[2023] KETAT 574 (KLR)

Apa Insurance Limited v Commissioner of Customs and Border Control (Tax Appeal 1353 of 2022) [2023] KETAT 574 (KLR) (1 September 2023) (Judgment)

Neutral citation: [2023] KETAT 574 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1353 of 2022

E.N Wafula, Chair, SS Ololchike, CA Muga, GA Kashindi, D.K Ngala & AM Diriye, Members

September 1, 2023

Between

Apa Insurance Limited

Appellant

and

Commissioner of Customs and Border Control

Respondent

Judgment

Background 1. The Appellant is an insurance company duly licensed under the Insurance Act Cap 487 of the laws of Kenya. Its principal business is the provision of both general and life insurance.

2. The Respondent is a principal officer appointed in accordance with section 13 of the Kenya Revenue Authority act, and Kenya Revenue Authority is charged with the responsibility of among others; assessment collection, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Appellant guaranteed Customs bonds on various dates for McCroft Tobacco (Kenya) Ltd for the period October to December, 2008.

4. On 15th December 2021, the Respondent sent a notice of enforcement for unaccounted bonds for the sum of Kshs. Kshs 67,778,701. 00 to the taxpayer, McCroft Tobacco (K) Ltd and copied to the Appellant.

5. The Respondent through a letter dated 14th September, 2022 demanded Kshs 67,778, 701. 00.

6. The Appellant objected to the Respondent’s demand through a letter dated 21st September, 2022, which was replied to by the Respondent on27th September, 2022, citing the guarantor’s obligations under the provisions of Section 140(1) of EACCMA, 2004.

7. The Respondent then proceeded to issue agency notices to four of the Appellant’s banks directing the banks to each pay Kshs 67, 778,701. 00 to the Respondent.

8. Vide a letter dated 24th October, 2022 the Appellant provided documents to show that goods covered by the bonds appeared to have been auctioned and included various Gazette Notices indicating auctions carried out on various dates between March 2009 and June 2009 in relation to goods belonging to McCroft.

9. The Appellant then lodged a Notice of Appeal dated 27th October, 2022 and filed on even date.

The Appeal 10. The Appeal is premised on the hereunder grounds as stated in the Memorandum of Appeal dated and filed on the 10th November, 2022:-a.That the Respondent erred in fact and in law in seeking to enforce bonds whose liability had been extinguished upon the lapse of one year, contrary to the Respondent’s own published administrative guidelines.b.That the Respondent erred in law and fact by undertaking a Post Clearance Audit (PCA) outside of the statutory period provided in law thereby breaching the law and infringing on the Appellant’s right to fair administrative action.c.That the Respondent erred in law and fact by its conduct of violating the statutory timelines set in law and acting contrary to its published administrative practice which is a violation of the Appellant’s legitimate expectation.d.Without prejudice to the foregoing, even if at all the Appellant was indeed liable for the bonds in issue, which liability is expressly denied, the Appellant would be bound to pay only the amount stated in the Bond, and not the interest and penalties allegedly due on the bond.e.That the Respondent erred in fact and in law in its decision by failing to consider the goods covered by the bonds may have been auctioned, which constitutes a material non-disclosure by the Respondent that the Respondent ought not to be allowed to benefit from.

The Appellant’s Case 11. The Appellant guaranteed Customs Bonds on various dates for McCroft Tobacco (Kenya) Ltd as follows;a.PCSB 08172/08 on 28th October, 2008b.PCSB 08529/08 on 7th November, 2008. c.PCSB 09303/08 on 4th December, 2008d.PCSB 09304/08 on 4th December 2008e.PCSB 09305/08 on 4th December, 2008

12. The Appellant contended that as provided for under Section 107 of EACCMA the Respondent specifies both the time bound limitations of performance of bonds as well as the validity period of the bonds. Further that Section 107(3) of EACCMA provides that the Respondent may discharge a bond or request for a new security bond within a period of up to three years. This provision in itself takes into consideration the fact that bonds expire within a three (3) year period and directs the Respondent to be vigilant to request for a renewal or fresh bond where the need arises within a three-year period. It therefore submitted that the 5 CB.13 bonds in dispute are specific bonds which were valid for a period of one (1) year.

