Skip to content
JudgmentKENAFRIC INDUSTRIES LTD VS THE COMMISSIONER OF DOMESTIC TAXES15 min read

KENAFRIC INDUSTRIES LTD VS THE COMMISSIONER OF DOMESTIC TAXES

High Court at Milimani High Court · · E.C. Mwita

                  REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

MILIMANI LAW COURTS

CONSTITUTIONAL AND HUMAN RIGHTS DIVISION

PETITION NO. 99 OF 2011

KENAFRIC INDUSTRIES LTD………………………… PETITIONER

                                                     VERSUS

COMMISSIONER OF DOMESTIC TAXES…………1ST RESPONDENT

COMMISSIONER OF INVESTIGATION AND ENFORCEMENT…………………………………. 2ND RESPONDENT

THE COMMISSIONER OF CUSTOM SERVICES….3RD RESPONDENT

KENYA REVENUE AUTHORITY………………..4TH  RESPONDENT

THE ATTORNEY GENERAL………………………5TH RESPONDENT

                                             RULING

Background

  1. The petitioner filed petition dated 16th May 2011 against the respondents. In a judgment delivered by this court (Majanja J) on 27th July 2012 the petition was allowed with costs.

  1. Order (c) directed the respondents, jointly and severally to within thirty (30) days from the date of the judgment, consider and determine the petitioner’s application for VAT refunds in accordance with the Value Added Tax Act and the VAT Regulations.

Application

  1. The petitioner took out a motion application dated 15th October 2012 and amended on 3rd February 2022. The motion brought under section 5 of the Judicature Act and Order 51 rule 1 of the Civil Procedure Rules, sought for orders, namely; that the Commissioner General, KRA, the Commissioner of Domestic Taxes, the Commissioner Investigation and Enforcement and the Commissioner Custom Services, the 1st to 4th respondents (herein the respondents), be cited for contempt of court; the respondents be compelled to pay Kshs. 3,612,525.41 together with interest thereon from the date of judgment until payment in full; interest on all delayed payments at court rates and interest on the sum of Kshs.  43,210,563 from the date of judgment to the date of payment on 17th December 2020. The petitioner also prays for costs.
  2. The motion application is supported by affidavits sworn on 15th October 2012, 30th September 2017 and 3rd February 2022 as well as written submissions. The motion application is predicated on grounds that the respondents failed to comply with the orders of court issued on 27th July 2012, without justifiable reasons.
  3. According to the petitioner, although the respondents considered and approved the claim of Kshs. 46,823,087.41, only Kshs. 43, 201,563 had been paid, leaving a balance of Kshs. 3,612,525.41 outstanding. The respondents refused to conclusively determine and give reasons for refusal to consider the claim for Kshs. 2,562,741.54 despite being given all the necessary and requisite documentation.
  4. The petitioner maintained that there had been delay in determining their claim within the 30 days given in the judgment and all the payments made so far were made beyond the thirty (30) days window given by the court. The petitioner is thus, entitled to interest thereon.
  5. The petitioner asserted that the respondents were all along aware of the order of the court and had shown contempt by falling to make good the determination of the matter within the time frame given by the court.
  6. The petitioner took the view, that the respondents should be held in contempt of court because they knowingly and willfully refused to obey the directive of the court in the judgment since its claim of Kshs. 3, 612, 524 .41 has not been paid to date for no reason.

  1.   The petitioner stated that it complied with paragraph 10 of the VAT Regulations 1994, and relied on the decisions in R. v Principal Secretary Ministry of Defence: Exparte George Waithaka [2019] KEHC 10383 (KLR) and Burchell v Burchell (ECJ 010/2006) [2005] ZAECHC 35 (3 November 2005) for the argument that all the elements required to make a case for civil contempt had been met.
  2. The petitioner  further relied  on  articles 10 and 47 of the constitution and the decisions in Republic v Kenya Revenue Authority exparte L.A.B International Kenya Limited [2011] eKLR; Kenya Data Networks Limited v Kenya Revenue Authority [2013] KEHC 6312 (KLR)  and Tata Chemicals Magadi Limited v Commissioner of Domestic Taxes (Large Tax payers) [2014] eKLR, for the contention that having  supplied the requisite documents, the respondents were expected to act expeditiously, efficiently, lawfully, reasonably and procedurally fairly but this was not done.
  3. The petitioner further relied on articles 40 and 260 of the constitution to argues that the respondents’ failure to pay the balance of Kshs. 3,612,524.41 for a period of two years without explanation amounts to an arbitrary deprivation of its property.

