BY WAHOME THUKU

Several years back, a company called Samura Engineering Ltd was awarded Sh25 million contract by Kenya Revenue Authority (KRA) to install security equipment in one of their premises.

Businessman Mungai Ngaruiya, his wife Elizabeth and a relative called Ng’ang’a own the company. The three also own seven other companies, in hotel and farming business, among other sectors.

After Samura had completed the work, KRA refused to pay, saying it was not done as per the terms of contract. The dispute was taken before an arbitrator P T Gichuhi.

On February 12, 2011, as the matter was still pending before the arbitrator, KRA officials and police officers raided Ngaruiya’s offices and Bounty Hotel in Industrial area, Nairobi and took away files, computers and other items. They searched the premises, ordered employees to disclose computer passwords and took them away. They carried a box containing Mr Ngaruiya’s Will, school records for their children, family medical documents and files containing court papers including those on the dispute between the company and KRA.

The officers led by Ms Doreen Mbingi, a tax officer, had not notified the couple of the intended raid and did not have a search warrant. The raid paralysed operations at the companies. Ngaruiya wrote to KRA several times demanding his property back.

On March 4, 2011, KRA wrote to Samura requiring it to disclose details of all accounts held abroad.

Ngaruiya wrote back saying neither the company nor its employees had any foreign accounts.

Harassment

In March last year, Ngaruiya, his wife and Ng’ang’a and all their eight companies sued KRA. Their lawyer claimed KRA had violated their constitutional right to privacy under Article 31, the right to property under article 40, among others under the Bill of Rights and Freedoms. The petition was heard Justice David Majanja.

The lawyer argued the raid was in total violation of the Constitution and Income Tax Act saying KRA officers should have asked them to produce specific documents.

Under Section 119 of the Act, a warrant must be obtained to seize documents. Section 120(1) allows KRA to take only extracts of copies of books required and not all books.

The couple said all their companies had complied with tax returns and produced certificate issued by KRA. "This was harassment, intimidation and abuse of power by the respondent," the lawyer submitted. He added even if the directors had refused to produce documents, KRA would still have had the right to charge them for a criminal offence.

He said KRA officials had been disrespectful to his companies, their families and employees.

Ngaruiya demanded a declaration that their rights had been violated and they were entitled to compensation. They also asked for a permanent injunction stopping KRA from raiding their premises and taking away any other property and an order to release everything they were holding.

The tax officer Mbingi defended their actions, saying KRA had a constitutional mandate to impose taxes.

Through lawyer W Mwaniki, KRA maintained the officers were guided by Section 31(1) of the Value Added Tax Act, which allows them to enter premises without warrant and for the commissioner to take possession of books and accounts upon reasonable grounds to believe that an offence has been committed.

They claimed the search, seizure and demand of taxes was done in accordance with the law. The decision was based on business intelligence report that the company directors were not remitting appropriate taxes dating back to 1995.

Ms Mbingi said they had established that the companies and the directors were involved in undisclosed foreign businesses.

She said given the circumstances of the raid, there was no time to give the notice or for the investigators to sift through the bulky mass of documents.

"From my experience as a tax investigator, I am aware tax evaders go to great lengths to conceal documents and information that may aid tax investigations hence the need to seize everything found and meticulously sort it out," Ms Mbingi argued.

KRA submitted that the petition did not violate any constitutional issues and asked the court to dismiss it. As a State agency, KRA was bound by the Bill of Rights under the Constitution in administering the law in collection of taxes, the court held.

Judge Majanja analysed details of Section 119 of the Income Tax Act, which provides for the procedure of carrying out search, seizure and inspection of books by KRA officers. It requires a Principal Revenue Officer to obtain a warrant from a Magistrate’s Court to enter and search premises. The Value Added Tax, Section 31 provides for conditions, which empower KRA officers to enter and search premises without a warrant.

Search warrant

"The search and seizure complained by petitioners could not have been under the Income Tax Act as no warrant of search was obtained," the judge held. "The Act does not permit carrying away books but only extracts of those books and documents."

After analysing the actions and evidence before him, he concluded there was no reasonable basis for KRA officers to enter the premises, search and seize the property without a warrant.

"The search and seizure contravened Article 31 of the Constitution on the right to privacy," he held.

There was no evidence that the seized material had evidence of tax evasion or criminal offences.

There was no justification for taking personal items such as a Will, school reports and correspondence with lawyers and doctors.

The judge took issue with Ms Mbingi’s statement on tax evasion and the need to take everything away from the premises.

"This is troubling because there was no evidence from which the court could reasonably conclude that the petitioners were tax evaders. The law does not permit the respondent (KRA) to seize everything found on the premises. To allow this course suggested by the respondent is to allow a police State," the judge said.

Not acceptable

Justice Majanja said he was convinced that mere declarations as requested by the petitioners would not suffice in the case.

"It must be followed by an award of damages which will reflect the court’s view that wanton violation of privacy is not acceptable."

On March 9, the judge awarded all the eight companies Sh800,000. Mr Mungai Ngaruiya was awarded Sh1.2 million and his wife Elizabeth Sh600,000 as compensation for violation of their right to privacy.

The judge declined to award anything to Ng’ang’a as there was no evidence of violation of his rights.

The court also directed KRA to release all documents and equipment taken from the Ngaruiya’s within two weeks and to pay the couple all the costs of the petition.

Meanwhile, arbitration over the Sh25 million contract is still on.

The writer is a court reporter with the Standard Group

Email: wthuku@standardmedia.co.ke