1. Vide a judgement dated 30/7/2021, the Tax Appeals Tribunal (hereinafter the Tribunal) allowed the Appellant’s appeal and set aside the tax demand and objection decision dated 14/4/2020 for the sum of Kshs. 1,585,916.00. The Tribunal further made the following order in the judgement: -
“ c) The amount of Kshs. 1,585,916.00 irregularly recovered following the issuance of the agency notice dated 25th March, 2021, to be refunded to the Appellant .”
2. The Appellant filed an application dated 3/3/2022 seeking to cite two officers of the Respondent for contempt for failing to process its refund as per the orders aforementioned.
3. The Respondent opposed the application, arguing that it did not willfully disobey the Tribunal’s judgement as the Appellant’s refund was processed and applied to offset the Appellant’s other tax liabilities as required by section 47 of the Tax Procedures Act.
4. On 12/8/2024, the Tribunal delivered a ruling on the application and dismissed the Appellant’s application with no order as to costs.
5. Aggrieved with the Ruling by the Tribunal, the Appellant appealed to this court, raising the following grounds: -
“ 1. THAT The Tribunal erred in law by failing to recognize that the
Respondent had admitted to the refund approval of KES 1,585,916 in the Appellant account after approving the refund in the system contrary to the Tribunal order to refund the amount to the Appellants bank account where the debit had been done.
2. THAT the Tribunal misapplied Section 47 of the Tax Procedure Act and Section 30 of the Value Added Tax Act, allowing the Respondent to bypass its obligation to directly refund the Applicant, despite the Tribunal's orders to refund the taxes in full.
3. THAT the Tribunal erred in law in holding that there was no non-compliance having confirmed non-compliance with the orders on the 23rd April 2023.
4. THAT the Tribunal failed to properly assess that the Respondents were in contempt of court orders that were issued on 15th July 2022, where the Respondent undertook to refund the amount within two weeks but failed to comply, opting instead to unlawfully offset the amount against an alleged outstanding tax liability.
5. THAT The Tribunal misdirected itself by accepting the Respondent’s explanation for non-compliance with the refund order, despite the clear evidence of contempt and deliberate disobedience of court orders.”
6. Based on the foregoing grounds, the Appellant prayed for an order to set aside entirely the decision of the Tribunal dated 12/7/2024 and an order to find that the the Respondent was in contempt of the Tribunal’s orders to refund the sum of KES 1,585,916 / = to the Appellant within the stipulated time and direct immediate compliance with the refund order. The Appellant further prayed for an order to have the Respondent bear the costs of the appeal.
7. The Respondent opposed the appeal by filing its statement of facts dated 4/10/2024.
8. In the Statement of Facts, the Respondent supported the judgment by the Tribunal and urged this Court to uphold the same. The Respondent argued that there had been no willful disobedience of the judgment. According to the Respondent, the refund had been processed and used to offset the Appellant’s outstanding taxes as permitted by Section 47 of the Tax Procedures Act.
9. The Respondent maintained that the threshold for citing its officers for contempt had not been met, and it argued that the Tribunal’s judgment did not specify how the refund should be issued. Therefore, the Respondent asserted that it had acted in accordance with the law by applying the refund to tax liabilities.
10. The Respondent further stated that the refund was processed in compliance with sections 47(2) and 47(5) of the Tax Procedures Act. It asserted that the decision to offset the refund was appealable under section 47(13) of the Act, and the Appellant had failed to pursue that avenue of appeal. The Respondent expressed the view that paying out the refund in disregard of the law would have been contrary to statute.
11. Additionally, the Respondent argued that a party could not be held in contempt where the issue involved the interpretation of the orders allegedly disobeyed. The core issue before the Tribunal, according to the Respondent, concerned whether a refund could be processed in disregard of section 47 of the Act.
12. The Respondent concluded by requesting that the appeal be dismissed with costs, stating that it lacked merit.
13. The Appeal was canvassed by way of written submissions. The Appellant’s is dated 29/10/2024 while the Respondent’s is dated 19/2/2025.
Analysis and determination:
14. This being a first appeal, this Court is under a duty to re-evaluate and assess the evidence and make its own conclusions. It must, however, keep at the back of its mind that a trial court, unlike the appellate court, had the advantage of observing the demeanour of the witnesses and hearing their evidence first hand. See Mbogo and Another vs. Shah [1968] EA 93.
