[2023] KETAT 883 (KLR)

Abyssina Iron and Steel Ltd v Commissioner of Customs and Border Control (Tax Appeal 457 of 2022) [2023] KETAT 883 (KLR) (10 November 2023) (Judgment)

Neutral citation: [2023] KETAT 883 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 457 of 2022

E.N Wafula, Chair, RO Oluoch, AK Kiprotich, Cynthia B. Mayaka, E Ng'ang'a & B Gitari, Members

November 10, 2023

Between

Abyssina Iron And Steel Ltd

Appellant

and

Commissioner of Customs and Border Control

Respondent

(Appeal against the Respondent's review decision dated 31st August 2021)

Judgment

Background 1. The Appellant is a limited liability company incorporated under the Companies Act of the laws of Kenya and its principal activity is the manufacture of iron and steel products.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act Cap 469 of the laws of Kenya and charged with the responsibility of assessing, collecting, and accounting for all the tax revenue on behalf of the Government of Kenya, and also the administration and enforcement of the statutes set out in the Schedule to the Act.

3. The Appellant carried out a post-clearance audit (PCA) of the Appellant’s customs entries of hot rolled steel sheets (steel). Arising from the PCA exercise the Respondent issued a preliminary desk audit findings dated 23rd August 2021 stating that the Appellant's steel had wrongly been classified in Tariff Code 7208. 39. 00 and 720838. 00 attracting a duty of 0% and 16% VAT instead of Tariff Code 7225. 30. 00 attracting a duty rate of 10% and VAT of 16%. It subsequently re-classified the said steel under Tariff Code 7225. 30. 00 and demanded an import duty of Kshs 253,803,726. 00

4. The Appellant applied for a review of the Respondent’s decision vide a letter dated 30th August 2021.

5. The Respondent issued its review decision vide its letter dated 31st August 2021 and confirmed a tax assessment and demand in the sum of Kshs 253,803,726. 00 exclusive of penalties and interest.

6. Parties engaged in several communications in the intervening period culminating in the Respondent re-affirming its tax demand vide a letter dated the 15th February 2021.

7. Being dissatisfied with the Respondent’s review decision the Appellant filed a Notice of Appeal on the 5th April 2022.

The Appeal 8. The Appellant filed its Memorandum of Appeal on 6th May 2022 and set out the following grounds of Appeal;a.That the Respondent erred in fact and law in reclassifying the Appellant’s imports as Tariff 7225. 30. 00 or Tariff 7225. 99. 00 as “other alloy steel” as opposed to Tariff 7208. 39. 00 and 7208. 38. 00 as ‘non-alloy steel’ of the Harmonized Commodity Description and Coding System (‘HS Code’) of the Common External Tariff of East African Community Management Act, 2004 (‘EACCMA’).b.That the Respondent erred in fact and law in its finding that the Appellant’s imports contained more than 0. 0008% of boron and therefore qualifies as ‘other alloy steel’ under Note (f) to Chapter 72 of the HS Code of the Common External Tariff of EACCMA.c.That the Respondent erred in fact and law in alleging that the Appellant’s imports contained more than 0. 0008% of boron by relying on the Respondent’s independent test of the samples without involving the Appellant’s by a joint text of the samples therefore infringing the Appellant’s right to fair hearing.d.That the Respondent erred in fact and law in failing to review and consider the Mill Test Certificates from the Appellant’s suppliers provided by the Appellant indicating the element content of the imports.e.That the Respondent erred in fact and law in alleging that the Appellant’s Mill Test Certificates were not authentic without providing an explanation, evidence or giving the Appellant an opportunity to be heard.f.That the Respondent erred in fact and law in its finding that import duty is payable for the Appellant’s imports as against the East African Community, Legal Notice EAC/170/180 dated & December 2018 Zero Rating of Alloy Steel Coils including the Appellant’s imports.g.That the Respondent erred in fact and law in failing to apply the tariff classification and ruling equally across the Appellant’s industry therefore infringing on the Appellant’s right to fair administrative action.

The Appellant’s Case 9. The Appellant has set out its case in the:a.Statement of Facts dated 7th April 2022 and filed on 6th May 2022,b.Supplementary Statement of Facts dated 30th May 2022 and filed on 31st May 2022. c.Written Submissions dated 19th September 2023.

10. The Appellant stated that the Respondent carried out a PCA which resulted in the wrong classification of its steel as Tariff 7225. 30. 00 or Tariff 7225. 99. 00 attracting 10% import duty and 16% VAT, instead of Tariff Codes 7208. 39. 00 and 7208. 38. 00 attracting 0% import duty and VAT of 16%.