13. The Appellant averred that the said bonds were issued under Form CB.13 of the repealed Customs & Excise Act Cap 472 of the laws of Kenya.Further that the Respondent has published clear guidelines on the validity period of the CB.13 bonds in accordance with the provisions of Section 107(3) of EACCMA. These guidelines guide on the procedures for execution of bonds and the process for cancellation and retirement of bonds.

14. The Appellant argued that McCroft did not review any of the 5 bonds in dispute and therefore the validity period of the bonds was restricted to 12 months. It therefore submitted that its obligation as a surety ended when the validity of the bonds was extinguished, being a period of 12 months from the date of the bond as publicly declared by the Respondent in its own administrative guidelines. It posited that if the Respondent was satisfied that security was still required, it ought to have required the importer to provide another bond (fresh security).

15. The Appellant asserted that the laws governing customs audits are enshrined in Sections 234(1A) 235 and 236 of EACCMA which mandates the importer to maintain goods for a period of years. The Respondent is also explicitly mandated to undertake PCA within five years as per the provision of Sections 235 and 236 of EACCMA.

16. It was the Appellant’s argument that it guaranteed 5 bonds executed by Mccroft in favour of the Respondent in the year 2008. The Appellant averred that it beats logic how 14 years later the Respondent decides to exercise its powers under Section 235 (b) to inquire from McCroft about the bonds. It was also inconceivable that the Respondent should now seek to resolve its error by pursuing the Appellant, whose obligation ended 12 months after the bonds were executed.

17. The Appellant asserted that the Respondent’s failure to follow up on the cancellation of the bonds within the three years or alternatively to conduct an audit within the statutory timeline of five years as limited by law is capricious. It would therefore be unjust to allow the Respondent to benefit from its unreasonable and unjust actions that are in violation of the Appellant’s right to fair administrative action.

18. The Appellant averred that the Respondent’s act of publishing the fact that the bonds in issue are only valid for 12 months cannot allow them to act contrary to that declaration. The fact that the Appellant relied on that belief creates a legitimate expectation for the Appellant that ought to be protected. Further that the delay to enforce the terms of the bond almost 14 years is an inordinate delay that raised legitimate expectation by the Respondent that the taxes were no longer due and the conditions of the bond had been complied with by McCroft, the giver of the bond.

19. The Appellant averred that if at all it were indeed liable to the Respondent’s demand, which liability it expressly denied, the law requires that the amount of the security is the amount on the face of the bond that the surety committed itself. It does not matter what the actual duties are or the penalties and interest that may be due by virtue of any offense on the part of the giver of the bond. It asserted that the nature of the bonds that the Appellant had executed were time bound bonds and since that time had lapsed, the Appellant cannot be called upon to satisfy the same to its extreme prejudice in the face of the Respondent’s inordinate and inexcusable delay to act within the law.

20. It was the Appellant’s contention that it wrote to the Respondent vide its letter dated 24th October, 2022 pointing out that the goods covered by the 5 bonds may have been auctioned by the Respondent. Further that it provided the Respondent with sample gazette notices in support of its assertion. It stated that in such circumstances, the first cost to be settled following an auction are duties due on a consignment. The Appellant asserted that the Respondent neither responded to that letter nor to the assertion that the goods covered by the bonds were auctioned. It averred that failure to disclose this information by the Respondent is an affront to the Appellant’s right to be heard. It argued that since the Respondent was made aware of the fact, it was in a position to confirm that indeed the customs duties allegedly due were settled, or to declare the proceeds of the sale, if any.

21. The Appellant asserted that the Respondent should not be allowed to benefit from its material non-disclosure and prayed that the Tribunal would find that the Appellant cannot be held liable for the bonds under those circumstances.

Appellant’s Prayers 22. Reasons wherefore the Appellant prays that: -a.This Appeal be allowedb.The Respondent’s Notices of Enforcement dated 14th September, 2022 and 27th September, 2022 demanding payment of Kshs 67,778,701. 00 and 33,062,781. 00 be set aside in their entirety.c.Any other orders that the Tribunal may deem fit.

