Corrugated Sheets Limited v Kenya Revenue Authority [2018] KECA 410 (KLR)
The bottom line
#The Court of Appeal quashed a KRA demand of Kshs.50.5 million, ruling that demanding four-year-old VAT with heavy penalties was unreasonable and unlawful.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the trial court had jurisdiction to entertain the judicial review application notwithstanding the availability of alternative remedies under the VAT Act
- 2.Whether orders of certiorari and prohibition could issue in the circumstances of this case
Key legal issues
#Whether the availability of alternative remedies under the VAT Act barred the judicial review application
No. Alternative remedies are not a bar; judicial review should be a last resort and may issue in exceptional circumstances. The Fair Administrative Action Act did not apply since it was not in force in 2012 when proceedings were instituted.
The court reaffirmed the Speaker of National Assembly v Njenga Karume criteria: where a statutory appeal procedure exists, judicial review is granted only in exceptional circumstances, judged by the suitability of that procedure in the context of the case. The appellant's complaint concerned the fairness, reasonableness and rationality of the demand-making process, not the tax computation. Judicial review was, in the circumstances, the most efficacious process, and section 9 of the Fair Administrative Action Act could not assist the respondent as the Act came into force after the proceedings were instituted.
Whether the learned Judge erred in delving into the merits of the tax demand
Yes. The Judge's analysis of input tax, output tax and tax credit carry-forward rules intruded into the merits of the tax demand, which is beyond the province of judicial review.
Relying on Municipal Council of Mombasa v Republic Ex parte Umoja Consultants, the court held that judicial review examines process: whether the decision-maker had jurisdiction, was heard, and considered relevant matters. The Judge's distinction between input and output tax and his conclusion that the respondent acted within the law went to the substance of the assessment. The correct question was not whether the respondent had power to assess and demand tax, but whether it acted reasonably and fairly in doing so.
Whether the respondent acted fairly and reasonably in making the tax demand four years after the period
No. Demanding VAT for January–September 2008 four years later, when the returns had been in its possession and refunds had been paid, and where the demand principally comprised penalties, was neither fair nor reasonable.
The respondent had the appellant's returns for over four years without raising any anomaly, and only demanded payment after a 2012 reconciliation. The demand principally comprised penalties accruing from the delay in raising the assessment. Citing Article 47 and the principle that statutory powers must be exercised reasonably and not arbitrarily, the court found the conduct met the threshold of gross unreasonableness amounting to irrationality, rendering the decision amenable to judicial review.
Whether the appellate court should interfere with the Judge's discretionary refusal of judicial review orders
Yes, to the extent that the Judge misdirected himself by considering the merits; the discretion was interfered with and the judicial review orders substituted.
Applying Coffee Board of Kenya v Thika Coffee Mills, an appellate court interferes with discretion where the judge misdirected himself and arrived at a wrong decision. The Judge's error of embarking on a merits analysis constituted such a misdirection. The court therefore allowed the appeal, set aside the ruling entirely and granted certiorari and prohibition as sought in the judicial review application.
Legal principles established
#- The availability of an alternative remedy is not a bar to judicial review proceedings; judicial review is a remedy of last resort, granted in exceptional circumstances where statutory appeal procedures exist.
- In judicial review the court is concerned only with the process by which a decision was made, not its merits; a taxing authority must exercise its statutory powers reasonably and fairly, and a decision may be quashed for irrationality.
Court orders
#- 1.Appeal allowed with costs
- 2.Ruling of the High Court set aside in its entirety and substituted with an order allowing the appellant's judicial review application
- 3.Order of certiorari quashing the respondent's decision to demand payment of Kshs.50,500,743 in respect of VAT as contained in the letters dated 30th August, 2012 and 10th September, 2012
- 4.Order of prohibition prohibiting the respondent from continuing to demand the amount in issue for the period between January and September, 2008
- 5.Appellant to have costs at the High Court
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Mombasa
- H.C Misc. Appl. No. 85 of 2012
- Jurisdiction invoked
- Second appellate jurisdiction over judicial review proceedings from the High Court (Judicature/Appellate jurisdiction of the Court of Appeal); appeal from High Court judicial review decision
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
On the first issue, it is trite that the availability of an alternative remedy is not a bar to judicial review proceedings. It is only in exceptional cases that the High Court can entertain judicial review proceedings where such alternative remedies are not exhausted. In other words, judicial review ought to be as a last resort.
Where there was an alternative remedy and especially where parliament had provided a statutory appeal procedure, it is only in exceptional circumstances that an order for judicial review would be granted
With respect, we differ with the approach taken by the learned Judge which we find delved into the merits of the tax demanded and was outside the court's jurisdiction.
It is axiomatic that statutory power can only be exercised validly if exercised reasonably and not arbitrarily or in bad faith.
Irrationality is when there is such gross unreasonableness in the decision taken or act done, that no reasonable authority, addressing itself to the facts and the law before it, would have made such a decision.
a. An order of certiorari is hereby issued quashing the respondent's decision to demand payment of Kshs.50,500,743 in respect of VAT from the appellant as contained in the letters dated 30 th August, 2012 and 10th September, 2012.
b. An order of prohibition is hereby issued prohibiting the respondent from continuing to wrongfully demand from the appellant the amount in issue for the period between January and September, 2008.
Issues in the judgment
#The record header states the High Court decision was dated 14th October, 2016, but the judgment body describes it as a ruling dated 14th December, 2016.
Public Notice number is inconsistently given as No. 23 of 2003 and No. 37 of 2003.
Key timeline
#Practical implications
#Frequently asked questions
#Later judgments citing this (1)
#Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.
Cite this brief
#Cite this brief
Caselaw, "Corrugated Sheets Limited v Kenya Revenue Authority [2018] KECA 410 (KLR)", Case Analysis (2018). Civil Appeal No. 66 of 2017. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2018/410/eng@2018-06-14
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.