15. Having analysed the record of appeal, the statement of facts and the submissions filed by the parties, I am of the view that the grounds of appeal may be condensed to the following issue for determination: whether the Tribunal erred in failing to find that the Respondent’s actions constituted contempt of court.
16. The test on whether there is contempt of court was aptly established in the case of Samuel M.N Mweru & Others vs National Land Commission & 2 Others (2020) eKLR, to wit;-
“a) The terms of the order were clear and unambiguous and were binding on the defendant.
b) The Defendant had the Knowledge of or proper notice of the terms of the Order.
c) The Defendant has acted in breach of the terms of the order.
d) The Defendant's conduct was deliberate.”
17. It is not in dispute that the orders of the Tribunal, directing the Appellant to refund the sum of Ksh.1,585,916.00, were clear and unambiguous as nothing was pleaded to the contrary. Further, it is undisputed that the Respondent had knowledge and was aware of the terms of the Tribunal’s order.
18. The crux of this appeal revolves around the last two conditions, that is, whether the Respondent acted in breach of the terms of the order and whether it was deliberate.
19. The record indicates that through decisions dated 30/4/2021 and 30/7/2021, the Tribunal established that a refund was due to the Appellant and ordered the Respondent to refund to the Appellant the amount of Kshs.1,585,916.00 that was irregularly recovered following the issuance of the agency notice dated 25/3/2021.
20. The Tribunal, in its ruling of 12/8/2024, took the position that the Appellant had the onus to pursue and make a refund application according to the procedure set out in section 47 of the Tax Procedure Act and was of the view that the Appellant’s demand letter of 16/8/2021 was not an application for a refund in the approved format and proceeded to find that the Respondent could only act on its orders once an application for a refund in the required format was made by the Appellant.
21. Thus, the Tribunal concluded by finding that the officers of the Respondent were not in contempt.
22. From the record, it is clear that the Appellant made an application for a refund on 12/8/2022. At that time, the provision guiding the processing of refunds by the Respondent was section 47 of the Tax Procedures Act (TPA) as amended by the Finance Act 2022 since the amendment to section 47 took effect on 1st July 2022.
23. Section 47 TPA of the provided as follows:-
“ 47. (1) Where a taxpayer has overpaid a tax under any tax law, the taxpayer may apply to the Commissioner, in the prescribed form—
(a) to offset the overpaid tax against the taxpayer's future tax liabilities; or
(b) for a refund of the overpaid tax within five years, or six months in the case of value added tax, after the date on which the tax was overpaid.
(2) The Commissioner shall ascertain and determine an application under subsection (1) within ninety days and where the Commissioner ascertains that there was an overpayment of tax— (a) in the case of an application under subsection (1)(a), apply the overpaid tax to such future tax liability; and (b) in the case of an application under subsection (1)(b), refund the overpaid tax within a period of two years from the date of the application.
(3) Where the Commissioner fails to ascertain and determine an application under subsection (1) within ninety days, the same shall be deemed ascertained and approved.
(4) The Commissioner may, for purposes of ascertaining the validity of an application under subsection (1), subject the application to an audit.
(5) Where the application is for a refund of tax under subsection (1)(b), the Commissioner shall apply the overpayment in the following order- (a) in payment of any other tax owing by the taxpayer under the specific tax law; (b) in payment of a tax owing by the taxpayer under any other tax law; and (c) any remainder shall be refunded to the taxpayer.
(6) Where the Commissioner fails to refund the overpaid tax within the period specified in subsection (2)(b), the amount due shall attract interest of one per cent for each month or part thereof during which the amount remains unpaid.
(7) Where the Commissioner notifies a taxpayer that an application under subsection (1)(a) has been ascertained and applies the overpaid tax liability to offset an outstanding tax in accordance with subsection (2)(a), interest or penalties shall not accrue on the amount applied to offsetting the outstanding tax liability from the date of the notification.
(8) Where the Commissioner has applied the overpaid tax to offset an outstanding tax liability under subsection (2)(a), any outstanding tax after such application shall accrue interest and penalties in accordance with this Act.
(9) Notwithstanding any other provision of this section, where a person overpays an instalment tax due under section 12 of the Income Tax Act, the Commissioner shall apply the overpaid tax to offset the taxpayer’s future instalment tax liability.