Response

  1. The respondents opposed the motion through three affidavits and written submissions. The respondents contended that the motion is based on a misapprehension of the provisions of the Value-Added Tax, both Cap 476 and the VAT Act No. 35 of 2013 and the judgment of the court.
  2. The respondents argued that pursuant to section 11 (1A) (b) and 11(2) of the VAT Act, the petitioner was required to satisfy the commissioner that goods had left the country since the zero-rated supplies arose from the exports made by the petitioner.
  3. The respondents asserted that they evaluated the petitioner’s refund claim for Kshs. 114,033,660 and were satisfied that Kshs. 64,647,823.84 was well supported by documentation while Kshs. 49,385,836.16 was unsupported which was disallowed.
  4. The respondents communicated to the petitioner these findings through letters dated 27th August 2012 and 28th August 2012 with reasons why the sum of Kshs. 49,385,836.16 was disallowed.  According to the respondents, having considered the petitioner’s VAT refund claim, they had complied with the court’s judgment and are, therefore, not in contempt of court.
  5. The respondents maintain that it was after receiving their findings that the petitioner filed this motion application for contempt of court. They, however, subsequently opted to indulge the petitioner by asking it to provide more documents to support the claim for Kshs. 49,385,836.16.
  6. Parties embarked on a reconciliation exercise with a view to resolving the disallowed refund claim of Kshs. 49,385,836.16.  After reviewing the documents submitted, they sent reasons to the petitioner through letter dated 23rd May 2017 why the refund claim for Kshs.  49, 385, 836.16 could not be paid.
  7. In a letter dated 16th March 2018, the petitioner informed the respondents that it had put together the contentious export documents and other documents that may have been required to support the claim for the refund claim.  Upon reviewing the documents provided, they were found to support a claim for Kshs. 46, 823,087.41. The respondents disallowed the claim for Kshs. 2,562,748.59.
  8. The respondents asserted that it is evident that they complied with the court order. The delay in paying the refund claim cannot be attributable to them but depended on the pace at which the petitioner supplied he relevant documents. The respondents assert that they should not be condemned to pay interests on any amount that has since been refunded to the petitioner as they are not in contempt of the court.
  9. This the respondents argued is because the court did not direct them to pay Kshs. 114,033,660, but to consider and determine the petitioner’s VAT refunds in accordance with the provisions of the VAT Act and the regulations and where it was not possible to make refund, give reasons.
  10. The respondents relied on paragraph 10(1) of the Value Added Tax Regulations, 2004 for the position that the petitioner was required to furnish the documents specified in the regulation. They had also to be satisfied that the taxable goods were exported before a refund could be made. They further gave reasons for the claim(s) that were disallowed, thus complied with the court order.
  11. The respondents urged the court to consider the conduct of the parties in arriving at a decision whether they were in contempt of court. They particularly made reference to their letter dated their 23rd May 2017 and the petitioner’s letter dated 16th March 2018 and urged that they complied with the court order.  They further rely on the decision in Kenya Data Network Limited v Kenya Revenue Authority [2013] eKLR.
  12.   The respondents further argued that their actions did not fit in the definition of contempt of court in Black’s Law Dictionary; the petitioner misconstrued the court order that they were directed to refund Kshs. 114,033,660 without considering the requirements of paragraph 10 of the Value Added Tax, Act Regulation 1994.
  13. The respondents relied on Africa Management Communication International Limited v Joseph Mathenge Mugo & another [2013] eKLR to contend that they were not in contempt of court and their actions were geared towards preserving and safeguarding the rule of law contemplated by the order of the court in the judgment.
  14. The respondents were of the view, that the motion application violates the doctrine of exhaustion given that by virtue of sections 2 and 51 of the Tax Procedure Act, their decision ought to have been challenged at the Tax Appeals Tribunal. They relied on Republic v Kenya Revenue Authority, Commissioner for Investigation and Enforcement Department Ex parte Centrica Investments [2019] eKLR and urge for the dismissal of the application with costs.

Determination

  1. I have considered the motion application, the response, submissions by counsel for the parties and the decisions relied on. What is before court is an application to cite the respondents for contempt of court. The petitioner’s case is that the respondents violated the court’s judgment and order issued on 27th July 2012 directing the respondents to consider the petitioners claim for VAT refunds.
  2. The petitioner stated that the respondents were aware of the order but failed to comply. The petitioner sought to cite the respondents for contempt of court for disobedience of that order.
  3. The respondents denied violating the court order as alleged. They stated that they complied with the court order and paid what was due and that it was the petitioner who delayed in supplying documents to support the claims that were not paid.
  4. Contempt of court is the conduct or action that defies or disrespects the authority of court. Black’s Law Dictionary 9th Edition, defines contempt thus:

The act or state of despising; the conduct of being despised. Conduct that defies the authority or dignity of a court or legislature. Because such conduct interferes with the administration of justice.

