[2022] KEHC 10839 (KLR)

Renovo Ltd v Kenya Revenue Authority (Criminal Revision E381 of 2021) [2022] KEHC 10839 (KLR) (Crim) (2 June 2022) (Ruling)

Neutral citation: [2022] KEHC 10839 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Criminal

Criminal Revision E381 of 2021

LN Mutende, J

June 2, 2022

Between

Renovo Ltd

Applicant

and

Kenya Revenue Authority

Respondent

Ruling

1. Kenya Revenue Authority (KRA), the Respondent, approached the subordinate court pursuant to the provisions of Sections 118,120,121(1) of the Criminal Procedure Code (CPC) and Section 60(1) (3) of the Tax Procedure Act. No. 29 of 2015 seeking issuance of a search warrant to No. 237689 Inspector (IP) Elizabeth Karimi, an Investigator with DCI attached to KRA Police Unit so as to search business premises stated to belong to Renova Limited, the applicant herein in order to take possession of records, documents, data storage devices, goods, equipment and other relevant items for purposes of investigating tax fraud. This was following preliminary Investigations that had been conducted which revealed that the applicant had evaded payment of tax amounting to Kshs. 1,334,049,567/-

2. The subordinate court considered the application and authorized the investigator to enter the premises and conduct the search. This was done and various items were seized.

3. By an application dated 14th day of October, 2021 the applicant seeks immediate and unconditional release of Its records, documents and data storage devices seized from its business premises on 13th October which were detailed in an inventory.

4. The application is premised on grounds that ex-parte orders issued by the Lower Court on 5th October, 2021 were to be complied with on or before the 8th October, 2021; In obtaining the ex-parte orders the Respondent used tax information associated with PIN Number xxxx belonging to Golden Capa Investments Limited, an unknown third party to allegedly claim tax; details which were unknown to the applicant and thereby misleading the Lower Court into issuing the impugned search and seizure orders of 5th October, 2021 against the applicant for a tax claim belonging to the third party an act that was prejudicial to the applicant.

5. That the orders of the court were executed five (5) days after they had lapsed without any notice or extension which means that the Respondent usurped the powers of the courts to engage in an irregular and prejudicial fishing expedition and the actions have completely crippled the business and operations of the applicant.

6. That the applicant has not been issued by the Respondent with a notice of intention to issue an assessment under Section 31 of the Tax Procedures Act or an actual assessment of amount alleged by the Respondent been subjected to a fair administrative action under the Tax Procedures Act to warrant seizure of it’s documents, records and data storage devices which calls for the orders issued in Millimani CM Misc. Criminal Application No. E3386 of 20 to be revised and set aside and the Respondent to be ordered to immediately and unconditionally release to the applicant all records, documents and data storage devices seized from the applicant’s business premises on 13th October, 2021.

7. And, that the continued subsistence of the lower court’s Order amount to infringement of the applicant’s right to property under Article 40 of the Constitution of Kenya, 2010; and, the right to privacy and fair hearing under Article 50 of the Constitution.

8. The application is supported by an affidavit sworn by Joram Gatei a Director of the applicant who reiterates what is stated on the body of the application.

9. On 29th November, 2021, Mr. Robert Mutuma, Prosecution Counsel filed grounds of opposition to the application where he stated that the applicant had not demonstrated reasonable grounds upon which the court could revise and/or vary the orders issued in Misc. Appl. No. E3386 of 2021 and the applicant had not applied to the trial court for release of records, documents, and data storage devices which meant that prayer 4 of the application was premature. He called for the dismissal of the application.

10. Further, a replying affidavit of the same date, 29th November, 2021 was deposed by No. 237689 IP Elizabeth Karimi who averred that investigations that necessitated issuance of search warrants on 5th October, 2021 were against the applicant herein, an entity that deals with sale of products to supermarkets and not any other entity.

