REPUBLIC OF KENYA
IN THE HIGH COURT OF KENYA AT NAIROBI
CONSTITUTIONAL AND JUDICIAL REVIEW DIVISION
HCCOMM/E706/2024
IN THE MATTER OF AN APPLICATION BY TRACTOR DEN(K) FOR JUDICAL REVIEW
AND
IN THE MATTER OF ARTICLES 47(1), AND (2): 159(1), 159(2) (a),(b) AND (d) AND 201 OF THE CONSTITUION OF KENYA, 2010
AND
IN THE MATTER OF THE VALUE ADDED TAX, 2013
AND
IN THE MATTER OF THE INCOME TAX ACT, CAP 470
AND
IN THE MATTER OF SECTIONS 47(1), (2) AND (3) OF THE TAX PROCEDURES ACT, 2015
AND
IN THE MATTER OF SECTION 8 AND 9 OF THE LAW REFORM ACT, CHAPTER 26
AND
IN THE MATTER OF SECTIONS 7(1), 7(2)(b), 7(2)(c), 7(2)(e), 7(2)(j), 7(2)(m), 7(3), 9(1), 9(2), 9(3) AND 10 OF THE FAIR ADMINISTRATIVE ACTIONS ACT, 2015
AND
IN THE MATTER FOR AN APPLICATION FOR VAT AND INCOME TAX REFUND
REPUBLIC ……………………………………………………… APPLICANT
VERSUS
KENYA REVENUE AUTHORITY ……….……………. 1 ST RESPONDENT
THE COMMISSINER OF DOMESTIC TAXES …… 2 ND RESPONDENT AND
TRACTOR DEN (K) LIMITED ………………… EX-PARTE APPLICANT
JUDGMENT
1. By letter dated 12/1/2024, M/s Tractor Den (k) Ltd through Ngure and Co. Certified Public Accountants of Kenya wrote to the Commissioner Domestic Taxes Department – seeking refund of Kshs. 113,934,228/34.
2. There appears to have been no response.
3. By a letter dated 5/6/2024 – through the firm of Bwongo Manoti & Co. Advocates wrote to the Deputy Commissioner KRA, Domestic Taxes refund unit seeking VAT & Income Tax Refund of Kshs. 113,934,228.34 for the years 2016 to 2019.
4. By way of background the tax payer was described as a construction company duly registered in Kenya, Pin – P051165505R, registered for VAT; That the tax payer had made taxable supplies – that the tax payer made several refund claims applications for excess input tax for 2016 to 2021 which had not been processed – and as a result of the delay - some of the refund claims had become barred.
5. The application for refund was premised on section 17 of the VAT Act.
6. That the tax payer had made efforts to resolve the dispute – and there was TAT Appeal No. 625/2020 Tractor Den (K) Ltd… Commissioner of Domestic taxes where the Dispute was resolved by way of ADR. However, KRA did not update the ledgers to reflect the contents of the agreement but instead the tax office made similar self-assessment refund adjustment. The tax payer cited cases to support the application for refund, thus;
i. HC ITA E053/2020 Commissioner for Domestic Taxes vs Sony Holdings Ltd [2021]eKLR( on the application of Section 47(3) of TPA)
ii. TAT Appeal no, E033/2020 Commissioner for Domestic Taxes Vs Unga Ltd [2021] eKLR on the application of Section 47(4) of the TPA.
iii. Petition No. 476/2013 Tata Chemicals Magadi Ltd Vs Commissioner for Domestic Taxes (Large Tax Payers) [2014] eKLR on Section 47(1) of the TPA.
7. In response – the Tax Collector through its Nyeri office – through a letter dated 18/10/2024 wrote to the tax payer – giving a pre assessment notice – making reference to WHT credits recorded in the VAT ITax Ledger for period of December, 2019, May 2021, February, 2022 , January 2022. The Tax Collector stated that it had not seen sales declaration for VAT for the corresponding period and Income Tax Sales for 2021, 2022 and 2023. The Tax Payer was required to declare by filling and making payment of the resulting VAT and Income Tax.
The preliminary computation of VAT come up with the sum of Kshs. 134,723,000 and Income Tax of Kshs. 8,240,098.
The Tax Payer was given 7 days to comply with the notice under Section 31(1) of the TAP, 2015 in default of which the commissioner would issue additional assessment.
8. A letter dated 18/10/2024 was written to the Tax Payer headed - “intention to issue additional Assessment Years of Income 2021 to 2023. This letter stated inter alia: - that the Tax Payer was required to file and settle tax liabilities arising out of VAT & Income Tax. That “… despite our notice and follow up phone calls, the filing and payment have not been completed within the specified time frame.”
9. The tax collector proceeded to reproduce the figures in the pre-assessment notice stating , “… due to your failure to comply with our previous notice and follow ups, we are not in the process of issuing additional assessments under Section 31(1) of the TPA…”
The tax payer was given a further 7 days to comply.
On 6/11/2024 – the Tax Payer’s advocates wrote in response to the pre – assessment notice of 18/10/2024, and Intention to issue additional assessment – counsel pointed out that the Tax Collector had not responded to the letter of 5/6/2024 seeking – tax refund of Kshs. 113,934,228/34.
Reference was made to other letters dated 2/1/2024, 23/2/2024 further reference was made to physical meetings held between the Tax Payer and the Tax Collector’s officers in Nyeri and Thika.
10. The Tax Payer filed Judicial Review Application E269/2024 (dated 18/12/2024) which was converted to HComm E706/2024.
11. The Tax Payer sought orders inter alia :-
i. An order for prohibition to remove to this Hon. Court for purposes of prohibition the 2 nd respondent from demanding further taxes from the Tax Payer for the years 2021 to 2023.
ii. An order for mandamus to be issued compelling the respondent to process and pay the applicant’s refund claim of 113,934,228 for 2021 to 2023.
12. The main ground is that - the respondent has refused to render a decision on the refund application so as to enable the Tax Appeals Tribunal to deal with the matter, - this is because without a decision from the respondent there is no appealable decision within the meaning of Section 3 of the TPA 2015.
