[2024] KETAT 476 (KLR)

2023 Jumbo Foam Mattresses Industries Limited v Commissioner of Customs & Border Control (Miscellaneous Application 429 of 2023) [2024] KETAT 476 (KLR) (22 March 2024) (Ruling)

Neutral citation: [2024] KETAT 476 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Miscellaneous Application 429 of 2023

E.N Wafula, Chair, EN Njeru, M Makau, E Ng'ang'a & AK Kiprotich, Members

March 22, 2024

Between

2023 Jumbo Foam Mattresses Industries Limited

Applicant

and

Commissioner of Customs & Border Control

Respondent

Ruling

1. The application which was by way of a Notice of Motion dated 2nd August 2023 and filed under a certificate of urgency on 4th September 2023 is supported by an Affidavit and Further Affidavits sworn by the Applicant’s Clearing Agent, Michael Okach Omindi, on the 2nd August, 2023 and 5th September, 2023, respectively, it sought for the following Orders:-a.Spentb.Spentc.The Honourable Tribunal be pleased to stay the liquidation of the bank guarantee of Kshs 1,438,595. 00 by the Respondent held in I & M Bank Ltd pursuant to the Respondent’s demand notice Ref: 22EMKIM401676184-3 dated 6th April 2023 pending the hearing and determination of the Applicant’s Appeal herein.d.The Honourable Tribunal be pleased to declare the liquidation of the bank guarantee of Kshs 1,438,595. 00 by the Respondent held in I & M Bank Ltd pursuant to the Respondent’s demand notice Ref: 22EMKIM401676184-3 dated 6th April 2023 null and void.e.The Honourable Tribunal be pleased to make such further orders as are necessary for the ends of justice in the matter.f.The costs of this application be provided for.

2. The application is premised on the following grounds, that:-a)The Appellant received two Tariff classification findings vide a letter Ref KRA/C&CBC/BIA/THQ/048/01/2023 and another one with Ref. KRA/C&CBC/THQ/047/01/2023 dated 9th February 2023 in which the Respondent was confirming the verification findings of the material composition of the chemical products of Silicon RZ-818 and Silicon RZ-838. b)The Respondent requested additional information which the Applicant submitted and therefore carried out a review of the tariff classification which confirmed that the tariff Heading 3402. 42. 00 applied by the Applicant was proper and therefore the Respondent upheld this tariff.c)During the review of the verification findings, the Applicant was forced to put a bond in terms of a bank guarantee Ref 007/CB/LG/0033/2023 of Kshs. 1,458,595. 00 to cover import entry number 22EMKIM401676184. d)Even after upholding the tariff classification used by the Applicant to Clear its goods vide letter Ref. KRA/CBC/BIA/THQ/APPEAL/032/04/2023 dated 4th April 2023, the Respondent has written to the Applicant’s bank surrendering the original bank guarantee to the bank and strangely, requested the bank to pay it the guaranteed amount.e)The Applicant is aggrieved that the Respondent is requesting to be paid the guaranteed amount after it has upheld the tariff classification that was correctly applied by the Applicant.f)The Appellant appeals to the Tribunal to stay the letter Ref: KRA/C&BC/BIA/ICD/GEN/07/07/2023 that requested the bank to unjustly pay it Kshs 1,438,595. 00 bank bond guarantee money yet the same Respondent had upheld tariff classification the Applicant had applied to clear its goods and therefore the Applicant does not owe the Respondent any unpaid taxes.g)Therefore, to direct the bank to liquidate the bank guarantee was meant to prejudice the Appliant into paying an extra import duty of Kshs. 1,438,595. 00 which is against Article 210 of the Constitution of Kenya.h)It is necessary for this Tribunal to stay the Agency notice pending the determination of this matter as the Respondent failed to apply the principles, and laws that govern tariff classification.i)No prejudice will be suffered by the Respondent which cannot be compensated if the order of stay is granted.j)The Applicant is ready to abide by the terms and conditions of the Tribunal which are reasonable and justifiable in the circumstances of the case and in the wider interest of justice.k)Unless a stay of execution is granted herein this application will be rendered nugatory and the Applicant stands to suffer prejudiced loss and irreparable damage.

