[2023] KETAT 607 (KLR)

UDV Kenya Limited v Commissioner of Domestic Taxes (Tax Appeal 669 of 2022) [2023] KETAT 607 (KLR) (29 June 2023) (Judgment)

Neutral citation: [2023] KETAT 607 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 669 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, Jephthah Njagi & AK Kiprotich, Members

June 29, 2023

Between

UDV Kenya Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya and is a registered taxpayer. The Appellant carries out the business of manufacturing and selling of both non-alcoholic and alcoholic drinks. The Appellant has breweries in Nairobi and Kisumu Counties.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 & 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Respondent examined excise duty returns for the Appellant for the period November 2021 to February 2022, and noticed that in as much as the Appellant filed its excise returns, it paid the amounts due based on rates provided in the revoked Legal Notice Number 194 of 2020.

4. On 21st March 2022, the Respondent issued an assessment of the underpaid excise duty tax by the Appellant of Kshs. 287,292,578. 00. The Respondent computed the variances between the amount payable based on the new rates provided in Legal Notice Number 217 of 2021 as tabulated below: -Principal Paid Variance Penalty &Interest Total TaxDue

Feb-22 1,239. 539,907 1,180,847,693 58,692,214 3,521,533 62. 213,747

Jan-22 1,125,627,704 1,072,329,233 53,298. 471 3,730,893 57,029,364

Dec-21 1,604,782,631 1,528,796,173 75,986,458 6,078,917 82,065. 375

Nov-21 1,665,987,072 1,587. )02,584 78,884,488 7,099,604 85,984,092

TOTAL 5. 635,937,314 5,369,075,683 266,861,631 20,430,947 287,292,57

5. On 20th April, 2022, the Appellant objected to the assessments raised against it by the Respondent. The objection was grounded on the fact that there was an active conservatory order emanating from Constitutional Petition No. E024 of 2021 (as consolidated with Petitions No. E491 of 2021 and E403 of 2021).

6. The Respondent confirmed the assessments against the Appellant vide an objection decision dated 12th May, 2022.

7. The Appellant, aggrieved by the said objection decision, filed a Notice of Appeal on 10th June, 2022.

The Appeal 8. The Appellant filed a Memorandum of Appeal dated and filed on 23rd June, 2022 in which it listed the following as grounds of appeal:a.That the Respondent erred and misdirected itself in failing to adhere to the status quo orders issued by the High Court in Constitutional Petition No. E024 of 2021 (as consolidated with Petitions No. E491 of 2021 & Petition No. E403 of 2021).b.That the Respondent’s demand has no legal basis as it is based on the impugned Legal Notice, which is void for being enacted contrary to the Constitution.c.That the Respondent erred in finding that the status quo order was ambiguous for providing the effective date of 20th December 2021 whereas the legal notice was in effect on 2nd November 2021, when it was the Respondent’s own Counsel who informed the Court that the effective date of the Legal Notice was 20th December 2021. d.That the Respondent erred in disregarding or ignoring the status quo order and violated the rule of law enshrined in Article 10 of the Constitution.e.That the Respondent’s demand is unreasonable in the circumstances and violates the Appellant’s right to fair administrative action provided under Article 47 of the Constitution.f.That the Respondent’s decision is null and void ab initio, having been made in violation of a lawful court order and in furtherance of an illegality.g.That the Respondent’s demand contravenes the Appellant’s legitimate expectation and right to protection of the law guaranteed under Articles 20, 21, 27 and 50(1) of the Constitution.

Appellant’s Prayers 9. Accordingly, the Appellant prays to the Honorable Tribunal for Orders that: -a.The Appeal be allowed.b.The Respondent’s objection decision dated 12th May, 2022 demanding the sum of Kshs. 287,292,578. 00 be set aside.c.This Honourable Tribunal be pleased to find that: -i.The Appellant was entitled to apply the excise duty rates existing before Legal Notice No. 217 of 2021 was gazetted; andii.The Respondent was not entitled to demand payment of Excise Duty based on the rates set out in Legal Notice No. 217 of 2021 during the subsistence of the status quo order issued on 19th November 2021 and extended by the Court.d.The costs of the Appeal be awarded to the Appellant.

Appellant’s Case 10. The Appellant’s case is premised on the following documents as filed.a.The Appellant’s Statement of Facts dated 23rd June 2022b.The Appellant’s written submissions dated 14th December 2022c.The Appellant’s Supplementary List and Bundle of Authorities dated 23rd March 2023

11. The Appellant filed its Statement of Facts dated 23rd June 2022 and stated that the Respondent wrote to it confirming the filing of the excise duty returns for the tax period in question but failed to pay the full tax due. That this variance resulted in a demand notice of an underpaid tax of Kshs. 287,292,578. 00

12. The Appellant averred that the facts giving rise to the Appeal are that the Commissioner General increased the excise duty rates for various products by 4. 97% to adjust for the prevailing inflation rates at the time. That the said adjustment was made pursuant to Section 10 of the Excise Duty Act (EDA), through Legal Notice No. 217 of 2021 dated 25th October 2021 and published on 2nd November 2021.