13. That the applicant’s refund application is deemed as allowed by dint of Section 47(3) TPA.
14. The application is supported by the affidavit sworn by Francis Ngure CPA – registered Tax Agent involved in the management of the applicant’s Account.
15. The application is opposed through the replying affidavit of Geoffrey Korir - an officer of KRA on behalf of KRA & CDT – the 2 nd Respondent.
The position of the respondent is that the applicant sought a VAT refund of Kshs. 3,514,086 on 19/1/2024 (for period of February, 2022 to March, 2023) on 23/1/2024 for January, 2018.
16. That on 31/1/24 – the respondent sent notice of intention validate the refund application requesting the applicant to avail all the documents to justify the claim sales and purchase invoices, customs entries, bank statements et al pursuant to section 47(2) of the TPA – that the applicant only availed credited with holding credits during a meeting held on 5/4/2024 ; failed to address question of undeclared Income.
That the respondent received the refund applications on 19/1/2024, 22/1/2024
23/1/2024 – on the basis of limited documents and rejected the same on 7/2/24, 2/2/2024 and 29/1/2024 respectively; further that the Income tax Refund Application for years 2015 – 2021 were rejected so that the applicant would amend the 2019 & 2020 returns.
17. That the respondent issued 3 (three) Refund Decision that were communicated through the ITax plat form within the statutory period of 90 days, as required by section 47(3) of TPA – and this ought to have been challenged at the Tax Appeals Tribunal as per Section 47(13) of the TPA, which has the mandate to determine the legality of the said decisions.
18. The claim for 22/1/2024 for Kshs. 127,656/00 rejected on 2/2/2024 “for the Tax Payer to re-apply upon completion of pending audit at RAC Central Region”
19. The claim for 19/1/2024 for Kshs. 3,341,541/= rejected on 7/2/2024 on ground
“Claim not payable in light of pending Audit Report from TSO RAC, pending debt issue at Debt unit, you may re lodge once the issue is resolved. Kindly liaise with Audit Manager and Debt Manager for resolution of the issue, after which you may re apply.”
20. Claim for Kshs. 14,111,540 for 5/1/2024 rejected on 5/3/2024 “as 2019 is in a payable position as per return. Kindly amend return and capture all the credits while re-applying apply separately for each period.”
21. The applicant filed a further affidavit sworn by Haron Motari a certified public accountant involved in the management of the applicant’s accounts and tax affairs. His was in response to the replying of an affidavit sworn by Geoffrey Korir on 13th May 2025. He depones that at the time of making an application for refund of Kenya shillings 3,514,086/00 the exparte applicant was at a credit position of Kenya shillings 118,105,606/31. That by a letter dated 31st January 2024 the second respondent invited the applicant for a meeting allegedly to validate the refunds but as late as September 2024 the exparte applicant was still requesting the respondent to make a determination of its refund application. Annexed to this affidavit are letters and emails to that effect. It is further deponed that the 2 nd respondent had never asked for further documents from the exparte applicant and neither has it raised questions with undeclared incomes; that the respondent having subjected the exparte applicant to an audit was obligated to render a decision as to the refundability of the refund application within 120 days as provided for under section 47 (4)(A) of the Tax Procedures Act 2015. That the comments contained in the respondent’s rejection orders do not amount to an appealable decision capable of being appealed and as such the exparte applicant was denied a chance to have the issues determined at the tax appeals tribunal in the absence of such a decision.
22. Parties filed written submission. The parties Counsel also highlighted their submissions;
23. For the applicant it is submitted that they cannot go to the Tax Appeals Tribunal because the respondent has not made an appealable decision and reference is made to section 3 and section 52 of the TPA, that when the applicant made an application for refund of Kenya shillings 113 934 228 /34 for the period January 2017 to February 2013 the respondent instead of making a decision about that, proceeded to give a notice to validate the exparte applicant’s refund application for the period January 2018 ,February 2022 to March 2023, February 2022 to January 2023 for Kenya shillings 3 5140 87/14
24. The applicant set out two issues for determination
Whether the Applicant’s Refund Application is deemed allowed by law.
Whether the Respondent’s actions violate the exparte Applicant’s right to Fair Administrative Action .
25. It is argued that the refund application is deemed allowed by dint of the law pursuant to section 47 of the TPA which states;
“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 outstanding tax debts and future tax liabilities; or
(b) for a refund of the overpaid tax within five years, or six months in the case of value added tax, after the date on which the tax was overpaid.
(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 outstanding tax debts or future tax liability; and (b) in the case of an application under subsection (1)(b), refund the overpaid tax within a period of six months from the date of ascertainment and, if the Commissioner fails to refund, the overpaid tax shall be applied to offset the taxpayer’s outstanding tax debt or future tax liabilities.
(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.” [Emphasis added]
26. It is submitted that the respondent’s decision to call for a partial audit or verification of documents without rendering a decision on the applicant’s previous refund application is unfair and unreasonable and violates the applicant’s legitimate expectation that the first and second respondents would consider and determine its refund application.
27. The applicant relies on Commissioner of Domestic Taxes vs Sony Holdings Limited [2021] eKLR , where the Court dealt with an issue of failure to make a decision on a refund application within 90 days:
“….the Commissioner failed to make decision within 90 days as provided by sections 47(3) of the TPA. This communication was, in my view, ambivalent and did not amount to a decision. I therefore hold that since the refund claim was neither denied nor rejected, the Respondent was entitled to claim the refund in its returns in subsequent years until the matter was resolved. I do not find anything in the TPA, nor has the Commissioner pointed to any provision of the law, that states that a taxpayer can only make a refund claim once whereupon the claim is extinguished notwithstanding that it has not been settled. Additionally, I reject the Commissioner’s contention that the Respondent has committed an offence by making a claim that it genuinely believes it is entitled to when the Commissioner has not dealt with its application for the refund.”
28. The applicant also relies on Commissioner of Domestic Taxes v Unga Limited [2021] eKLR, where the Court dealt with the question of refunds as provided for under Section 47 of the Tax Procedures Act stating:
“….the commissioner may not withhold a refund in anticipation of a tax liability. This was borne out of section 47(4) of the Tax Procedures Act that defines a refund as what is paid over when the commissioner has applied overpayment to payment of any tax owing by the taxpayer under the tax law.”
