Kapa Oil Refineries Limited v Kenya Revenue Authority & 3 others [2019] KECA 295 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed KRA's Kshs 169 million tax demands against Kapa Oil Refineries, ruling the company should have used statutory objection procedures instead of judicial review.
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 exercised its discretion judiciously in declining to grant the JR remedies (certiorari and prohibition) sought by the appellant
- 2.Whether payments made by the appellant to Kinsum on behalf of Gourock were discounts or income subject to withholding and VAT taxes
- 3.Whether the appellant was entitled to act on the respondents' advice that payments to TAC were not amenable to withholding tax
- 4.Whether J. Ogode was a consultant or an employee of the appellant for PAYE purposes
- 5.Whether the respondents' Tax Assessment Audit and demands were retrospective and therefore unlawful
- 6.Whether the respondents' demands for Kshs. 116,770,519 and Kshs. 52,165,043 were arbitrary, oppressive or punitive
Key legal issues
#Nature of payments to Kinsum on behalf of Gourock
The payments were income subject to withholding tax, not discounts; Gourock assigned its discounts to Kinsum, its trading partner, and no services were rendered directly by Kinsum to the appellant
The court considered the statutory definitions of 'discount' and 'income' in sections 2 and 3(2) of the Income Tax Act and found the trial court's conclusion well founded: there was an undisputed trading relationship between the appellant and Gourock for services rendered in Zambia, but no direct transaction with Kinsum. The remittances to Kinsum were therefore income for services rendered by Gourock, amenable to withholding tax.
Effect of the respondents' no-objection advice regarding payments to TAC
The respondents could recant their advice as it was occasioned by the appellant's non-disclosure of material facts; the payments to TAC were amenable to withholding tax
The appellant had originally deducted and remitted WT and VAT on payments to TAC, then sought confirmation in 2008 without disclosing the additional Kshs. 600,000 retainer payments. The audit unearthed the true nature of the payments from documents lawfully accessed under sections 30 and 31 of the VAT Act. The no-objection response was rightly recanted as it was founded on misrepresentation by the appellant.
Employment status of J. Ogode and PAYE liability
J. Ogode was an employee, not a consultant, and the appellant as employer was obligated to deduct and remit PAYE
The documentary evidence originated by the appellant showed Ogode was a Human Resource Manager who earned a regular salary, reported to work, had a job description and lacked independence. Section 37(A) of the Income Tax Act obligated the employer to deduct PAYE, and sanctions applied for failure. A single letter regarding medical expenses did not displace the weight of that documentation.
Retrospectivity of the tax assessments
The assessments were not retrospective as the audit fell within the seven-year period permitted by section 79(1) of the Income Tax Act
The audit covered 2005 to 2008/2009, within the seven-year window. Sections 35(1)(a) of the Act and 6(6) of the VAT Act permit verification of tax records, and sections 56(1) of the Act and 30(1) of the VAT Act authorize audits for periods not exceeding seven years. The appellant's complaint of retroactivity was therefore displaced.
Scope of judicial review and availability of alternative remedies
The respondents' actions were well founded in fact and law, disclosed no illegality, irrationality or impropriety, and the appellant had an alternative efficacious remedy in the inbuilt tax dispute-resolution mechanism
JR challenges process, not merits. Delving into how the assessment was done would usurp the respondents' statutory mandate. The appellant should have pursued objection under sections 82(1), 83(1) and 84(1) of the Income Tax Act, and unchallenged demands become final and recoverable. The trial court rightly declined jurisdiction to interfere and correctly dismissed the JR motion.
Legal principles established
#- A court sitting on judicial review exercises a sui generis and restrictive jurisdiction that challenges the decision-making process, not the merits of the decision
- An appellate court may only interfere with the exercise of a judge's discretion where the judge misdirected himself in law, misapprehended the facts, took into account irrelevant considerations, failed to take into account relevant considerations, or the decision is plainly wrong
- Where no objection is raised against tax demands within the statutory dispute-resolution mechanism, the demands become final and recoverable, and judicial review does not lie where an alternative efficacious remedy exists under the tax statutes
Court orders
#- 1.Appeal dismissed
- 2.Costs of the appeal to the respondents
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Nairobi
- HC J.R. Misc. Appl. No. 283 of 2009
- Jurisdiction invoked
- First appeal to the Court of Appeal under the Court of Appeal Rules (Rule 29(1)(a)), the appeal arising from a judicial review decision of the High Court
Relief refused
#Orders of certiorari to quash the tax assessments
No evidence of illegality, irrationality or procedural impropriety; assessments were made within the law
Orders of prohibition against classification and collection of the assessed taxes
The appellant did not prove any of the alleged grounds; the respondents acted within the law
Costs
The appeal is dismissed with costs to the respondents.
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.
The upshot of all the above assessment and reasoning is that we find no merit in the appeal. The same is dismissed with costs to the respondents.
a court sitting on Judicial Review exercises a sui generis jurisdiction which is very restrictive indeed in the sense that it principally challenges the process, and other technical issues, like excessive jurisdiction rather than the merit of the case.
we can only interfere with the exercise of that discretion if we are satisfied that the Judge misdirected himself in law, misapprehended the facts, took account of considerations which they should not have taken into account, failed to take into account a consideration of which they should have taken into account, or that his decision, albeit a discretionary one, is plainly wrong.
where no objection has been raised against such demands by the respondents as in the instant appeal , these demands become final and therefore recoverable together with the penalties imposed for non-remittance either voluntarily or by way of distress in addition to civil action.
the respondents no objection response to the appellant's inquiry regarding those payments were rightly recanted by the respondents as they had been occasioned by non-disclosure of material particulars as to the true nature of those payments
An appeal to this Court from a trial by the High Court is by way of retrial and the principles upon which this Court acts in such an appeal are well settled.
Issues in the judgment
#The judgment inconsistently states the assessed tax figure, at one point as Kshs. 116,770,519 and elsewhere as Kshs. 116,770,579 and Kshs. 116,770,043
The judgment inconsistently renders the case name Ransa Company Ltd versus Mania Frances Co. and Ransa Company Ltd versus Mamia Frances Co.
The judgment inconsistently cites the Council of Civil Service Unions case as [1985] AC 374 and [1983] A.C. 374
Penalties figure appears as Kshs. 52,166,043 in one passage and Kshs. 52,165,043 elsewhere
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.
- Githinju v Elsamere Conservation Centre (Employment and Labour Relations Appeal E032 of 2023) [2024] KEELRC 979 (KLR)[2024] KEELRC 979 (KLR)30 Apr 2024
Cite this brief
#Cite this brief
Caselaw, "Kapa Oil Refineries Limited v Kenya Revenue Authority & 3 others [2019] KECA 295 (KLR)", Case Analysis (2019). Civil Appeal No. 305 of 2012. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2019/295/eng@2019-10-11
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.