13. That the adjusted excise duty rates affected the following products manufactured by the Appellant:i.Spirits of undenatured ethyl alcohol, spirits liqueurs and other spirituous beverages of alcoholic strength exceeding 6% which were adjusted from Kshs 265. 50 to Kshs 278. 70 per litre; andii.Beer, cider, perry, mead, opaque beer and mixtures of fermented beverages with non-alcoholic beverages and spirituous beverages of alcoholic strength not exceeding 6% which were adjusted from Kshs. 116. 08 to Kshs. 125. 85 per litre.

14. That after the publishing of adjustments to the excise duty rates, the following Petitions were filed in the High Court challenging the constitutionality and validity of Legal Notice No. 217 of 2021:a.Petition No. E491 of 2021 (Mwaura Kabata v The Commissioner General Kenya Revenue Authority, Cabinet Secretary National Treasury & Planning Ministry & The Attorney General)

15. That on 11th November 2021, the Petitioner filed the above Petition challenging the implementation of the new rates and sought, inter alia, the following orders;a.A declaration that Legal Notice No. 217 of 2021 is unconstitutional for violating the provisions of the EDA and the Statutory Instruments Act;b.An order quashing Legal Notice No. 217 of 2021; andc.An order compelling the Respondent to adhere to the provisions of the EDA and the Statutory Instruments Act.

16. That simultaneously with filing the Petition, the Petitioner also filed an application for conservatory orders stopping the proposed adjustment of the excise duty rates through the impugned legal notice pending the hearing and determination of the application.

17. That on 19th November 2021, the High Court (Mr. Justice J.A Makau) issued the following order:“in view of the fact that the effective date shall be on 20th December 2021, that status quo be maintained as of 19th November 2021. ”

18. That on 15th December 2021, the High Court (Mr. Justice Makau) consolidated all the three petitions filed in relation to the impugned Legal Notice No. 217 of 2021

19. That the Court also issued a clarification of the status quo orders issued on 19th November 2021 as follows and further ordered that the status quo be maintained;a.“That the Petitioners are seeking clarification on the orders issued on 19/11/2021 on status quo.b.That under order 2 of the order of 19/11/2021 the court clearly stated that in view of the fact that the effective date shall be 20/12/2021 status quo be maintained as of 19/11/2021c.That this meant as stated by the Respondents that the effective date of the Legal Notice No. 217 of 2021 is 20/12/2021 and not any other date earlier than 20/12/2021d.That this is what the Court meant when it stated status quo be maintained as of 19/11/2021e.That any attempt to apply the legal notice before the effective date of 20/12/2021 is therefore improperFurther orders 1. That the status quo be maintained”

20. That the Appellant is a member of the Kenya Association of Manufacturers and was therefore aware of the orders made on 19th November 2021, which were orders in rem, meaning they applied to other parties, including the Appellant, which is a manufacturer of alcoholic and spirituous beverages.

21. That on 20th December 2021, the Appellant while filing its November 2021 excise duty return noted that the Respondent had adjusted the iTax template to implement the new rates in Legal Notice No. 217 of 2021. That the application of the new rates was in contravention of the Court order issued on 19th November 2021 and clarified on 15th December 2021.

22. That by a letter dated 20th December 2021, the Appellant informed the Respondent that in light of the conservatory orders issued by the Court, it would file its returns at the excise duty rates in place prior to the purported adjustment.

23. That by a response dated 4th January 2022, the Respondent took the view that Legal Notice No. 217 of 2021 was in force and effect, and consequently demanded payment of Kshs. 78,905,380. 00 from the Appellant, being the purported underpaid principal excise duty.

24. That the Appellant then responded to the Respondent on 19th January 2022 and indicated that there was no underpayment of excise duty for the month of November 2021 as the Court had issued a conservatory order staying the implementation of the impugned Legal Notice.

25. That on 21st February 2022, the matter was mentioned before Justice Makau for further directions on the hearing of the applications and the petitions. The Court issued directions on filing submissions and further directed that the interim orders issued on 19th November 2021 be extended and remained in force until 18th May 2022.

26. That on 21st March 2022, the Respondent issued a tax decision and demanded payment from the Appellant of Kshs. 287,292,578. 00 (inclusive of penalties and interest) being the purported underpaid excise duty for the period November 2021 to February 2022.