29. On the question of fair administrative action, the appellant cited section 7 of the Fair Administrative Action Act 2015 which provides for the circumstances under which the institution of proceedings for judicial review can be commenced;
“ 7(1) Any person who is aggrieved by an administrative action or decision may apply for review of the administrative action or decision to- (a) a court in accordance with section 8; or
(b) a tribunal in exercise of its jurisdiction conferred in that regard under any written law.”
Section 7(2) lists for the grounds for review and at sub-sections 7(2) (j), (k), (m), (n) and (o) as follows: “(j) there was an abuse of discretion, unreasonable delay or failure to act in discharge of a duty imposed under any written law; (k) the administrative action or decision is unreasonable; ... (m) the administrative action or decision violates the legitimate expectations of the person to whom it relates (n) the administrative action or decision is unfair; or (o) the administrative action or decision is taken or made in abuse of power.”
30. It is submitted that the duty to determine the refund application lay squarely with the second respondent who derives the power from the first respondent and because of the second respondent’s failure to render a decision he was not able to approach the Tax Appeals Tribunal which is the statutory forum of first instance mandated to handle the tax disputes. Further that from 12th January 2024 when the first letter was written to the second respondent to 5th June 2024 when the exparte applicant’s advocates did the second letter, the second respondent never bothered to respond; the second respondent’s action amounts to abuse of discretion, unreasonable delay, unfair and an abuse of power contrary to the express provisions of the law
31. The applicant relies on Tata Chemicals Magadi Limited vs Commissioner of Domestic Taxes (Large Taxpayers) [2014] eKLR where the court analysed the extent of the application of fair administrative action noting;
“The purpose of Article 47 is to uplift the standards of administrative action by providing constitutional standards (see Dry Associates Limited v Capital Markets Authority and Another Nairobi Petition No. 328 of 2011 [2012] eKLR). The national values and principles of governance articulated in Article 10 among then good governance, integrity, transparency and accountability must be infused in administrative action. In regard to processing of VAT refund claims, Ojwang’ J., (as he then was) in the case of Republic v Kenya Revenue Authority ex-parte L.A.B International Kenya Limited (Supra) observed that, “In practical terms, Government has a public duty to effect change to any unprogressive arrangements, such as those that may characterize the operational linkage of the respondent to slothful structures, so as to render the respondent, as well as such structures, capable of responding to the overriding demands of the Constitution; and in this regard, ordinary statutory arrangements cannot qualify the constitutional provisions. On this account, the respondent has no justification for failing to make VAT refunds
32. This court cited Kenya Data Networks Limited vs Kenya Revenue Authority on the need for expeditious processing of VAT refunds and stated;
“The respondent had a duty to act on the petitioner’s VAT refunds timeously. While recognising that it is mandated by statute to collect taxes, and while appreciating the pivotal role that collection of taxes plays in a country's economic development and provision of services for citizens, K RA must also be always cognizant of the possible ramifications of its actions or omissions in dealing with taxpayers, and the impact on investment, revenue collection and the general welfare of the country. While there is no statutory period within which KRA ought to make good tax refund claims, it cannot have any basis for failing to process tax refund claims several months, and in some cases several years after they were made. It is no answer to the petitioner’s claim for tax refund for the respondent to demand in turn that the petitioner pays arrears of tax…Ultimately, the Commissioner is entitled to reject a VAT refund claim by giving written reasons which would entitle the taxpayer to appeal or challenge the decision.” In my view, as long as the claim is lodged within the time limited and proper documentation is submitted and the claim is verified, the respondent has a duty to pay the claim.”…. The taxpayer who carries on his business in accordance with the law and applies for a refund is entitled to the refund as a matter of right. The process of verification and processing the claim must, in the words of Article 47(1) of the Constitution, be efficient and expeditious.”
33. It is submitted that section 47(3) of the TPA 2015 is couched in mandatory terms and the court is urged to find that the exparte applicant’s refund application was deemed to have been allowed after the lapse of the statutory 90 days. The court is urged to be guided by Mount Kenya Bottlers Ltd & 3 others vs Attorney General & 3 others [2019] eKLR, where the Court of Appeal re-emphasized the strict interpretation approach to tax statutes:
“….when it comes to interpretation of tax legislation, the statute must be looked at using slightly different lenses. With regard to tax legislation, the language imposing the tax must receive a strict construction. Judge Rowlett in his decision in Cape Brandy Syndicate v I.R. Commissioners [1921]1KB (cited by the appellants), expressed the common law position in this area when he stated;'...in a taxing Act one has to look at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used'.”
34. The respondent raised two issues for determination; whether the applicant has exhausted the available remedies before invoking this honorable court’s jurisdiction on application for judicial review; And whether the applicant has met the threshold for the grant of the orders of prohibition and mandamus.
35. It is submitted that the applicant is seeking to challenge the decision of the respondent in rejecting its refund application on the ground that the same was allowed by operation of the law. That this issue is the primary reserve of the Tax Appeals Tribunal. The court is referred to section 52 of the Tax Procedures Act ,section 12 of the Tax Appeals Tribunal Act, Section 7 and section 9(2 ) of the Fair Administrative Act as read with article 159(2) (c ) of the Constitution of Kenya which all provide for an exhaustive dispute resolution mechanism for tax disputes.
36. It is submitted that section 3 of the act defines an appealable decision as
"Appealable decision” means an objection decision and any other decision made under a tax law other than—
(a) a tax decision; or
(b) a decision made in the course of making a tax decision;
37. It is submitted that section 3 further goes to define what a tax decision is and purposely excludes a refund decision.
38. It is submitted that section 47(13) of the TPA provides that any person aggrieved by a refund decision may appeal to the tribunal within 30 days after being notified of the decision according to the respondent the rejection amounted to a decision and the applicant ought to have appealed to the Tax Appeals Tribunal. That this position is bolstered by section 12 of the Tax Appeals Tribunal Act which states that any person who disputes the decision of the commissioner on any matter arising under the provisions of any tax law may, Subject to the provisions of the relevant tax law upon giving notice in writing to the Commissioner, appeal to the tribunal. It is further submitted that the applicant could have invoked section 13 (2) of the same act to lodge an appeal before the tribunal upon demonstrating reasonable grounds for the delay. That this application came only because the applicant was afraid of being denied leave to lodge an appeal out of time at the tribunal. That indeed it is the tax appeals tribunal that exercises original jurisdiction over tax related disputes encompassing decisions by the respondents issued under any tax law including the refund decisions that the applicant is aggrieved by.