11. It posited that the basis upon which its steel was classified was on the allegation that it contained ‘boron’. It’s stated that its steel did not contain ‘boron’ and it had provided a Mill Test Certificate (MTCs) at the point of entry confirming that its imports were non-alloy steel which did not contain boron. That it also supplied the MTCs for the 2nd time vide its email of 11th November 2021 confirming that the boron content in its steel was not above the 0. 0008% limit.

12. That it imported steel from its suppliers AL EZZ Dekhelia Steel company who confirmed the authenticity of the MTCs.

13. The Appellant stated that upon review of these MTCs the Respondent wrote a letter dated 22nd November 2021 casting aspersions on the authenticity of the MTCs and also informing that the documents had been taken to a document examiner to confirm their authenticity. That it wrote a letter dated 29th November 2021 confirming that its MTC was authentic and that it did not have any objection to their verification.

14. That it wrote a letter dated 22nd February 2022 requesting the Respondent to provide it with the outcome of its investigation and MTC verification exercise because the dispute was premised on the alleged boron content in the steel, but it did not receive a response thereto.

15. It was its view that the Respondent erred when it disregarded its MTCs and explanation and instead proceeded to issue a demand dated 321st December 2021 demanding import duty totalling Kshs. 618,782,444. 00 inclusive of penalties and interests.

16. That it also wrote to the Respondent informing it that the laboratory analysis of its steel had been done by the Respondent in 2018/2019 where it classified the same steel under Tariff 7225. 30. 00 by its Tariff Ruling dated 5th August 2019.

17. It posited that the zero-rating tariff classification of its steel had been confirmed by the Respondent under Legal Notice EAC/170/180 dated 6th December 2018 when it ruled that alloy steel coils are zero-rated. This confirmation was received upon an inquiry by the Kenya Association of Manufacturer’s letter to the Respondent dated 16th October 2018 on behalf of the Metal Sector.

18. The Respondent averred that it supplies standardized steel products that do not require the inclusion of boron and therefore its steel imports would not contain and or require boron.

19. The Appellant identified and canvassed the following issue that it determined as falling for determination in this Appeal.a.Whether the Respondent erred in reclassifying the Appellant’s imports under Tariff No. 7225. 30. 00 instead of Tariff No. 7208. 39. 00 and 7208. 38,00.

20. The Appellant submitted that Respondent’s classification was erroneous, irrational and unjustified for the following reasons:

The Respondent’s sampling and testing of the Appellant’s imports is marred with irregularities and is therefore unreliable as a basis for classification. 21. It stated that:-a.The Respondent collected samples from four of the Appellant’s consignments: Entry no. 2018MSA7002823 on 20 September 2018 (sample no. 083819), Entry no. 2018MSA7002823 on 20 September 2018 (sample no. 083819), Entry no. 2018MSA7002827 on 20 September 2018 (Sample no. 084018) and Entry no. 2018MSA7002822 on 15 November 2018 (sample no. 127318) and Entry no. 2018MSA7064701 (Sample no. 129318-sampling form not provided).b.Out of the four samples taken, Entry No. 2018MSA7002823 and 2018MSA7002827 did not form part of the twenty-eight (28) consignments in respect of which assessments were issued.c.The Respondent had already decided concerning entries no. 2018MSA7002822 and 2018MSA7064701 on 24th June 2019 where it stated that it had reviewed the Appellant’s explanations, supporting documentation as well and laboratory findings and was satisfied with the Appellant’s explanations. It is from here that the Respondent proceeded to withdraw its earlier demand for additional taxes vide a letter dated 24th June 2019. d.Laboratory findings on entries no 2018MSA7002822 and 2018MSA064701 correctly found that its steel was classified. Therefore, the Respondent cannot subsequently issue another assessment in respect of the two consignments which goes against its previous decision. As such, the Respondent is clearly in breach of the principle of legitimate expectation. It relied on the following cases to urge its point:i.Kenya Revenue Authority & 2 others v Darasa Investments Limited (2018) eKLRii.Commissioner of Domestic axes vs, Mennonite board of East Africa T/A Rosslyn Academy (High Court Income Tax Appeal No. E047 of 2020)

22. The Appellant averred that its steel samples were taken in 2018 and subjected to laboratory tests in 2021 and that the Respondent’s witnesses, Mr. John Mwau and Ms Caroline Kemboi could not sufficiently explain why the testing was done almost three years after the sampling was done.

23. That the chain of custody of the samples was not documented and the reports provided did not indicate how the samples were stored and at what point they were retrieved for testing.