27. That in its assessment, the Respondent averred that the underpayment was occasioned by the Appellant applying the excise duty rates in existence prior to the adjustment. That the Respondent therefore applied the new excise duty rates adjusted by the impugned Legal Notice.

28. That the Appellant objected to the Respondent’s assessment on 20th April 2022. In the said objection, the Appellant requested the Respondent to comply with the status quo orders issued by the Court and vacate its tax decision.

29. That on 12th May 2022, the Respondent issued its objection decision rejecting the Appellant’s objection and confirming the tax assessment of Kshs. 287,292,578. 00 for the period(s) November 2021 to February 2022.

30. That at the last mention of the matter on 18th May 2022, the High Court extended the interim orders until 8th June 2022.

31. In its written submissions, the Appellant submitted that the following issues fall for determination by the Honourable Tribunal: -a.Whether the Respondent should demand payment of taxes during the subsistence of a status quo order by the High Court that prevented the Appellant from charging excise duty based on the new rates; andb.Whether the Respondent’s action to issue the demand infringed on the Appellant’s fundamental rights and freedoms guaranteed under the Constitution.

Whether The Respondent Should Demand Payment Of Taxes During The Subsistence Of A Status Quo Order By The High Court That Prevented The Appellant From Charging Excise Duty Based On The New Rates 32. The Appellant submitted that the status quo orders issued by the Court in Constitutional Petition No. E024 of 2021 (as consolidated with Petition No. E491 of 2021 & Petition No. E403 of 2021) had the effect of freezing the implementation of the rates in Legal Notice 217 of 2021 until the issue of constitutionality of the impugned Legal Notice was determined.

33. The Appellant further submitted that courts issue status quo orders to preserve the state of affairs as they existed before the act complained of occurs or is implemented, pending the determination of the issue in dispute. The High Court affirmed this position in Kenya Airline Pilots Association (KALPA) vs. Co-operative Bank of Kenya Limited & Another [2020] e KLR where it stated as follows:“…By maintaining the status quo, the court strives to safeguard the situation so that the substratum of the subject matter of the dispute before it is not so eroded or radically changed or that one of the parties before it is not so negatively prejudiced that the status quo ante cannot be restored thereby rendering nugatory its proposed decision.”

34. That, therefore, the Appellant was, because of the status quo order, obligated to continue accounting for excise duty based on the rates in existence prior to the purported adjustment.

35. That in its objection decision, the Respondent disregarded the High Court’s status quo order on the basis that the order was ambiguous and was therefore nugatory.

36. That any reservations or doubts the Respondent may have about the status quo order does not, however, change the fact that the Court issued a clear status quo order that was meant to preserve the application of the impugned legal notice during the pendency of the dispute.

37. That the High Court issued the status quo order based on the Respondent’s own submission that the Legal Notice was at the time the order was issued in fact not in effect. That consequently, the status quo order preserved the position prior to the Legal Notice becoming effective, which position subsists to date.

38. That it is trite law that the Respondent has a duty to obey a court order and where it feels the order to be ambiguous or erroneous, the recourse available to it is not to ignore the order but to go back to court and seek clarification, as this Tribunal stated in Pevans East Africa Limited vs. Commissioner of Domestic Taxes (Tax Appeal No. 336 of 2018):“... The upshot of the foregoing is that the Tribunal finds that there was a lawful order courtesy of Civil Suit 1662 of 2014 (Benson Irungu Case) barring the Appellant from withholding tax on winnings which order inextricably bound the Respondent as the principal. The only avenue available to the Respondent was to challenge the validity or legality in a court of competent jurisdiction.”

39. That the Tribunal’s position has been affirmed by the High Court in Stanbic Bank (K) Limited vs. Commissioner of Domestic Taxes (2022) where Justice Mwita held that there is no legal justification for the Respondent to demand a taxpayer to pay excise duty for a period when the Court had restrained KRA from collecting that tax. He stated as follows:“Furthermore, demanding that Stanbic pays the assessed excise duty would amount to punishing Stanbic for not collecting a tax that KRA had been restrained from collecting. Stanbic was only an agent and once the principal was restrained from collecting excise duty, the principal could not call on the agent to account for what the principal could not collect by virtue of the conservatory order.”

40. That the Respondent is a party to the proceedings before the High Court and its Counsel was present in court when the status quo orders were issued and had every opportunity to seek clarification regarding any aspect of the order.

41. That the Respondent has instead chosen to willfully refuse to obey the Court Orders. That by amending the iTax platform to implement and administer the new excise duty rates and confirming its assessment, the Respondent acted in contravention of a lawful order of the Court.

42. That the Respondent wants to persuade this Tribunal that it believes that Legal Notice No. 217 of 2021 was already effective when the status quo order was issued. That this is untrue and is a completely different position to the one the Respondent took at the High Court. That on the day the status quo order was issued, the Respondent had informed the High Court that the effective date of Legal Notice No. 217 of 2021 was 20th December 2021.

