[2023] KEHC 22421 (KLR)

Mutiso v Commissioner of Domestic Taxes (Constitutional Petition E424 of 2020) [2023] KEHC 22421 (KLR) (Constitutional and Human Rights) (21 September 2023) (Judgment)

Neutral citation: [2023] KEHC 22421 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Constitutional and Human Rights

Constitutional Petition E424 of 2020

AC Mrima, J

September 21, 2023

Between

Stephen Kimathi Mutiso

Petitioner

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. On 7th April 2019, the Petitioner herein, Stephen Kimathi Mutiso, discovered that he was unable to access his personal account held in Kenya Commercial Bank, Gateway ParkBranch, (hereinafter referred to as ‘the Bank’) registered as Account No. 1101565322.

2. Upon meeting the Branch Manager, the Petitioner was informed that the Bank had received an Agency Notice from the Commissioner of Domestic Taxes, the Respondent herein, which declared the Petitioner an Agent of Cosmic General Trading Limited.

3. In the Agency Notice, the Respondent demanded Kshs. 19,245,444/- being tax due to the Respondent by Cosmic General Trading Limited.

4. On the foregoing, the Bank was directed to, and, froze the Petitioner’s account.

5. Dissatisfied with the decision, the Petitioner filed a Notice of Appeal on 30th April 2019 and a substantive Appeal on 13th May 2019 contesting the Agency Notice.

6. On 21st May 2019, the Petitioner filed an application under Certificate of Urgency to the Tax Appeal Tribunal (hereinafter referred to as ‘the Tribunal’) seeking to stay the operation of the Agency Notice.

7. On account the Respondent’s failure to file its response, hearing of the application did not proceed on 24th May 2019 and on 14th June 2019.

8. On 16th July 2019, the next hearing date, the Bank informed the Tribunal that the funds held in the Petitioner’s account had been remitted to the Respondent and as such the application had been overtaken by events.

9. The Petitioner, in agreement with the parties, resorted to pursuing the substantive appeal and to that end, the Tribunal directed that the hearing date would be issued on notice.

10. On 30th July 2020, the Tribunal delivered its judgment declaring that the Agency Notice was null and void. Accordingly, it ordered the orders thereon to be lifted. However, the issue of refund was not addressed.

11. Based on provisions of Section 32 of Tax Appeals Tribunal Act which requires Notice of Appeal from the Tribunal to be made within thirty days of judgment, the Petitioner claimed that none had been made within the specified timeframe and as such the Respondent did not intend to lodge an appeal.

12. On the foregoing and the fact that the Tribunal had not addressed the issue of remittance of the funds, the Petitioner filed for a Review of the Tribunal’s decision.

13. The Respondent opposed the review application through Grounds of Opposition dated 10th September 2020 stating that the Petitioner ought to file for refund in accordance to Section 47 of the Tax Procedures Act.

14. In its Ruling dated 13th November 2020, the Tribunal dismissed the Petitioner’s application.

15. It is the foregoing sequence of events that precipitated the instant Petition.

16. The Respondent opposed the Petition.

The Petition:

17. Through the Petition dated 16th December 2020, supported by the Affidavit of Stephen Kimathi Mutiso deposed to on a similar date, the Petitioner sought to vindicate violation of his constitutional rights.

18. The Petitioner pleaded that the Ruling of 13th November 2020 closed doors for any remedy before the tribunal.

19. He averred in a bid to create ingenious ways to deny him his money, on 14th December he received a letter dated 8th December 2020 from the Respondent claiming Kshs.2,582,882/- in respect to employees of Andrew & Steve Advocates, a Law Firm he practices as a Managing Partner.

20. The Petitioner pleaded that he did not have any employees in his personal capacity and the PAYE is in respect of another tax payer Andrew & Steve Advocates who is registered for PAYE and declared and paid all taxes due.

21. The Petitioner pleaded that the above has resulted in violation of his right to property otherwise guaranteed under Article 40 of the Constitution by the Respondent’s failure to refund the money.

22. The Petitioner was also aggrieved that his right to expeditious, lawful, efficient and procedurally fair administrative action provided for under provided for in Article 47 of the Constitution had been violated by the Respondent’s actions.