24. It averred that the laboratory analysis conducted was also unreliable. It did not explain the type of technology that was used in testing, the standard against which the testing was conducted and the reliability of the machinery used in testing the samples. That the Respondent’s witness, Ms. Caroline Kemboi, testified that the laboratory analysis did not apply any standard or grade. It was also its view that the results of the test were handwritten as being above 0. 0008% and hence unreliable.

25. That unlike this laboratory test its MTC showed the type of analysis, the tests conducted, the specific coils subjected to the tests, the mass of the sample tested, among other details which were not in the Appellant’s laboratory test.

26. It concluded under this issue that both the sampling and the laboratory analysis conducted by the Respondent were unreliable in ascertaining the correct tariff classification of its consignments.

The Respondent is relying on one sample as a basis for reclassification of several consignments. 27. The Appellant argued that the basis for the Respondent’s decision was issued on an erroneous assumption that its steel was from the same Country of origin. That its forms C17B, the bills of lading, invoices and MTCs confirm that its steel originated from different suppliers in South Africa, Japan and China.

28. That the Ruling dated 5th August 2019 related to entry no. 2018MSA7002827, which was not in issue in the present Appeal and could thus not be used as a basis of assessment.

29. The Respondent stated that its arguments were supported by the Respondent’s witness Ms. Caroline Kemboi, who testified that different items from different Countries of origin, would have different chemical compositions and even two different samples from one consignment may yield different results about their boron content. That she also confirmed that the correct approach would have been to test each sample as presented and draw findings which would only apply to that particular sample.

30. It was also its submission that the Respondent’s witness, Mr David Nyale, also indicated that one consignment may have several products with varying results.

31. It posted that even if the Respondent’s laboratory analysis were to be considered accurate, it was utterly unreasonable to rely on one sample from one consignment to conclude as to the correct tariff classification for twenty-eight (28) different consignments.

The Respondent did not exercise fair judgment and did not afford the appellant due process in reaching its conclusion. 32. It submitted under this heading that the Respondent conducted the test without involving its representatives and that this was in contravention of the tenets of transparency, accountability and procedural fairness, it supported its case with the following authorities:a.Republic v Kenya Revenue Authority Ex-Parte L.A.B. International Kenya Limited [2011] eKLR,b.Judicial Service Commission v Mbalu Mutava & Another [2015] eKLR,c.Cussens v Revenue and Customs Commissioners [2019]

33. It relied on the English case of Associated Provincial Picture Houses Ltd vs. Wednesbury Corporation [1948] 1 KB 223 (Wednesbury Principle), to assert that the Respondent’s decision was out rightly unreasonable because:a.It gave undue relevance to facts that lacked relevance for being considered in the decision-making process;b.It did not give relevance to facts that were relevant and worthy of being considered in the decision-making process: andc.It made a decision that was so absurd and unreasonable that no reasonable authority could have possibly made it.b.Whether he Appellant discharged its burden of providing that the Respondent’s decision was erroneous.

34. The Appellant stated that it provided all the relevant documentation relating to its imports, including MTCs showing that the boron content of all the imports in issue was below 0. 0008%. It was its vies that Respondent's failure to establish that the MTCs were not authentic means that its evidence of laboratory test remained unimpeached.

35. That the laboratory reports produced by the Respondent did not relate to all the consignments and as such, the assessment of Kshs 618,782,441. 00 was unfounded and without basis.

36. It relied on the following cases to support its position:a.Kenya Revenue Authority v man Diesel & Turbo Se, Kenya [2021] eKLR,b.Commissioner of Domestic Services v Computech Limited [2021] eKLR,

Appellant's Prayer 37. The Appellant prayed to the Tribunal for orders that:a.The Respondent’s Objection decision dated 22nd November 2021 and the demand dated 22nd December 2021 demanding Kshs. 618,782,441 be struck out in its entirety.b.The Respondent, its employees, agents or other persons purporting to act on its behalf be barred and or estopped from demanding or taking any further steps towards enforcement or recovery of principal tax, penalties and interest on the Respondent's demand.c.The costs of this Appeal be providedd.Any other remedy that the Tribunal deems just and reasonable.

The Respondent’s Case 38. The Respondent has set out its case on:-a.The Statement of Facts dated and filed on 18th June 2022. b.The written submissions filed on 5th October 2023c.Laboratory report of 19th May 2021 produced by Caroline Kemboid.Witness statements by John Mwau filed on 18th July 2023 and by Mr David Nyale filed on 21st July 2023. Both witnesses testified in court on oath on the 5th October 2023and were cross-examined by the Appellant’s counsel.

