[2023] KETAT 308 (KLR)

Amstel Trading Company Limited v Commissioner of Customs & Border Control (Appeal 389 of 2022) [2023] KETAT 308 (KLR) (26 May 2023) (Judgment)

Neutral citation: [2023] KETAT 308 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 389 of 2022

RM Mutuma, Chair, EN Njeru, RO Oluoch, D.K Ngala & EK Cheluget, Members

May 26, 2023

Between

Amstel Trading Company Limited

Appellant

and

Commissioner Of Customs & Border Control

Respondent

Judgment

1. The Appellant is a limited liability company incorporated in Kenya whose main activity is the importation and sale of printing papers.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the Act of the said Act, the Kenya Revenue Authority (the Authority) is an agency of the government for the collection and receipt of all tax revenue. Further, under Section 5 (2) of the Act with respect to performance of its functions under subsection (1) the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 & 2 of the First Schedule to the Act for purposes of assessing, collecting and accounting for all tax revenues in accordance with those laws.

3. The dispute arose from a desk review of imports under tariff 4802. 56. 00 for the period between 2nd August 2018 and 27th January, 2022.

4. The Respondent demanded for short levied taxes of Kshs 263,580,255. 00 as a result of application of a duty rate of 25% instead of 10%. The notice of demand was dated 2nd February, 2022.

5. The Appellant objected to the demand vide its notice of objection dated 16th February, 2022.

6. The Respondent thereafter issued an objection decision vide its letter dated 15th March, 2022 confirming the demanded tax amounting to Kshs 263,580,255. 00

7. Being aggrieved by the Respondent’s decision the Appellant instituted this Appeal by filing its Memorandum of Appeal and Statements of Facts dated 13th April, 2022, on 14th April, 2022.

The Appeal 8. The Appeal is premised on the following grounds:a.That there is no law which imposed a duty rate of 25% on paper and paperboard products in the period between 2nd August, 2018 and 27th January 2022. b.That even if it were to be said arguendo that some law exist which imposed a duty rate of 25% on paper and paperboard products imported under HS Code 4802. 56. 00 as aforesaid (which is denied) and even if it were to be said arguendo that the Respondent is lawfully entitled to administer and enforce such law (which is also denied) it would still be illegal and unconstitutional for the Respondent to make and/or enforce compliance with the impugned decision or to issue the impugned demand.

Appellant’s Case 9. The Appellant argued that it is the Respondent who applied the duty rate of 10% on all paper and paperboard products imported into the Country under HS Code 4802. 56. 00 between 2nd August, 2018 and 27th January, 2022 by feeding into its Tradex system the duty rate of 10% as the mandatory duty rate. That the Respondent cannot therefore find cause of action against the Appellant from its own actions.

10. It is the Appellant’s contention that it is the Respondent who instructed its ICT officers to approve online Form C.17B customs entries that had indicated 10% as the mandatory duty rate for paper and paperboard products imported under HS Code 4802. 56. 00 hence the Respondent cannot find a cause of action against the Appellant from their own actions.

11. The Appellant averred that it was the Respondent who instructed its customs and valuation officers tasked with the responsibility of verifying and approving the correctness of the import duty charged and paid with respect to paper and paperboard product imported under HS Code 4802. 56. 00 to insist on payment of duty at the rate of 10% before such goods could be allowed to leave the port of entry. It argued therefore that the impugned decision as well as the impugned demand notice violated the Appellant’s right to fair administrative action, right to property, the right to access justice and the right to protection of law.

12. It was the Appellant’s assertion that it had a legitimate expectation that the Respondent would not labour to put in place such expensive and tamper-proof infrastructural, technological, administrative, surveillance and monitoring systems as were necessary for purposes of inducing, encouraging and coercing the Appellant’s into pay customs duty at the mandatory rate of 10% for all paper and paperboard products imported under HS Code only to subsequently change their mind and punish the Appellant for having paid duty at the rate of 10% and not 25% as the Respondents Simba system would not permit the Appellant to effect anything in the system.