23. On the foregoing factual and legal background, the Petitioner prayed for the following reliefs;i.A declaration that the Petitioner’s right to property as protected under Article 40 of the Constitution have been infringed and violated by the Respondent failing to remit to the Petitioner funds that were seized vide an illegal agency notice.ii.A declaration that the Petitioner’s right to fair administrative action as provided for under Article 47 of the Constitution have been infringed and violated by the Respondent failing to act in a timely, expeditious, efficient, lawful, reasonable and procedurally fair process after receiving judgment of the Honourable Tribunal delivered on 30th July 2020. iii.A declaration be and is hereby issued that the Respondent has no jurisdiction and or discretion over funds remitted to it vide the illegal Agency Notice and that all consequential processes after the date of the agency Notice be declared null and void.iv.That a declaration be issued that the Provision of section 47 of Tax Procedures Act does not apply to the Petitioner in respect of the subject matter before this Court.v.That this Honourable Court be pleased to issue an Order directing the Respondent to immediately pay into the Account of the Applicant Stephen Kimathi Mutiso, registered at KCB Bank Gateway Branch Account No. 1101565322 Kshs. 1,510,033. 20 together with interest at Court’s rates from 21st May 2019 until payment is made in full and or interest from the date the judgment of the honourable tribunal dated 30th July 2020 failure which the Respondent be at liberty to execute the aforesaid funds.vi.General damages, exemplary damages and aggravated damages under Article 23(3) of the Constitution of Kenya 2010 for the unconstitutional conduct of the Respondent and its agents and/or servants.vii.A declaration that the conduct of the Respondent amounts to a gross miscarriage of justice.viii.Any further orders, writs, directions as this honourable Court may consider appropriate.ix.Costs of the Petition.The Submissions:

24. The Petitioner filed written submissions dated 18th August 2021 and supplementary submissions dated 11th December 2021.

25. In asserting that this Court had jurisdiction over the funds remitted to the Respondent vide the illegal Agency Notice, the Petitioner claimed that proprietary right to his funds had not been challenged either in the tribunal or before this Court.

26. As such, the Petitioner claimed that it would be unjust to the Petitioner for the Respondent to be allowed to exercise any jurisdiction over the refund of the Petitioner’s funds by subjecting him to Section 47 of the Tax Procedures Act.

27. In demonstrating inapplicability of Section 47 of the Tax Procedures Act, the Petitioner submitted that the said section in in respect of refund of overpaid tax and the modalities for its return.

28. It was his case that the funds in the account neither constituted tax or an overpayment of tax but the Petitioner’s private property illegally seized and held by the Respondent.

29. The Petitioner submitted that he had suffered great injustice and continues to from the period of unprecedented Covid-19 pandemic.

30. The Petitioner urged the Court to grant him general damages, exemplary damages and aggravated damages and to that end referred Court to the decision in Daniel Waweru Njoroge & 17 Others -vs- Attorney General [2015] eKLR and the one in Emmah Muthoni Njeri -vs- Nairobi Women’s Hospital [2021] eKLR on considerations for general damages. In the latter it was observed: -From the cited decisions, it is my conclusion that monetary compensation may be awarded where a petitioner’s rights have been violated in order to vindicate the infringed constitutional right. Moreover, an additional award may be made which will serve to vindicate the public and act as a deterrence to a respondent from carrying out other breaches.

31. In conclusion, he urged the Court to allow the Petition with costs.

The Respondent’s case:

32. The Commissioner of Domestic Taxes opposed the Petition through Grounds of Opposition dated 23rd July 2021.

33. It was its case that this Court does not have jurisdiction since the Petitioner failed to exhaust the laid-out mechanism sunder Section 47 of the Tax Procedures Act, 2015 which requires an application to the Respondent for a tax refund before moving to this Court.

34. It was its case that pursuant to provisions of Section 9(2) of the Fair Administrative Actions Act, this Court is, in protecting abuse of Court process, mandated to ensure that the doctrine of exhaustion is first complied with challenging administrative actions.

35. It therefore urged Court to dismiss the Petition to be struck out with costs.The Submissions:

36. In its written submissions dated 15th November 2021, the Respondent, in highlighting impropriety of the Petition stated that the Petitioner had not applied to for a refund under Section 47 of the Tax Procedure Act and was denied audience.

37. It was its case, therefore, that the doctrine of exhaustion caught up with the Petitioner. To that end, reference was made to various Court of Appeal decisions among them The Speaker of National Assembly -vs- James Njenga Karume (1992) eKLR where it was observed: -…. Where there is a clear procedure for redress of any particular grievance prescribed by the Constitution of an Act of Parliament, that procedure should be strictly followed.

38. On the foregoing, the Respondent submitted that the Tribunal had original jurisdiction and that this Court lacked jurisdiction to entertain the suit.