The Respondent’s Case 23. In its Statement of Facts filed on 9th December, 2022 the Respondent replied to the Appellant’s grounds of Appeal and stated that the bonds in question were guaranteed by the Appellant in conformity with Section 106 of EACCMA and further that Section 109 of EACCMA empowers the Respondent to liquidate the bonds where the conditions subject of the security given under Section 106 of the EACCMA has not been complied with.

24. It stated that the subject bonds were not discharged by the Respondent in line with the provisions of Section 107(3) and (4) of EACCMA thus are still valid hence the Respondent’s enforcement action to recover unpaid duty, which was in line with the above cited provisions of the law and that it was not a Post Clearance Audit as alluded to by the Appellant.

25. The Respondent contended that legitimate expectation cannot be created on instances where a taxpayer’s actions are in breach of a clear provision of the law. It stated that the law does not protect every expectation but only those which are legitimate. It cited the case of Communications Commission of Kenya & 5 others vs Royal Media Services Limited & 5 others (2014) eKLR to buttress its case.

26. The Respondent stated that its actions were in accordance with the provisions of the EACCMA as regards security for taxes and that it did not violate any statute nor act against its own administrative guidelines. Further that the various correspondence between the parties are proof that the Appellant was accorded fair administrative action. It concluded by citing Section 223 of EACCMA, 2017 by stating that the onus of proving the place of origin of any goods or the payment of the proper duties of any goods shall be on the person prosecuted or claiming anything seized under the Act.

Submissions Of The Parties 27. The Appellant filed its Written Submissions dated 10th March 2023 and filed on even date. It also filed Further Submissions on 14th April 2023 pursuant to the Tribunal’s directions issued on 23rd March, 2023.

28. In its Written Submissions it submitted on five issues in line with its grounds of Appeal.a.Whether the Respondent erred in law and fact by undertaking a Post Clearance Audit (PCA) outside of the 5-year statutory period provided in law thereby breaching the law and infringing on the Appellant’s right to fair administrative action.

29. On this issue, the Appellant submitted that Sections 235 and 236 of EACCMA give the Respondent powers to call for documents and conduct audits on the imports and exports within a period of five years from the date of importation and exportation. Therefore, pursuant to the provisions of the said Sections, it was only able to legally issue a demand for any import duty within a period of 5 years from the date of the goods subject to the remission.

30. It submitted that it guaranteed 5 bonds executed by McCroft in favour of the Respondent in the year 2008 and it has taken the Respondent 14 years to undertake an audit under Section 235(b) of EACCMA to enforce against the Appellant via the Notice of Enforcement. It stated that timelines prescribed in Sections 235 and 236 of the EACCMA are not procedural technicalities that can be ignored, as it was held in the case of Equity Group Holdings Limited vs Commissioner of Domestic Taxes (2021) eKLR. It argued therefore that the Respondent cannot purport to sidestep the provisions of the law and seek to enforce Custom Bonds that were issued 14 years ago. That this inordinate delay ought to bar the Respondent from enforcing the collection of duties on custom bonds after 14 years.

31. The Appellant contended that the Respondent cannot allege to have forgotten about the customs bonds because firstly, these customs bonds are logged electronically as per the Respondent’s guidelines before goods are released. That secondly, the Respondent requires that beneficiary of the duty remission scheme submit returns quarterly to the Respondent. That hence, the Respondent had the opportunity to satisfy itself regarding the status of the impugned goods before the lapse of the 5 years period within which it may query a customs transaction.b.Whether the Respondent erred in fact and in law by seeking to enforce bonds whose liability had been extinguished upon the lapse of one year, contrary to the Respondent’s own published administrative guidelines.

32. The Appellant submitted that in order to ensure efficient administration of Custom Bonds issued by the Respondent, and in exercise of its powers to discharge bonds under Section 107(3) of EACCMA, the Respondent issued administrative guidelines on the validity period of bonds and the provision of new security. Its guidelines provide that there are two types of bonds, General Security Bond which has a validity of 3 years and can be replenished, and Particular Security Bond which is a transaction bond and is valid for 12 months. It averred that the 5 bonds in dispute are CB.13 bonds which are categorized as “Particular Security Bonds”.