Contempt is thus, conduct that impairs the fair and efficient administration of justice.

  1. Section 5 of the Judicature Act confers jurisdiction on the superior courts to punish for contempt. The petitioner also cited several decisions.
  2. The reason why courts punish for contempt is to uphold the dignity and authority of the court, ensure compliance with its directions, observance and respect of due process of law, preserve an effective and impartial system of justice, and maintain public confidence in the administration of justice by courts. Sanctions for contempt prevent threats to the rule of law and administration of justice. To successfully cite a party for contempt, it must be shown that the party so cited not only wilfully but also deliberately disobeyed an order that was directed at him.
  3. This motion application sought to have the respondents cited for contempt of the court’s order dated 27th July 2012 and order them to pay the balance of the claimed refunds together with interest.
  4. In Econet Wireless Kenya Ltd v Minister for Information & Communication of Kenya & another [2005] KLR 828, Ibrahim, J. (as he then was), underscored the importance of obeying court orders, stating:

It is essential for the maintenance of the rule of law and order that the authority and the dignity of our courts are upheld at all times. The Court will not condone deliberate disobedience of its orders and will not shy away from its responsibility to deal firmly with proved contemnors. It is the plain and unqualified obligation of every person against whom an order is made by court of competent jurisdiction, to obey it unless and until the order is discharged. The uncompromising nature of this obligation is shown by the fact that it extends even to cases where the person affected by the order believes it to be irregular or void. (emphasis)

  1. In T. N. Gadavarman Thiru Mulpad v Ashok Khot and Anor [2006] 5 SCC, the Supreme Court of India also emphasized on the dangers of disobeying Court orders, stating:

Disobedience of this Court's order strikes at the very root of the rule of law on which the judicial system rests. The rule of law is the foundation of a democratic society. Judiciary is the guardian of the rule of law. Hence, it is not only the third pillar but also the central pillar of the democratic State. If the judiciary is to perform its duties and functions effectively and remain true to the spirit with which they are sacredly entrusted to it, the dignity and authority of the Courts have to be respected and protected at all costs. Otherwise, the very corner stone of our constitutional scheme will give way and with it will disappear the rule of law and the civilized life in the society. That is why it is imperative and invariable that Court's orders are to be followed and complied with.

  1. Contempt of court is in the nature of criminal proceedings and, therefore, proof of a case against a contemnor is higher than that of balance of probability.  This is because liberty of the subject is at stake thus, an applicant must prove wilful and deliberate disobedience of the court order in order to succeed.
  2. This position was aptly stated in Gatharia K. Mutikika v Baharini Farm Limited [1985] KLR 227, that:

Contempt of court is an offence of a criminal character.  A man may be sent to prison. It must be proved satisfactorily…. It must be higher than proof on a balance of probabilities, almost but not exactly, beyond reasonable doubt. The standard of proof beyond reasonable doubt ought to be left where it belongs, to wit criminal cases.  It is not safe to extend it to offences which can be said to be quasi-criminal in nature.

The court emphasised that the guilt has to be proved with such strictness of proof as is consistent with the gravity of the charge. However, recourse ought not to be had to the process of contempt of court in aid of a civil remedy where there is any other method of doing justice.

  1. Due to the gravity of the consequences that ordinarily flow from contempt proceedings, it is appropriate that the person cited for contempt should have had personal knowledge of that order and the wilful and deliberate disobedience of the court order demonstrated.
  2. The petitioner stated that the respondents violated order (c) of the judgment which they were aware of. I have perused the judgment of the court delivered on 27th July 2012. In that judgment and specifically order (c) of the judgment, the court stated as follows:

An order of mandamus directing the respondents, jointly and severally and within thirty (30) days from the date hereof to consider and determine the petitioners application for VAT refunds in accordance with the Value Added Tax Act and the VAT Regulations.