39. To lend credence to the foregoing position, the Respondent referred to Jimbise Limited -vs- Kenya Revenue Authority (2017) eKLR.

40. It was submitted that the Petitioner ought to have applied for a refund under Sections 3, 47,51 and 52 of the Tax Procedure Act 2015.

41. In the end, the Respondent submitted that it should be awarded costs for defending a suit that ought to have been presented before the Tribunal.

Analysis: 42. From the parties’ pleadings, the written submissions on record and the decisions rendered, there is only one issue for determination in this matter. It is whether the Petition is properly opposed on the basis of the doctrine of exhaustion.

43. As such, this Court will endeavour a brief legal tour of the doctrine.

44. This Court has on a number of occasions discussed the exhaustion doctrine. In an expanded Bench of the High Court in Mombasa High Court Constitutional Petition No. 159 of 2018 consolidated with Constitutional Petition No. 201 of 2019 William Odhiambo Ramogi & 3 others v Attorney General & 4 others; Muslims for Human Rights & 2 others (Interested Parties) (2020) eKLR, the Court stated as follows: -52. The question of exhaustion of administrative remedies arises when a litigant, aggrieved by an agency's action, seeks redress from a Court of law on an action without pursuing available remedies before the agency itself. The exhaustion doctrine serves the purpose of ensuring that there is a postponement of judicial consideration of matters to ensure that a party is, first of all, diligent in the protection of his own interest within the mechanisms in place for resolution outside the Courts. This encourages alternative dispute resolution mechanisms in line with Article 159 of the Constitution and was aptly elucidated by the High Court in R vs. Independent Electoral and Boundaries Commission (I.E.B.C) Ex Parte National Super Alliance (NASA) Kenya and 6 others [2017] eKLR, where the Court opined thus:

42. This doctrine is now of esteemed juridical lineage in Kenya. It was perhaps most felicitously stated by the Court of Appeal in Speaker of National Assembly v Karume [1992] KLR 21 in the following oft-repeated words:

Where there is a clear procedure for redress of any particular grievance prescribed by the Constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures. 42. While this case was decided before the Constitution of Kenya 2010 was promulgated, many cases in the Post-2010 era have found the reasoning sound and provided justification and rationale for the doctrine under the 2010 Constitution. We can do no better in this regard than cite another Court of Appeal decision which provides the Constitutional rationale and basis for the doctrine.

This is Geoffrey Muthiga Kabiru & 2 others – vs- Samuel Munga Henry & 1756 others [2015] eKLR, where the Court of Appeal stated that:It is imperative that where a dispute resolution mechanism exists outside Courts, the same be exhausted before the jurisdiction of the Courts is invoked. Courts ought to be fora of last resort and not the first port of call the moment a storm brews…The exhaustion doctrine is a sound one and serves the purpose of ensuring that there is a postponement of judicial consideration of matters to ensure that a party is first of all diligent in the protection of his own interest within the mechanisms in place for resolution outside the Courts. The Ex Parte Applicants argue that this accords with Article 159 of the Constitution which commands Courts to encourage alternative means of dispute resolution.

45. The Court also dealt with the exceptions to the doctrine of exhaustion. It expressed itself as follows: -59. However, our case law has developed a number of exceptions to the doctrine of exhaustion. In R. vs Independent Electoral and Boundaries Commission (I.E.B.C.) & Others ex parte The National Super Alliance Kenya (NASA) (supra), after exhaustively reviewing Kenya's decisional law on the exhaustion doctrine, the High Court described the first exception thus:

What emerges from our jurisprudence in these cases are at least two principles: while, exceptions to the exhaustion requirement are not clearly delineated, Courts must undertake an extensive analysis of the facts, regulatory scheme involved, the nature of the interests involved – including level of public interest involved and the polycentricity of the issue (and hence the ability of a statutory forum to balance them) to determine whether an exception applies. As the Court of Appeal acknowledged in the Shikara Limited Case (supra), the High Court may, in exceptional circumstances, find that exhaustion requirement would not serve the values enshrined in the Constitution or law and permit the suit to proceed before it. This exception to the exhaustion requirement is particularly likely where a party pleads issues that verge on Constitutional interpretation especially in virgin areas or where an important constitutional value is at stake. See also Moffat Kamau and 9 Others vs Aelous (K) Ltd and 9 Others.) 60. As observed above, the first principle is that the High Court may, in exceptional circumstances consider, and determine that the exhaustion requirement would not serve the values enshrined in the Constitution or law and allow the suit to proceed before it. It is also essential for the Court to consider the suitability of the appeal mechanism available in the context of the particular case and determine whether it is suitable to determine the issues raised.

