[2023] KETAT 884 (KLR)

Abyssina Iron and Steel Ltd v Commissioner of Customs and Border Control (Tax Appeal 435 of 2022) [2023] KETAT 884 (KLR) (10 November 2023) (Judgment)

Neutral citation: [2023] KETAT 884 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 435 of 2022

E.N Wafula, Chair, RO Oluoch, 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

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 the principal officer appointed under Section 13 of the Kenya Revenue Authority Act Cap 469 of the laws of Kenya and the Kenya Revenue Authority is 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 dispute herein arose when the Respondent carried out a desk audit of the Appellant's operations for customs entries between 2017 and 2021 and concluded that the Appellant's hot rolled steel wire rods (steel) were incorrectly classified under tariff Heading 7213. 9190 instead of tariff code of 72227. 90. 90.

4. The Respondent subsequently served the Appellant with its desk audit findings dated 11th January 2022 indicating that the steel ought to have been classified under HS Code 7227. 90. 00 instead of HS Code 7213. 01. 00. It then applied import duty at the rate of 25% and VAT at 16% amounting to Kshs 259,089,891. 00 inclusive of penalties and interests.

5. The Appellant requested a review of the Respondent's desk audit findings on 19th January 2022 and the Respondent responded thereto with two letters both dated 15th February 2022 confirming its previous decision.

6. The Appellant requested for a review of this decision vide its letters dated 22nd February 2022 and 17th March 2022 and the Respondent issued two review decisions dated 17th March 2022 and 29th March 2022 confirming the assessed taxes.

7. Being dissatisfied with the Respondent’s review decision the Appellant lodged its Notice of Appeal on the 14th April 2022.

The Appeal 8. The Appellant vide its Memorandum of Appeal dated and filed 28th April 2022 set out the following grounds of Appeal;a.That the Respondent erred in fact and law in reclassifying the Appellant’s imports as Tariff 7227. 90. 00 as “other alloy steel” as opposed to Tariff 7213. 91. 00 as ‘non-alloy steel’ of the Harmonized Commodity Description and Coding System (‘HS Code’) of the Common External Tariff of East African Community Customs 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 test 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 that the boron content of the imports was below 0. 0008%.e.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 and filed on 28th April 2022. b.Supplementary Statement of Facts dated 30th May 2022. c.The written Submissions dated 19th April 2023

10. The Appellant stated that the outcome of the Respondent’s desktop audit allegedly revealed that the Appellant had wrongly classified its products, hot rolled steel sheet (steel) as tariff 7213. 91. 00 attracting 0% import duty instead of tariff 7227. 90. 00 attracting 25% or 200/T import duty and 16% VAT.

11. That the basis of this reclassification was the Respondent's lab test which indicated that its steel contained boron above 0. 0008%.

12. The Appellant disputed this laboratory test by asserting that:-a.Its steel was rightly classified because it contained boron of less than 0. 0008%.b.Its bill of lading, invoice and customs declaration form described its steel import as non-alloy steel.c.The bill of lading described its steel as containing boron of less than 0. 0008%.d.Its Mill Testing Certificates (MTCs) indicated that the boron content in its steel was below 0. 0008%.

13. It opined that its imports being non-alloy steel were properly classified under tariff 7213. 91. 00 attracting 0% import duty and therefore no additional duty was payable.

14. The Appellant identified the following as the two issues for determination in this Appeal:a.Whether the Respondent erred in reclassifying the Appellant’s imports as Tariff No. 7227. 90. 00 instead of Tariff No. 7213. 91. 00.

15. It admitted that the point of divergence between it and the Appellant was whether its steel contained boron above 0. 0008%. On this, it clarified that it imports are non-alloy steel and not alloy steel.

16. That the main difference between alloy and non-alloy steel is its chemical composition. It stated that it imports non-alloy steel to manufacture reinforcement steel bars and other steel products used for construction, welding, engineering and reinforcement of window and door panels. That these products do not contain any boron element which is usually added to increase the strength of steel for use in industries such as car manufacture and nuclear production.

