[2024] KETAT 1459 (KLR)

Morgan Air and Sea Freight Logistics Kenya Ltd v Commissioner of Domestic Taxes (Tax Appeal E002 of 2023) [2024] KETAT 1459 (KLR) (7 October 2024) (Ruling)

Neutral citation: [2024] KETAT 1459 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E002 of 2023

CA Muga, Chair, BK Terer, EN Njeru, E Ng'ang'a & SS Ololchike, Members

October 7, 2024

Between

Morgan Air and Sea Freight Logistics Kenya Ltd

Appellant

and

Commissioner of Domestic Taxes

Respondent

Ruling

Background 1. The Appellant moved this Tribunal vide a Notice of Motion dated 31st July 2024 seeking the following Orders:a.Spent.b.Spent.c.That Mrs Rispah Simiyu as the Commissioner of Domestic Taxes and of P.O. Box 48240-00100 Nairobi, (hereinafter referred to as “the Contemnor") do stand committed to civil jail for a period of six (6) months or such period as the Tribunal may determine for contempt of the Tribunal's Order and Judgment dated 9th February 2024, in that being aware of the order made by the Court in the said Judgement on 9th February 2024 (hereinafter referred to as “the Tribunal Order") has knowingly and wilfully violated and/or disregarded the said order and/or knowingly and wilfully failed to take reasonable steps to ensure that the said order was obeyed by the Respondent herein.d.That this Tribunal in the alternative be pleased to impose a fine, but in any event, not less than Kshs 500,000. 00 on the Contemnor, personally, until she purges her contempt.e.That in the alternative the Tribunal be pleased to commit the Contemnor to civil jail for a period of six months and also impose a fine of not less than Kshs 500,000. 00 on the Contemnor, personally.f.That the costs of and occasioned by this Application be borne personally by the Contemnor.

2. The Application which was supported by an Affidavit sworn by the Finance Manager of the Appellant, Mr. Jacques Botes on the 22nd day of July, 2024 was premised on the following grounds:a.That the Appellant filed an Appeal with this Tribunal seeking for an order for refund of the sum of Ksh 2,424,665. 00 arising out of input VAT claims that the Respondent had rejected vide its objection decision dated 25th November 2022. b.That being dissatisfied with this refund rejection decision, the Appellant objected to the same vide a notice of objection dated 30th September 2023, subsequent to which the Respondent rendered an objection decision dated 25th November 2022. c.In the Judgment delivered on 9th February 2024, the Tribunal did set aside the Respondent's refund decision dated 25th November 2022 and directed the Respondent to refund the Appellant the sum of Kshs 2,424,665. 00, within sixty days from the date of the Judgement. This timeline lapsed on 9th April 2024. d.Attempts by the Appellant from the date of the Judgment till to date, to have the amounts refunded has turned out to be futile.e.The continued refusal by the Respondent to pay the Appellant's refunds is negatively impacting the Appellant's cash flow.f.It was apparent that the Contemnor deliberately sought to frustrate and/or undermine the effect of the express Judgment and Orders of the Tribunal, which is a complete disdain towards the Tribunal.g.In the circumstances, the Contemnor is and continues to be in wilful and blatant contempt of the Orders made by the Tribunal on 9th February 2024, which conduct ought to be deprecated upon by the Tribunal.h.It was therefore just, equitable and in the interests of justice that the Tribunal acts swiftly and decisively in the face of such wilful and blatant disregard of its authority and dignity so as to restore the dignity of this Tribunal and restore the respect for the rule of law by granting the reliefs sought hereinbefore.

3. In response to the notice of motion, the Respondent filed a replying affidavit sworn by Hezron Ligare on 9th August 2024 stating as follows:a.That there is no wilful disobedience of the orders issued by the Tribunal by the Respondent.b.That after the Judgement was delivered on 9th February 2024 by the Tribunal, the Appellant applied for the refund of Kshs 2,424,665. c.That the Respondent had instructed its Counsel on record to lodge an Appeal vide Notice of Appeal on 7th March 2024 and served upon the Appellant’s tax agents on the same date on record being PricewaterhouseCoopers on electronic mail at kepwc.disputes@pwe.com which is the address referenced in the Appellant’s pleadings.d.That the Respondent filed an Appeal at the High Court being Milimani ITA E081 of 2024 on 4th April 2024 and had the same served upon the Appellant’s authorized representative.e.That this being a refund issue, the same is strictly governed by section 47 of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”) and the Appellant was required to follow the laid down procedure therein and apply for a refund to ascertain what it had paid to the Respondent and what was refundable.f.That for the Respondent to approve and process any amount for refund, the Respondent must subject the Appellant to an audit process where documents in support of the claim are reviewed to verify whether the Appellant has used some of the credits and finally ascertain from the documentation provided what is due before approving the refunds for payments.

