Kenya Revenue Authority v Universal Corporation Ltd (Civil Appeal 150 of 2018) [2020] KECA 395 (KLR)
The bottom line
#Kenya's Court of Appeal stopped KRA from collecting Kshs 427 million in VAT thirteen years late, ruling the delay was unfair 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 High Court was properly seized of the matter in view of section 230 of the East African Community Customs Management Act 2004 establishing the Customs and Excise Tribunal, and section 9(2) and (3) of the Fair Administrative Action Act 2015
- 2.Whether the doctrine of legitimate expectation was properly invoked and applied by the superior court in favour of the respondent
- 3.Whether the doctrine of proportionality was properly invoked and applied by the superior court in favour of the respondent
Key legal issues
#Whether the High Court's judicial review jurisdiction was barred by the alternative remedy before the Customs and Excise Tribunal under sections 229 and 230 of the EACCMA
The High Court was properly seized of the matter; the tribunal had no mandate to entertain judicial review proceedings, and the alternative remedy was not suitable in the circumstances
The Court construed the words "shall" and "may" in sections 229 and 230 EACCMA contextually, finding the mandatory element only governed timelines for review applications and the tribunal forum provision did not oust the High Court's jurisdiction. Applying the exhaustion principles, the Court held that judicial review of the process of the demand was the only suitable avenue since what was in issue was the process and the effect of the authority's own inaction, not the merits of the tax liability, which the tribunal process could not appropriately address.
Whether the Fair Administrative Action Act 2015 applied to the impugned administrative action
The Act did not apply because it had no retrospective effect on events that triggered the litigation in 2013-2014
The Court noted the Act was assented to on 27th May 2015 and commenced on 17th June 2015, whereas the respondent's judicial review claim was filed in January 2014. Since the statute had no retrospective application, section 9 thereof on exhaustion of remedies was inapplicable, and the appellant could not rely on it to found a jurisdictional objection.
Whether legitimate expectation arose from the tax authority's prolonged inaction and administrative practice exempting the raw materials from VAT
Legitimate expectation was properly invoked; the appellant's failure to act timeously lulled the respondent into a false sense of security and deprived it of the right to claim refunds
The Court adopted the trial Judge's reasoning that it is the effect of the delay coupled with the conduct of the parties, not merely its length, that engages legitimate expectation. The demand made after thirteen years, when the respondent could no longer claim refunds lawfully available had the demand been prompt, was unfair and unjust. The default was attributable to the appellant's own conduct, including the Simba System that automatically exempted the materials, not to any fraud by the taxpayer.
Whether the doctrine of proportionality was properly applied to the appellant's demand
The doctrine was properly applied; the appellant's decision to recover the short-levied taxes when the respondent could not recover refunds was disproportionate, irrational and unreasonable
Applying the threshold from Ex parte Daly as approved in Suchan Investments and Bato Star Fishing, the Court found that no reasonable public authority would have made the belated demand; the appellant's gain was not proportional to the respondent's loss of refund rights; no justification was given for the late demand; and the circumstances of other companies were irrelevant considerations not before the trial court.
Legal principles established
#- Where the taxing authority's own inaction lulls the taxpayer into a false sense of security and the taxpayer loses recourse that would have been legally available had the tax been demanded promptly, a belated demand may be unfair and unjust and will not be sustained
- The mandatory requirement in section 229(1) of the EACCMA is limited to the timeline for lodging a review application, and the word "may" in section 230(1) EACCMA conferring the tribunal forum does not oust the High Court's judicial review jurisdiction
- Judicial review is available in appropriate cases even where alternative legal or equitable remedies exist, and the statutory tribunal appellate process may be declined where it is less convenient, effective or beneficial in the circumstances
- An appellate court may only interfere with the exercise of judicial review discretion where the Judge misdirected himself in law, misapprehended the facts, took into account irrelevant considerations, failed to take into account relevant considerations, or where the decision is plainly wrong
- The Fair Administrative Action Act 2015, having been assented to on 27th May 2015 and commenced on 17th June 2015, has no retrospective application to events preceding its commencement
Court orders
#- 1.The appeal is dismissed
- 2.Costs of the appeal and the trial awarded to the respondent
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Nairobi
- Judicial Review Misc. Application Number 460 of 2013, Republic v Kenya Revenue Authority, Ex parte Universal Corporation Limited
- Jurisdiction invoked
- Section 8(2) of the Law Reform Act (Cap 26) and Order 53 of the Civil Procedure Rules; appellate jurisdiction under the Court of Appeal Act in respect of a judicial review decision of the High Court
- Consolidated with
- Civil Appeal Number 382 of 2017 (Kenya Revenue Authority v Cosmos Limited), Civil Appeal Number 383 of 2017 (Kenya Revenue Authority v Cooper (K) Brand Limited)
Relief refused
#The appellant's prayer that the Court set aside the High Court's judicial review orders quashing the VAT demand of Kshs 427,918,033
The Court found the trial Judge correctly applied the doctrines of legitimate expectation and proportionality and that the demand made after the respondent had lost the right to claim refunds was unfair, irrational and an abuse of power
Costs
Costs to the respondent, both on appeal and at the trial
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.
In the result we find no merit in the appeal. It is accordingly dismissed with costs to the respondent, both on appeal and at the trial.
However, where the taxing authority goes to sleep and as a result lulls the taxpayer into a false sense of security that the taxes in question would not be demanded, as a result of which the tax payer loses recourse which would have been legally available to it had the tax been demanded promptly, it may well be unfair and unjust for the demand to be sustained.
We find nothing in the above provisions to suggest that the Appeals Tribunal provided for in section 230 of the EACCMA had mandate to entertain JR proceedings and pronounce itself on claims anchored in JR jurisdiction.
we can only interfere with the exercise of discretion if we are satisfied that the learned Judge misdirected himself in law, misapprehended the facts, took into account considerations which he should not have taken into account, failed to take into account considerations of which he should have taken into account, or that his decision, albeit a discretionary one, is plainly wrong.
tax legislation must be strictly construed. Nothing should be read or implied in it and in the event of any ambiguity arising in the interpretation of tax law, then the ambiguity must be resolved in favour of a tax payer.
a decision tainted with abuse of power is not severable... and once tainted always tainted in the eyes of the law
Issues in the judgment
#The judgment describes this appeal as being against the trial court's decision in the judicial review proceedings but the respondent is inconsistently named across the consolidated appeals; the judgment states this judgment is in respect of Civil Appeal Number 150 of 2018 (Universal Corporation Limited) while the demand figures are variously stated as Kshs 427,918,033 and Kshs 427,918,035
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Kenya Revenue Authority v Universal Corporation Ltd (Civil Appeal 150 of 2018) [2020] KECA 395 (KLR)", Case Analysis (2020). Civil Appeal Number 150 of 2018. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2020/395/eng@2020-08-07
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.