[2024] KETAT 1021 (KLR)

Ashut Plastics Limited v Kenya Revenue Authority (Tax Appeal E650 of 2023) [2024] KETAT 1021 (KLR) (28 June 2024) (Judgment)

Neutral citation: [2024] KETAT 1021 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E650 of 2023

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, AK Kiprotich & T Vikiru, Members

June 28, 2024

Between

Ashut Plastics Limited

Appellant

and

Kenya Revenue Authority

Respondent

Judgment

Background 1. The Appellant is a private limited company incorporated as such under the laws of Kenya whose principal activity is the manufacturer items of plastics.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and KRA 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 Respondent issued the Appellant with a letter dated 17th May 2023 of notice of intention to issue additional assessment. The Appellant replied vide a letter dated 23rd May 2023.

4. On 26th May 2023 the Respondent rejected the Appellant’s response and informed it that it had issued Excise duty additional assessment in the system.

5. The Appellant lodged late objection application to the Excise duty assessment on 27th June 2023.

6. The Respondent vide an email dated 10th July 2023 informed the Appellant that its application had been lodged late. The Appellant replied through an email dated 12th July 2023 to which the Respondent replied the same day allowing the Appellant’s late objection application.

7. The Respondent issued its decision on 5th September 2023 demanding Excise duty assessed of Ksh 154,111,301. 73.

8. The Appellant being dissatisfied with the decision, lodged a Notice of Appeal on 3rd October 2023.

The Appeal 9. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal filed on 3rd October 2023:a.That the Respondent erred on matters of law by regarding the Appellant's goods as chargeable under the 1st Schedule of the Excise Duty Act of 2015. b.That the Respondent erred on matters of fact and law by charging the Appellant's goods Excise duty contrary to the 1st Schedule of the Excise Duty Act of 2015 which only provides for taxation of imported plastic articles while the Appellant's goods are locally produced.c.That the Respondent erred in fact and laws by finding that the amendments to the Finance Act 2021 vide the Finance Bill 2022 were intended amendments other than assented amendments to the law as per the letter by the Clerk of the National Assembly dated 28th July 2022 confirming the amendment.d.That the Respondent erred in both law and fact by failing to consider the evidence produced by the Appellant in its objection dated 28th June, 2023. e.That the Respondent erred in both law and fact by rejecting the Appellant’s objection dated 28th June, 2023. f.That the Respondent erred in both fact and law by issuing additional assessments in the system for the sole reason that the Appellant had not amended its returns to include the wrongful assessments.

Appellant’s Case 10. The Appellant’s case is premised on the following documents:a.The Appellant’s Statement of Facts dated 3rd October, 2023 and filed on the same date together with the documents attached thereto.b.The Appellant’s written submissions dated 27th February, 2024 and filed on the same date together with the authorities attached thereto.

11. The Appellant submitted that in its objection, it cited the various changes the law on Excise duty in relation to plastics had undergone since its inception and clearly noted that the same was a novel albeit radical idea meant to curb environmental concerns raised by the industry.

12. That the Appellant also cited that the Excise duty in relation to plastics was introduced when Section 32 of the Finance Act of 2021 through an amendment to the 1st Schedule to the Excise Duty Act of 2015 introduced a tax of 10% on articles of plastics of tariff heading 3923. 30. 00.

13. That the Appellant also noted that in 2022 cognizant of public outcry as a result of the tax, an amendment was made to the Finance Act 2022 and which added tariff Heading 3923. 90. 90 as another category of plastic subject to excise duty.

14. The Appellant submitted that in the objection the Appellant noted and quoted the Hansard Report of 2nd June 2022 and the final order paper of the even date, in particular clause 34, that clearly shows that the National Assembly intended to introduce a 10% Excise duty on imported articles of plastic and not locally manufactured ones.

15. That the Appellant further noted that the intended amendment was meant to exclude domestic articles of plastic and such that it read; “Imported articles of plastic of tariff heading 3923. 30. 00 and 3923. 90. 90". That however, this was only reflected in the Hansard and not the final amendment.

16. That after and owing to the omission and error in publishing of Section 35 (b)(xiv) of the Finance Act 2022 which failed to add the word "imported" to the amendment, KAM (Kenya Association of Manufacturers) applied for guidance before the Attorney General and the Clerk of the National Assembly vide the letter dated 8th August 2022 and to which the Clerk of the National Assembly responded with the letter dated 16th August 2022.

17. That in the letter dated 16th August 2022 the Clerk of the National Assembly quoted that the Attorney General had filed a similar request for guidance and which he had done in a letter dated 28th July 2022 to the Attorney General confirming clause 34 of the Finance Bill of 2022 to read as follows;Tariff Description RateImported articles of plastic of tariff heading3923. 30. 00 and 3923. 90. 90 10%

18. That the Kenya Association of Manufacturers (KAM) then wrote a follow up letter to the Clerk of the National Assembly dated 13th March 2023 bringing to the latter's attention that the directive to revise the error under Section 35 (b) (xiv), remained unaddressed and further requesting the Clerk's intervention on the same to ensure fair practices between the affected manufacturers and importers of the same.

19. That the Appellant is a local manufacturer of plastics and does not fall within the ambit of the laws cited by the Respondent.

20. That the Appellant was well within its rights to file nil returns for the impugned period and at no time did it act contrary to the law applicable.

21. That the Respondent in retaliation then served upon the Appellant the letter dated 26th May 2023 and stated that the law quoted by the Appellant was only intentional and that the same was not assented.