33. It contended that by way of the guidelines, once the bond is classified as General Security Bond it would be valid only for the period stated in the guidelines and that the bonds are automatically invalidated by dint or by force of the guidelines. The Appellant reiterated that since the impugned bonds are Particular Security Bonds, they could not be valid after 12 months, and the Respondent’s attempt to enforce the bonds in issue is an attempt to “resurrect the dead”b.Whether the Respondent violated the Appellant’s legitimate expectations

34. On this issue, the Appellant submitted that by the Respondent’s conduct of remaining silent for 14 years, the Appellant expected that, in line with the guidelines that were published by the Respondent, the impugned bonds would be valid for only 12 months. That secondly, the Appellant was led to believe by the Respondent’s conduct that in being cognizant of the 5 year limit for post clearance audit, the Respondent would ensure that all queries remitted in respect of the impugned customs would be raised and answered by McCroft and /or the Appellant within the 5 year period between 2008(when the bonds were signed) and 2013. The Respondent’s decision to issue the impugned Notice of Enforcement and assessment is therefore contrary to the Appellant’s legitimate expectation.

35. The Appellant submitted that the Respondent slept on its responsibility for 14 years and woke up from its slumber to pursue the Appellant out of convenience to the extreme prejudice and detriment of the Appellant. It asserted that it should not be allowed to bear the burden arising from the Respondent’s delay and against its legitimate expectation.b.Without prejudice to the foregoing. Whether the Appellant can be liable beyond the amount guaranteed as stated on the face of the Bond if at all the bonds in issue were found to be valid.

36. The Appellant reiterated its position that the impugned bonds ceased being valid and without prejudice to the foregoing, the Appellant submitted that even if at all it were to be found liable, which it is not, its liability would be limited to the amount of the bond in force and not the interest and penalties demanded by the Respondent. Any attempt to impose a liability on the Appellant beyond the amount of the security would be tantamount to rewriting the contract between the parties.

37. The Appellant submitted that even if at all the demands for payment under the customs bonds were lawful, a fact it vehemently denies, the Appellant’s liability would be limited to the amount secured by the impugned customs bonds. It averred that the Respondent’s attempt to demand more from the Appellant is an overreach and contrary to the spirit of the law.b.Whether the Respondent erred in fact and in law in its decision by failing to consider that the goods covered by the bonds may have been auctioned by it, which constitutes material non- disclosure by the Respondent that the Respondent ought not to be allowed to benefit from.

38. The Appellant submitted that in its letter dated 24th October, 2022 it pointed out to the Respondent that it had established that the goods covered by the 5 bonds may have been auctioned by the Respondent. This it did by providing Gazette Notices to support its assertion. However, the Respondent neither responded to the Appellant’s letter nor denied the assertions that the goods covered by the bonds may have been auctioned by the Respondent itself. That the Respondent’s failure to disclose the information on the auctions is a material non-disclosure. That this is because the goods secured by the bonds in issue may not have left the Port and may have been auctioned. That the response the Appellant expected from its letter of 24th October,2022 was for the Respondent to confirm that indeed the customs duty alleged due may have been settled and ought to have declared the proceeds of the sale, if any. That the Respondent’s response to the letter would also have enabled the Appellant to adequately determine the next course of action, especially given that McCroft Ltd had been unresponsive on the status of the bonds.

39. The Appellant submitted in conclusion that the Respondent should not be allowed to benefit from its material non- disclosure and prays that the Tribunal would find the Appellant cannot be held liable for bonds under these circumstances.

40. In the Respondent’s Written Submissions dated 21st March 2023, and filed on 30th March,2023, it has submitted as hereunder.

41. The Respondent submitted that the transit bonds were guaranteed by the Appellant in conformity with Section 106 of EACCMA. Further that Section 109 of EACCMA empowers the Respondent to take enforcement measures, where it is of the opinion that the goods the subject of the security given under Section 106 of EACCMA has not been complied with. It stated therefore that its enforcement action was in line within Section 109(1) of the EACCMA. Further that the bonds did not indicate an expiry date and were not discharged by the Respondent in line with the provisions of Section 107 of the EACCMA thus are still valid hence the Respondent’s enforcement action to recover unpaid duty.

