The Kenya Revenue Authority (KRA) has accused the investor, Samrudha Resource Kenya Limited, of evading tax.
The company has also not been able to export the gemstone for lack of a licence.
Sources at KRA also indicated the agency is investigating claims the investor irregularly signed a new lease with Kishushe Ranching Co-operative Society Limited where his company is located.
Extraction of ore had just resumed after a 15-year suspension.
Samrudha Resource Kenya Limited Managing Director Shivraj Jadhav declined to comment on the matter.
An estimated 112,000 tonnes of iron ore meant for export is said to be lying at Wanjala Mining Field in Mombasa following the standoff over allegations of tax evasion and lack of export licence.
Following the suspension of the company's activities, over 1,000 workers have been left jobless. This has also affected revenue both the national and county governments have been collecting from the company.
The mining company has been contributing at least Sh12 million to the national governments and Sh8.4 million to the county government every month as cess.
The management of the ranch accused the government of harassing the investor.
“We don't understand why the government is frustrating the investor yet he has complied with all mining regulations. The investor has been paying taxes and royalties,” said the ranch chairman, Mwandawiro Mbela.
He added: “State agencies are telling us the investor is under investigations over taxes, royalties and export licence. The investor has complied with everything."
He lamented that over 1,000 youths who had been employed at the company have been declared redundant.
Earlier, Deputy Governor Majala Mlagui had said the ranch was the only investment in the region that was giving the county government a lot of revenue.
The county has a total of 28 group ranches rich in mineral deposits.
She has said the county government was happy after the company resumed its operations because it provided revenue to the two levels of government and employment to local youths.
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Finance and Planning Executive Vincent Masawi confirmed that the company had stopped its operations.
“Extraction of iron ore has been stopped and many reasons informed the decision," said Masawi.
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