4. The Appellant was granted leave by the Tribunal on 8th August, 2024 to file a supplementary affidavit in response to the replying affidavit by the Respondent. The Appellant’s supplementary affidavit was dated and filed on 15th August, 2024 as directed by the Tribunal wherein the Appellant’s finance manager reiterated the contents of his affidavit in support of the application before opposing the Replying Affidavit of the Respondent dated and filed on 9th August, 2024 on the following grounds:a.That it was apparent that the Respondent was fully aware of the Judgment of the Tribunal that had directed the Respondent to comply with the Tribunal's judgement (i.e. refund the Appellant with the sum of Kshs 2,424,665. 00) within 60 days from the date of Judgement delivered.b.That whereas the Respondent claimed that it was not in disobedience of the Judgement of the Tribunal, to date the refundable amounts had not been paid. More than 100 days from the date of the Respondent being served with the Demand Letter dated 25th March 2024 had lapsed, yet the Respondent had not cared to comply with the Judgement of the Tribunal despite promising that it would make the payments (partially) on or before 31st July 2024. c.That the Respondent has not adduced any order of stay either from this Tribunal or the High Court suspending the enforcement and compliance with the judgment of this Tribunal and that the High Court does in in itself operate as stay to the judgment of the Tribunal.d.That in further response to the Respondent's Replying Affidavit, whereas the Respondent claimed that its request in its electronic mail dated 19th July 2024 was to ascertain what was refundable, the converse was that the electronic mail as well as the letter from the Respondent actually sought documentation with the view of auditing the refund claim with a timeline of 7 days, in default of which, the Respondent indicated that it would disallow the "refund claim”.e.That, accordingly, it could only be construed from the content of the Respondent's letter and electronic mail of 19th July 2024, that the Respondent had no intention of complying with the Order of the Tribunal and was instead seeking to sit on appeal against the decisions of this Tribunal, by purporting to re-audit the refund claims as opposed to making payments in compliance with the Judgement[s] of the Tribunal which is itself unlawful and a clear disobedience of an order of the Tribunal.f.That even as of the date of filing the Respondent's Replying Affidavit, no effort has been made by the Respondent to comply with the Judgment of the Tribunal and as such, the Appellant prayed that the Orders sought in the Application be granted.g.That in response to the allegation by the Respondent in its Replying Affidavit that it has an obligation to process the refunds in compliance with the provisions of Section 47 of the TPA, there was a Judgment of the Tribunal directing the Respondent to refund the sum of Kshs. 2,424,665. 00 by 10th May, 2024 (90 days [sic] from the date of the Judgment), the Respondent's claim that it is complying with the provisions of section 47 of the TPA had no basis in Law.h.That in any event, the Respondent had in the past conducted an audit review exercise in compliance with Section 47 of the TPA thereby leading to the issuance of the Refund rejection decision, which was the appealable decision subject for consideration by this Tribunal. Accordingly, the purported compliance with section 47 of TPA post Judgement had no basis in law.

5. On 8th August, 2024, both parties were directed to file and serve their respective submissions on or before 15th August, 2024. Both parties complied.

Analysis And Findings 6. The purport of the orders being sought by the Appellant through its Application dated 31st July, 2024 and filed on 1st August, 2024 was that the Respondent’s officer, the Commissioner of Domestic Taxes, has committed the offence of contempt against an Order of the Tribunal dated 9th February 2024 and as such, ought to be fined Kshs. 500,000. 00 or committed to civil jail for a period of 6 months for this offence.

7. The Respondent opposed the Application stating that it was aware of the Orders of the Tribunal and that the Appellant had it all wrong since it did not wilfully disobey the orders issued by the Tribunal and that it had instead been in constant communication with the Appellant, requesting documentation with a view to processing the Appellant’s refunds.

8. Section 21 of the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”) provides as follows regarding what is to be construed by the Tribunal 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.”

9. The Tribunal therefore has jurisdiction to determine whether there has been contempt of its proceedings or Orders and more specifically, the Orders issued vide its Judgement dated 9th February 2024.

10. The view of the Tribunal is that its Orders are neither mere recommendations nor suggestions. The Orders of the Tribunal are commands and the same must be complied with. The view of the Tribunal is reinforced by the following holding of J Mativo as he then was in the cited case of Samuel M. N. Mweru & Others V National Land Commission & 2 Others [Misc Civil Application No. 443 2017 -High Court- Judicial Review division] eklr:“I now address the question whether the Appellants 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.”

11. 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.”

12. 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. However, it is noteworthy that the judicial function of determining whether or not there has been contempt of its Orders is bestowed on the Tribunal through TATA. Such a function is not bestowed on the Appellant, who through its pleadings and prayers, made a presumption of the Respondent’s guilt.

13. 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.

14. 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.”

15. The Tribunal using the principles of law established 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] 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;”

16. The Tribunal notes that this Application stems from its Judgement which was delivered on 9th February 2024 wherein its Orders were as follows:“a)The Appeal be and is hereby allowed;b)The Respondent’s refund decision dated 25th November 2022 be and is hereby set aside;c)The Respondent to process the refund of excess input VAT within sixty (60) days of the date of delivery of this Judgement; andc)Each party to bear its own costs.”