43. That the Respondent’s contention at the time was that taxpayers would not suffer any prejudice if the conservatory orders were not granted. It was on this basis that Justice Makau issued orders that the status quo be maintained as of 19th November 2021. That the wording of the order issued to this effect was as follows:“In view of the fact that the effective date shall be on 20/12/2021 I direct Status Quo be maintained as of today.”

44. That the above position is further reinforced by the fact that on 15th December 2021, when Counsel for the Petitioner sought a clarification on the status quo orders issued on 19th November 2021, the Court stated as follows:“7. That under order 2, of the order of 19/11/2021 the court clearly stated that in view of the fact that the effective date shall be 20/12/2021 status quo be maintained as of 19/11/2021. 8.That this meant as stated by the Respondents that the effective date of the Legal Notice No. 217 of 2021 is 20/12/2021 and not any date earlier than 20/12/2021. 9.That this is what the court meant when it stated status quo be maintained as of 19/11/2021. 10. That any attempt to apply the legal notice before effective date of 20/12/2021 is therefore improper.”

45. That after informing the High Court that the effective date of Legal Notice No. 217 of 2021 was 20th December 2021, the Respondent now wants to conveniently change its argument in these proceedings so as to justify its decision to willfully disregard a valid Court Order.

46. The Appellant avers that the Respondent in Paragraph 17 of its Statement of Facts states that “The Court did not stay implementation of the Legal Notice as alluded by the Appellant. Status quo means the status of the subject as at the material date. The status as at 19th November, 2021 was that the Legal Notice was effective and was being implemented. The Court’s status quo direction is the actual status on the issue at the material time”.

47. That if it was true the Respondent believed that the High Court did not stay implementation of the Legal Notice, then it would not have made an application to set aside the status quo order.

48. That on 10th January 2022, the Respondent under a certificate of urgency applied for the High Court to, inter alia “set aside the impugned orders and issue an appropriate order.”

49. That it is therefore clear that the Respondent is aware of the import of the status quo orders and its obligation to obey the order but has chosen to mislead this Honourable Tribunal in these proceedings in order to justify its willful and blatant disregard of a valid court order.

50. That the Respondent has a legal obligation to comply with the status quo orders. That as stated in Teachers Service Commission vs. Kenya National Union of Teachers & 2 Others [2013] eKLR:“A court order is not a mere suggestion or an opinion or a point of view. It is a directive that is issued after much thought and with circumspection. It must therefore be complied with and it is in the interest of every person that this remains the case. To see it any other way is to open the door to chaos and anarchy and this Court will not be the one to open that door. If one is dissatisfied with an order of the court, the avenues for challenging it are also set out in the law. Defiance is not an option.”

51. That in view of the foregoing, it is the Appellant’s submission that the impugned Legal Notice cannot be implemented for the period in dispute and that accordingly, the Respondent’s demand of excise duty based on the impugned rates has no legal basis and is therefore null and void.

Whether The Respondent’s Demand Is In Breach Of The Rule Of Law And The Appellant’s Fundamental Rights And Freedoms Under The Constitution 52. The Appellant further submitted that Article 10 of the Constitution binds all state organs when applying or interpreting any law. That it also identifies rule of law as one of the national values and principles of governance. That Article 27(1) of the Constitution guarantees every person the right to equal protection and equal benefit of the law also known as due process.

53. That the Respondent, being a state organ established under the KRA Act is therefore bound by Article 10 and required to uphold the rule of law.

54. That it is a cardinal principal of the rule of law that a party who is aware of a court order has an unqualified obligation to obey the same whether the same is valid or not until such time as the said order is set aside and or discharged. That this principle was most emphatically set out in the well-known case of Hadkinson vs. Hadkinson [1952]2 All ER 567 as follows:-“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 even void…”

55. That the above position has been affirmed by the Courts in Kenya. For instance, in Wildlife Lodges Ltd vs. County Council of Narok and Another [2005] 2 EA 344 (HCK) which the court cited with approval in the case of Republic vs. Kenya School of Law & 2 others Ex parte Juliet Wanjiru Njoroge & 5 others [2015] eKLR and stated that: -“It was the plain and unqualified obligation of every person against or in respect of whom an order was made by a Court of competent jurisdiction to obey it until that order was discharged…A party who knows of an order, whether null or valid, regular or irregular, cannot be permitted to disobey it…It would be most dangerous to hold that the suitors, or their solicitors, could themselves judge whether an order was null or valid – whether it was regular or irregular…That they should come to the court and not take upon themselves to determine such a question. That the course of a party knowing of an order which was null or irregular, and who might be affected by it, was plain. He should apply to the court that it might be discharged. As long as it existed it must not be disobeyed…Consistent obedience to court orders is required, and parties should not take it upon themselves to decide on their own which court orders are to be obeyed and which ones overlooked, in the supposition that this oversight will not impede the process of justice…”