3. The Respondent in response to the application filed a Replying Affidavit sworn by Bernard Oyucho, an officer of the Respondent on 22nd August 2023 and filed on 24th August 2023 citing the following as the grounds for opposition:-a.That the Applicant imported Silicon RZ-838 and Silicon RZ-818 declared under entry no 22EMKIM401676184 under tariff line 3910. 00. 00 on 30th December 2022. b.That the Applicant was risk profiled for possible tariff mis-declaration and the case referred to the Tariff Unit with a suggested tariff line EAC CET 34012. 90. 00 with a duty band of 25%.c.That the Applicant acceded to the Respondent’s suggested tariff line EAC CET 3402. 90. 00 to facilitate releases of the consignment pending confirmation of the appropriate and applicable tariff and thus the applicable tax rate.d.That to secure the taxes payable under the suggested tariff by the Respondent and pending resolution of the issue of the Applicable tariff, the Respondent exercised the powers under Sections 106 and 107 of the East African Community Customs Management Act 2004 by seeking security for the taxes due to facilitate release of the consignment.e.That the Applicant disputed the suggested HS Code 3402. 90. 00 through a letter referenced 001/01/2023 and requested for destination sampling of the two products for laboratory testing to establish the nature of the goods hence tariff classification.f.That to facilitate the release of the consignment and pending the ascertainment of the appropriate tariff, the Applicant executed a bank guarantee to cover the additional taxes payable under the suggested HS Code 3402. 90. 00. g.That the laboratory findings indicated that the products are chemical preparations containing non-iconic organic surface-active agents and other compounds with polymeric organic compounds with organic silicone functional groups.h.That based on the presented technical data sheets of the two products it was established that the two products are mixtures of two-products polyalkyleneoxide methyl silicone and polyether polyol in varying proportions.i.That based on the technical data sheets of the two products and the laboratory test results as well as the provisions of the Explanatory Notes, two tariff rulings ref. KRA/C&BC/BIA/THQ/047/01/2017 and KRA/C&BC/BIA/THQ/048/01/2023 were subsequently prepared and issued to the Applicant on 9th February 2023 classifying the products under 2022 EAC/CET HS Code 3402. 90,00 as guided by GIR 1 and 6. j.That the Applicant vide a letter dated 22nd March 2023 appealed the Respondent’s ruling re-classifying the two products under HS Code 3402. 90. 00. k.That on 4th April 2023, the Respondent issued a response to the Applicant’s appeal ref. KRA/CBC/BIA/THQ/APPEAL/032/04/2023 issuing the Applicant with a notice confirming the classification of the two products under EAC CET 3402. 90. 00. l.That consequently, the Applicant’s declaration under Entry No. 22EMKIM401676184 was reclassified to the appropriate tariff and applicable tax rate applied via the letter dated 6th April 2023. m.That the Applicant accepted the Respondent’s confirmation on the appropriate applicable tariff, which preceded the generation of an e-slip raising an assessment for the payment of the additional taxes payable. However, the Applicant failed to honour the amount due as per the e-slip generated.n.That the Applicant failed to prosecute an appeal to the Respondent’s ruling reference KRA/BIA/THQ/APPEAL/032/04/2023 dated 4th April 2023 warranting the liquidation of the subject bank guarantee as mandated under Section 230 of the East African Community Customs Management Act 2004. o.That on 27th July 2023 the Respondent sought to secure the under-declared tax resulting from the tariff-reclassifying ruling by instructing the bank to proceed to liquidate the bank guarantee that had been executed to allow the release of the consignment.p.That as per practice, execution of bank guarantees is governed by“Uniform Rules for Demand Guarantees (URDG) 2010 Revision, ICC Publication No. 758 and the laws of Kenya.q.That furthermore, the subject Bank Guarantee’s condition did expressly specify that the Applicant should be informed of the liquidation of the bank guarantee.r.That the Respondent issued a demand based on the tariff reclassification ruling favouring the Commissioner of Customs and which the Applicant is privy to.s.That the Applicant’s letter dated 12th May 2023 is an attempt as misguiding the Honourable Tribunal for the reason that: the subject matter of the letter therein is Niax Silicone L580 and not the import items Silicon R-838 and Silicon RZ-818 as declared under Entry No. 22EMKIM401676184. t.That the subject matter of the Applicant’s letter dated 12th May 2023 is substantively and materially different from the subject matter under Entry no. 22EMKIM401676184 and the Respondent’s letters dated 9th February 2023, 4th April 2023, 2nd May 2023, and 12th May 2023. u.That the Applicant failed to object to the ruling referenced KRA/BIA/THQ/APPEAL/032/04/2023 dated 4th April 2023 within the statutory prescribed timeline and it is therefore barred by Section 230 of the EACCMA instituting and sustaining the subject appeal against the ruling of 4th April 2023. v.That the application as filed is incompetent, bad in law and fatally defective and is an abuse of this Honourable Tribunal’s process.w.That the application discloses no reasonable cause of action, is totally unfounded, and ought to be dismissed with costs to the Respondent.x.That the application is an afterthought and a delay tactic by the Applicant meant to delay the conclusion of the matter which holds substantial Government revenue.y.That the Applicant has not demonstrated it deserves favourable discretion of this Honourable Tribunal and the application should be dismissed with costs to the Respondent.