17. The Tribunal, 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 9th February, 2024. The Tribunal then ordered the Respondent to process the refund in 60 days. In order for a refund claim to be processed, the provisions of section 47 of the TPA which are drafted in mandatory terms must be complied with. The onus was therefore on the Appellant to immediately pursue and make a refund application according to the procedure set out in section 47 of the TPA, and it did so in the approved format, both on I-Tax and through a letter.

18. The Tribunal notes the following provisions of Section 47 (1) and (5) of the TPA on how overpaid taxes are refunded:“47. Offset or refund of overpaid tax(1)Where a taxpayer has overpaid a tax under any tax law, the taxpayer may apply to the Commissioner, in the prescribed form—(a)to offset the overpaid tax against the taxpayer's future tax liabilities; or(b)for a refund of the overpaid tax within five years, or six months in the case of value added tax, after the date on which the tax was overpaid.(2)The Commissioner shall ascertain and determine an application under subsection (1) within ninety days and where the Commissioner ascertains that there was an overpayment of tax—(a)in the case of an application under subsection (1)(a), apply the overpaid tax to such future tax liability; and(b)in the case of an application under subsection (1)(b), refund the overpaid tax within a period of two years from the date of the application.(3)Where the Commissioner fails to ascertain and determine an application under subsection (1) within ninety days, the same shall be deemed ascertained and approved.(4)The Commissioner may, for purposes of ascertaining the validity of an application under subsection (1), subject the application to an audit.(5)Where the application is for a refund of tax under subsection (1)(b), the Commissioner shall apply the overpayment in the following order—(a)in payment of any other tax owing by the taxpayer under the specific 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.”

19. The Tribunal has sighted the evidence adduced by the Appellant in this Application and notes that the Appellant made an application for the refund in the approved format and that this was not the issue for the Respondent. The Respondent must comply with the provisions of Section 47 of the TPA as outlined above. This section lays down the procedure to be followed for applying and processing of a refund of overpaid tax.

20. 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, the Orders were for the Respondent to “process the refund application in 60 days”. It cannot therefore be said that the Appellant delayed in making its application. However, in processing the Refund, the Respondent though compelled to comply with the provisions of section 47 of the TPA failed to do so in the requisite 60 days.

21. The Tribunal has therefore, based on the tests outlined in Samuel M. N. Mweru and Others V National Land Commission & 2 Others [Misc Civil Application No. 443 2017- High Court- Judicial review division] found that the terms of its Orders were clear and unambiguous to the Respondent as well as binding upon it, second the Respondent had knowledge of or proper notice of the terms of its Orders and third, the Respondent acted in breach of the terms of its Orders.

22. The Tribunal will proceed to determine whether the Respondent’s conduct was deliberate. In doing so, the Tribunal must consider the electronic mail by the Respondent dated 3rd July, 2024 wherein its officer stated the following:“we are hopeful of finalising at least three claims worth Shs. 14. 2 million by month end.”

23. The Tribunal notes that the Respondent was compelled to comply with the provisions of Section 47 of the TPA in processing the refund claim and it was in fact hopeful that it would finalise the claims by month end. The Tribunal also notes the letter by the Respondent, dated 26th April 2024 as well as the electronic mail by the Appellant dated 8th July, 2024. It is clear that the parties were engaging and the refund was being processed. As to whether the disobedience of the Orders was in bad faith and malicious, it would be difficult for the Tribunal to make a finding since neither the evidence adduced by the Appellant nor its averments were sufficient in proving that the Respondent’s conduct was deliberate. As held in Mutitika v. Baharini Farm Limited [1985] KLR 229, 234 the Court of Appeal] [supra], “the standard of proof in contempt proceedings is higher that the balance of probabilities though not beyond reasonable doubt”.

24. The Tribunal therefore finds that the officer(s) of the Respondent were not contemnors and sees no reason to grant the Appellant’s prayers.

25. Finally, in making its findings in TAT Appeal No. s 182 of 2020; 1023 of 2022 and E004 of 2023 all of which dealt with the same subject as hereinabove, reference was made to the Contempt of Court Act, CAP 8F of the Laws of Kenya. However, it has since come to the notice of the Tribunal that this Act of Parliament was declared unconstitutional by the High Court, Constitutional and Human Rights Division, in the case of Kenya Human Rights Commission vs. Attorney-General [Constitutional Petition Number 87 of 2017] and the Tribunal stands corrected accordingly.

Disposition 26. Based on the foregoing analysis, the Tribunal finds that the Application lacks merit and accordingly proceeds to make the following Orders:a.The Application be and is struck out.b.No orders as to costs.

27. It is so Ordered.

DATED AND DELIVERED AT NAIROBI THIS 7TH DAY OF OCTOBER, 2024. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. N’GANG’A - MEMBEROLOLCHIKE S. SPENCER - MEMBER