39. The Respondent re-stated the history of this dispute in detail in its Statement Facts and also reiterated its position as stated in its review decision as issued to the Appellant.

40. It quoted Sections 135,235, 229 and 249 of EACMA as the ones that gave it the power to demand short levied taxes, call for documents and conduct PCA.

41. The Respondent stated that:-a.It had previously issued a decision upholding the tariff reclassification of hot rolled steel importations of subheading 7208. 39. 00 to 7225. 30. 00 based on tariff Ruling Ref: CUS/V&T/TARI/RUL/301/2018 dated 4th October 2018. b.A revised ruling Ref: CUS/V&T/R|TARI/APP/030/2019 dated 5th August 2019 revised the aforementioned ruling to confirm the change of the applicable HS Code from the previous 7225. 99. 00 to 7225. 30. 30 which attracted a 10% duty rate at the period of inquiry 2016-2018.

42. That in arriving at its decision, that it analyzed the law of the product before it and had several meetings where both parties and their representatives attended and deliberated on the issue extensively.

43. It posited that the Appellant had not presented any evidence to show that the Respondent arrived at its decision by misapprehending the facts and evidence tabled before it.

44. The Respondent further stated that:-a.It wrote an email on the 2nd of September 2021 attaching thereto a Tariff Ruling Ref: CUS/V&T/TARI/APP/030/2019 dated 5th August, 2021 where it confirmed that the correct HS Code was 7225. 30. 00. b.Its review decision was sent to the Appellant by email on 22nd November 2021 confirming the demand.c.The Appellant's MTCs were addressed to Duferco who appeared like a sales agent. That it was thus hard to establish whether they belonged to the Appellant or another client.d.The authentication letters from ArcelorMittal related to a consignment from Macsteele.The authentication letter ought to have come from the manufacturer Macsteel rather than ArcelorMittal who could have been the sales agent.f.The Appellant did not present authentication letters for importers from China because they probably did not favour its position.

45. The Respondent's first witness John Mwau affirmed that he works as a supervisor at the Inspection and Testing Centre Divisor of the Strategy, Innovation & Risk Management Department, Kenya Revenue Authority. He emphasized that:a.Its department is mandated to draw samples on behalf of all revenue departments for chemical analysis and tariff determination.b.Verification and drawing of the sample in this matter was done in the presence of the Declaration/ Representative (Bahari Fowardness Limited Mombasa) of the consignees (Abyssinia Iron & Steel Nairobi).c.It followed the right procedure in the drawing of the sample.d.The integrity of the sample was properly secured during sampling and transportation.e.Failure of the representative to avail himself to sign the sampling form did not result in fabrication or change of chemical composition of the sample.

46. The Respondent’s second witness Mr David Nyale stated that:a.The dispute arose as a result of the Commissioner’s decision to uphold the tariff reclassification of hot rolled steel importations of subheading 7208. 39. 00 to 7225. 30. 00 based on Tariff Ruling Ref: US/V&T/TARI/RUL/301/2018 dated 4th October 2018. b.A revised Ruling Ref: CUS/V&T/TARI/APP/030/2019 dated 5th August 2019 revised the aforementioned ruling to confirm the change of the applicable HS Code from the previous 7225. 99. 00 to 7225. 30. 00 which attracted a 10% duty rate at the period of inquiry 2016-2018. c.The laboratory and chemical analysis of the samples tested, confirmed that the product was correctly classifiable under EAC/CET Code 7225. 30. 00.

47. The Respondent's third witness Ms Carolyne Kemboi produced the laboratory report of 19th May 2021.

48. The Respondent’s submission identified the following issues for determination

Whether there is a Valid Appeal 49. The Respondent stated that it issued a review decision on 22nd November 2021 confirming the assessments and that the Notice of Appeal herein ought to have been filed on or before the 6th January 2023 and not on 5th April 2023.

50. That Section 230 of EACMA provides for the procedure to challenge a tax decision made under Customs and Border Control and it requires an aggrieved party to file its appeal within 45 days after being served with the decision.

51. The Respondent averred that the Appellant slept on its rights and decided to lodge an Appeal five months later after a review decision was issued in total disregard of the law and statutory timelines set under Section 230(2) of the EACCMA.

52. It stated further that statutory timelines are premised on mandatory terms and therefore the procedures should have been strictly observed. It relied on the following cases to support its case:a.Owners of the Motor Vessel "Lillian S" v. Caltex Oil Kenya Limited [1998] eKLRb.Equity Group Holdings Limited Vs Commissioner of Domestic Taxes [2021] eKLR

53. It was thus its view that the Appellant had unjustifiably sat on its rights by appealing five months late and as such its appeal was not validly lodged.