13. The Appellant has argued that it is unconstitutional, illegal, unfair, irrational , capricious, in bad faith and abuse of office for the Respondent to encourage, induce and coerce the Appellant into paying duty at the rate of 10% for goods which the Respondent knew or ought to have known-were meant to be sold out to third parties, only for them to subsequently demand that the Appellant’s pay duty at 25% long after the goods have been sold and used up by the third party purchasers at which point in time the Appellant’s cannot recover the uplifted duty from the third party purchasers.

14. The Appellant averred that the Respondent is institutionally bound by and cannot resile from its previous interpretation of the effect of the purported deletion of paragraph 2 of the Notice No. EAC/69/2018, which interpretation informed its decision to configure the Simba system to “pick” import duty for paper and paperboard products imported under HS Code 4802. 56. 00 at the rate of 10%.

15. It is the Appellant’s assertion that its liability to tax cannot be made wholly dependent on the personal idiosyncrasies of the individual occupants of the office of the Commissioner of Customs and Border Control as the Respondent seems to opine. That consequently, the fact that the Respondent hold different views with regards to the effect of the purported deletion of Paragraph 2 of Legal Notice No. EAC/69/2018 from a previous holder of the same officer should have no effect whatsoever on the Appellant’s tax liabilities.

16. It was the Appellant’s argument that Section 135 of EACCMA was intended to deal only with situations where the tax paid is less than what the Respondent honestly, sincerely and for good reasons, believed to be due and payable at the time, save for the fact that a different occupant of the same office subsequently hold the view that the previous occupant of the same office should have collected more tax than he did.

17. The Appellant averred that the Respondent has been guilty of inordinate delay in carrying out the post clearance audit and that its decision to initiate a post clearance audit to issue the impugned notice was actuated by malice, bad faith and improper motive. Further that the Respondent acted unreasonably and took into account improper considerations while at the same time failed to take into account proper considerations.

18. It is the Appellant’s contention that having issued tax compliance certificates to the Appellant, the Respondent is estopped from changing its position and now averring as against the Appellant that it has outstanding taxes.

The Respondent’s Case 19. In response to the Appellant’s grounds of Appeal, the Respondent, through its Statement of Facts filed on 13th May, 2022 averred that:-a.That the EAC Notice EAC/112/2018 dated 2nd August 2018 deleted item number 2 in the Legal Notice EAC/69/2018 dated 30th June, 2018 such that the duty rate of items imported under tariff 4802. 56. 00 changed from 10% to 25%.b.That code 4802. 56. 00 covers “uncoated paper and paperboard, of a kind used in writing, printing or other graphic proposes, and non-perforated punch cards and punch tape paper, in rolls or rectangular (including square) sheets, of any size, other than paper of heading 48. 01 or 48. 03, handmade paper and paperboard”.c.That the Respondent operates a self-declaration regime whereby the importer makes declarations and pays taxes on the items that its import through its agent. Further that the law under Sections 135, 235, 236 and 249 of the EACCMA, 2004 allows the Commissioner within five years of importation to assess and demand for short-levied taxes.d.That the Respondent conducted a desk review of customs entries of importers of items under tariff code for period 2nd August, 2018 to 2nd February 2022 pursuant to Sections 235 and 236 of EACCMA and among the importers profiled was the Appellant. It therefore issued a demand notice dated 2nd February, 2022 demanding short-levied taxes of Kshs 263,580,255. 00. e.That the assessment was made within the five–year window provided for by the law and therefore no legitimate expectation on the taxpayer was breached.f.That the law adjusting the import duty rate from 10% to 25% was operational at the time the Appellant was importing its products and that East Africa Community Secretariat had published the EAC Gazette Notices on the EAC website adjusting the excise duty rate from 10% to 25% on paper and paper related products. Further that the notices were available to the public and usually highlight changes effected by the Council of Ministers. These changes indicate the date the legal notices come into effect hence the Appellant’s claim that there was no law that imposed a rate of 25% on paper and paperboard is not correct.g.That although the customs systems had not reflected the correct rate as per the provisions of Gazette Notice No. EAC/112/2018 dated 2nd August 2018 resulting in short levied taxes of Kshs 263,580,255. 00 the legal notice had adjusted the duty rate of items under tariff 4802. 56. 00 from 10% to 25%. The demanded tax was therefore due and payable to the Respondent at the time of importation of paper and paper related products and the issues of the Simba system are administrative in nature and the same do not change the law.