56. That in Alken Connections Limited vs. Safaricom Limited & 2 Others [2013] eKLR, the question of validity of court orders was also addressed as follows: -“…. court orders are not made in vain and are meant to be complied with and therefore a party should not take it upon himself to decide on the validity or otherwise of Court orders. Once a Court order is made in a suit the same is valid unless set aside on review or on appeal. The validity or otherwise of the suit may constitute a ground for purging the contempt but cannot, in my view, constitute a passport for disobeying an order made by a Court of competent jurisdiction. If parties and their counsel were given a blank cheque to decide on the validity of court orders, the dignity of the courts would be severely eroded...”

57. That it is clear from the authorities cited above that once the status quo order was issued, the Respondent was under an immediate and mandatory obligation to obey the order. The Court order stopped the implementation of the impugned Legal Notice pending further orders of the Court.

58. That the law is clear that if the Respondent had any misgivings with respect to the import of the status quo order, its only recourse was to move the Court that issued the said order to discharge, vary or set it aside. That it was not available for the Respondent to deliberately disregard or disobey the status quo order.

59. That indeed the Respondent was clearly aware of the correct legal position because it did in fact file an application dated 21st December 2021 in which it sought clarification. In that application, the Appellant acknowledged that the effect of the status quo order was to bar the implementation of the impugned Legal Notice. That the Respondent has also filed an application dated 10th January 2022 where it is seeking to set aside the status quo orders issued by the Court.

60. That Article 47 of the Constitution guarantees the right to fair administrative action that is expeditious, lawful, reasonable and procedurally fair.

61. That it is a fundamental requirement of Article 47 of the Constitution that an administrative decision must be lawful. This connotes legality of the decision. That in other words, in the process of decision making, the administrator must be guided by and act in accordance with the law.

62. Further, that the issuance of a tax demand in the existence of a court order contravened the Appellant’s legitimate expectation. That based on the law, the Appellant expected that once the Court orders were issued, the Respondent would continue applying the excise duty rates that existed prior to the adjustment by the impugned legal notice.

63. That the Respondent’s actions to amend the rates on iTax and issue an objection decision confirming a tax assessment against the Appellant was unlawful and in clear breach of Article 47 as it is in contravention of an existing court order. That the Respondent’s tax demand for the periods November 2021 to February 2022 is therefore null and void ab initio and ought to be quashed forthwith.

64. That Article 40 of the Constitution protects the right to property. That under the said provision, the State is prohibited from depriving a person of property of any description or any interest in property unless the deprivation is for a public purpose or in the public interest, in which case, the deprivation must be carried out in accordance with the Constitution or any act of Parliament and upon prompt payment in full of just compensation to the person affected.

65. That the attempt by the Respondent to issue an objection decision in contravention of the status quo orders issued by the Court is intended to take away Appellant’s property in the form of the monies demanded. That the attempt is in breach of the Appellant’s right to protection and security of its property from being unlawfully and forcefully taken away.

66. That the totality of the foregoing is that in issuing the objection decision, the Respondent has threatened to infringe on the Appellant’s right to property contrary to the protection guaranteed under Article 40 of the Constitution.

67. That from the foregoing, it is evident that the Respondent’s objection decision confirming the excise duty assessment amounting to Kshs. 287,292,578. 00 for the period November 2021 to February 2022 ought to be quashed.

Appellant’s Prayers 68. The Appellant prayed thata.The Appeal be allowed.b.The Respondent’s objection decision dated 12th May, 2022 demanding the sum of Kshs. 287,292,578. 00 be set aside.c.This Honourable Tribunal be pleased to find that: -i.The Appellant was entitled to apply the excise duty rates existing before Legal Notice No. 217 of 2021 was gazetted; andii.The Respondent was not entitled to demand payment of Excise Duty based on the rates set out in Legal Notice No. 217 of 2021 during the subsistence of the status quo order issued on 19th November 2021 and extended by the Court.iii.The costs of the Appeal be awarded to the Appellant.

Respondent’s Case 69. The Respondent case is premised on the following documents:a.The Respondent’s Statement of Facts dated 22nd July 2022. b.The Respondent’s Written Submissions dated 14th December 2022.

70. The Respondent averred that it examined excise returns for the Appellant for the period November, 2021 to February 2022 and noticed that in as much as the taxpayer filed its excise returns, it paid the amounts due based on rates provided in the revoked Legal Notice Number 194 of 2020, instead of the new Legal Notice 217 of 2021.