17. It posited that its imports of hot steel rolled wire rods in coils are thus best classified under tariff 7227. 90. 00

18. The Appellant submitted further that the Respondent's classification of its steel was erroneous, irrational and unjustified for the following reasons.

i.The Respondent’s sampling and testing of its imports was marred with irregularities and was therefore unreliable as a basis for classification. 19. It stated that based on the documents produced by the Respondent, it was clear that it collected two samples from one of the Appellant’s consignments: Entry no. 2018MSA7002823 on 17 December 2018 from where it collected Sample No. 083719 and 003819.

20. That no explanation was provided as to why it had taken three years to carry out a test of this sample considering that the test was done in 2021. It submitted further that even the Respondent’s witnesses, Mr. John Mwau and Ms. Caroline Kemboi admitted that the testing was conducted after a long time, but could not sufficiently explain why the testing was done almost three years after sampling was done.

21. It was its view that:-a.The chain of custody of the samples was not documented and was thus unreliable.b.The form of laboratory analysis conducted was also unreliable because the Respondent 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.c.The fact that the laboratory results done by the Respondent were handwritten was suspicious.d.The Respondent’s witness, Ms. Caroline Kemboi, aligned with its position when she testified that the laboratory analysis did not apply any standard or grade.e.Unlike its MTCs which showed the type of analysis, the tests conducted, the specific coils subjected to the tests, and the mass of the sample tested, among other details, the Respondent's test result did not contain such details.

22. Based on these arguments it was its submission that both the sampling and the laboratory analysis conducted by the Respondent was unreliable in ascertaining the correct tariff classification of the Appellant’s consignments.

ii.The Respondent was relying on one sample as a basis for the reclassification of several consignments. 23. The Appellant averred that whereas the Respondent’s letter dated 17 March 2022, indicated that samples were drawn from each consignment and that the laboratory results were communicated in its Ruling dated 26th August 2021, it was notable that the said Ruling only referred to two samples: 003719 and 003819 which were both drawn from the same consignment, Entry No. 2018MSA7088726.

24. It stated further that the Respondent's witness:-a.Jack Awinda also admitted on cross-examination that different consignments from different Countries and suppliers may have different chemical compositions and different boron content.b.Ms. Caroline Kemboi, also admitted 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 with regard to their boron content.c.Ms Caroline Awinda further admitted that the correct approach would have been for it to test each sample as presented and draw findings that would only apply to that particular sample and hence the reason why the two samples, which the Respondent had drawn from the same consignment, had produced different boron contents of 0. 0016% and 0. 0084%. As such, each sample ought to have been considered independently.

25. It was thus its view that the Respondent erred when it made a decision regarding the boron content of its imports based on one sample and yet its steel was imported in several different consignments.

iii. The Respondent did not exercise fair judgment and did not afford the Appellant due process in reaching its conclusion. 26. The Appellant invoked Article 47 of the Constitution of Kenya to argue that the Respondent ought to have involved and or invited its representative to participate in the testing.

27. Further that it was not told why its MTCs were disregarded. In its view, the prudent and reasonable approach following receipt of MTCs whose conclusions differed from the Respondent’s analysis would have been to call for joint testing of the samples.

28. The Appellant relied on the following cases:a.Republic v Kenya Revenue Authority Ex-Parte L.A.B. International Kenya Limited [2011] eKLR,b.Similarly, in Judicial Service Commission v Mbalu Mutava & Another [2015] eKLR,c.Cussens v Revenue and Customs Commissioners [2019] UKFTT 543 (TC)b.Whether the Appellant discharged its burden of proving that the Respondent’s decision was erroneous.

29. It was the Appellant’s submission that it met the threshold of proving on a prima facie basis that its imports were correctly classified. That it duly discharged its burden of proving that the Respondent’s findings were unreasonable, unjustified and without basis to the extent that it provided all the documents relating to its imports, including MTCs and letters confirming the authenticity of the said MTCs.

30. On the other hand, it was its view that the Respondent did not provide any documentation to rebut its position or to establish that the MTCs were inauthentic.

31. The Appellant also posited that the laboratory reports produced by the Respondent did not relate to all the consignments and as such, the assessment of Kshs 259,089,891. 00 was unfounded and without basis.

32. The Appellant relied on the following cases to support its position on the burden of proof:-a.Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR,b.Commissioner of Domestic Services v Computech Limited [2021] eKLR,

33. The Appellant reiterated that the Respondent’s entire assessment was materially and substantially flawed and was not issued in the exercise of the Respondent’s best judgment to the extent that it did not consider the Appellant's documents. That the demand for payment of tax was thus erroneous, unreasonable and without basis.