20. The Respondent therefore prays that the Appeal be dismissed with costs to the Respondent as the same is without merit.

Submissions of the Parties 21. The Appellant’s written submissions filed on 6th December 2022 has raised one issue for determination.

Whether there is any law that fixed the duty rate for paper and paperboard products classified under tariff code 4802. 56. 00 22. The Appellant submitted that the duty rate for paper products was set at 10% by the East African Community Council of Ministers vide Legal Notice No. EAC/21/2014 on 20th June 2014. However while the Respondent maintains that the rate was increased to 25%, the Appellant maintains that no law has ever been enacted and promulgated by the Council increasing the duty rate for paper product from 10% to 25% since 20th June 2014. Further that every law must be formally enacted and formally promulgated through publication in an official gazette which must indicate the commencement date and that the enactment as well as promulgation can only be done by the body that has the requisite legal mandate to enact law.

23. The Appellant submitted that even if it were to be said arguendo that the duty rate for paper products had been increased to 25% (which is not true) it would be illegal and unconstitutional for the Respondent to issue demand notices upon the Appellant on the following grounds.a.That it is not legally possible for the Respondent to adopt one interpretation of a revenue legislation today and purport to resile from that interpretation and to embrace yet a different interpretation of the same law tomorrow. This is because the doctrine of precedence governs administrative decision-making just as it governs judicial decision making.b.That having configured its digital revenue collection infrastructure (Simba system) to collect duty for paper products at 10% in circumstances that made it impossible for any importer of such products to pay at 25% or any other rate, the Respondent is estopped from alleging that the duty rate should have been 25% instead of 10%.c.That being the main player in the clearing process, the Respondent has to approve the declaration by the taxpayer after confirming that the declaration is correct in accordance with the law. Further that each declaration has to be approved by four (4) independent officers of the Respondent. It would therefore be the height of irrationality for the Respondent to purport to punish the Appellant for having used the duty rate of 10%.d.That the decision by the Respondent to purport to demand duty at the rate of 25% long after the subject goods have been sold to and consumed by third parties is a clear violation of the Appellant’s right to fair administrative action under Article 47 of the Constitution. Further that the fact that the Respondent has powers to conduct post clearance audit does not ipso facto mean that a purported exercise of such power cannot be challenged and invalidated for violation of the right to fair administrative action.

24. The Appellant submitted that the Respondent is guilty of inordinate delay by purporting to collect alleged short levied taxes after 4 years, long after the subject’s goods have been sold and when it is no longer possible to recover the duties from the Appellant’s customers.

25. The Appellant relied on the holding in the Court of Appeal case of Kenya Revenue Authority vs Export Trading Company Ltd (2020) eKLR where it was stated that:-“In our view and in the circumstance of the present case, it is unfair and unreasonable for the Respondent to have demanded the shortfall of duty four years down the line”.

26. In its written Submissions filed on 25th January, 2023 the Respondent has raised one issue for determination.

Whether the East African Community Customs Act 2004 as at 2nd August 2018 stipulated the duty payable in respect of HS Code 4802. 56. 00 as 25%. 27. The Respondent submitted that it operates on a self-declaration regime whereby the Appellant is required to make declarations and pay taxes on items it imports itself or its agent. Further that Sections 235 and 236 of EACCMA 2004, gives it power to call for documents and conduct a Post Clearance Audit (PCA) on the import and export operations of a tax payer within a period of five years from the date of importation or exportation.

28. It was the Respondent’s submission that the Appellant was required to pay the correct taxes, therefore there cannot be a breach of legitimate expectation where the Respondent has followed the mandatory statutory provisions.