61. The second principle is that the jurisdiction of the Courts to consider valid grievances from parties who lack adequate audience before a forum created by a statute, or who may not have the quality of audience before the forum which is proportionate to the interests the party wishes to advance in a suit must not be ousted. The rationale behind this precept is that statutory provisions ousting Court’s jurisdiction must be construed restrictively. This was extensively elaborated by Mativo J in Night Rose Cosmetics (1972) Ltd v Nairobi County Government & 2 others [2018] eKLR.

62. In the instant case, the Petitioners allege violation of their fundamental rights. Where a suit primarily seeks to enforce fundamental rights and freedoms and it is demonstrated that the claimed constitutional violations are not mere “bootstraps” or merely framed in Bill of Rights language as a pretext to gain entry to the Court, it is not barred by the doctrine of exhaustion. This is especially so because the enforcement of fundamental rights or freedoms is a question which can only be determined by the High Court.

46. The above decision was appealed against by the Respondents. The Court of Appeal in upholding the decision and in dismissing the appeal in Mombasa Civil Appeal No. 166 of 2018 Kenya Ports Authority v William Odhiambo Ramogi & 8 others [2019] eKLR held as follows: -The jurisdiction of the High Court is derived from Article 165 (3) and (6) of the Constitution. Accordingly, the High Court has unlimited original jurisdiction in criminal and civil matters, including determination of a question of enforcement of the bill of rights and interpretation of the Constitution encompassing determination of any matter relating to the Constitutional relationship between the different levels of government.At the High Court, we note that the learned Judges dealt with this matter under the question framed as follows: Is the court barred from considering the suit at present by virtue of Article 189 of the Constitution and sections 33 and 34 of Inter-Governmental Relations Act of 2012 (IGRA)? The parties have advanced similar arguments as before the learned Judges of the High Court. The High Court went further than just looking at the ruling by Ogola J. They also took into account the doctrine of exhaustion as enunciated in Republic vs. Independent Election and Boundaries Commission (IEBC) ex parte National Super Alliance (NASA) Kenya & 6 Others [2017] eKLR. They applied a dual pronged approach before concluding that the dispute was not an inter-governmental dispute under IGRA. First, they considered that the test for determining the matter as an inter-governmental dispute for purposes of application of IGRA was not simply to look at who the parties to the dispute were, but the nature of the claim in question and; secondly, they considered that the claimed Constitutional violations seeking to be enforced are not mere “bootstraps.” We have keenly addressed our minds to the learned Judges’ decision and are satisfied that they stayed within the expected contours and properly directed themselves. Once they determined that the dispute was not inter-governmental in nature, we do not think it is necessary to consider whether the petitioners had exhausted their legal avenue. Jurisdiction by the High Court under Article 165 (5) of the Constitution became automatic. And in our view, it could not be ousted or substituted.

47. Further, in Civil Appeal 158 of 2017, Fleur Investments Limited -vs- Commissioner of Domestic Taxes & another [2018] eKLR, the Learned Judges of the Court of Appeal relied on an earlier decision in Speaker of National Assembly vs Njenga Karume (1990-1994) EA 546 to assume jurisdiction by bypassing the mechanism under Income Tax Tribunal. They observed as follows: -23. For the reasons we have given earlier and others that will become apparent, there were definitely exceptional circumstances that existed in this case that were outside the ambit of the Income Tax Tribunal which called for intervention by way of judicial review. Whereas courts of Law are enjoined to defer to specialised Tribunals and other Alternative Dispute Resolution Statutory bodies created by Parliament to resolve certain specific disputes, the court cannot, being a bastion of Justice, sit back and watch such institutions ride roughshod on the rights of citizens who seek refuge under the Constitution and other legislations for protection. The court is perfectly in order to intervene where there is clear abuse of discretion by such bodies, where arbitrariness, malice, capriciousness and disrespect of the Rules of natural justice are manifest. Persons charged with statutory powers and duties ought to exercise the same reasonably and fairly.

48. Courts have in many occasions reiterated the position that where there are alternative avenues legally provided for in dispute resolutions, there should be postponement of judicial consideration of such disputes until after the available avenues are fully adhered to or unless it is adequately demonstrated that the matter under consideration falls within the exception to the doctrine of exhaustion.