71. The Respondent further averred that it assessed and computed the variance of the underpaid tax due from the Appellant at Kshs. 287,292,578. 00

72. That the Appellant objected to the assessments raised against it through a notice of objection on 20th April, 2022. The objection was grounded on the fact that there was an active Constitutional Petition (Consolidated Petitions No. E491, E403 and EO24 of 2021) challenging the Legal Notice that was yet to be decided.

73. That the Respondent determined that the Appeal raises only one issue for determination as follows:

i.Whether The Assessment And Decision By The Respondent Should Be Upheld. 74. That on 24th November 2021, the National Assembly issued an approval of /acceded to the Legal Notice No. 2017 of 2021 relating to the adjustment of excise duty rates for inflation order pursuant to the Excise Duty Act and Statutory Instruments Act of 2013.

75. That the said Legal Notice stated that “in exercise of the powers conferred by section 10 of the excise duty Act 2015, the Commissioner General adjusts for inflation the specific rates of duty set out in the schedule hereto in accordance with the formula specified in part 1 of the first schedule to the act and takes into account the average inflation rate for the 2020/2021 financial year of four decimal nine seven per centum (4. 97%). Legal Notice No.194 of 2020 is revoked.”

76. That there is a case pending in court and there are conservative orders issued by the court stopping KRA from implementing adjustment of rates for inflation on excise duty rates as per Legal Notice dated 25th October, 2021 and gazetted on 2nd November, 2021.

77. That in the court case E491 of 2O2l, Mwaura Kabata vs. the Commissioner General, Kenya Revenue Authority and 2 Others, it was ordered that:a.The court order on cause number E441 of 2021 was ambiguous as it refers to the effective date of the Legal Notice Number 217 of 202l being 20th December 202l, which is not accurate. The Legal Notice was already in effect as at 2nd November 202l when the order of status quo was given.b.The court order also contradicted the resolution of the National Assembly that acceded to the Legal Notice on 24th November 202l

78. That in light of the above highlighted issues and the Respondent’s responses to the same, the Respondent therefore invites the Tribunal to find that the Appellant’s Appeal lacks merit and the same be dismissed for the above reasons.

79. In its written submissions dated 14th December 2022, the Respondent submitted that it explained to the Appellant that after examining its excise returns for the period November 2021 to February 2022, it was noted that it paid the amounts due based on the revoked Legal Notice Number 194 of 2020.

80. That the Respondent proceeded to compute variances between the amounts payable based on the new rates provided in Legal Notice Number 217 of 2021.

81. That the Appellant objected to the Respondent’s computation and stated that there is a case pending in court and that there are conservatory orders issued by the court stopping the Respondent from implementing adjustment of rates for inflation on excise duty rates as per Legal Notice Number 217 of 2021 dated 25th October 2021 and gazetted on 2nd November 2021.

82. That according to the Respondent, Legal Notice Number 217 of 2021 took effect on 2nd November 2021 and stated as follows: -“In exercise of the powers conferred by Section 10 of the Excise Duty Act, 2015 the Commissioner-General adjusts for inflation the specific rates of duty set out in the Schedule hereto in accordance with the formula specified in part 1of the First Schedule to the Act and takes into account the average inflation rate for the 2020/2021 financial year of four decimal nine seven per centum (4. 97%). Legal Notice No. 194 of 2020 is revoked.”

83. That in court case E491 of 2021 Mwaura Kabata vs the Commissioner General, Kenya Revenue Authority and 2 others it was ordered that: -“That in view of the fact that the effective date shall be on 20/12/2021 this court directs that status quo be maintained as of today (19/11/2021)”

84. That on 24th November 2021 the National Assembly issued an approval of/acceded to the Legal Notice Number 217 of 2021 relating to the adjustment of excise duty rates for inflation order pursuant to Statutory Instruments Act, 2013.

85. That the Respondent informed the Appellant that the court order on cause number E491 of 2021 was ambiguous as it refers to the effective date of the Legal Notice Number 217 of 2021 being 20th December 2021 which is inaccurate. The Legal Notice was already in effect as at 2nd November 2021 when the order of status quo was given.

86. That the Respondent further submitted that the Committee on Delegated Legislation of the National Assembly pursuant to its mandate acceded to the Legal Notice on 24th November 2021 having been satisfied upon scrutiny that the Legal Notice published on 2nd November 2021 was in accordance with the Constitution and all other relevant laws.

87. That it is the Respondent’s view that the main issue for determination is Whether this appeal is proper before this Tribunal.

88. That the point of divergence between the Appellant and the Respondent in this Appeal is the interpretation of the High Court Order given in the court case E491 of 2021 Mwaura Kabata vs the Commissioner General, Kenya Revenue Authority and 2 others as follows: -“(d)That in view of the fact that the effective date shall be on 20/12/2021 this court directs that status quo be maintained as of today (19/11/2021).”