39. It is further submitted that the applicant also had another option of objecting to the additional assessments arising from the refund audit exercise in line with the provisions of section 51 Of the Tax Procedures Act that this law requires a taxpayer who is aggrieved to first object against any assessments before proceeding under any other law and that this must be done within 30 days of being informed of the assessments. That even if the applicant was late to object to the additional assessments there was a remedy under section 50 16 and seven of the TPA for extension of time to lodge an objection within with reasonable grounds.
40. The jurisdiction of this court to deal with this matter at this stage is brought in into question and the respondent cites Owners of the Motor Vessel ‘Lillian S’ versus Caltex Oil Kenya Limited (1989) KLR 1 where ;Justice Nyarangi stated as follows’
I think that it is reasonably plain that a question of jurisdiction ought to be raised at the earliest opportunity and the court seized of the matter is then obliged to decide the issue right away on the material before it. Jurisdiction is everything without it a court has no power to make one more step. Where a court has no jurisdiction there would be no basis for a continuation of proceedings pending other evidence. A court of law downs tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction.
41. It is submitted that the applicant failed to adhere to the doctrine of exhaustion by failing to follow the laid down mechanisms for dispute resolution before proceeding to the high court. This is what was held in Speaker of National Assembly versus Karume [199 ] (sic) Where the court stated
Where there is a clear procedure for redress of any particular grievance prescribed by the Constitution or an act of Parliament that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures.
42. The Respondent also relies on Nairobi High Court JR application no.447 of 2018 Republic versus Kenya Revenue Authority Expert Centrica Investments & Nairobi High Court JR Application No.E129 of 2023 of 2018 Republic versus Kenya Revenue Authority exparte Nelson Andayi Havi where the courts upheld the application of the doctrine of exhaustion in similar matters.
43. It is submitted that there is an exception to the rule explained in William Odhiambo Ramogi & 3 others vs Attorney General and four others: Muslims for Human Rights & 2 others( interested parties) [2020] eKLR. The judges had this to say setting out the principles in the Mutanga case;
As observed above the first principle is that the High Court may in exceptional circumstances consider and determine that the exhaustion requirement would not serve the values enshrined in the Constitution or law and allow the suit to proceed before it. It is also essential for the court to consider the suitability of the appeal mechanism available in the context of the particular case and determine whether it is suitable to determine the issues raised.
The second principle is that the jurisdiction of the courts to consider valid grievances from parties who lack adequate audience before a forum created by a statute , or who may not have the quality of audience before the forum which is proportionate to the interests the party wishes to advance in a suit must not be ousted… This was extensively elaborated by Mativo J in Night Rose Cosmetics (1972) Limited vs Nairobi County Government &2 two others [2018]eKLR
44. It is further submitted that the applicant has not demonstrated any weakness in the existing dispute resolution mechanism that the tribunal under section 29(3)(c ) of the Tax Appeals Tribunal Act has the power to set aside that decision under review which would essentially be the same as the quashing order being sought in the present proceedings; Further that the respondent has not demonstrated that it has been denied audience before the other competed forum, the TAT
45. On the second issue as to whether the applicant has met the threshold for the grant of the orders of prohibition and mandamus it is submitted that the respondents have exercised expressly stated statutory powers and in particular section 47 of the Tax Procedures Act on the issue of offsetting or refunding of overpaid taxes. That the respondent is empowered to ascertain the accuracy of the applicant’s application by obtaining full information in respect of the tax liability and to this end may require production of documents, the furnishing of information relating to the tax liability, attendance at a time and place specified in by notice for the purpose of giving evidence on any matter or transaction appearing to be relevant to the tax liability. For this proposition the respondent relies on Anne Wanjiku Kahwai versus Kenya Revenue Authority and another [2019] eKLR.
46. It is submitted that the applicant was given an opportunity to participate and respond to the claims during the audit and therefore cannot claim a violation of article 47 and 50(2 )of the Constitution. It is Submitted that the applicant had recourse in the objection procedure in section 51 of the TAX procedures act.
47. It is submitted that there has been no abuse of discretion the present circumstances as the tax dispute is squarely premised on the applicant’s self-generated returns and documentations furnished to the respondents in them Audit exercise.