(10) Where, after the application of the overpaid tax under subsection (9), the Commissioner later determines that there was no overpayment of instalment tax, the amount of the tax that was used to offset the taxpayer’s future instalment tax liabilities under subsection (9) shall be treated as a tax due to the Commissioner in the subsequent tax period.
(11) The amount due under subsection (10) shall be due from the date that the Commissioner applied that amount to offset an installment tax liability.
(12) The Commissioner shall notify the taxpayer in writing of the amount due under subsection (10) and specify in the notification— (a) the interest on the amount due; and (b) any penalties due in respect of the amount due.
(13) A person aggrieved by a decision of the Commissioner under this section may appeal to the Tribunal within thirty days after being notified of the decision . ” [emphasis added] .
24. My understanding of the provision above is that the Respondent, upon receipt of a refund application, shall process the application, and if there are any refunds due, the same is first to be applied towards any tax owing by the taxpayer, after which any remainder is refunded directly to the taxpayer.
25. In this case, the Appellant did have outstanding tax arrears of Kshs. 2,099,317 as seen in the letter dated 11/11/2022, which is produced on page 54 of the record of appeal.
26. It therefore follows that the Respondent’s act of offsetting the Appellant’s payable refund against its tax liabilities did not constitute a willful disobedience of the Tribunal’s orders, but was in line with section 47(1) and (5) of the TPA. I agree with the submissions of the Respondent that had it disregarded the provisions of section 47 of the TPA, then its actions would have been null and void for being contra-statute.
27. I note further that under section 47(13) of the TPA, the refund decision made by the Respondent was an appealable decision, and the Appellant ought to have appealed this decision afresh if it was dissatisfied.
28. In the premises, I find that the Respondent’s action of offsetting the Appellant’s refund against its tax liabilities was not in contempt of the Tribunal’s orders, but rather an act which was perfectly within the provisions of Section 47 of the Tax Procedures Act.
29. The Appellant has failed to prove to the required standard how the Respondent has been in contempt of the Tribunal’s orders and to show how the Tribunal erred in finding that the Respondent’s officers were not in contempt.
30. The instant appeal is therefore found to be without merit and is accordingly dismissed with costs to the Respondent.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT THIS
29TH DAY OF MAY, 2025
ADO MOSES
JUDGE
In the presence of:
C/A…………………..Moses
Mugambi for………for the Appellant
Ms. Kithinji …………………….for the Respondent
“ c) The amount of Kshs. 1,585,916.00 irregularly recovered following the issuance of the agency notice dated 25th March, 2021, to be refunded to the Appellant .”
2. The Appellant filed an application dated 3/3/2022 seeking to cite two officers of the Respondent for contempt for failing to process its refund as per the orders aforementioned.
3. The Respondent opposed the application, arguing that it did not willfully disobey the Tribunal’s judgement as the Appellant’s refund was processed and applied to offset the Appellant’s other tax liabilities as required by section 47 of the Tax Procedures Act.
4. On 12/8/2024, the Tribunal delivered a ruling on the application and dismissed the Appellant’s application with no order as to costs.
5. Aggrieved with the Ruling by the Tribunal, the Appellant appealed to this court, raising the following grounds: -
“ 1. THAT The Tribunal erred in law by failing to recognize that the
Respondent had admitted to the refund approval of KES 1,585,916 in the Appellant account after approving the refund in the system contrary to the Tribunal order to refund the amount to the Appellants bank account where the debit had been done.
2. THAT the Tribunal misapplied Section 47 of the Tax Procedure Act and Section 30 of the Value Added Tax Act, allowing the Respondent to bypass its obligation to directly refund the Applicant, despite the Tribunal's orders to refund the taxes in full.
3. THAT the Tribunal erred in law in holding that there was no non-compliance having confirmed non-compliance with the orders on the 23rd April 2023.
4. THAT the Tribunal failed to properly assess that the Respondents were in contempt of court orders that were issued on 15th July 2022, where the Respondent undertook to refund the amount within two weeks but failed to comply, opting instead to unlawfully offset the amount against an alleged outstanding tax liability.
5. THAT The Tribunal misdirected itself by accepting the Respondent’s explanation for non-compliance with the refund order, despite the clear evidence of contempt and deliberate disobedience of court orders.”
