[2024] KETAT 1470 (KLR)

Morgan Air and Sea Freight Logistics Kenya Ltd v Commissioner of Domestic Taxes (Tax Appeal E003 of 2023) [2024] KETAT 1470 (KLR) (7 October 2024) (Ruling)

Neutral citation: [2024] KETAT 1470 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E003 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 the 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.0. 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 26th January 2024, in that being aware of the order made by the Tribunal in the said Judgement on 26th January 2024 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 the 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 by a Judgment delivered on 26th January 2024, the Tribunal set aside the Respondent's refund decision and directed the Respondent to refund the Appellant the sum of Kshs 11,390,241. 38, within sixty days from the date of the Judgement, which lapsed on 26th March 2024. b.That attempts by the Appellant from the date of the Judgement till to date, to have the amounts refunded have turned out to be futile.c.That the continued refusal by the Respondent to pay the Appellant's refunds negatively impacted the Appellant's cash flow.d.That it was apparent that the Respondent deliberately sought to frustrate and/or undermine the effect of the express Judgement and Orders of the Tribunal, which was a complete disdain towards this Tribunal.e.That in the circumstances, the Respondent is and continued to be in wilful and blatant contempt of the Orders made by the Tribunal on 26th January 2024, which conduct ought to be deprecated upon by the Tribunal.f.It 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 the 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 its officer, Hezron Ligare on 9th August 2024 on the following grounds:a.That there is no wilful disobedience of the orders issued by this Tribunal by the Respondent.b.That after the Judgement was delivered on 26th January 2024 by the Tribunal, the Appellant applied for the refund of Kshs 11,390,241. 38. c.That the Respondent had instructed its Counsel on record to lodge an Appeal vide Notice of Appeal on 23 February 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 further the Respondent filed an Appeal at the High Court being Milimani ITA E066 of 2024 on 22 March 2024 and had the same served upon at jacques.botes@morgancargo.com being the Appellant’s authorized representative.e.That notwithstanding the aforementioned facts on Appeal, the Appellant and Respondent herein have had constant communication with a view of having the issues sorted out amicably.f.That further to the above, the Respondent confirmed that the electronic mail dated 19th July 2024 requesting the Appellant to provide the listed documents was done in good faith with the sole intention of Affirming that the figures quoted are accurate.g.That the said electronic mail was clear that the request was to enable the Respondent to process the refund claim.h.That the request aimed to avoid instances where there are errors which if paid in the absence of such documents would lead to loss of public funds and that no prejudice would be occasioned on the Appellant if it availed the documents requested.i.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.j.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 at paragraphs 3 and 5 of the Respondent's Replying Affidavit it was apparent that the Respondent was fully aware of the Judgment of this Tribunal that had directed the Respondent to comply with this Tribunal's Judgment (i.e. refund the Applicant with the sum of KES. 11,390,241. 38) within 90 days from the date of Judgment (24th January 2024).b.That whereas the Respondent claims that it was not in disobedience of the Judgment of this Tribunal, to date, the refundable amounts have not been paid. It should be recalled that more than 100 days from the date of being served with the Demand Letter dated 25th March 2024 upon the Respondent, has since lapsed, yet the Respondent had not cared to comply with the Judgment of the Tribunal despite promising that it would make the payments (partially) on or before 31 July 2024. c.That in response to the contents of paragraphs 6 and 7 of the Respondent's Replying Affidavit, the Respondent has not adduced any order of stay either from this Tribunal or the High Court suspending the enforcement and compliance with the Judgement of this Tribunal.d.That an appeal to the High Court did not in itself operate as stay to the judgement of the Tribunal and accordingly, the Appellant requested the Tribunal to grant its prayers in the contempt application as there were no stay orders in place barring compliance with the lawful order of the Tribunal.e.That in response to the allegations contained at paragraphs 9 to 14 of the Respondent's Replying Affidavit, whereas the Respondent claimed that its request in its electronic mail dated 19 July 2024 was to ascertain what was refundable, the converse is 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."f.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 has ignored the Tribunal's Decision and was in fact seeking to sit on appeal against the Decision 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.g.That even as of the date of filing the Respondent's Replying Affidavit, no effort has been made by the Respondent in complying with the Judgment of the Tribunal and as such, the Applicant prays that the orders sought in the Application be granted.h.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 and that since there is a clear and express Judgement of the Tribunal directing the Respondent to refund the sum of Kshs. 11,390,241. 38, on or before 25th May 2024 (90 days from the date of the Judgment), the Respondent's claim that it is complying with the provisions of section 47 of the TPA has 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 Appellant moved this Tribunal for a determination that the Respondent and more specifically, its officer, Mrs. Rispah Simiyu as the Commissioner of Domestic Taxes acted in contempt of the Orders of this Tribunal.