Whether the Respondent erred in classifying the Appellant’s imports under HS Code 7227. 90. 00. 54. The Respondent posited Section 236 of the EACCMA empowers the Commissioner to conduct a PCA. In this case, it followed the right procedure and complied with the law when it re-classified the Appellant's steel. That it was guided by the East African Community Common External Tariff (EAC/CET) as read together with the World Customs Organization Explanatory Notes 2017.

55. That it was specifically guided by GIR 1 and 3(a) to classify the Appellant's steel under a classification that described it best based on the laboratory analysis that was in its possession. That the Appellant’s imports fell under the heading for other alloy steel which is HS Code 7227. 90. 00 and thus it was correctly classified.

56. It posted that its laboratory analysis established that the Appellant’s imported hot rolled steel in coils grade SPHT-1 had a boron content of between 0. 0012% - 0. 0015% by mass of width 1219mm consignments from Rizhao based in China. The Respondent puts reliance on Tax Appeals Tribunal Appeal No. 27 Of 2022 Insteel Limited –Versus- Commissioner Of Customs and Border Control.

57. The Respondent averred that all samples were taken in the presence of the Appellant’s clearing agent. That reference to a letter stating that the Respondent vacated the assessment was hollow because the said letter was not annexed and produced before the Tribunal.

Whether the Respondent was justified in assessing and demanding the additional taxes. 58. The Respondent submitted that the demand issued against the Appellant was justified on the ground that the goods were re-classified altering the rates and the Commissioner has the power to recover the taxes which were short-levied. It cited Sections 134 and 135 of the EACCMA to support this averment.

Whether the Appellant has discharged its burden of proof. 59. The Respondent stated that the Appellant had not provided or adduced evidence to support its Appeal. It cited the following statutory provision and cases to support its assertion:a.Section 109 of the Evidence Actb.Boleyn International Limited Vs Commissioner of Investigations and Enforcement [2019] eKLR,c.Wilken Telecommunications Limited vs Commissioner of Domestic Taxes [2021] eKLR where the tribunal stated as follows under paragraph 49:

60. It was its position that contrary to Section 235 of EACCMA the Appellant had failed to provide relevant documents or evidence as witnessed in the Appellant's letters dated 8th November 2021 and 11th November 2021 where it acknowledged the lack of documents and later provided 8 documents which were insufficient to dispute the findings of the Respondent.

61. That in an attempt to resolve this dispute it granted the Appellant an additional four days to produce MTCs and other relevant documents but the Appellant only availed a few documents among them MTCs whose authenticity could not be verified or confirmed. That not even the Appellant was able to authenticate the MTC thereby prompting the Respondent to disregard it and proceed to issue a review decision based on the available documents.

62. It relied on the cases of Motex Knitwear Limited vs. Gopitex Knitwear Mills Limited Nairobi (Milimani) HCCC No. 834 of 2002 and Trust Bank Limited vs. Paramount Universal Bank Limited & 2 Others Nairobi (Milimani) HCCS No. 1243 of 2001 to explain the consequences of failure to provide evidence or documents in tax cases.

63. Based on the above arguments, it was its view that the Appellant did not discharge its burden of proof as required by the law in this Appeal.

Respondent's Prayer 64. The Respondent prayed to the Tribunal for the following orders:a.That the Appeal be dismissed with costsb.That its Ruling be allowed.c.That the goods declared to be found to be under HS Code 7225. 30. 00

Issues For Determination 65. The Tribunal having carefully considered the pleadings, testimonies and submissions made by the parties is of the considered view that the Appeal herein distils into two issues for determination as follows ;i.Whether the Appeal is valid.ii.Whether the Respondent was justified in reclassifying the Appellant’s imports under Tariff Code No. 7225. 30. 00 instead of Tariff Code Nos. 7208. 39. 00 and 7208. 38,00.

Analysis And Determination Whether the Appeal is valid. 66. The Respondent has argued that this Appeal is not valid for reasons that it was filed more than 45 days after the issuance of the review decision contrary to Section 230(2) of ECCMA which provides as follows:“(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.”

67. It stated further that the Notice of Appeal herein ought to have been filed on or before the 6th January 2023 and not on the 5th April 2023. That in the circumstances the Appeal contravened mandatory terms of Section 230(2) of EACCMA and it was thus invalid.