  1.    It is clear from that order, that the court did not direct the respondents to pay. Rather the direction was that they consider and determine the petitioners’ application for VAT refunds in accordance with the Act and regulations.  The respondents argued thar they considered the documents and paid the claims that were supported and declined the unsupported claims. Even then, the respondents stated that they allowed the petitioners to submit any further documents to support the remaining amount out of time which was not done.
  2. In this motion application, it was the duty of the petitioner to demonstrate that the respondents wilfully and deliberately disobeyed the court’s direction. In Indian Airports Employees Union v Ranjan Catterjee & Another [AIR 1999 SC 880: 1999(2) SCC:537, the Supreme Court of India held that in order to amount to “civil contempt” disobedience must be wilful. If disobedience is based on the interpretation of court’s order, notification and other relevant documents, it does not amount to wilful disobedience.
  3. As was again stated by the Supreme Court of India in Mahinderjit Singh Bitta v Union of India & Others 1 A NO. 10 of 2010 (13th October, 2011):

In exercise of its contempt jurisdiction, the courts are primarily concerned with enquiring whether the contemnor is guilty of intentional and willful violation of the order of the court, even to constitute a civil contempt. Every party is lis before the court and even otherwise, is expected to obey the orders of the court in its spirit and substance. Every person is required to respect and obey the orders of the court with due dignity for the institution. (Emphasis).

  1. The emphasis as shown in the above cases, is that there must be “wilful and deliberate disobedience of court orders.” There cannot be deliberate and wilful disobedience, unless the contemnor was in control of what was to happen is complying with the court orders or directions.  And because contempt is of a criminal nature, it is always important that breach of the order be proved to the required standard; first, that the contemnor was aware of the order having been served or having personal knowledge of it, and second; that he deliberately and wilfully disobeyed it.
  2. In Peter K Yego & others v Pauline Wekesa Kode, (Acc No. 194 of 2014, the court stated that “it must be proved that one had actually disobeyed the court order before being cited to contempt.”
  3. And in Katsuri Limited v Kapurchand Depor Shah [2016] eKLR, citing Kristen Carla Burchell v Barry Grant Burchell (Eastern Cape Division Case No 364 of 2005), it was stated that “in order for an applicant to succeed in civil contempt proceedings, the applicant has to prove (i) the terms of the order, knowledge of the terms by the respondent, failure by the respondent to comply with the terms of the order.”

(See also Carey v Laiken, 2015 SCC 17 (16th April 2015)).

  1. This court notes that from the court’s direction, the respondents were to consider the petitioner’s applications for VAT refunds in accordance with the VAT Act and Regulations. The Act and Regulations, the respondents argued, required that the petitioner submits documents to support the refund applications. Only after considering the supporting documents, would the respondents make a determination over the applications.
  2. In that regard, for the respondents to be held to have been in contempt, the petitioner had to demonstrate that there was wilful and deliberate disobedience of the order. There is no evidence placed before this court that the respondents deliberately and wilfully delayed consideration or payments in disobedience of the court’s direction.
  3. In fact, the respondents stated that they communicated their findings to the petitioner through letters dated 27th August 2012 and 28th August 2012 with reasons why the sum of Kshs. 49,385,836.16 was disallowed. According to the respondents, having considered the petitioner’s VAT refund claim, they had complied with the court’s judgment and were, therefore, not in contempt of court.
  4. Contempt proceedings are a serious undertaking because when exercising this jurisdiction, the court is to ensure the orderly functioning of society and the rule of law. On conviction, the alleged contemnor stands to lose his or her liberty.
  5. It was in this regard that the Indian Supreme Court again stated in Re: Vinay Chandra Mishra [(1995) 2 SCC584], stated thus:

The judiciary has a special and additional duty to perform, viz, to oversee that all individuals and institutions including the executive and the legislature act within the framework of not only the law but also the fundamental law of the land. This duty is apart from the function of adjudicating the disputes between the parties which is essential to peaceful and orderly development of the society. Dignity and authority of the court has to be respected and protected at all costs.

  1. Even as courts punish for contempt to safeguard the peaceful and development of society and the rule of law, the power to punish for contempt is a discretionary one and should be used sparingly. That is why the court observed in Carey v Laiken (supra), that if courts were to find contempt too easily, “a court’s outrage might be treated as just so much bluster that might ultimately cheapen the role and authority of the very judicial power it seeks to protect. The court’s contempt power should be used cautiously and with great restraint. It is an enforcement power of last resort rather than first resort.”
  2. Taking into account the circumstances of this case and the material placed before court, I am not satisfied that the petitioner has proved its case to the required standard. Consequently, the motion application dated 18th September 2012 and amended on 3rd February 2022 is declined and dismissed. Each party will, however, bear their own costs.

Dated and delivered at Nairobi this 25th Day of October 2024

                                                E C MWITA

                                                    JUDGE

Details

Delivered
Court rank
High Court
Station
Milimani High Court (High Court at Milimani High Court)
Division
High Court Constitution and Human Rights
Case type
Constitution and Human Rights Petition (Civil)
Judge
E.C. Mwita

Related decisions

Published for information only — not legal advice. Check the official record before relying on this text. Talk to an advocate