7. Section 21 of the TATA provides for an offence known as Contempt of Tribunal. In particular, the following are its provisions:‘‘Any person who—a.insults a member or an employee of the Tribunal in relation to exercise of powers and functions under this Act, orb.interrupts the proceedings of the Tribunal; orc.creates a disturbance or takes part in creating a disturbance in or near a place where the Tribunal I sitting; ord.does any other act or thing that would, if the Tribunal were a court of law, constitute a contempt of that court, 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.’’

8. 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 8th March, 2024. In the case of Econet Wireless Kenya Limited Vs Minister for Information and Communication of Kenya Authority [2005] eKLR Hon Justice Ibrahim (as he then was) stated as follows:“It is essential for the maintenance of the rule of law and order that the authority and the dignity of our courts are 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 whom an order is made by court of competent jurisdiction, to obey it unless and until the 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 the order believes it to be irregular or void.’’

9. In T.N Gadavarman Thiru Mulpad v Ashok Khot and Another [2005] 5 SCC, the Supreme Court of India in emphasizing the dangers of disobeying court orders held as follows:“Disobedience of this Court's order strikes at the very root of the rule of law on which the judicial system rests. The rule of law is the foundation of a democratic society. Judiciary is the guardian of the rule of law. Hence, it is not only the third pillar but also the central pillar of the democratic State. If the judiciary is to perform its duties and functions effectively and remain true to the spirit with which they are sacredly entrusted to it, the dignity and authority of the Courts have to be respected and protected at all costs. Otherwise, the very corner stone of our constitutional scheme will give way and with it will disappear the rule of law and the civilized life in the society. That is why it is imperative and invariable that Court's orders are to be followed and complied with.’’

10. As provided under section 21 of the TATA, contempt of the Tribunal is an offence and the same must be handled with care because a Contemnor may end up in jail. In Gatharia K. Mutikika – vs Baharini Farm Ltd [1985] KLR 227 it was held that as follows:“A contempt of court is an offence of a criminal character. A man may be sent to prison. It must be proved satisfactorily. It must be higher than proof on a 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 criminal cases. It is not safe to extend it to offences which can be said to be quasi-criminal in nature.’’

11. In the light of the gravity of the personal consequences that would ordinarily flow from a finding of contempt, the law requires proof that the order in question was brought to the attention of the alleged contemnor as proof that he/she had personal knowledge of said order. In Oilfield Movers Ltd v Zahara Oil & Gas Limited [2020] eKLR the court state as follows:“It is important however that the court satisfies itself beyond any shadow of a doubt that the person alleged to be in contempt committed the act complained of with full knowledge or motive of the existence of the order of the court forbidding it. The threshold is quite high as it involves possible deprivation of a person’s liberty.”

12. The Tribunal is of the view that since contempt may deprive someone of their constitutional liberties, it is necessary that number factors have been satisfied before deciding on contempt. To this end, in Samuel M. N. Mweru & Others v National Land Commission & 2 others [2020] eKLR, the court stated the following:‘‘It is an established principle of law that in order to succeed in civil contempt proceedings, the Appellant has to prove (i) the terms of the order, (ii) Knowledge of these terms by the Respondent, (iii). Failure by the Respondent to comply with the terms of the order. Upon proof of these requirements the presence of wilfulness and bad faith on the part of the Respondent would normally be inferred, but the Respondent could rebut this inference by contrary proof on a balance of probabilities.”