11. That a proper description of the applicant and its premises was sufficient to warrant issuance of the warrant. That although the PIN indicated in the application was that of Golden Cara Investments Limited the registered tax obligations disclosed to wit; VAT, PAYE, and Income Tax were those of the applicant; an inadvertent error that did not prejudice the applicant as the search was intended against them.

12. That on 8th October, 2021 the Respondent sought extension to execute the order which was granted hence execution being undertaken on 13th October, 2021 and the inventory made was filed in court and the file was closed. That no right to property and fair hearing was infringed and if an order is made to release the applicant’s records and data storage devices seized, the Respondent shall suffer irreparable damage since documents obtained are useful in the tax investigations against the applicant.

13. The applicant filed a supplementary affidavit where it was averred that the Respondent is tasked with the responsibility of issuing PINS to all juristic and natural adult persons, therefore, it is inconceivable that It would not disclose the particulars of VAT, PAYE and Income Tax associated with the applicant’s PIN before the Lower Court on one hand, while it swears that the said PIN xxxx did belong to the applicant.

14. That CM. Misc. Criminal Application No. E3386 of 2021 at the lower court was withdrawn by the Respondent before the instant application came up for hearing on 10th November, 2021 and no reasons were advanced as to why the Respondent continues to hold the applicant’s properties an action that infringes upon the appellant’s property rights as envisaged in the Constitution. That withdrawal of the matter under Section 87 (a) of the Criminal Procedure Code (CPC) could challenge the seizure order that violated the applicant’s right to privacy as the applicant’s property was seized and thereafter continues to be held without lawful authority and/or court order contrary to Section 31(b) of the Constitution.

15. That the applicant has instructed Its advocate to apply for release of the seized properties in the lower court, an application that has been scheduled for directions on 16th December, 2021. That the Respondent has failed to show what prejudice it will suffer if seized properties are released as provided by Section 60(3) of the Tax Procedure Act.

16. I have considered the application, affidavits in support and opposition, authorities cited and rival submissions by counsels for the applicant and respondent.

17. The application was filed pursuant to the Provisions of Section 362 and 364 of the Criminal Procedure Code (CPC). According to the revisional jurisdiction provided, this court is mandated to call for the record of the order made by the subordinate court where an appeal does not lie in that respect so as to correct illegal or any material with an irregularity in their respect. It was therefore incumbent upon the applicant to demonstrate that the lower court in the course of exercising its jurisdiction acted either illegally or irregularly.

18. The impugned order was issued following an application that was made pursuant to the provisions of Section 118, 120 and 121(1) of the CPC and Section 60(1) of the Tax Procedures Act. Section 118 of the CPC provides that:Power to issue search warrant Where it is proved on oath to a court or a magistrate that anything upon, with or in respect of which an offence has been committed, or anything which is necessary for the conduct of an investigation into an offence, is, or is reasonably suspected to be, in any place, building, ship, aircraft, vehicle, box or receptacle, the court or a magistrate may by written warrant (called a search warrant) authorize a police officer or a person named in the search warrant to search the place, building, ship, aircraft, vehicle, box or receptacle (which shall be named or described in the warrant) for that thing and, if the thing be found, to seize it and take it before a court having jurisdiction to be dealt with according to law.

19. A court of law is clothed with the discretion to issue an order ex-parte as long as it is proved on oath that there is need to have the order sought issued. What should be established is that an offence has or is about to be committed.

