The Court of Appeal has upheld a Sh2 million compensation slapped on the Kenya Revenue Authority (KRA) over the seizure of documents, files and computers, among other items belonging to Doshi Iron Mongers Limited over a decade ago.
The appellate court said while it was not disputed that the KRA is mandated to ensure that taxes are paid and to take necessary legal steps to ensure that the taxpayers meet their statutory obligations, the same should be done within the law.
Justices Agnes Murgor, Dr Imaana Laibuta and George Odunga further held that the KRA could not legally enforce the tax demand of Sh2.3 billion against Doshi until all records, documents, files, computers, software and everything that was seized from company’s premises between March 2003 and March 26, 2007, are released.
“It is clear from our reading of section 60(9) of the Tax Procedures Act that the appellants can only retain the documents seized for six months. After that, it has to return them to the taxpayer unless the documents or data storage device seized are required for the purposes of any proceedings under the Act or any other written law, the burden of proving that fact falling squarely on the appellants,” the judges said.
KRA had appealed against Justice P.J. Otieno’s decision stating that the amount was punitive yet it was merely fulfilling its statutory duty.
While upholding the Sh2 million damages ruling, the judges said that if in the course of carrying out its mandate the taxman steps outside his obligation or does so in a manner not contemplated by law, the court is entitled to intervene.
The court was informed that during the months of March and April 2007, KRA moved to Doshi’s bonded warehouse in Mombasa without any warrants, court order or notice and carried out several raids, carting away files, computers, equipment, software materials and books of accounts.
Doshi said they were informed that the documents, equipment and data, were to be used in investigating claims of tax evasion.
The court heard that the company was diverting transit goods into the domestic market.
Immediately after the seizure, KRA issued a tax assessment and demand for Sh124.7 million on account of diverted exports into the local market.
Simultaneously with the demand, the KRA seized and locked under seal the company’s bonded warehouse.
The taxman later revised the demand to Sh2.3 billion and another Sh73.2 million of taxes for the diverted imports and domestic taxes, respectively.
Doshi was forced to challenge the seizure in court arguing that it needed the documents and data to answer the questions raised by KRA.
The taxman returned some of the documents through a consent adopted by the court.
KRA defended the retention of some of the documents stating that it was intended to be adduced as evidence of the commission of economic crimes before a court of law in the course of a criminal prosecution.
“The learned Judge justified the award of general damages on the appellants’ conduct, which undoubtedly caused the respondents tremendous albeit unquantifiable difficulty, loss and damage,” said the judges, adding that it was clear that KRA failed to release all the seized documents and materials even after consenting to do so.
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