6. Based on the foregoing grounds, the Appellant prayed for an order to set aside entirely the decision of the Tribunal dated 12/7/2024 and an order to find that the the Respondent was in contempt of the Tribunal’s orders to refund the sum of KES 1,585,916 / = to the Appellant within the stipulated time and direct immediate compliance with the refund order. The Appellant further prayed for an order to have the Respondent bear the costs of the appeal.
7. The Respondent opposed the appeal by filing its statement of facts dated 4/10/2024.
8. In the Statement of Facts, the Respondent supported the judgment by the Tribunal and urged this Court to uphold the same. The Respondent argued that there had been no willful disobedience of the judgment. According to the Respondent, the refund had been processed and used to offset the Appellant’s outstanding taxes as permitted by Section 47 of the Tax Procedures Act.
9. The Respondent maintained that the threshold for citing its officers for contempt had not been met, and it argued that the Tribunal’s judgment did not specify how the refund should be issued. Therefore, the Respondent asserted that it had acted in accordance with the law by applying the refund to tax liabilities.
10. The Respondent further stated that the refund was processed in compliance with sections 47(2) and 47(5) of the Tax Procedures Act. It asserted that the decision to offset the refund was appealable under section 47(13) of the Act, and the Appellant had failed to pursue that avenue of appeal. The Respondent expressed the view that paying out the refund in disregard of the law would have been contrary to statute.
11. Additionally, the Respondent argued that a party could not be held in contempt where the issue involved the interpretation of the orders allegedly disobeyed. The core issue before the Tribunal, according to the Respondent, concerned whether a refund could be processed in disregard of section 47 of the Act.
12. The Respondent concluded by requesting that the appeal be dismissed with costs, stating that it lacked merit.
13. The Appeal was canvassed by way of written submissions. The Appellant’s is dated 29/10/2024 while the Respondent’s is dated 19/2/2025.
Analysis and determination:
14. This being a first appeal, this Court is under a duty to re-evaluate and assess the evidence and make its own conclusions. It must, however, keep at the back of its mind that a trial court, unlike the appellate court, had the advantage of observing the demeanour of the witnesses and hearing their evidence first hand. See Mbogo and Another vs. Shah [1968] EA 93.
15. Having analysed the record of appeal, the statement of facts and the submissions filed by the parties, I am of the view that the grounds of appeal may be condensed to the following issue for determination: whether the Tribunal erred in failing to find that the Respondent’s actions constituted contempt of court.
16. The test on whether there is contempt of court was aptly established in the case of Samuel M.N Mweru & Others vs National Land Commission & 2 Others (2020) eKLR, to wit;-
“a) The terms of the order were clear and unambiguous and were binding on the defendant.
b) The Defendant had the Knowledge of or proper notice of the terms of the Order.
c) The Defendant has acted in breach of the terms of the order.
d) The Defendant's conduct was deliberate.”
17. It is not in dispute that the orders of the Tribunal, directing the Appellant to refund the sum of Ksh.1,585,916.00, were clear and unambiguous as nothing was pleaded to the contrary. Further, it is undisputed that the Respondent had knowledge and was aware of the terms of the Tribunal’s order.
18. The crux of this appeal revolves around the last two conditions, that is, whether the Respondent acted in breach of the terms of the order and whether it was deliberate.
19. The record indicates that through decisions dated 30/4/2021 and 30/7/2021, the Tribunal established that a refund was due to the Appellant and ordered the Respondent to refund to the Appellant the amount of Kshs.1,585,916.00 that was irregularly recovered following the issuance of the agency notice dated 25/3/2021.
20. The Tribunal, in its ruling of 12/8/2024, took the position that the Appellant had the onus to pursue and make a refund application according to the procedure set out in section 47 of the Tax Procedure Act and was of the view that the Appellant’s demand letter of 16/8/2021 was not an application for a refund in the approved format and proceeded to find that the Respondent could only act on its orders once an application for a refund in the required format was made by the Appellant.
21. Thus, the Tribunal concluded by finding that the officers of the Respondent were not in contempt.
22. From the record, it is clear that the Appellant made an application for a refund on 12/8/2022. At that time, the provision guiding the processing of refunds by the Respondent was section 47 of the Tax Procedures Act (TPA) as amended by the Finance Act 2022 since the amendment to section 47 took effect on 1st July 2022.
23. Section 47 TPA of the provided as follows:-
“ 47. (1) Where a taxpayer has overpaid a tax under any tax law, the taxpayer may apply to the Commissioner, in the prescribed form—
(a) to offset the overpaid tax against the taxpayer's future tax liabilities; or
(b) for a refund of the overpaid tax within five years, or six months in the case of value added tax, after the date on which the tax was overpaid.