48. The applicant filed supplementary submissions and submitted on the question whether the applicant has exhausted the available remedies before invoking this honorable court’s jurisdiction with an application for judicial review. It is submitted that the ripeness of a matter before the tax appeals tribunal contemplates that a party can only invoke the jurisdiction when they have an appealable decision. The applicant reproduces section 3 of the TPA and section 52 of the same act. That section 47 places obligations on both the taxpayer and the Commissioner where a taxpayer must apply for the refund and the Commissioner must consider the application. It is submitted that without a decision the applicant could not approach the tax appeals tribunal, that the letter from the second respondent dated 31 st January 2024 purporting to call for partial audit and or verification of documents without rendering a decision on the applicant’s previous refund applications is unfair and unreasonable and violates the applicant’s legitimate expectation and the first and second respondents would consider and determine its refund application. The applicant cites William Odhiambo Ramogi and 3 others versus Attorney General and 4 others; Muslims for Human Rights & 2 Others [Interested Parties] [2020] eKLR where the Court analyzed the doctrine of exhaustion:
However, our case law has developed a number of exceptions to the doctrine of exhaustion. In R. vs Independent Electoral and Boundaries Commission (I.E.B.C.) & Others Ex Parte the National Super Alliance Kenya (NASA) (supra), after exhaustively reviewing Kenya's decisional law on the exhaustion doctrine, the High Court described the first exception thus: “What emerges from our jurisprudence in these cases are at least two principles: while, exceptions to the exhaustion requirement are not clearly delineated, Courts must undertake an extensive analysis of the facts, regulatory scheme involved, the nature of the interests involved – including level of public interest involved and the polycentricity of the issue (and hence the ability of a
[...truncated]
IN THE HIGH COURT OF KENYA AT NAIROBI
CONSTITUTIONAL AND JUDICIAL REVIEW DIVISION
HCCOMM/E706/2024
IN THE MATTER OF AN APPLICATION BY TRACTOR DEN(K) FOR JUDICAL REVIEW
AND
IN THE MATTER OF ARTICLES 47(1), AND (2): 159(1), 159(2) (a),(b) AND (d) AND 201 OF THE CONSTITUION OF KENYA, 2010
AND
IN THE MATTER OF THE VALUE ADDED TAX, 2013
AND
IN THE MATTER OF THE INCOME TAX ACT, CAP 470
AND
IN THE MATTER OF SECTIONS 47(1), (2) AND (3) OF THE TAX PROCEDURES ACT, 2015
AND
IN THE MATTER OF SECTION 8 AND 9 OF THE LAW REFORM ACT, CHAPTER 26
AND
IN THE MATTER OF SECTIONS 7(1), 7(2)(b), 7(2)(c), 7(2)(e), 7(2)(j), 7(2)(m), 7(3), 9(1), 9(2), 9(3) AND 10 OF THE FAIR ADMINISTRATIVE ACTIONS ACT, 2015
AND
IN THE MATTER FOR AN APPLICATION FOR VAT AND INCOME TAX REFUND
REPUBLIC ……………………………………………………… APPLICANT
VERSUS
KENYA REVENUE AUTHORITY ……….……………. 1 ST RESPONDENT
THE COMMISSINER OF DOMESTIC TAXES …… 2 ND RESPONDENT AND
TRACTOR DEN (K) LIMITED ………………… EX-PARTE APPLICANT
JUDGMENT
1. By letter dated 12/1/2024, M/s Tractor Den (k) Ltd through Ngure and Co. Certified Public Accountants of Kenya wrote to the Commissioner Domestic Taxes Department – seeking refund of Kshs. 113,934,228/34.
2. There appears to have been no response.
3. By a letter dated 5/6/2024 – through the firm of Bwongo Manoti & Co. Advocates wrote to the Deputy Commissioner KRA, Domestic Taxes refund unit seeking VAT & Income Tax Refund of Kshs. 113,934,228.34 for the years 2016 to 2019.
4. By way of background the tax payer was described as a construction company duly registered in Kenya, Pin – P051165505R, registered for VAT; That the tax payer had made taxable supplies – that the tax payer made several refund claims applications for excess input tax for 2016 to 2021 which had not been processed – and as a result of the delay - some of the refund claims had become barred.
5. The application for refund was premised on section 17 of the VAT Act.
6. That the tax payer had made efforts to resolve the dispute – and there was TAT Appeal No. 625/2020 Tractor Den (K) Ltd… Commissioner of Domestic taxes where the Dispute was resolved by way of ADR. However, KRA did not update the ledgers to reflect the contents of the agreement but instead the tax office made similar self-assessment refund adjustment. The tax payer cited cases to support the application for refund, thus;
i. HC ITA E053/2020 Commissioner for Domestic Taxes vs Sony Holdings Ltd [2021]eKLR( on the application of Section 47(3) of TPA)
ii. TAT Appeal no, E033/2020 Commissioner for Domestic Taxes Vs Unga Ltd [2021] eKLR on the application of Section 47(4) of the TPA.
iii. Petition No. 476/2013 Tata Chemicals Magadi Ltd Vs Commissioner for Domestic Taxes (Large Tax Payers) [2014] eKLR on Section 47(1) of the TPA.
7. In response – the Tax Collector through its Nyeri office – through a letter dated 18/10/2024 wrote to the tax payer – giving a pre assessment notice – making reference to WHT credits recorded in the VAT ITax Ledger for period of December, 2019, May 2021, February, 2022 , January 2022. The Tax Collector stated that it had not seen sales declaration for VAT for the corresponding period and Income Tax Sales for 2021, 2022 and 2023. The Tax Payer was required to declare by filling and making payment of the resulting VAT and Income Tax.
The preliminary computation of VAT come up with the sum of Kshs. 134,723,000 and Income Tax of Kshs. 8,240,098.
The Tax Payer was given 7 days to comply with the notice under Section 31(1) of the TAP, 2015 in default of which the commissioner would issue additional assessment.
8. A letter dated 18/10/2024 was written to the Tax Payer headed - “intention to issue additional Assessment Years of Income 2021 to 2023. This letter stated inter alia: - that the Tax Payer was required to file and settle tax liabilities arising out of VAT & Income Tax. That “… despite our notice and follow up phone calls, the filing and payment have not been completed within the specified time frame.”
9. The tax collector proceeded to reproduce the figures in the pre-assessment notice stating , “… due to your failure to comply with our previous notice and follow ups, we are not in the process of issuing additional assessments under Section 31(1) of the TPA…”
The tax payer was given a further 7 days to comply.
On 6/11/2024 – the Tax Payer’s advocates wrote in response to the pre – assessment notice of 18/10/2024, and Intention to issue additional assessment – counsel pointed out that the Tax Collector had not responded to the letter of 5/6/2024 seeking – tax refund of Kshs. 113,934,228/34.
Reference was made to other letters dated 2/1/2024, 23/2/2024 further reference was made to physical meetings held between the Tax Payer and the Tax Collector’s officers in Nyeri and Thika.
10. The Tax Payer filed Judicial Review Application E269/2024 (dated 18/12/2024) which was converted to HComm E706/2024.
11. The Tax Payer sought orders inter alia :-
i. An order for prohibition to remove to this Hon. Court for purposes of prohibition the 2 nd respondent from demanding further taxes from the Tax Payer for the years 2021 to 2023.
ii. An order for mandamus to be issued compelling the respondent to process and pay the applicant’s refund claim of 113,934,228 for 2021 to 2023.
12. The main ground is that - the respondent has refused to render a decision on the refund application so as to enable the Tax Appeals Tribunal to deal with the matter, - this is because without a decision from the respondent there is no appealable decision within the meaning of Section 3 of the TPA 2015.
13. That the applicant’s refund application is deemed as allowed by dint of Section 47(3) TPA.
14. The application is supported by the affidavit sworn by Francis Ngure CPA – registered Tax Agent involved in the management of the applicant’s Account.