20. The Respondent herein moved to the Lower Court to obtain warrants of search because it found it necessary to investigate alleged tax evasion, undeclared income tax and sums for Value Added Tax (VAT). The appropriate procedural law would be Income Tax Act, (ITA) Value added Tax (VAT) and the Tax Procedures Act (TPA) that was specifically enacted to provide for the procedure of administration and tax collection. The power of search and seizure is provided for in Section 60(1) (3) of the Tax Procedures Act that provide thus:(1)The Commissioner or an authorised officer shall, with a warrant, have full and free access to any building, place, property, documents, or data storage device for the purposes of administering a tax law.(3)In the exercise of the power under subsection (1), the Commissioner or authorised officer may—(a)Make an extract or copy of any documents or information stored on a data storage device to which access is obtained under subsection (1);(b)Seize any documents that, in the opinion of the Commissioner or authorised officer, may be material in determining the tax liability of a taxpayer and retain such documents for the period specified in subsection (9);(c)Seize and retain a data storage device when a physical copy or electronic copy of information stored on the device has not been provided for in the period specified in subsection (9);(d)Require the owner or lawful occupier (including an employee) of a building or place to which access is obtained under subsection (1) to answer questions relating to any document found in the building or place, whether on a data storage device or otherwise, or to any entry in the document, and to render such explanation and give any information that the Commissioner or authorised officer may require in relation to a tax law;(e)Require the owner or lawful occupier (including an employee) of a building or place to which access is obtained under subsection (1) to provide access to decryption information necessary to decrypt data to which access is sought under this section;(f)At the risk and expense of the occupier of the premises to which access is obtained under subsection (1), open and examine any package found in the premises; or(g)Take and retain without payment such reasonable samples of any goods as the Commissioner or authorised officer may think necessary for the exercise of functions under a tax law.

21. Under the ITA and VAT the Respondent herein has the authority to enter and search a premises. Section 31(1) of the VAT Act Provides thus:(1)Subject to this section, the Commissioner may amend an assessment (referred to in this section as the “original assessment") by making alterations or additions, from the available information and to the best of the Commissioner's judgement, to the original assessment of a taxpayer for a reporting period to ensure that—(a)In the case of a deficit carried forward under the Income Tax Act (Cap. 470), the taxpayer is assessed in respect of the correct amount of the deficit carried forward for the reporting period;(b)In the case of an excess amount of input tax under the Value Added Tax Act, 2013 (No. 35 of 2013), the taxpayer is assessed in respect of the correct amount of the excess input tax carried forward for the reporting period; or(c)In any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates.

22. Section 119 of the Income Tax Act provides as follows:(1)If an officer of the rank of Principal Revenue Officer or above authorized by the Commissioner to inquire into the affairs under this Act of any person satisfies a magistrate that the person has committed, or is reasonably suspected of committing, an offence under this Act, the magistrate may by warrant authorize the officer to exercise all or any of the following powers—(a)To enter any premises between sunrise and sunset to search for money, documents or other articles relevant to the inquiry;(b)To open, or remove from the premises and open, any container, box or package in which it is suspected that money, documents or relevant articles are contained;(c)To seize money, documents or relevant articles which may be necessary for the inquiry or for the purpose of civil or criminal proceedings and to retain them for as long as they are so required: Provided that—(i)In the case of documents held by a banker the powers of the officer under this section shall be limited to making copies or extracts therefrom;(ii)Signed receipts of the documents and the relevant articles seized shall be provided to the suspected person.(2)In the exercise of powers authorized by under subsection(1)Of this section, the officer shall require a police officer to be present during the exercise thereof and any police officer so required shall comply with such requirement.(3)For the purposes of subsection(1)0f this section, the magistrate may require the officer or any other person to give such evidence on oath as may be necessary to satisfy him that the person whose affairs are the subject of inquiry has committed, or is reasonably suspected of committing, the offence concerned.Section 120 of the ITA provides as follows:(1)Notwithstanding anything to the contrary in any provision or rule of law, an officer authorized by the Commissioner to inquire into the affairs of a person for any of the purposes of this Act shall at all times have full and free access to all lands, buildings, and places, and all books and documents, whether in the custody or control of a public officer, of a body corporate or of any other person whatever, for the purpose of inspecting books and documents or for any other purpose he may consider relevant to the inquiry, and may make extracts from or copies of those books or documents.(2)An officer acting under subsection (1) of this section may require the owner or manager of any property or business, or any person employed in connexion with such property or business, or any other person, to give him all reasonable assistance and to answer all proper questions relating to such inquiry, either orally or in writing and for that purpose may require the owner or manager, or in the case of a company an officer of the company, or such other person, to attend at the premises with him.