4. The Appellant did not comply with the Tribunal’s directions to have the application canvassed by way of written submission. The Respondent on its part filed its written submissions dated… and filed on… in which it stated as heruender:-

5. The Respondent relied on the cases of Owner of Motor Vessel “Lillian S” v Caltex Oil (Kenya) Ltd, and Martha Karua v Independent Electoral & Boundaries Commission & 3 Others (2019) and submitted that this Tribunal’s jurisdiction reposes within Section 13 of the Tax Appeals Tribunal Act as read with Section 230 of the East African Community Customs Management Act 2004 in which the Applicant is obligated to institute appellate proceedings against a decision of the Commissioner within 30 days of the decision.

6. It asserted that it delivered its ruling on the applicable tariff on 4th April 2023 in response to the Applicant’s review application/letter dated 22nd March 2023.

7. It contended that the Applicant enjoyed leave to appeal the Respondent’s ruling of 4th April 2023, until 3rd May 2023 but the substantive appeal and the application were filed on 2nd August 2023, over two months after the effluxion of the statutory timelines.

8. It argued that while the lapse of time is a procedural irregularity that fetters this Tribunal’s jurisdiction in the first instance, it is not entirely fatal and Section 18 of the Tax Appeals Tribunal Act grants the Tribunal unfettered power to extend leave to appeal out of time per Section 13(4) of the Act.

9. The Respondent submitted that the Applicant failed to appropriately move the Honourable Tribunal for leave to regularize the appeal out of time, consequently, there is no competent appeal before the Tribunal challenging the Respondent’s decision of 4th April 2023.

10. It relied on the Martha Karua Case (Supra) and asserted that an application for interim orders premised on an irreparably incompetent appeal cannot stand where there is no competent appeal. It added that there being no decision by the Respondent under Section 230 of the EACCMA, no remedy is available to the Applicant herein thus the application and the substantive appeal are an afterthought and an abuse of the court process in advancement of personal interest and not justice.

11. It argued that the current appeal is a waste of precious judicial resources thus the Tribunal lacks jurisdiction to adjudicate the substantive appeal and finding for the Applicant in the application is a paper judgment.

12. The Respondent relied on the case of Michael Ntouthi Mitheu v Abraham Kivondo Musau [2021] eKLR and submitted that the bank guarantee issued as security in lieu of taxes under the imported goods, and the Respondent is owed unpaid taxes per Section 110 of the EACCMA for importing goods under HS Code 3402. 90. 00 with the net consequence being that the Applicant being in use of the imported goods and the Respondent being owed unpaid taxes under the importation.

13. The Respondent submitted that revenue utilization is an ongoing process and by issuing the injunctive reliefs sought by the Applicant, the Respondent loses on their revenue mobilization exercises. It added that the subject bank guarantee expires on 7th January 2024, four months after filing the subject Application and in the event the same expires, on a balance of probabilities, shall incur additional costs securing the funds from the Applicant.

14. It contended that it otherwise extends several alternatives for compensation of overpaid taxes including rebates and refunds including interest for later refunds per Section 47 of the Tax Procedures Act. It relied on Section 130(2) and (3) of the EACCMA and asserted that that the possession and proprietary interest of the consignment the subject of these proceedings is with the Applicant thus the Respondent is limited in its ability to either distraint or exercise lien over the goods.

15. The Respondent cited the cases of Karatina Emporium Limited v Commissioner of Domestic Taxes (Miscellaneous Application E24 of 2023) [2023] KETAT 358 (KLR) (Civ) (9 June 2023) (Ruling) and Mwalimu National Savings and Credit Co-operative Society Limited v Commissioner of Domestic Taxes [2021] eKLR and argued that the absence of evidence for irreparable prejudice that cannot be compensated by an award of interest if the application was granted as grounds not to find in favour of such a litigant and in the present case, the Applicant does not plead that the bank guarantee or its liquidation possess operational threat to the organization or its ability to proceed as a going concern.

Analysis and Findings 16. The instant application is brought by the Applicant who prays for injunctive orders against the Respondent on a bank guarantee issued as security in lieu of taxes under the imported goods.