42. The Respondent reiterated that it undertook the enforcement action in line with the above cited provision of the law and that at no time did it conduct a post clearance audit on the subject imports as alleged by the Appellant. That there is therefore no correspondence by the Respondent alluding to a post clearance audit and the Appellant has not provided any evidence to prove its allegation.

43. It was the Respondent’s assertion that Section 249 of EACCMA provides for late payment interest and it therefore charged the interest in line with the law. Further that security given in line with Section 106 of EACCMA is for due performance by an importer and generally for protection of the Customs revenue and that should the importer default, the guarantor is liable to pay the customs revenue in addition to the late payment interest imposed by the law.

44. The Respondent averred that a gazette notice is not proof of auction of goods advertised therein and the Appellant’s contention is a mere allegation and no evidence has been provided to proof transfer of the goods by sale. That it cannot therefore seek to recover duty twice if indeed it had sold the goods by public auction. It reiterated that it was the obligation of the importer in the law to account for imported goods and that the Appellant in this case cannot purport to shift the burden to the Respondent.

45. The Respondent submitted that the subject bonds clearly indicated that the obligation shall remain in force until the imported goods have been accounted for, or that any unused imported goods have been re-exported or transferred to an approval bonded factory, or the duty paid. According to the Respondent, the Appellant was required to respond to the demand notice by accounting for the goods but failed to, hence the enforcement action by the Respondent.

46. On the issue of legitimate expectation raised by the Appellant, the Respondent submitted that its enforcement action was in line with the provisions of EACCMA and that the doctrine of legitimate expectation is not applicable in this case. The Respondent stated that its actions were in accordance with the provisions of the EACCMA as regard security for taxes and that it did not violate any statute. This is evidenced by the various correspondence between the parties where the Appellant was accorded fair administrative action.

47. In response to the Respondent’s Written Submissions filed on 30th March, 2023, the Appellant filed further Written Submissions arising from the directive of the Tribunal on 23rd March, 2023. Its further Written submissions filed on 14th April 2023 has addressed itself to specific issues raised by the Respondent as hereunder.a.Stranger to the pleadings

48. The Appellant submitted that it only guaranteed customs bonds in favour of McCroft Tobacco (Kenya) Ltd. That Project Forwarders is therefore a stranger to this Appeal as it was neither mentioned nor alluded to by the Respondent in the notice of enforcement nor in the review decision under appeal.b.Reliance on the wrong provisions of the law

49. The Appellant pointed out that the Respondent had erroneously relied on Section 140 (1) of EACCMA which provide for the council’s power to grant remission of duty on goods imported for manufacture.b.Agency Notices

50. In response to paragraph 7 of the Respondent’s submissions, the Appellant notes that the agency notices had been unprocedurally issued since the notices were issued before the Appellant had been given adequate time to respond to the Notice of Enforcement and appeal as provided for in law.b.Burden of proof discharged by limitation of time

51. In response to paragraph 5 of the Respondent’s submissions, it submitted that it would like to highlight the fact that the bonds in this matter were issued in the year 2008 and the Respondent sought to enforce them against the Appellant after a period of 14 years. It reiterated that this was an inordinate delay by the Respondent as stated in the Appellant’s submissions.

52. The Appellant submitted that it established a prima facie case that the Respondent acted contrary to the law by undertaking a post clearance audit after 5 years and enforcing bonds which were invalidated by way of its administrative guidelines. It further submitted that the Respondent’s reliance on Section 223 of EACCMA is misguided and out of context as the said Section deals with the prosecution of specific and particular acts of a criminal nature, which is not the case in this matter.b.Unlawful attempted enforcement of invalidated bonds after statutory timelines

53. In response to the Respondent’s assertion that its enforcement action was legal and that the subject bonds did not have an expiry date and had not been discharged by the Respondent, the Appellant reiterated that paragraph 39 to 48 of its submissions filed on 10th March, 2023 it had submitted that the Respondent’s own administrative guidelines expressly and specifically directed that there are two types of security bonds; General Security Bonds that had a Particular Security Bonds that had a validity period of 3 years and twelve months respectively. The Appellant therefore submitted that the Respondent must be compelled to rely on its own guidelines and that the law does not empower the Respondent to enforce the bonds after 14 years.b.Admission of Fact