89. That it is the Respondent’s view that an interpretation of the High Court Order will lead to the effective determination of this Appeal.

90. That, however, the proper forum for the interpretation of the same is the High Court since due to the hierarchy of the courts a decision of the High Court is binding on all subordinate courts.

91. That Article 162 (1) and (4) of the Constitution of Kenya states that: -1. “The superior courts are the Supreme Court, the Court of Appeal, the High Court and the courts referred to in clause (2).(4)The subordinate courts are the courts established under Article 169, or by Parliament in accordance with that Article.”

92. Article 169 (1) of the Constitution states that the subordinate courts are as follows: -(1)The subordinate courts are—(a)the Magistrates courts;(b)the Kadhis’ courts;(c)the Courts Martial; and(d)any other court or local tribunal as may be established by an Act of Parliament, other than the courts established as required by Article 162(2).

93. That the Tax Appeals Tribunal therefore derives its legitimacy under Article 169 (1) of the Constitution.

94. That Article 165 of the Constitution establishes the High Court and states that the High Court shall have the following jurisdiction: -(3)Subject to clause (5), the High Court shall have—(a)unlimited original jurisdiction in criminal and civil matters;(e)any other jurisdiction, original or appellate, conferred on it by legislation.

95. That based on the hierarchy of the judicial system in Kenya, a subordinate court is bound by the decisions of a Superior Court.

96. That, however, where the decision of a Superior Court is the point of divergence between two parties in a matter before a subordinate court then the subordinate court is not the proper court to seek an interpretation but rather an aggrieved party is supposed to seek interpretation from the same superior court and where possible before the same judge.

97. That an aggrieved party who is a party to a suit before the High Court has the option of approaching the High Court through the review mechanism provided under Section 80 of the Civil Procedure Act and Order 45 of the Civil Procedure Rules, 2010.

98. That, however, an aggrieved party affected by a decision made in another suit which they were not party to, may approach the High Court by invoking Section 3A of the Civil Procedure Act which states as follows: -“Saving of inherent powers of court. Nothing in this Act shall limit or otherwise affect the inherent power of the court to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the court.”

99. That the Court of Appeal in the case Kenya Power & Lighting Company Limited v Benzene Holdings Limited t/a Wyco Paints [2016] eKLR quoted the following passage from the Halsbury’s Laws of England, 4th Edn. Vol. 37 Para. 14 which states as follows: -“The jurisdiction of the court which is comprised within the term “inherent” is that which enables it to fulfil itself, properly and effectively, as a court of law. The overriding feature of the inherent jurisdiction of the court is that it is part of procedural law, both civil and criminal, and not part of substantive law; it is exercisable by summary process, without plenary trial; it may be invoked not only in relation to the parties in pending proceedings, but in relation to anyone, whether a party or not, and in relation to matters not raised in litigation between the parties; it must be distinguished from the exercise of judicial discretion; it may be exercised even in circumstances governed by rules of court. The inherent jurisdiction of the court enables it to exercise control over process by regulating its proceedings, by preventing the abuse of the process and by compelling the observance of the process … In sum, it may be said that the inherent jurisdiction of the court is a virile and viable doctrine and has been defined as being the reserve or fund of powers, a residual source of powers, which the court may draw upon as necessary whenever it is just or equitable to do so, in particular to ensure the observance of the due process of law, to prevent improper vexation or oppression, to do justice between the parties and to secure a fair trial between them (emphasis added).

100. That it is, therefore, the Respondent’s position that this case is improperly before this Tribunal since where the issue is about an interpretation of an Order given by the High Court, the only remedy and right forum is to approach the High Court and seek for a clarification from the High Court.

Respondent’s Prayers 101. That in view of the above facts, the Respondent therefore invites the Honourable Tribunal to find that the Appellant’s Appeal lacks merit, and proceed to issue the following orders: -a.Dismiss the Appeal.b.Uphold the Respondent’s assessment and decision dated 12th May, 2022. c.Award the Respondent the costs of the Appeal.

Issues For Determination 102. The Honourable Tribunal, upon reading the pleadings and written submissions together with supporting authorities filed by the Appellant and the Respondent identified the following two issues for determination: -a.Whether the orders issued by the High Court in the Consolidated Petition E024 of 2021 stayed the application, implementation and or enforcement of Legal Notice No. 217 of 2021; andb.Whether the additional assessment of Excise Duty against the Appellant as per the objection decision of 28th April, 2022 was proper and lawful.

Analysis And Findings a.Whether The Orders Issued By The High Court In The Consolidated Petition E024 Of 2021 Stayed The Application, Implementation And Or Enforcement Of Legal Notice No. 217 Of 2021 103. From the pleadings filed by both parties, the Honourable Tribunal observed that the Appellant and the Respondent concur on factual background of the Petitions filed challenging enforcement of Legal Notice No. 217 of 2021. The main point of disagreement between the parties seems to be what the status quo as at 19 November 2021 was when the High Court issued stay/status quo orders.