13. These principles are discussed hereunder in relation to this Application. With regards to the first principle, the Appellant has been able to demonstrate that the Tribunal made an Order, which the Respondent is yet to comply with. With regards to the second principle, the Tribunal having perused the Appellant’s correspondence is certain that the Respondent was made aware of the Tribunal’s decision. Secondly, from the Respondent’s replying affidavit, it is clear that the Respondent knew the terms of the Orders that the Tribunal issued.

14. The Tribunals view is that the Respondent has not implemented the Orders but that it would be vital to determine whether failure to implement the Orders was wilful and coupled with bad faith on the part of the Respondent.

15. The Respondent raised two lines of defence for failure to execute the terms of the Judgement. The first was that the Appellant’s claim was a refund issue which is governed by section 47 of the TPA and that the Respondent has to subject the application to an audit. The second line of defence was that the Respondent lodged an Appeal. Whereas the Respondent raised the provisions of section 47 of the TPA as one of its lines of defence, Tribunal will not take review the same because the Tribunal already issued a Judgement in favour of the Appellant.

16. 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 26th March, 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.

17. The Tribunal notes the following provisions of Section 47 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.”

18. 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.

19. 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 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 seems to have failed to do so in the requisite 60 days.

20. The Tribunal will proceed to determine whether the Respondent’s action was deliberate. On 25th March, 2024 the Appellant wrote to the Respondent informing it that it had lodged the refund claims on i-Tax and that it needed to re-lodge the refund claims since there was an error in the system. In this regard, the Respondent replied to the Appellant’s letter on 26th April, 2024 and informed the Appellant to liaise with its officers to re-lodge claims. Through an electronic mail dated 8th July, 2024 the Appellant’s tax agent informed the Respondent that it had relodged the claims on 3rd July, 2024.

21. The Tribunal notes that the Respondent replied a month later. However, in the electronic mail dated 8th July, 2024, the Appellant, through its agent alludes to the fact that it re-lodged its application on 3rd July, 2024; the Tribunal cited the refund application acknowledgement receipt. The Tribunal notes that the Respondent can only act once the Application for the refund is made and until such time, it cannot be said to have breached the Tribunal’s Orders. The Appellant’s tax agent stated as follows in the electronic mail dated 8th July, 2024:“Further we wish to confirm that the Taxpayer managed to re-lodge the refunds with respect to the other outstanding amounts as seen in the annexures below……” We therefore trust that the Commissioner will be able to effect the refund for the re-lodged refund claims as well…we shall await your action thereon.”

22. The Appellant’s tax agent attached documents to the electronic mail and this was different from the application for refund made on 3rd July, 2024. The Appellant re-lodged the refund application upon the request of the Respondent. The Tribunal notes that the Respondent is compelled to comply with the provisions of Section 47 of the TPA in processing refund claims. Since the last claim was re-lodged on or sometime around 3rd July, 2024, the Respondent could only have acted on the refund claim after that date and could not have been expected to have had a basis for retroactive action to enable it to comply with the Tribunal’s Orders by 26th March, 2024.

23. The Tribunal also finds that though, it would appear that the Respondent, acted in breach of the terms of its Order it could not have been said to have breached the Tribunal Order before 3rd July, 2024 as there was no basis for action by the Respondent to comply with the Orders of the Tribunal. From the preceding paragraphs the action of the Respondent, were neither deliberate nor wilful because the Respondent could only act once an application for a refund was properly made by the Appellant.

24. Consequently, the Tribunal finds that the Respondent’s officer[s] are 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. The upshot of the foregoing is that the Tribunal finds that this Application lacks merit and accordingly proceeds to make the following Orders:a.The Application be and is hereby 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