15. The application is opposed through the replying affidavit of Geoffrey Korir - an officer of KRA on behalf of KRA & CDT – the 2 nd Respondent.
The position of the respondent is that the applicant sought a VAT refund of Kshs. 3,514,086 on 19/1/2024 (for period of February, 2022 to March, 2023) on 23/1/2024 for January, 2018.
16. That on 31/1/24 – the respondent sent notice of intention validate the refund application requesting the applicant to avail all the documents to justify the claim sales and purchase invoices, customs entries, bank statements et al pursuant to section 47(2) of the TPA – that the applicant only availed credited with holding credits during a meeting held on 5/4/2024 ; failed to address question of undeclared Income.
That the respondent received the refund applications on 19/1/2024, 22/1/2024
23/1/2024 – on the basis of limited documents and rejected the same on 7/2/24, 2/2/2024 and 29/1/2024 respectively; further that the Income tax Refund Application for years 2015 – 2021 were rejected so that the applicant would amend the 2019 & 2020 returns.
17. That the respondent issued 3 (three) Refund Decision that were communicated through the ITax plat form within the statutory period of 90 days, as required by section 47(3) of TPA – and this ought to have been challenged at the Tax Appeals Tribunal as per Section 47(13) of the TPA, which has the mandate to determine the legality of the said decisions.
18. The claim for 22/1/2024 for Kshs. 127,656/00 rejected on 2/2/2024 “for the Tax Payer to re-apply upon completion of pending audit at RAC Central Region”
19. The claim for 19/1/2024 for Kshs. 3,341,541/= rejected on 7/2/2024 on ground
“Claim not payable in light of pending Audit Report from TSO RAC, pending debt issue at Debt unit, you may re lodge once the issue is resolved. Kindly liaise with Audit Manager and Debt Manager for resolution of the issue, after which you may re apply.”
20. Claim for Kshs. 14,111,540 for 5/1/2024 rejected on 5/3/2024 “as 2019 is in a payable position as per return. Kindly amend return and capture all the credits while re-applying apply separately for each period.”
21. The applicant filed a further affidavit sworn by Haron Motari a certified public accountant involved in the management of the applicant’s accounts and tax affairs. His was in response to the replying of an affidavit sworn by Geoffrey Korir on 13th May 2025. He depones that at the time of making an application for refund of Kenya shillings 3,514,086/00 the exparte applicant was at a credit position of Kenya shillings 118,105,606/31. That by a letter dated 31st January 2024 the second respondent invited the applicant for a meeting allegedly to validate the refunds but as late as September 2024 the exparte applicant was still requesting the respondent to make a determination of its refund application. Annexed to this affidavit are letters and emails to that effect. It is further deponed that the 2 nd respondent had never asked for further documents from the exparte applicant and neither has it raised questions with undeclared incomes; that the respondent having subjected the exparte applicant to an audit was obligated to render a decision as to the refundability of the refund application within 120 days as provided for under section 47 (4)(A) of the Tax Procedures Act 2015. That the comments contained in the respondent’s rejection orders do not amount to an appealable decision capable of being appealed and as such the exparte applicant was denied a chance to have the issues determined at the tax appeals tribunal in the absence of such a decision.
22. Parties filed written submission. The parties Counsel also highlighted their submissions;
23. For the applicant it is submitted that they cannot go to the Tax Appeals Tribunal because the respondent has not made an appealable decision and reference is made to section 3 and section 52 of the TPA, that when the applicant made an application for refund of Kenya shillings 113 934 228 /34 for the period January 2017 to February 2013 the respondent instead of making a decision about that, proceeded to give a notice to validate the exparte applicant’s refund application for the period January 2018 ,February 2022 to March 2023, February 2022 to January 2023 for Kenya shillings 3 5140 87/14
24. The applicant set out two issues for determination
Whether the Applicant’s Refund Application is deemed allowed by law.
Whether the Respondent’s actions violate the exparte Applicant’s right to Fair Administrative Action .
25. It is argued that the refund application is deemed allowed by dint of the law pursuant to section 47 of the TPA which states;
“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 outstanding tax debts and future tax liabilities; or
(b) for a refund of the overpaid tax within five years, or six months in the case of value added tax, after the date on which the tax was overpaid.
(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 outstanding tax debts or future tax liability; and (b) in the case of an application under subsection (1)(b), refund the overpaid tax within a period of six months from the date of ascertainment and, if the Commissioner fails to refund, the overpaid tax shall be applied to offset the taxpayer’s outstanding tax debt or future tax liabilities.
(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.” [Emphasis added]
26. It is submitted that the respondent’s decision to call for a partial audit or verification of documents without rendering a decision on the applicant’s previous refund application is unfair and unreasonable and violates the applicant’s legitimate expectation that the first and second respondents would consider and determine its refund application.
27. The applicant relies on Commissioner of Domestic Taxes vs Sony Holdings Limited [2021] eKLR , where the Court dealt with an issue of failure to make a decision on a refund application within 90 days:
“….the Commissioner failed to make decision within 90 days as provided by sections 47(3) of the TPA. This communication was, in my view, ambivalent and did not amount to a decision. I therefore hold that since the refund claim was neither denied nor rejected, the Respondent was entitled to claim the refund in its returns in subsequent years until the matter was resolved. I do not find anything in the TPA, nor has the Commissioner pointed to any provision of the law, that states that a taxpayer can only make a refund claim once whereupon the claim is extinguished notwithstanding that it has not been settled. Additionally, I reject the Commissioner’s contention that the Respondent has committed an offence by making a claim that it genuinely believes it is entitled to when the Commissioner has not dealt with its application for the refund.”
28. The applicant also relies on Commissioner of Domestic Taxes v Unga Limited [2021] eKLR, where the Court dealt with the question of refunds as provided for under Section 47 of the Tax Procedures Act stating:
“….the commissioner may not withhold a refund in anticipation of a tax liability. This was borne out of section 47(4) of the Tax Procedures Act that defines a refund as what is paid over when the commissioner has applied overpayment to payment of any tax owing by the taxpayer under the tax law.”