68. The Appellant on its part did not address the issue of validity of its Appeal both in its pleadings and submissions.

69. The Tribunal has looked at its records and realised that the issue of the Appeal that was filed out of time was canvassed and a Ruling allowing the Appellant to file its Appeal out of time was delivered on the 31st April 2023.

70. The Respondent’s counsel on record was therefore mischievous and unprofessional when it raised this as a core issue for determination in its submissions when it was a party to the earlier proceeding and was thus aware that the issue of late filing of the Appeal herein had been settled by this Tribunal.

71. The less said about this the better. This ground of appeal falls.

Whether the Respondent was justified in reclassifying the Appellant’s imports under Tariff No. 7225. 30. 00 instead of Tariff No. 7208. 39. 00 and 7208. 38,00. 72. The gravamen of this Appeal is whether the steel imported by the Appellant contained boron that was above 0. 0008%. A determination of this issue would settle the issue of which tariff code applies to the steel imported by the Appellant.

73. The Appellant submitted that it relied on its forms C17B, the bills of lading, invoices, MTCs and an authentication letter from its suppliers AL EZZ Dekhelia Steel to confirm that its steel did not contain boron above 0. 0008%.

74. The Respondent on the other hand relied on its laboratory test to affirm its position that the said steel contained boron above the threshold of 0. 0008%.

75. The Tribunal has looked at the two sets of documents held by both parties which contain opposite and varying results.

76. It is now settled that the burden of proof in tax cases lies with the Appellant as is encapsulated in Section 30 of the TAT Act which states as follows:“In a proceeding before the Tribunal, the appellant has the burden of proving—(a)where an appeal relates to an assessment, that the assessment is excessive; or(b)in any other case, that the tax decision should not have been made or should have been made differently.”

77. This onus may however shift to the Respondent if the Appellant has made a prima facie case. In this case, the onus may then shift to the Respondent to rebut the prima facie case failure to which the taxpayer succeeds.

78. This position was explained in the case of Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] eKLR, where Mativo J ( as he then was) adopted the doctrine in the Canadian Supreme Court case of Johnston v Minister of National Revenue where the court {1948} S.C.R. 486 where the court decided that, “… the onus is on the taxpayer to “demolish the basic fact on which the taxation rested.” Again, the Supreme Court of Canada provided guidance on this issue in Hickman Motors Ltd. v Canada which held that the onus is met when a taxpayer makes out at least a prima facie case. Prima facie is another legal term that literally means “on its face.” To prove a case “on its face” you must provide evidence that, unless rebutted, would prove your position. According to the said decision, a prima facie case is made when the taxpayer can produce unchallenged and uncontradicted evidence. Once the taxpayer has made out a prima facie case to prove the facts, the onus then shifts to the Revenue Authority to rebut the prima facie case. If the Revenue Authority cannot provide any evidence to prove their position, the taxpayer will succeed.

79. From the above decision of the superior court, it is apparent that the Appellant was required to present a minimum amount of information necessary to support its position. This safety valve seems to place the burden of proof on the Appellant without completely relieving the Respondent of its fair share of the burden of proof. The bottom line is that once the Appellant has provided evidence that the Respondent’s assessment was wrong, then the Respondent must push back and show that its assessment was not arbitrary, capricious or imagined. The pendulum (onus of proof) would swing back to the Appellant once the Respondent has discharged its burden on a balance of convenience.

80. This fact that the burden of proof in tax cases is not stationary was explained in Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR) (Commercial and Tax) (8 July 2022) (Judgment) where Justice Majanja stated as thus:-“I agree with the Tribunal’s holding that the burden of proof in tax matters is not stationary but is like a pendulum swinging between the taxpayer and taxman at different points but more times than not swings towards the taxpayer.”

81. The above being the law, the question in this Appeal is whether the Appellant has established with evidence, that the tax assessment that was raised against it was erroneous or that it was not due. The Appellant tabled its bills of lading, invoices, MTCs and an authentication letter from its suppliers AL EZZ Dekhelia Steel to confirm that its steel did not contain boron above 0. 0008%.

82. By tabling these documents the Appellant succeeded in making a prima facie case that its steel did not contain boron that was above 0. 0008% which would move it from tariff 7208. 39. 00 and 7208. 38. 00 to tariff 7225. 30. 00.

83. The onus, therefore, shifted to the Respondent to disprove these documents by making a prima facie case that its reclassification was justified. It initially stated it would subject the MTCs to a document examiner to verify their authenticity. This would have helped it in swinging the burden back to the taxpayer if the result of the investigation confirmed that the MTCs were not authentic. It however abandoned this course of action without sharing the outcome of its investigations with the Appellant and or the Tribunal.