17. The Applicant asserted that it received two Tariff classification findings dated 9th February 2023 in which the Respondent was confirming the verification findings of the material composition of the chemical products of Silicon RZ-818 and Silicon RZ-838 and that after it submitted additional information requested, the Respondent carried out a review of the tariff classification which confirmed that the tariff Heading 3402. 42. 00 applied by the Applicant was proper therefore upholding this tariff.

18. The Applicant contended that it was forced to put a bond of Kshs. 1,458,595. 00 in terms of a bank guarantee to cover import entry number 22EMKIM401676184 and that even after upholding the tariff classification used by the Applicant to clear its goods dated 4th April 2023, the Respondent wrote to the Applicant’s bank surrendering the original bank guarantee to the bank and requested the bank to pay it the guaranteed amount.

19. The Applicant therefore appeals to the Tribunal to stay the letter requesting the bank to unjustly pay it the bank bond guarantee money since the same Respondent had upheld tariff classification the Applicant had applied to clear its goods and therefore the Applicant does not owe the Respondent any unpaid taxes

20. The Respondent asserted that the Applicant is obligated to institute appellate proceedings against a decision of the commissioner within 30 days of the decision.

21. It asserted that it delivered its ruling on the applicable tariff on 4th April 2023 in response to the Applicant’s review application/letter dated 22nd March 2023 and the Applicant enjoyed leave to appeal the ruling of 4th April 2023 until 3rd May 2023 but the substantive appeal and the application were filed on 2nd August 2023, over two months after the effluxion of the statutory timelines.

22. It argued that Section 18 of the Tax Appeals Tribunal Act grants the Tribunal unfettered power to extend leave to appeal out of time per Section 13(4) of the Act but the Applicant failed to appropriately move the Honourable Tribunal for leave to regularize the appeal out of time, consequently, there is no competent appeal before the Tribunal challenging the Respondent’s decision of 4th April 2023

23. Section 229 of the East African Community Customs Management Act, 2004 provides as follows with regard to review applications as relates to tax decisions made under customs:-“(1)A person directly affected by the decision or omission of the Commissioner or any other officer on matters relating to Customs shall within thirty days of the date of the decision or omission lodge an application for review of that decision or omission.2. The application referred to under subsection (1) shall be lodged with the Commissioner in writing stating the grounds upon which it is lodged.”

24. Further Section 230 of the East African Community Customs Management Act states as follows with regard to appeals as against review decisions:-“(1)A person dissatisfied with the decision of the Commissioner under section 229 may appeal to a tax appeals tribunal established in accordance with section231. 2.A person intending to lodge an appeal under this section shall lodge the appeal within forty-five days after being served with the decision, and shall serve a copy of the appeal on the Commissioner.”

25. In the instant case, the Applicant received a review decision from the Respondent on 4th April 2023 but filed the instant application, requesting injunctive relief from the Tribunal on 2nd August 2023.

26. The Tribunal has taken note of the fact that the instant application and any appeal as against the review decision issued on the 4th April, 2023 ought to have been commenced by the 19th May, 2023 but was instead commenced by the Applicant on 19th May 2023, which was over two months past the date it was supposed to appeal the decision by the Respondent.

27. It is also noted that the current application is not an application for an extension of time to appeal the Respondent’s decision nor has an explanation for the lateness been rendered by the Applicant.

28. In considering what constitutes a reasonable reason for the delay, the court in Paul Wanjohi Mathenge v Duncan Gichane Mathenge [2013] eKLR, held that:-...it is clear that the discretion to extend time is indeed unfettered. It is incumbent upon the applicant to explain the reasons for delay in making the application for extension and whether there are any extenuating circumstances that can enable the Court to exercise its discretion in favour of the applicant.”

29. The Tribunal in the circumstances finds that the Applicant having defaulted in commencing an appeal as against the Respondent’s review decision dated 4th April, 2023 within the strict statutory period the taxes arising from the tariff classification crystallized and the Respondent was in order to commence the enforcement measures to liquidate the bank guarantee to realize the amount of the taxes thereby secured.

Disposition 30. The Tribunal accordingly finds that the application lacks merit and proceeds to make the following Orders:-a.The application be and is hereby dismissed;b.No orders as to costs.

31. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF MARCH, 2024. ERIC NYONGESA WAFULA * CHAIRMANELISHAH N. NJERU - MEMBERMUTISO MAKAU - MEMBEREUNICE N. NG’ANG’A - MEMBERABRAHAM K. KIPTROTICH - MEMBER