29. On the question of fair administrative action, the appellant cited section 7 of the Fair Administrative Action Act 2015 which provides for the circumstances under which the institution of proceedings for judicial review can be commenced;
“ 7(1) Any person who is aggrieved by an administrative action or decision may apply for review of the administrative action or decision to- (a) a court in accordance with section 8; or
(b) a tribunal in exercise of its jurisdiction conferred in that regard under any written law.”
Section 7(2) lists for the grounds for review and at sub-sections 7(2) (j), (k), (m), (n) and (o) as follows: “(j) there was an abuse of discretion, unreasonable delay or failure to act in discharge of a duty imposed under any written law; (k) the administrative action or decision is unreasonable; ... (m) the administrative action or decision violates the legitimate expectations of the person to whom it relates (n) the administrative action or decision is unfair; or (o) the administrative action or decision is taken or made in abuse of power.”
30. It is submitted that the duty to determine the refund application lay squarely with the second respondent who derives the power from the first respondent and because of the second respondent’s failure to render a decision he was not able to approach the Tax Appeals Tribunal which is the statutory forum of first instance mandated to handle the tax disputes. Further that from 12th January 2024 when the first letter was written to the second respondent to 5th June 2024 when the exparte applicant’s advocates did the second letter, the second respondent never bothered to respond; the second respondent’s action amounts to abuse of discretion, unreasonable delay, unfair and an abuse of power contrary to the express provisions of the law
31. The applicant relies on Tata Chemicals Magadi Limited vs Commissioner of Domestic Taxes (Large Taxpayers) [2014] eKLR where the court analysed the extent of the application of fair administrative action noting;
“The purpose of Article 47 is to uplift the standards of administrative action by providing constitutional standards (see Dry Associates Limited v Capital Markets Authority and Another Nairobi Petition No. 328 of 2011 [2012] eKLR). The national values and principles of governance articulated in Article 10 among then good governance, integrity, transparency and accountability must be infused in administrative action. In regard to processing of VAT refund claims, Ojwang’ J., (as he then was) in the case of Republic v Kenya Revenue Authority ex-parte L.A.B International Kenya Limited (Supra) observed that, “In practical terms, Government has a public duty to effect change to any unprogressive arrangements, such as those that may characterize the operational linkage of the respondent to slothful structures, so as to render the respondent, as well as such structures, capable of responding to the overriding demands of the Constitution; and in this regard, ordinary statutory arrangements cannot qualify the constitutional provisions. On this account, the respondent has no justification for failing to make VAT refunds
32. This court cited Kenya Data Networks Limited vs Kenya Revenue Authority on the need for expeditious processing of VAT refunds and stated;
“The respondent had a duty to act on the petitioner’s VAT refunds timeously. While recognising that it is mandated by statute to collect taxes, and while appreciating the pivotal role that collection of taxes plays in a country's economic development and provision of services for citizens, K RA must also be always cognizant of the possible ramifications of its actions or omissions in dealing with taxpayers, and the impact on investment, revenue collection and the general welfare of the country. While there is no statutory period within which KRA ought to make good tax refund claims, it cannot have any basis for failing to process tax refund claims several months, and in some cases several years after they were made. It is no answer to the petitioner’s claim for tax refund for the respondent to demand in turn that the petitioner pays arrears of tax…Ultimately, the Commissioner is entitled to reject a VAT refund claim by giving written reasons which would entitle the taxpayer to appeal or challenge the decision.” In my view, as long as the claim is lodged within the time limited and proper documentation is submitted and the claim is verified, the respondent has a duty to pay the claim.”…. The taxpayer who carries on his business in accordance with the law and applies for a refund is entitled to the refund as a matter of right. The process of verification and processing the claim must, in the words of Article 47(1) of the Constitution, be efficient and expeditious.”
33. It is submitted that section 47(3) of the TPA 2015 is couched in mandatory terms and the court is urged to find that the exparte applicant’s refund application was deemed to have been allowed after the lapse of the statutory 90 days. The court is urged to be guided by Mount Kenya Bottlers Ltd & 3 others vs Attorney General & 3 others [2019] eKLR, where the Court of Appeal re-emphasized the strict interpretation approach to tax statutes:
“….when it comes to interpretation of tax legislation, the statute must be looked at using slightly different lenses. With regard to tax legislation, the language imposing the tax must receive a strict construction. Judge Rowlett in his decision in Cape Brandy Syndicate v I.R. Commissioners [1921]1KB (cited by the appellants), expressed the common law position in this area when he stated;'...in a taxing Act one has to look at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used'.”
34. The respondent raised two issues for determination; whether the applicant has exhausted the available remedies before invoking this honorable court’s jurisdiction on application for judicial review; And whether the applicant has met the threshold for the grant of the orders of prohibition and mandamus.
35. It is submitted that the applicant is seeking to challenge the decision of the respondent in rejecting its refund application on the ground that the same was allowed by operation of the law. That this issue is the primary reserve of the Tax Appeals Tribunal. The court is referred to section 52 of the Tax Procedures Act ,section 12 of the Tax Appeals Tribunal Act, Section 7 and section 9(2 ) of the Fair Administrative Act as read with article 159(2) (c ) of the Constitution of Kenya which all provide for an exhaustive dispute resolution mechanism for tax disputes.
36. It is submitted that section 3 of the act defines an appealable decision as
"Appealable decision” means an objection decision and any other decision made under a tax law other than—
(a) a tax decision; or
(b) a decision made in the course of making a tax decision;
37. It is submitted that section 3 further goes to define what a tax decision is and purposely excludes a refund decision.
38. It is submitted that section 47(13) of the TPA provides that any person aggrieved by a refund decision may appeal to the tribunal within 30 days after being notified of the decision according to the respondent the rejection amounted to a decision and the applicant ought to have appealed to the Tax Appeals Tribunal. That this position is bolstered by section 12 of the Tax Appeals Tribunal Act which states that any person who disputes the decision of the commissioner on any matter arising under the provisions of any tax law may, Subject to the provisions of the relevant tax law upon giving notice in writing to the Commissioner, appeal to the tribunal. It is further submitted that the applicant could have invoked section 13 (2) of the same act to lodge an appeal before the tribunal upon demonstrating reasonable grounds for the delay. That this application came only because the applicant was afraid of being denied leave to lodge an appeal out of time at the tribunal. That indeed it is the tax appeals tribunal that exercises original jurisdiction over tax related disputes encompassing decisions by the respondents issued under any tax law including the refund decisions that the applicant is aggrieved by.