29. To buttress its argument, the Respondent relied on the case of Republic vs Principle Secretary Ministry of Transport, Housing and Urban Development Ex-Parte Soweto Residents Forum CBO (2019) eKLR where the Court held that:-“Additionally statutory words override an expectation however founded. Thus a decision maker cannot be required to act against provisions of a statute just to meet one’s expectations otherwise his decision would be out rightly illegal and a violation of the principle of legality, a key principle in Rule of Law. There cannot be legitimate expectation against the clear provisions of statute”

30. The Respondent submitted that the East African Community Secretariat publishes the EAC Gazette Notices on the EAC website and are available to the public and that the notices highlight changes affected by the Council of Ministers to the East African Community Common External Tariff (EAC/CET). Further, the EAC Gazettes indicate the date when the legal notices come to effect. Therefore, the Appellant’s claim that there was no law that imposed a rate of 25% on paper and paperboard products is unfounded.

31. The Respondent submitted that item 2 of the Legal Notice EAC/69/2018 dated 30th June 2018 had amended or changed the rate applicable for HS Code 4802. 56. 00 from 25% to 15%. However, EAC Notice No EAC/112/2018 dated 2nd August 2018 deleted number 2 in the Legal Notice EAC/69/2018 dated 30th June, 2018. That the Notice provided that: -“A correction is hereby made to the EAC Gazette Vol. AT.1 dated 30th June, 2018 in legal Notice No. EAC/69/2018 by deleting item No. 2. ”

32. That this according to the Respondent effectively reverted the duty rate items imported under tariff 4802. 56. 00 from 10% to 25%, therefore the Appellant was being dishonest to only recognise the notice which lowered the rates while failing to recognising a similar notice by the very institution making correction to the earlier notice.

33. The Respondent submitted that the Customs Systems were not adjusted until the implementations of the provisions of Gazette EAC Notice No. EAC/112/2018 dated 2nd August, 2018 resulting in short-levied taxes and that the taxes were due and payable to the Respondent at the time of importation. The Respondent therefore prays that the Appeal is dismissed with costs for lack of merit and that the additional assessment is upheld.

Issues for Determination 34. Having considered the pleadings, documentation availed and the submissions made, the Tribunal is of the considered view that this Appeal raises two issues for determination.a.Whether there is any law that fixed duty rate for paper and paperboard products of tariff code 4802. 56. 00 at 25% between 2014 and 2018. b.Whether the tax demanded vide the Respondent’s demand notice dated 2nd February 2022 is due and payable.

Analysis and Findings 35. The Tribunal will now proceed to analyse the said issues as herein under:-a.Whether there is any law that fixed duty rate for paper and paperboard products of tariff code 4802. 56. 00 at 25% between 2014 and 2018. 1.The Tribunal observes that the main bone of contention in this Appeal is the applicable duty rate for paper and paperboard products during the period of the Appellant’s importation, and the law that imposed the said rate. Whereas the Appellant maintains that the applicable rate is 10%, the Respondent on the other hand maintains that the applicable duty rate ought to be 25%.2. It is crucial to appreciate that the review of the common external tariff structure is done by the East African Community Council of Ministers from time to time where renewed tariff rates are published in the East African Community Gazette. By a Gazette Notice No. EAC/21/2014 dated 20th June, 2014, the Council of Ministers reduced the tariff rate for paper and paperboard products imported under H.S. Code 4802. 56. 00 from 25% to 10%.3. The Tribunal is well versed with the procedures of enacting the laws and appreciates that duty rates are only changed by gazette notices approved by the Council of Ministers following the EAC budget process. The Respondent has relied on Gazette Notice No. EAC/69/2018 dated 30th June 2018 where item 2 indicated change in HS Code 4802. 56. 00 from 25% to 10%. However, under Gazette Notice No. EAC/112/2018 dated 2nd August, 2018 a correction was made by deleting item 2. 4.As has been stated herein above any change in the duty rates has to be effected through a gazette notice. The Tribunal has perused through the parties’ bundles and has not come across any subsequent gazette notice amending the 10% duty rate as per Gazette Notice EAC/21/2014 date 20th June, 2014. The Gazette Notice EAC/112/2018 dated 2nd August, 2018 only corrected the Legal Notice EAC/69/2018 dated 30th June, 2018 by deleting item 2. It did not expressly advice on any applicable rate. This has the implication that it was only correcting an error.5. The Tribunal is guided by the case of Cape Brandy Syndicate vs Inland Revenue Commissioner (1921) K.B 64 where it was stated that:-“…in a taxing Act, one has to look merely at what is clearly said. There is no reason for any intendment. There is no equity about law. There is no presumption as to law. Nothing is to be read in, nothing to be implied. One can only look fairly on the language used”.

