income Tax and where the notice of objection is not admitted, the person may appeal. If one is not satisfied with the decision of the Commissioner either of amending the assessment or refusing to amend, may appeal to the tribunal. after exhausting the procedure in the Act, one may come to this Court to challenge the decision of the tribunal.

84. It is therefore clear from the Act, that there is an elaborate procedure for resolving tax issues and the petitioner was on course to pursue that procedure even as it filed these petitions. It is now settled law that where there are clear statutory mechanisms for resolving disputes, parties must exhaust the available mechanisms, in resolving the disputes before turning to Courts of law. It is even more clearer now that parties should not run to file constitutional petitions alleging violation of rights and fundamental freedom where there is no such violation or threat to violation of rights or fundamental freedoms, and that Courts will decline to assume jurisdiction if parties do not satisfy the Court that they have exhausted the available mechanisms for resolving their disputes prior to approaching the Courts

85. In the case of the Speaker of the National Assembly v The Hon James Njenga Karume(supra) the Court of Appeal stated that where there is a clear procedure for the redress of any particular grievance prescribed by the Constitution or an Act of Parliament, that procedure should be strictly followed.The same view was expressed in the case of Peter Ochara Anam & 3 Others v Constituencies Development Fund Board & 4 Others (supra) where the Court stated:-

“ I do not think it is right for a litigant to ignore with abandon a dispute resolution mechanism provided for in statute and which would easily address his concerns and rush to this court under the guise of a constitutional petition for alleged breach of constitutional rights under the bill of rights…Where there exists sufficient and adequate legal avenue, a party ought not to trivialize the jurisdiction of the Court pursuant to the Constitution. Indeed such a party ought to seek redress under the relevant statutory provision otherwise such available statutory provisions would be rendered otiose.”

86. In the case of Republic v National Environmental Authority [2011] eKLR the Court observed that;

“ Where there was an alternative remedy and especially where Parliament had provided a statutory appeal process, 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 was 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 real issue is to be determined and whether the statutory appeal procedure was suitable to determine it.”

87. In the case of Madison Insurance Company Ltd v Commissioner of Domestic Taxes & Another (supra) the Court stated:

“[i]t is the Local Committee that is vested with the powers to initially determine the lawfulness or otherwise of the disputed assessment. In its determination, the Local Committee will examine the mode and the manner in which the Respondents conducted the assessment. It is then that the Committee shall determine whether the assessment was done in accordance with the law. In my considered view, it would be premature for this Court to determine the questions at this point since the same is well within the ambit of the Local Committee. As I have stated elsewhere above, the Petitioner’s recourse to this Court is not yet lost as it can still approach this Court by way of an appeal against the decision of the Local Committee.”

88. And in Kenya Revenue Authority & 5 Others v Keroche Industries Ltd (supra) the Court of Appeal observed;

“ [i]t is common ground that the 1st appellant is a statutory body established under an Act of Parliament as the central body for the assessment and collection of revenue; for the administration and enforcement of the laws relating to revenue and for connected purposes….objections from the decision of the Commissioner regarding assessment of tax and duty tariffs are matters for the relevant tribunals established under the statute…”

89. With the above decisions and the law in mind, it is important to point out that it is not in every case where a party feels there was failure to act in accordance with the law that amounts to a violation of a right or fundamental freedom and should be resolved by way of a constitutional petition. Such a failure can be subjected to other dispute resolution mechanisms including normal civil suits or other dispute resolution mechanisms and tribunals than filing a constitutional petition alleging violation of rights and or fundamental freedoms

90. In that regard I am persuaded by the statement of Lord DipLock in the case of Harriskssoon V Attorney General of Trinidad and Tobago [1980] AC 265 where His Lordship stated;

““The notion that wherever there is a failure by an organ of government or a public officer to comply with the law this necessarily entails the contravention of some human rights or fundamental freedoms guaranteed for individuals by...the constitution is fallacious. The right to apply to the High Court… for redress when any human right or fundamental freedom is or is likely to be contravened, is an important safeguard of those rights and freedoms; but its value will be diminished if it is allowed to be misused as a general substitute for the normal procedures for invoking judicial control of administrative action… the mere allegation that a human right of the applicant has been or is likely to be contravened is not itself sufficient to entitle the applicant to invoke the jurisdiction of the Court…if it is apparent that the allegation is frivolous, vexatious or abuse of the process of Court as being made solely for the purpose of avoiding the necessity of applying the normal way for appropriate judicial remedy for unlawful administrative action which involves no contravention of any human right or fundamental freedom.”

91. I have gone through the consolidated petitions, and considered the grievances raised therein and the respondents’ responses as well as the various documents relied on. I have also perused the law and authorities cited by parties and by the Court. It is my respectful view, that the two petitions were not well founded. I am also unable to trace my violation of the petitioner’s right to properly in terms of Article 40 of the constitution.

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

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

94. The ultimate result is that the consolidated petitions dated 13th April 2012 and 4th June 2012 are declined and dismissed with costs.

Dated, Signed and Delivered at Nairobi this 29th Day of January 2018

E C MWITA

JUDGE