54. The Appellant submitted that the Respondent has not in its submissions denied the existence of the Administrative Guidelines that the Appellant produced at page 46 of its bundles of Statement of Facts, nor has it disputed that it published these guidelines, which are still applicable to date, wherein it specified that Particular Security Bonds such as the ones in issue, can only be valid for 1 year. The Respondent’s silence on the issue of the Administrative Guidelines it issued expressly limiting the validity of the bonds to 12 months, is an admission that the bonds indeed ceased being valid after 1 year, in accordance with the Respondent’s administrative guidelines.

55. The Appellant submitted that rather than responding to the issue of breaching the Appellant’s legitimate expectation by acting against its own administrative guidelines, the Respondent stayed silent as to whether or not the guidelines exist, which they do and as to whether or not it was acting contrary to its own guidelines and practice. Instead the Respondent’s reaction was that it acted within the law. The Appellant therefore submitted that the Respondent cannot be allowed to approbate and reprobate in its role and powers as a tax administrator by issuing administrative guidelines which it chooses to deny their applicability in ligation but applies them to taxpayers.b.Post clearance Audit

56. In response to the Respondent’s allegation that at no time did it conduct a post clearance audit on the imports as there is no correspondence by the Respondent alluding to the audit, the Appellant submitted that a post clearance audit is simply an audit carried out after release of cargo from customs and that it can cover anything relating to imports/exports or other customs procedures. Further that this audit is provided for and is undertaken strictly in accordance with the provisions of Sections 235 and 236 of EACCMA.b.Payment of Interest

57. The Respondent had alleged at paragraph 15 of its submissions that it has the right to charge interest on the amount secured by the Appellant. According to the Appellant, this is incorrect as the purpose of a customs bond is to secure only the amount of custom duty that ought to be remitted in order to allow for the importation of goods into the Country. The only determining figure is the import duty that the importer is supposed to pay. Further that Section 109 (1) of EACCMA is also clear that where the conditions of any bond have not been complied with, the Commissioner may request the guarantor to pay him or her the amount of the security. Further that if the law intended that penalties and interest be collected from guarantors, nothing would have been easier than for it to say so.i)Auction of goods

58. The Respondent had alleged at paragraph 16 of its submissions that a Gazette Notice is not proof of auction. In response, the Appellant stated that its submission was never that it was proof of auction rather that the Gazette Notice led it to enquire from the Respondent as to whether the goods were sold, and that information was never provided then, nor has the answer been provided in the Respondent’s submissions.

59. The Appellant submitted that it adduced Gazette Notices showing the Respondent’s intention to auction goods. It was therefore only the Respondent who could confirm or deny whether the goods were auctioned. It is noteworthy that the Respondent has not denied that the goods were auctioned. The burden of proof therefore lay with the Respondent to demonstrate whether the goods were auctioned or not, which burden it failed to discharge.

Issues For Determination 60. The Tribunal has considered the parties’ pleadings, submissions and documentation availed and is of the view that this Appeal raises a sole issue for its determination.Whether the Respondent erred in enforcing the security Bonds Analysis And Findings

61. The Tribunal will now analyse the issue to determine whether the Respondent was within its powers in enforcing the security bonds.

62. On the issue the Appellant had submitted that the security bond it had guaranteed its client had a validity period and that the Respondent was enforcing and realizing the bond long after the lapse of the statutory timelines as prescribed by law. The Respondent on the other hand relied on Section 109(1) of EACCMA which prescribes that where conditions of a bond has not been complied with, then it is empowered to enforce payment of the security as though it were duty due.

63. According to the Respondent’s Guidelines, there are two types of Customs Bonds-General Security Bond and Particular Security Bond. The General Security Bond is executed with a three (3) year validity period and can be replenished. Whereas the Particular Security Bond has a validity of 12 months and may be renewed in special circumstances for another 6 months.