39. It is further submitted that the applicant also had another option of objecting to the additional assessments arising from the refund audit exercise in line with the provisions of section 51 Of the Tax Procedures Act that this law requires a taxpayer who is aggrieved to first object against any assessments before proceeding under any other law and that this must be done within 30 days of being informed of the assessments. That even if the applicant was late to object to the additional assessments there was a remedy under section 50 16 and seven of the TPA for extension of time to lodge an objection within with reasonable grounds.
40. The jurisdiction of this court to deal with this matter at this stage is brought in into question and the respondent cites Owners of the Motor Vessel ‘Lillian S’ versus Caltex Oil Kenya Limited (1989) KLR 1 where ;Justice Nyarangi stated as follows’
I think that it is reasonably plain that a question of jurisdiction ought to be raised at the earliest opportunity and the court seized of the matter is then obliged to decide the issue right away on the material before it. Jurisdiction is everything without it a court has no power to make one more step. Where a court has no jurisdiction there would be no basis for a continuation of proceedings pending other evidence. A court of law downs tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction.
41. It is submitted that the applicant failed to adhere to the doctrine of exhaustion by failing to follow the laid down mechanisms for dispute resolution before proceeding to the high court. This is what was held in Speaker of National Assembly versus Karume [199 ] (sic) Where the court stated
Where there is a clear procedure for redress of any particular grievance prescribed by the Constitution or an act of Parliament that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures.
42. The Respondent also relies on Nairobi High Court JR application no.447 of 2018 Republic versus Kenya Revenue Authority Expert Centrica Investments & Nairobi High Court JR Application No.E129 of 2023 of 2018 Republic versus Kenya Revenue Authority exparte Nelson Andayi Havi where the courts upheld the application of the doctrine of exhaustion in similar matters.
43. It is submitted that there is an exception to the rule explained in William Odhiambo Ramogi & 3 others vs Attorney General and four others: Muslims for Human Rights & 2 others( interested parties) [2020] eKLR. The judges had this to say setting out the principles in the Mutanga case;
As observed above the first principle is that the High Court may in exceptional circumstances consider and determine that the exhaustion requirement would not serve the values enshrined in the Constitution or law and allow the suit to proceed before it. It is also essential for the court to consider the suitability of the appeal mechanism available in the context of the particular case and determine whether it is suitable to determine the issues raised.
The second principle is that the jurisdiction of the courts to consider valid grievances from parties who lack adequate audience before a forum created by a statute , or who may not have the quality of audience before the forum which is proportionate to the interests the party wishes to advance in a suit must not be ousted… This was extensively elaborated by Mativo J in Night Rose Cosmetics (1972) Limited vs Nairobi County Government &2 two others [2018]eKLR
44. It is further submitted that the applicant has not demonstrated any weakness in the existing dispute resolution mechanism that the tribunal under section 29(3)(c ) of the Tax Appeals Tribunal Act has the power to set aside that decision under review which would essentially be the same as the quashing order being sought in the present proceedings; Further that the respondent has not demonstrated that it has been denied audience before the other competed forum, the TAT
45. On the second issue as to whether the applicant has met the threshold for the grant of the orders of prohibition and mandamus it is submitted that the respondents have exercised expressly stated statutory powers and in particular section 47 of the Tax Procedures Act on the issue of offsetting or refunding of overpaid taxes. That the respondent is empowered to ascertain the accuracy of the applicant’s application by obtaining full information in respect of the tax liability and to this end may require production of documents, the furnishing of information relating to the tax liability, attendance at a time and place specified in by notice for the purpose of giving evidence on any matter or transaction appearing to be relevant to the tax liability. For this proposition the respondent relies on Anne Wanjiku Kahwai versus Kenya Revenue Authority and another [2019] eKLR.
46. It is submitted that the applicant was given an opportunity to participate and respond to the claims during the audit and therefore cannot claim a violation of article 47 and 50(2 )of the Constitution. It is Submitted that the applicant had recourse in the objection procedure in section 51 of the TAX procedures act.
47. It is submitted that there has been no abuse of discretion the present circumstances as the tax dispute is squarely premised on the applicant’s self-generated returns and documentations furnished to the respondents in them Audit exercise.
48. The applicant filed supplementary submissions and submitted on the question whether the applicant has exhausted the available remedies before invoking this honorable court’s jurisdiction with an application for judicial review. It is submitted that the ripeness of a matter before the tax appeals tribunal contemplates that a party can only invoke the jurisdiction when they have an appealable decision. The applicant reproduces section 3 of the TPA and section 52 of the same act. That section 47 places obligations on both the taxpayer and the Commissioner where a taxpayer must apply for the refund and the Commissioner must consider the application. It is submitted that without a decision the applicant could not approach the tax appeals tribunal, that the letter from the second respondent dated 31 st January 2024 purporting to call for partial audit and or verification of documents without rendering a decision on the applicant’s previous refund applications is unfair and unreasonable and violates the applicant’s legitimate expectation and the first and second respondents would consider and determine its refund application. The applicant cites William Odhiambo Ramogi and 3 others versus Attorney General and 4 others; Muslims for Human Rights & 2 Others [Interested Parties] [2020] eKLR where the Court analyzed the doctrine of exhaustion:
However, our case law has developed a number of exceptions to the doctrine of exhaustion. In R. vs Independent Electoral and Boundaries Commission (I.E.B.C.) & Others Ex Parte the National Super Alliance Kenya (NASA) (supra), after exhaustively reviewing Kenya's decisional law on the exhaustion doctrine, the High Court described the first exception thus: “What emerges from our jurisprudence in these cases are at least two principles: while, exceptions to the exhaustion requirement are not clearly delineated, Courts must undertake an extensive analysis of the facts, regulatory scheme involved, the nature of the interests involved – including level of public interest involved and the polycentricity of the issue (and hence the ability of a
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