84. The Respondent opted to rely on its laboratory test results dated 19th May 2021 to prove that the steel imported by the Appellant indeed had boron content above 0. 0008%. Its witness Ms. Caroline Kemboi confirmed that it took a sample from one consignment of the Appellant’s steel sometime in 2018 and subjected it to a laboratory test in 2021. The result obtained from this test as shown in its laboratory result of 19th May 2021 was that the Appellant’s imported steel contained boron of 0. 0016%

85. The Tribunal has analysed the documents relied on by the Respondent to support its test result and more specifically the laboratory result of 19th May 2019 and it has noted that:-a.The sample was taken in 2018 and yet it was applied to all consignments that were imported in the period between 2016 and 2017. The net effect of this was that the Respondent relied on and applied a laboratory result of 2018 to 2016 and 2017 financial years even though no sample test was carried out for the imports made by the Appellant in 2016 and 2017. b.The Appellant's invoices, customs entry forms and bill of lading show that it imported steel from three countries namely China, South Africa and Japan. It was thus erroneous to apply the single consignment test to imports from other Countries whose steel of origin was not subjected to a laboratory test. This error on the part of the Respondent was confirmed by its witness Ms. Caroline Kemboi who stated on cross-examination that imports from different Countries would have different boron content results.c.No cogent reason was provided on why the Appellant’s MTCs and authentication letters confirming that steel imported by the Appellant did not contain boron above the 0. 0008% threshold were disregarded.d.The Respondent used the laboratory result obtained from the test of a single consignment of steel and applied that result to all the imports by the Appellant for the periods between 2016 and 2018. Relying and applying a test from a single consignment of steel to levy tax on steel from different consignments covering three years was erroneous, unfair and amounted to capricious application of the tax law with the sole aim of bringing the Appellant within the tax tariff of the Appellant’s choice without the support of any cogent audit, report or investigation.e.The unfair and capricious nature of the Respondent’s action was confirmed by its witness Ms Caroline Kemboi, its laboratory assistant, who stated that a test on two samples from the same consignment of steel can bring out different results. This meant that even steel from the same consignment could give out conflicting results. It was thus unfair and unsafe to apply the test result from a single consignment to the several consignments that had been imported over the three years of 2016 to 2018. f.Its second witness, Mr David Nyale, also agreed with the foregoing when he stated that one consignment of shipment may have different laboratory results and that the results of a laboratory test were dependent on several factors that could interfere with its accuracy.

86. Moreover, the Respondent also issued a Ruling dated 24th June 2019 which stated as follows in the relevant part:“RE: Disputed Demand For Extra Revenue Arising From Wrong Tariff Classification Import Entry 2018MSA7064701/7002822Reference is made to your letter AISL/B163/19 dated 23rd March 2019, wherein you disputed our tariff classification for goods imported via the above entries.We have reviewed the letter together with the supporting documents, as well as the laboratory findings and are satisfied with your explanation”

87. It is clear on the face of this letter that the Respondent had allowed the Appellant to proceed with the classification of its steel under its disputed tariff entry of 7208. 38. 00 and 7208. 39. 00.

88. The Tribunal has looked at the bill of lading and custom entry forms filed by the Appellant. It has also looked at the Respondent’s Schedule of workings which shows the import entries that are included within the remit of the impugned review decision and both parties are in agreement that Import Entry No 7002822 was made on the 13th September 2018 and Import Entry No 7064701 was made on the 16th of November 2018. It is also clear that both entries formed part of the consignments that the Respondent had moved from Tariff No. 7208. 39. 00 and 7208. 38,00 to Tariff No. 7225. 30. 00.

89. This administrative action of re-classifying the consignments that had been ruled to have passed the laboratory test and which were correctly classified under Tariff No 7208. 39. 00 and 7208. 39. 00 to the new Tariff of 7225. 30. 00 or 7225. 99,00 was capricious, unreasonable and unjustified to the extent that the Respondent:a.Did not provide reasons why it had opted to revoke and or review its Ruling of 24th June 2019. b.Had not revoked or withdrawn its Ruling of 24th June 2019 before the issuance of the impugned review decision.c.Had reviewed the classification of this consignment despite its admission that the Appellant’s reasons for classification of the products under Tariff 7208. 39. 00 or 7208. 39. 00 were satisfactory.

90. The total of the foregoing is that the laboratory result of 19th May 2021 which the Respondent relied on in determining its tariff classification was not safe, reliable or capable of displacing the prima facie evidence that had been tabled by the Appellant.