23. It is urged and ultimately not denied that at the outset, the application was premised on a wrong PIN that belonged to a third party which the Respondent terms inadvertent or erroneous. The affidavit evidence presented by the Respondent showed that the applicant company was being investigated for tax evasion and undeclared income tax. This indeed disclosed an offence under the law. When an investigator seeks search warrants to obtain information, it will be evidence that would be for purposes of establishing if an offence has been committed or not. In the case of Vitu Limited vs. The Chief Magistrate Nairobi & 2 others; HC. Misc. Criminal Application No. 475 of 2004 Osiemo J. Stated that:“It is therefore expected that when a police officer or any other investigator approaches the Court for a warrant, there must be reasonable suspicion of an offence being about to be committed or having been committed…”

24. In the case ofRepublic vs. Chief Magistrate Milimani and Another, Exparte Tusker Mattresses Ltd & 3 others (2013) eKLR it was stated that:“The Court must in such circumstances take care not to trespass into the jurisdiction of the investigators or the Court which may eventually be called upon to determine the issues hence the Court ought not to make determinations which may affect the investigations or the yet to be conducted trial. That this Court has power to quash impugned warrants cannot be doubted. However, it is upon the ex parte applicant to satisfy the Court that the discretion given to the police to investigate allegations of commission of a criminal offence ought to be interfered with. It is not enough to simply inform the Court that the intended trial is bound to fail or that the complaints constitute both criminal offence as well civil liability. The High Court ought not to interfere with the investigative powers conferred upon the police or the Director of Public Prosecution unless cogent reasons are given for doing so... The warrants were issued to enable the allegations be investigated. Whether or not the investigations will unearth material which will be a basis upon which a decision will be made to commence prosecution of the ex parte applicants or any of them is a matter which is premature at this stage to dwell on.”

25. At the outset averments by IP Karimi, a Police Officer attached to KRA were sufficient to move the court to grant warrants under the Income Tax Act as read with Section 44 and 49 of the Tax Procedure Act. A notice was not a requirement

26. It is however worth noting that as aforestated the Itax PIN was erroneous. Such a PIN could therefore not have been used to penalize the applicant unless the document had been amended and/or rectified. What is therefore apparent is that although warrants of search and seizure were obtained pursuant to the law, the inadvertent error as alleged by the Respondent infringed on the right to property. This would call upon the court not to allow such warrants to stand which would call for intervention.

27. However, there are special circumstances that arose as the application herein was pending hearing. After the inventory was filed the application was withdrawn pursuant to the provisions of Section 87(a) of the Criminal Procedure Code (CPC). This having been the case, procedurally items seized should have been released to the owner upon an application being made to that effect, an action that has been undertaken as deposed in the supplementary affidavit.

28. The applicant also referred this court to the provisions of Section 60(9) and (10) of the Tax Procedure Act which provide that:(9)The Commissioner or an authorised officer shall not retain any document or a data storage device seized under this section for a period longer than six months unless the document or data storage device is required for the purposes of any proceedings under this Act or any other written law.(10)This section shall have effect despite— (a) any law relating to privilege or the public interest with respect to access to premises, or the production of any property or documents, including documents in electronic format; or (b) any contractual duty of confidentiality.

29. By law the Respondent’s power to detain the property that was seized lapsed in April, 2022. Therefore the Respondent’s further retention of the properties would be an illegality and prejudicial to the applicant.

29. From the foregoing due to special circumstances alluded to, there is nothing warranting revision. The appellant may seek release of the items seized by the Respondent in the Lower Court.

29. It is so ordered.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 2ND DAY OF JUNE, 2022. L. N. MUTENDEJUDGEIN THE PRESENCE OF:Ms. Kibathi for the RespondentMutai - Court Assistant