Appellant's Prayer 34. The Appellant prayed to the Tribunal for orders that:-a.The Respondent’s review decision dated 17 March 2022 and 29 March 2022 demanding a tax of Kshs. 259,089,891 be struck out in its entirety.b.The Respondent, its employees, agents to other persons purporting to act on its behalf be barred and /or stopped from demanding or taking any further steps towards enforcement or recovery of principal tax, penalties and interests on the Respondent’s demand as stipulated above.c.The costs of this Appeal be provided; andd.Any other remedies that the Honourable Tribunal deems just and reasonable.

The Respondent’s Case 35. The Respondent has set out its case on:-a.The Statement of Facts dated and filed on 27th May 2022. b.The written submissions dated 9th June 2023c.The Laboratory reports of 29th July 2021 and 8th November 2021 produced by Ms Caroline Kemboid.The Witness statements by John Mwau filed on 18th July 2023 and Mr Jack Awinda filed on 22nd May 2023. Both witnesses testified in court on the 5th September 2023 and were cross-examined by the Appellant’s counsel.

36. The Respondent stated that the issue in dispute in this Appeal is the chemical composition of the steel which can be better elaborated on and explained by chemical and laboratory analysis.

37. That it had drawn samples from the Appellant's steel for testing under entry number 2018MSA7088726. That tests were conducted and a tariff ruling was issued confirming that the sample of steel it had tested was found to be hot rolled metallic rod irregular wound coils of other alloy steel classifiable under EAC/CET HS code 7227. 90. 00.

38. The Respondent stated that it was guided by GIR in arriving at its tariff classification ruling.

39. It also 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 Post Clearance Audit (PCA).

40. The Respondent’s witness, Jack Awinda stated as follows:-a.A desk audit of the Appellant’s customs operations was conducted with a special focus on importations of steel wire rods and it was established that importations of ‘hot rolled steel wire rods’ were incorrectly classified under tariff heading 7213. 91. 90 as opposed to the correct and applicable tariff code of 7227. 90. 00. b.That an assessment for additional taxes was subsequently done and a demand notice dated 15th February 2022 amounting to Kshs. 259,089,891 was issued to the Appellant.c.That the sampling and testing were done by the Laboratory Section and a Tariff Ruling Reference CUS/V&T/TAR/RUL/365/2021 dated 26th August 2021 was issued.d.That from the samples drawn and verification reports under customs entry no. 2018MSA7060094 the MTCs availed to the Tribunal did not indicate the standard upon which the laboratory analysis was based.e.That the Appellant misclassified its imports of hot rolled steel wire rods under tariff code 7213. 91. 00 which attracts import duty at 0%. The correct tariff of 7227. 90. 00 was applied and extra duties amounting to Kshs 259,089,891. 00 were assessed.

41. The Respondent identified the following as the issues for determination in this Appeal:-a.Whether there is a valid Appealb.Whether the Respondent erred in classifying the Appellant’s imports under HS Code 7227. 90. 00. c.Whether the Appellant has discharged its burden of proof.

a. Whether there is a valid Appeal 42. Respondent stated that it issued a review decision on 29th March 2022 confirming the assessments and that the Notice of Appeal herein ought to have been filed within 45 days which was on or before the 6th January 2023 and not on 5th April 2023.

43. That Section 230 of EACCMA 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.

44. 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 time lines set under Section 230(2) of the EACCMA.

45. It stated further that statutory time lines 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

46. 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.

b.Whether the Respondent erred in classifying the Appellant’s imports under HS Code 7227. 90. 00. 47. The Respondent posited that Section 236 of the EACCMA empowered it 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.

48. 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.

49. It posited that its laboratory analysis established that the Appellant imports metallic rods of other alloy steel containing 0. 0113% boron while the second sample established the imports to be metallic rods of other alloy steel containing 0. 0084% boron. The said findings were shared with the Appellant and a demand was issued on 23rd August 2021 and the Appellant objected to the demand and not the audit findings.

50. 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.

51. It stated that its laboratory analysis established that the Appellant’s imported hot rolled steel in steel grade SPHT-1 had a boron content of between 0. 0012% - 0. 0015% by mass of width 1219mm consignments from Rizhao based in China.