(2) The Commissioner shall ascertain and determine an application under subsection (1) within ninety days and where the Commissioner ascertains that there was an overpayment of tax— (a) in the case of an application under subsection (1)(a), apply the overpaid tax to such future tax liability; and (b) in the case of an application under subsection (1)(b), refund the overpaid tax within a period of two years from the date of the application.
(3) Where the Commissioner fails to ascertain and determine an application under subsection (1) within ninety days, the same shall be deemed ascertained and approved.
(4) The Commissioner may, for purposes of ascertaining the validity of an application under subsection (1), subject the application to an audit.
(5) Where the application is for a refund of tax under subsection (1)(b), the Commissioner shall apply the overpayment in the following order- (a) in payment of any other tax owing by the taxpayer under the specific tax law; (b) in payment of a tax owing by the taxpayer under any other tax law; and (c) any remainder shall be refunded to the taxpayer.
(6) Where the Commissioner fails to refund the overpaid tax within the period specified in subsection (2)(b), the amount due shall attract interest of one per cent for each month or part thereof during which the amount remains unpaid.
(7) Where the Commissioner notifies a taxpayer that an application under subsection (1)(a) has been ascertained and applies the overpaid tax liability to offset an outstanding tax in accordance with subsection (2)(a), interest or penalties shall not accrue on the amount applied to offsetting the outstanding tax liability from the date of the notification.
(8) Where the Commissioner has applied the overpaid tax to offset an outstanding tax liability under subsection (2)(a), any outstanding tax after such application shall accrue interest and penalties in accordance with this Act.
(9) Notwithstanding any other provision of this section, where a person overpays an instalment tax due under section 12 of the Income Tax Act, the Commissioner shall apply the overpaid tax to offset the taxpayer’s future instalment tax liability.
(10) Where, after the application of the overpaid tax under subsection (9), the Commissioner later determines that there was no overpayment of instalment tax, the amount of the tax that was used to offset the taxpayer’s future instalment tax liabilities under subsection (9) shall be treated as a tax due to the Commissioner in the subsequent tax period.
(11) The amount due under subsection (10) shall be due from the date that the Commissioner applied that amount to offset an installment tax liability.
(12) The Commissioner shall notify the taxpayer in writing of the amount due under subsection (10) and specify in the notification— (a) the interest on the amount due; and (b) any penalties due in respect of the amount due.
(13) A person aggrieved by a decision of the Commissioner under this section may appeal to the Tribunal within thirty days after being notified of the decision . ” [emphasis added] .
24. My understanding of the provision above is that the Respondent, upon receipt of a refund application, shall process the application, and if there are any refunds due, the same is first to be applied towards any tax owing by the taxpayer, after which any remainder is refunded directly to the taxpayer.
25. In this case, the Appellant did have outstanding tax arrears of Kshs. 2,099,317 as seen in the letter dated 11/11/2022, which is produced on page 54 of the record of appeal.
26. It therefore follows that the Respondent’s act of offsetting the Appellant’s payable refund against its tax liabilities did not constitute a willful disobedience of the Tribunal’s orders, but was in line with section 47(1) and (5) of the TPA. I agree with the submissions of the Respondent that had it disregarded the provisions of section 47 of the TPA, then its actions would have been null and void for being contra-statute.
27. I note further that under section 47(13) of the TPA, the refund decision made by the Respondent was an appealable decision, and the Appellant ought to have appealed this decision afresh if it was dissatisfied.
28. In the premises, I find that the Respondent’s action of offsetting the Appellant’s refund against its tax liabilities was not in contempt of the Tribunal’s orders, but rather an act which was perfectly within the provisions of Section 47 of the Tax Procedures Act.
29. The Appellant has failed to prove to the required standard how the Respondent has been in contempt of the Tribunal’s orders and to show how the Tribunal erred in finding that the Respondent’s officers were not in contempt.
30. The instant appeal is therefore found to be without merit and is accordingly dismissed with costs to the Respondent.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT THIS
29TH DAY OF MAY, 2025
ADO MOSES
JUDGE
In the presence of:
C/A…………………..Moses
Mugambi for………for the Appellant
Ms. Kithinji …………………….for the Respondent