64. The Tribunal has gleaned through the documentation availed in the Appellant’s bundles and has established that the said bonds are Particular Security Bonds categorized as CB.13. Section 107(3) of EACCMA provides for conditions for performance of the bonds. It provides as follows:“All bonds required to be given under this Act shall be so framed that the person giving the bond, and any surety thereto, is bound to the commissions for the due performance of the conditions of that bond, and any such bond may, unless sooner discharged by the due performance of the conditions thereof, be discharged by the Commissioner on the expiration of three years from the date thereof, but without prejudice to the right of the commissioner to require fresh security”.

65. The Tribunal notes that all the five bonds were issued in 2008 and the enforcement efforts by the Respondent to the Appellant were done through its letter dated 14th September, 2022, about 14 years later. As per the Respondent’s Guidelines on bonds, the General Security Bond is valid for 3 years and can be replenished, whereas the Particular Security Bond is valid for 12 months and may be renewed for another 6 months. The Tribunal has not found any such communication by the Respondent to either seek for a replenishment or extension of the bonds in question.

66. Section 159 (1) (b) of EACCMA expressly defines the period of time within which to retain tax records and provides as follows:159(1) (b) EACCMA“Where –(b)anything or goods have been seized under this Act, the proper officer may require the owner of the goods or thing to immediately produce all books and documents, whether in written form or on microfilm, magnetic tape or any other form of mechanical or electronic data retrieval mechanism relating in any way thereto, or to any other goods imported, exported, carried coastwise, manufactured, purchased, sold or offered for sale by owner within a period of five years immediately preceding the requirement”.

67. The Tribunal notes that the Appellant wrote to the Respondent vide a letter dated 24th October, 2022 enclosing copies of Gazette Notices that were giving notice to auction some goods some of which were covered under the bonds in question. In its submissions, the Respondent had stated that a Gazette Notice is not proof of auction and that no evidence had been provided to prove transfer of the goods by sale. It is the Tribunal’s considered view that the Appellant discharged its burden of proof by availing copies of the Gazette Notices scheduling auction of some of the goods in question. By doing so the pendulum swung back to the Respondent to disprove the Appellant’s adduced evidence. The Tribunal notes that the Respondent has not responded to the Appellant’s letter of 24th October, 2022 to date.

68. The Tribunal finds that it was important for the Respondent to provide information as to whether indeed there was any enforcement on the Gazette Notices and on whether there was any disposal of the taxpayer’s goods or otherwise as to what happened to the taxpayer’s goods. This information which was substantively within the knowledge of the Respondent, would have helped the Tribunal determine whether there were any taxes recovered from the taxpayer following the disposal of the goods and the balance of the taxes outstanding, if any, and to that extent recoverable from the Appellant as the guarantor.

69. The Tribunal will rely on the Court of Appeal case of Mbuthia Macharia vs. Annah Mutua & Another (2017) eKLR where the burden of proof was determined.“The legal burden is discharged by way of evidence with the opposing party having a corresponding duty of adducing evidence in rebuttal. This constitutes evidential burden. Therefore, while both the legal and evidential burdens initially rested upon the Appellant, the evidential burden may shift in the course of trial, depending on the evidence adduced.”

70. The Respondent in this case failed to discharge the evidential burden by failing to adduce evidence in rebuttal of the Appellant’s proof of the existence of the Gazette Notices scheduling an auction of the goods in question and the outcome of the disposal of the goods scheduled for auction under the Gazette Notices.

71. In view of the foregoing, the Tribunal finds that the Respondent erred in enforcing the security bonds.

Final Decision 72. The upshot of the foregoing is that the Appeal is merited and the Tribunal accordingly proceeds to make the following final Orders: -a.The Appeal be and is hereby allowedb.The Respondent’s review decision dated 27th September, 2022 be and is hereby set aside.c.Each party to bear its own costs.

73. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 1ST DAY OF SEPTEMBER, 2023ERIC NYONGESA WAFULA - CHAIRMANOLOLCHIKE S. SPENCER - MEMBERCHRISTINE A. MUGA - MEMBERGEORGE KASHINDI - MEMBERDELILAH K. NGALA MEMBERABDULLAHI M. DIRIYE - MEMBER