52. The Respondent averred that to establish boron content, samples were randomly taken and tested, and in each case, the analysis showed that the boron content for each of the tested consignments was above the threshold required for classification under Heading 7208. 39. 00 Or 7208. 38. 00 The Respondent put reliance on Tax Appeals Tribunal Appeal No. 27 Of 2022 Insteel Limited –Versus- Commissioner of Customs and Border Control.

53. The Respondent stated that it was telling that the Appellant had requested laboratory results but it never relied on those results in the course of the hearing. It relied on the Canadian Supreme Court in the case of Deputy Minister of National Revenue for Customs and Excise v. Ferguson Industries Ltd. et al. and Republic vs. Commissioner General & Another Ex-Parte Awal Ltd [2008] eKLR, to stress this point.

c.Whether the Respondent was justified in assessing and demanding the additional taxes. 54. The Respondent submitted that the demand issued against the Appellant was justified on the ground that the Commissioner has the power to recover taxes which were short-levied under Sections 134 and 135 of EACCMA.

55. The Respondent averred that after conducting a laboratory test and re-classifying the Appellant’s imports, it was established that the Appellant had not paid its rightful tax. That it was therefore justified to issue a demand to enable the recovery of taxes.

d.Whether the Appellant has discharged its burden of proof. 56. The Respondent stated that the Appellant had not provided or adduced evidence to support its Appeal. It cited the following statutory provisions 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:

57. 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 eight documents which were insufficient to dispute the findings of the Respondent.

58. That the authenticity of the Appellant's documents including its MTC 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.

59. 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.

Respondent's Prayer 57. The Respondent prayed to the Tribunal for the following orders:-a.That the Appeal be dismissed with costsb.That the imports be deemed properly classified under HS Code 7227. 90. 00c.That the review decision dated 29th March 2022 be upheldd.That demand of tax liability amounting to Kshs. 259,089,891. 00 be upheld

Issues For Determination 58. 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 Appellant's Appeal is valid.ii.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.

Analysis And Determination 59. The Tribunal having established the issues falling for its determination proceeds to analyse them as hereunder.

i.Whether the Appellant's Appeal is valid. 60. The Respondent has argued that this Appeal is not valid for reasons that it was filed 45 days after the issuance of the review decision contrary to Section 230(2) of EACCMA which provides as follows regarding timelines for filing a valid Appeal:“(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.”

61. The Respondent posited that the Notice of Appeal herein ought to have been filed within 45 days from the date of the review decision which was issued on 29th March 2022. That in the circumstances the Appeal contravened mandatory terms of Section 230(2) of EACCMA and it was thus invalid.

62. The Appellant on its part did not address the issue of validity of this Appeal in all its pleadings and submissions.

63. The Tribunal has looked at its records and it has noted that parties are in agreement that the review decision in this Appeal was issued on the 29th March 2022. Consequently, by dint of Section 230(2) of EACCMA the Appellant was required to file its Appeal on or before the 14th of May 2023.

64. The current appeal was lodged on 14th April 2023, it was thus lodged in time. Even if the letter of 17th March 2023 was to be deemed as the Respondent’s review decision then the last day for lodging the Notice of Appeal would have been on or before 2nd May 2023, which means that the Appeal was still lodged within statutory timelines.

65. From the above analysis, and whichever way one looks at it, the Appellant’s Notice of Appeal was lodged in time. It is hence a valid Appeal. This ground of Appeal therefore fails.

ii. 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. 66. The dispute herein hinges on whether the Respondent was correct in re-classifying the Appellant’s steel coils from HS code 7213. 91. 00 attracting duty at 0% to HS code 7227. 90. 00 attracting duty at 25%.

67. The Appellant submitted that it relied on its bills of lading, invoices and MTCs to confirm that it’s steel did not contain boron above 0. 0008%.

68. The Respondent on the other hand relied on its laboratory tests of 29th July 2021 and 8th November 2021 produced by Caroline Kemboi to affirm its position that the said steel contained boron above 0. 0008%.

69. As it is, both parties have produced two sets of documents containing opposite and varying results. The Tribunal shall apply the test of the onus of proof to settle this dispute regarding these varying documents.

70. 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.”

71. 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.

72. 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.