91. The Respondent needed to do much more to displace this onus of proof. For example, it could have carried out a better sampling of the steel it collected for laboratory examination, spread the samples collected to a period that sufficiently covered the three years under review and the consignment imported by the Appellant, provided a plausible reason why it did not trust and or believe that the Appellant’s MTCs and documents were authentic and shared the outcome of the investigations it had done to verify the authenticity of the Appellant’s MTCs.

92. Secondly, the Respondent’s witnesses Ms Caroline Kemboi and Mr David Nyale aided the Appellant in casting doubt as to the genuineness and fairness of the laboratory result of 19th May 2019 which was the main document that it had relied on to justify its preferred tariff classification. They also cast doubt on whether the model of testing adopted by the Respondent and the application of that laboratory result to the Appellant’s consignment was reasonable fair or justifiable in the circumstances.

93. Thirdly, the Respondent's decision to approve the Appellant’s classification of import entries No. 2018 MSA 7064701/7002822 under tariff No. 7208. 38. 00 and 7208. 39. 00 and thereafter unilaterally moving these consignments to Tariff No. 7225. 30. 00 or 7225. 90. 00 without cause or notice tainted the purity, validity and justification of the Respondent’s review decision. It also resulted in the Appellant being assessed for tax regarding a consignment that ought not to have fallen for taxation.

94. This was a grave error on the part of the Respondent. It also contradicted a well-settled tax principle that a taxpayer should never be subjected to pay tax that is not due, and or that the taxman should never demand tax that is not due to it like it was in this case. This principle was discussed in Waweru & 3 others (suing as officials of Kitengela Bar Owners Association) & another v National Assembly & 2 others; Institute of Certified Public Accountants of Kenya (ICPAK) & 2 others (Interested Parties) (Constitutional Petition E005 & E001 (Consolidated) of 2021) [2021] KEHC 9748 (KLR) (20 September 2021) (Judgment) where Odunga J (as he then was) stated as follows:-“A taxpayer was not obliged to pay a single coin more than was due to the taxman. The taxman on the other hand was entitled to collect up to the last coin that was due from a taxpayer. “

95. Based on the above mix-ups, admissions by the Respondent’s witnesses and the fact that the Appellant was probating and reprobating in the course of this Appeal, the Tribunal finds and holds that the Respondent did not discharge its onus of rebutting the prima facie case that had been made out by the Appellant. It merely relied on its strong suspicion, imagination, craft and an unreliable laboratory test result to reclassify steel that had been imported by the Appellant.

96. The effect of this is that the pendulum of the onus of proof that had been swung to it by the Appellant has stuck with it, it has failed in swinging it back to the Appellant. The consequence of this is that the presumption of correctness of the Respondent’s review decision must vanish.

97. The High Court agreed with this conclusion by the Tribunal in Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR) (Commercial and Tax) (8 July 2022) (Judgment) when it stated as thus:-“A presumption of correctness arises from the Commissioner’s determination/assessment. The presumption remains until the taxpayer produces competent and relevant evidence to support his/her position. When the taxpayer comes forward with such evidence, the presumption vanishes and the case must be decided upon the evidence presented.”

98. The Tribunal has also aligned itself with the High Court regarding the swinging nature of the burden of proof in Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR, where it stated that:-“Once the taxpayer has made out a prima facie case to prove the facts, the onus then shifts to the Revenue Authority to rebut the prima facie case. If the Revenue Authority cannot provide any evidence to prove their position, the taxpayer will succeed

99. Flowing from the above analysis, the Tribunal finds and holds that the Appellant adduced cogent and relevant evidence to support its position. On the other hand, the Respondent failed to provide sufficient, cogent and credible evidence to prove and justify its decision.

100. The consequence of this finding is that the presumption of the correctness of the Respondent’s review decision has vanished. The Appellant's Appeal has thus succeeded.

Final Decision 101. For the reasons set out above, the Tribunal finds that this Appeal has merit and accordingly proceeds to make the following Orders;a.The Appeal be and is hereby allowed.b.The Respondent‘s review decision and all the subsequent demands or orders reclassifying the Appellant’s imports to Tariff No. 7225. 30. 00 instead of Tariff No. 7208. 39. 00 and 7208. 38. 00 be and are hereby set aside.c.Each party is to bear its own costs.

102. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 10TH DAY OF NOVEMBER, 2023. ERIC NYONGESA WAFULA - CHAIRMANDR. RODNEY O. OLUOCH - MEMBERABRAHAM KIPROTICH - MEMBERCYNTHIA MAYAKA - MEMBEREUNICE NG’ANG’A - MEMBERBERNADETTE GITARI - MEMBER