104. The Honourable Tribunal also noted that there is no dispute that the orders of the High Court applied to both the Appellant and the Respondent, and that it was issued by a court of competent jurisdiction.

105. There is also no dispute that the Schedule to the Legal Notice includes products manufactured by the Appellant.

106. As observed in Paragraph 104 above, the main dispute is how the status quo orders affect parties.

107. The Legal Notice No. 217 of 2021 that is in contention read as follows:“In exercise of the powers conferred by Section 10 of the Excise Duty Act 2015, the Commissioner General adjusts for inflation the specific rates of duty set out in the schedule to the Act and takes into account the average inflation rate for the 2020/2021 financial year of four decimal nine seven per centum (4. 97%). Legal Notice 194 of 2020 is revoked.”

108. The Honourable Tribunal notes that the proper starting point in law to understanding whether a Legal Notice is in force or not is to have recourse to the enabling legislations or statutes.

109. In the instant case, the relevant enabling legislation is the Excise Duty Act, specifically Sections 10 and 35 thereof.

110. Section 10 of the Excise Duty Act outlines the procedure for giving effect to a Legal Notice published with the intent of adjusting duty for inflation as follows:(1)Despite Section 8, the Commissioner may, with the approval of the Cabinet Secretary, by notice in the Gazette, adjust the specific rate of excise duty once every year to take into account inflation in accordance with the formula specified in Part 1 of the First Schedule.2. The notice under subsection (1) shall be laid before the National Assembly within seven days from the date of publication.3. The National Assembly shall, within twenty-eight sitting days of the receipt of the notice under subsection (2), consider the notice and make a resolution either to approve or reject the notice.4. The notice shall cease to have effect, if a resolution disapproving the notice is passed by the National Assembly.”

111. On the other hand, Section 35 Excise Duty Act provides as follows: -“A licensed manufacturer or a supplier of excisable services shall submit an excise duty return, in the approved form and in the prescribed manner, for each calendar month not later than the twentieth day of the succeeding month, whether or not any excise duty is payable for that month.’’

112. It is not disputed that the Legal Notice No. 217 of 2021 was published and gazetted on 2nd November, 2021. It logically follows that it was to be presented to the National Assembly within the next seven days in terms of Section 10 (2) of the Excise Duty Act, which would have lapsed on or about 9th November, 2021.

113. In terms of Section 10 (3) of the Excise Duty Act, the National Assembly was then to pass a resolution within the next 28 days. Unless otherwise specified in terms of retrospective application, which is not the instant case, it is only pursuant to the resolution of the National Assembly that the Gazette Notice takes effect.

114. Accordingly, it follows that the gazettement date is not the effective date. Legal Notice No. 217 of 2021 could not have been in operation on 2nd November, 2021, when it was gazetted, without approval by the National Assembly. The averments by the Respondent to the contrary are therefore clearly unsustainable.

115. Indeed, the Respondent itself averred in its Statement of Facts that the National Assembly acceded to the Legal Notice on 24th November, 2021, well after the High Court had issued status quo orders on 19th November, 2021.

116. From the foregoing, the Tribunal finds that the applicable Legal Notice as at 19th November, 2021 when the High Court issued conservatory orders was Legal Notice No. 194 of 2020.

117. It follows, therefore, that the Respondent’s actions of implementing Legal Notice No. 217 of 2021 against the Appellant is illegal, null and void.

b. Whether The Additional Assessment Of Excise Duty Against The Appellant As Per The Objection Decision Of 28th April, 2022 Was Proper And Lawful. 118. Having determined that the Legal Notice No. 217 of 2021 was not in operation, it follows that assessments done by the Respondent under the impugned Legal Notice cannot be sustained.

119. Accordingly, the assessment of 21st March, 2022 and objection decision of 12th May, 2022 were issued contrary to the law.

120. The Tribunal has previously had opportunity to deal with similar issues in TAT 533 of 2022 Excel Chemicals Limited -vs- Commissioner of Domestic Taxes, and sees no reason in the instant case to depart from its holding.

Final Decision 121. From the above analysis, the Tribunal makes the following Orders:a.The Appeal is hereby allowedb.The objection decision against the Appellant dated 12th May, 2022 confirming additional assessments of excise duty with interests and penalties of Kshs. 287,292,578. 00 is hereby set aside.c.Each Party to bear its costs.

122. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 29TH DAY OF JUNE, 2023ERIC N. WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERGRACE MUKUHA - MEMBERJEPHTHAH NJAGI - MEMBERABRAHAM K. KIPROTICH - MEMBER