73. From the foregoing 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 onus will then shift back to the Appellant once the Respondent has discharged its burden on a balance of convenience to discharge the prima facie case that has been presented by the Respondent.

74. 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.”

75. The above being the law, the Appellant was thus required to make a prima facie case that the documents accurately reflected the boron, if any, that was contained in its imported steel. In this endeavor, it tabled its bills of lading, invoices and MTCs to confirm that it’s steel did not contain boron above 0. 0008%.

76. These documents helped it to make a prima facie case that its steel did not contain boron that was above 0. 0008% to justify the re-classifications of its import from tariff 7213. 91. 00 to 7227. 90. 00.

77. At this point, the onus shifted to the Respondent to disprove these documents and provide prima facie case that its re-classification was justified and not erroneous. Its success in making out a prima facie case would then shift the burden of proof to the Appellant hence its success in this Appeal.

78. The Respondent relied on its laboratory reports of 29th July 2021 and 8th November 2021 to prove that the steel imported by the Appellant indeed had boron content above 0. 0008%. Its witness Ms. Caroline Kemboi testified that the laboratory analysis did not apply any standard or grade.

79. The Tribunal has looked at all the pleadings on record and more so the Respondent’s letter dated 26th August 2021 and it is apparent to it that the Respondent only obtained two samples for its testing which were described as ITC/SAMP/003719 and ITC/SAMP/003819 which were both drawn from the same consignment being entry name No. 2018 MSA7088726.

80. This sampling method was frowned upon by the Respondent’s witness Ms. Caroline Kemboi who stated that different items from different Countries would have different chemical compositions and even two samples from the same consignment could have different results regarding boron content. As if to assert this point, Ms. Kemboi stated that the two samples under consideration which had been drawn from the same consignment had produced different boron content results of 0. 0016% and 0. 0084%.

81. The above confirms that the test and sampling method adopted by the Respondent and which it relied on to re-classify the steel was not free from error.

82. The Tribunal has also noted from the Appellant’s invoices, MTC, customs entry forms and bill of lading that it imported steel from three points of origin namely China, South Africa and London. 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 could possibly have produced a different boron content result.

83. The pleadings and the Respondent's witnesses agree that samples were drawn in 2018. On the other hand, the period under review was 2017 to 2021. Relying on and applying a test from a single consignment of steel to levy tax on steel from different consignments covering four years was thus 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 Respondent’s choice without the support of any cogent audit, report and or investigation.

84. This blanket application of a laboratory result from one consignment in one year to different consignments of steel imported by the Appellant over 4 years 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.

85. 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. “

86. Flowing from the foregoing the Tribunal holds that the Respondent’s laboratory results of 29th July 2021 and 8th November 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.

87. The Respondent needed to do much more to displace this onus of proof by among things carrying out a better sampling of the steel it collected for laboratory examination, spreading the samples collected to a period that sufficiently covered the four years under review and the consignment imported by the Appellant, giving a plausible reason why it did not trust and or believe in the authenticity of the Appellant’s documents and MTCs.

88. Moreover, its own witness aided the Appellant in casting doubt as to the genuineness and fairness of its laboratory reports of 29th July 2021 and 8th November 2021 which were the main documents that it had relied on to justify its preferred tariff classification.

87. Based on the above mix-ups, admissions by the Respondent’s witnesses and its reliance on a laboratory result that was not representative of the tax period under review and the consignments of steel imported by the Appellant; the Tribunal finds and holds that the Respondent has not discharged its onus of rebutting the prima facie case that had been made out by the Appellant. It merely relied on its strong suspicion, a wide tax net and an unreliable laboratory test result to raise the tax assessment against the Appellant.

88. 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 was never swung back to the Appellant. The consequence of this is that the presumption of correctness of the Respondent’s assessment must therefore vanish now that the Appellant has provided sufficient evidence to support its position.

89. The Tribunal is guided in this conclusion by the High Court decision in Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR, where the court 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.”

90. The High Court also 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.”

91. Flowing from the above analysis, the Tribunal finds and holds that the Respondent failed to provide sufficient evidence to prove its position and rebut the prima facie case that the Appellant had presented before it.

Final Decision 92. 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 from tariff 7213. 91. 00 to 7227. 90. 00 be and are hereby set aside.c.Each party is to bear its own costs.

98. It is so ordered.

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