49. Returning to the matter at hand, there is no doubt that the objection herein relates to Section 47 of the Tax Procedures Act (hereinafter referred to as ‘the Act’). Section 47(1) of the Act states as follows: -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 outstanding tax debts and 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.

50. The rest of Section 47 of the Act provides for the procedure on the refund. Section 47, therefore, deals with instances where a tax payer has overpaid tax. However, that is not the scenario in this matter. The prayers in the Petition captured verbatim hereinabove attests to that.

51. The Petition, therefore, relates to allegations of infringement of the Petitioner’s right to property under Article 40 of the Constitution in the manner the Respondent levied and have since maintained an illegal agency notice on the Petitioner’s account at the Bank.

52. The Petitioner is not claiming a refund of an overpaid tax. No, instead, he is decrying an infringement of his constitutional rights.

53. In such a case, directing the Petitioner to lodge a refund application under Section 47 of the Act will not accord him an appropriate forum that is proportionate to the interests he wishes to advance in the instant Petition. Further, whereas the Petitioner has sought for general damages, exemplary damages and aggravated damages as a result of the violation of his rights, the Commissioner has no powers to grant such a remedy under Act. The claim will, therefore, be unstainable before the Commissioner on account of jurisdiction.

54. It is, hence, apparent that the doctrine of exhaustion is exempted in this case. It cannot apply for the forum provided under Section 47 of the Act is not an appropriate one for the vindication of the Petitioner’s quest for constitutional remedies.

55. Having found as such, it comes to the fore that the Respondent’s opposition to the Petition fails.

56. This is a matter where the Respondent ought to have refunded the Petitioner’s money since the delivery of the judgment in the Tax Appeal Tribunal No. 187 of 2019 which was rendered on 30th July, 2020 since the Respondent opted not to appeal against the findings of the Tribunal.

57. The Respondent has instead taken a trajectory that reveal its unwillingness to refund the sums. It even opposed the Petitioner’s review application as well the Petition in full glare of the knowledge that it had no legal basis to continue withholding the Petitioner’s funds. Such a conduct, therefore, cannot be left to go scot-free.

58. Just as how the Respondent pursues tax collection with vigour, and at times ruthlessly, it also has a corresponding duty to readily refund all monies due for refund or which it is otherwise holding contrary to the law. The Respondent is not an entity which is above the law. As a caged animal, it can only move, but within the cage. The cage is the law.

59. It is, therefore, this Court’s finding that the Petitioner has proved his case against the Respondent. He has also made a case for damages.

Disposition: 60. Deriving from the foregoing, this Court hereby makes the following final orders: -

a. A declaration be and is hereby issue that the Respondent’s decision to continue withholding the Petitioner’s funds that were seized vide an illegal Agency Notice and which seizure was decreed as illegal by the Tax Appeal Tribunal in Appeal No. 187 of 2019 in a decision delivered on 30 th July, 2020 and which decision the Respondent never challenged, is a continuing violation of the Petitioner’s right to property as protected under Article 40 of the Constitution. The said decision is constitutionally infirm, null and void ab initio.b. An order of judicial review in the nature of a Certiorari be and is hereby issued, bringing the Respondent’s decision to continue withholding the Petitioner’s funds to this Court for quashing. The decision is hereby quashed.c. An order of judicial review in the nature of a Mandamus be and is hereby issued directing the Respondent to forthwith pay, and in any event not exceeding 14 days of this order, into the Petitioner’s Account at KCB Bank Gateway Branch Account No. 1101565322 the sum of Kshs. 1,510,033/20 which it has been illegally withholding. The said sum shall attract interest at Court rates from the 30th July 2020 failure to which the Petitioner be at liberty to levy execution.d. The sum of Kshs. 500,000/= (Read: Kenya Shillings Five Hundred Thousand Only) is hereby awarded as damages for the continued violation of the Petitioner’s right to property. The said amount shall attract interest at Court rates from the date of this judgment.e. Costs of the Petition to the Petitioner. 61. Orders accordingly.

DELIVERED, DATED andSIGNED atKITALE this 21st day ofSeptember, 2023. A. C. MRIMAJUDGEJudgment virtually delivered in the presence of:Miss. Mwaniki, Learned Counsel for the Petitioner.Miss. Gitau, Learned Counsel for the Respondent.Regina/Chemutai – Court Assistants.Judgment - Nairobi High Court Constitutional Petition No. E424 of 2020 Page 7 of 7