41. The Tribunal notes that the Respondent chose to interpret the Gazette Notices EAC/69/2018 of 30th June 2018 and EAC/112/2018 of 2nd August 2018 to suit its course yet there is no documentary evidence or legal authority that shows that the duty rate was changed from 10% to 25% between year 2014 and 2018, and as such the Tribunal holds the view that the rate of 10% was still applicable during the period under review.

42. The Tribunal is further guided by the decision in Sales Tax Commissioners vs Modi Sugar Mills -1960(10) TM165 – Supreme Court of India where the Court held as follows:-“In interpreting a tax statute, equitable considerations are entirely out of place. Nor can tax statutes be interpreted on any presumptions or assumptions. The Court must look squarely at the words of the statute and interpret them. It must interpret a tax statute in light of what is clearly expressed. It cannot imply anything which is not expressed. It cannot import provisions in the statute so as to supply and assume deficiency.”

43. The Tribunal has sighted an email correspondence of 23rd February 2018 between two officers of the Respondent at page 32 of the Memorandum of Appeal seeking and obtaining clarification on the applicable rate of tariff code 4802. 56. 00. The said email reads in part as follows:-“Following consultations with EAC Secretariat, I wish to confirm that the indication of the rate of 25% on Tariff 4802. 56. 00 is an error made during transposition process. The rate was changed in 2014 from 25% to 10% and has not been amended by any subsequent Gazette Notice and therefore the rate of 10% is still applicable….”

44. Although the Respondent has argued that it has not been explained how the Appellant accessed the said document, the Respondent has not denied its authenticity. Section 79 (1) (a) of the Evidence Act prescribes what a public document is. It provides as follows:“The following documents are public document –a.Documents forming the acts or records of the actsi.Of the sovereign authority; orii.Of official bodies and tribunals; oriii.Of public officers, legislation, judicial or executive, whether of Kenya or of any other country”

45. The Respondent, by conduct, has not denied ownership of the said email correspondence and the document being a public document is deemed credible. The Tribunal will thus treat the contents thereof as the Respondent’s acknowledgment that the duty rate for Tariff Code 4802. 56. 00 is indeed 10%.

46. Consequently, the Tribunal finds that there was no Gazette Notice between 2014 and 2018 that adjusted the duty rate from 10% to 25%.

b) Whether the tax demanded vide the Respondent’s demand notice dated 2nd February 2022 is due and payable. 47. Having established that there was no legal notice adjusting the duty rate from 10% to 25%, it follows therefore that the Respondent’s actions to short-levy the Appellant for its imports during that period has no basis in law. Consequently, the said demanded tax is not due or payable.

Final Decision 48. The upshot of the above is that the Appeal is meritorious and therefore succeeds. The Tribunal accordingly proceeds to make the following final Orders.a.The Appeal be and is hereby allowed.b.The Respondent’s review decision dated 15th March, 2022 be and is hereby set aside.c.Each party to bear its own costs

49. It is so ordered

DATED AND DELIVERED AT NAIROBI ON THIS 26TH DAY OF MAY, 2023…………………………ROBERT M. MUTUMACHAIRPERSON………………………ELISHAH N. NJERUMEMBER…………………………RODNEY O. OLUOCHMEMBER…………………………DELILAH K. NGALAMEMBER…………………………EDWIN K. CHELUGETMEMBER