22. That the assertion by the Respondent was wrong and can only be termed as purposefully ignorant of the developments in the law relating to Excise duty for plastics.

23. That the Respondent also issued additional assessments and rejected the Appellant's objection dated 26th May 2023.

Appellant’s Prayers 24. The Appellant prayed that:-a.This Appeal be allowed.b.The Respondent's review decision dated 26th May, 2023 and the Objection decision dated 5th September, 2023 demanding Kshs.154,111,301. 73 be struck out in its entirety.c.The Respondent, its employees, agents or other persons purporting to act on the Respondent's behalf be barred and estopped from demanding or taking further steps towards enforcement and/or recovery of excise duty, penalties and interests on the Respondent's demand in relation to the instant matter.d.The costs of this Appeal.e.Any other remedies that the Tribunal deems just and reasonable

Respondent’s Case 25. The Respondent’s case is premised on the hereunder filed documents: -i.The Respondent’s Statement of Facts dated 11th April, 2023 and filed on the same date together with the documents attached thereto.ii.The Respondent’s written submissions dated 11th March, 2024 and filed on the same date together with the authority attached thereto.

26. The Respondent submitted that on the 17th of May 2023, the Appellant was notified of the intention to issue additional assessments for the months of August 2022 to April 2023 on Excise duty not accounted for. That the pre-assessed tax amounted to KShs.257,027,563. 09 as shown below:Month Excisable sales as per VAT returns Excise Duty Payable@10%

Aug-22 260,484,447. 71 26,048,444. 77

Sep-22 311,309,315. 74 31,130,931. 57

Oct-22 271,673,507. 60 27,167,350. 76

Nov-22 287,371,859. 25 28,737,185. 93

Dec-22 349,708,935. 19 34,970,893. 52

Jan-23 306,225,753. 05 30,622,575. 31

Feb-23 279,184,743. 23 27,918,474. 32

Mar-23 253,254,146. 06 25,106,292. 31

Apr-23 251,062,923. 06 25,106,292. 31

TOTAL 2,570,275,630. 89 257,027,563. 09

27. That the Appellant responded on 23rd May 2023 asserting that Excise duty was not payable since the Finance Bill 2022 intended to exonerate local manufacturers and only bring to charge importers of plastics.

28. That the grounds relied upon by the Appellant were based on the Finance Bill 2022 which had since been invalidated by the Finance Act 2022 which brought to charge Excise duty on plastics for both local manufacturers and imported, hence the Respondent went ahead and issued additional assessments for the respective months of August 2022 to April 2023.

29. The Respondent stated that it responded to the Appellant on 26th May 2023 invalidating its response which the Appellant asserted was an objection application. That the Respondent then raised additional assessments on the same day for the periods August 2022 to April 2023 totalling KShs. 145,406,375. 88 on grounds that the Appellant had failed to declare income for Excise duty as per the provisions of the Finance Act 2022 and as shown below:Assessment No Period Assessed Amount

KRA202308275610 Jan-23 16,667,567. 84

KRA202308275529 Feb-23 16,192,715. 00

KRA202308275442 Mar - 23 14,688,740. 53

KRA202308275337 Apri -23 14,561,649. 56

KRA202308276025 Aug - 22 11,438,496. 30

KRA2023082759960 Sept - 2 15,757,054. 24

KRA202308275883 Oct - 22 18,055,940. 36

KRA202308275797 Nov-22 20,283,118. 24

KRA202308275706 Dec-22 17,761,093. 81

Total 145,406,375. 88

30. That the Appellant made late objection to the additional assessments above on 27th June 2023 stating its reason for late application as other reasonable cause, that it had already made a manual objection and were advised to do the same through the iTax. That the late application was accepted on 12th July 2023.

31. It averred that on the 5th September, 2023, the Respondent issued its objection decision fully rejecting the Appellant's grounds of objection raised during the objection review stage.

32. That the Tribunal should note that the Parliamentary Committee proposed to exonerate local manufacturers from the Excise duty. That however, the Finance Act 2022 when assented, did not adopt the proposal. That this meant that Excise duty at 10% was applicable to all Articles of plastics of tariff Heading 3923. 30. 00 and 3923. 90. 90.

33. That based on the Finance Act 2022, the Respondent assessed the Appellant on the period August 2022 to April 2023 after issuing a pre-assessment notice for the same period on grounds that the Appellant had failed to declare income for Excise duty as per the provisions of the Finance Act 2022.

34. That Section 5(1)(a) of the Excise Duty Act provides that excise duty shall be charged on excisable goods manufactured in Kenya by a licensed manufacturer. That further, Section 5(2) of the Excise Duty Act provides that excise duty shall be charged at the rate specified in the First Schedule for the excisable goods or services.

35. The Respondent urged the Tribunal not to adopt a purposive approach in interpreting the Excise Duty Act and instead adopt a strict interpretation. The Respondent relied on Cape Brandy Syndicate v I.R. Commissioners [1921]IKB where it was held that in interpreting a tax statute there is no room for any intendment or implication.

36. The Respondent also relied on Mount Kenya Bottlers Limited versus the Honourable Attorney General & 3 others [2019] eKLR, where the Court held that:-“the accepted principle in construing a tax statute is that the court is guided by the statutory words themselves and that there is no room for intendment or adopting a purposive approach when the words of the statute are clear and unambiguous”.

37. The Respondent averred that the First Schedule to the Excise Duty Act, 2015 provides that "articles of plastic of tariff heading 3923-30. 00 and 3923. 90. 90”are charged Excise duty at a rate of 10%.25. The Respondent averred that a strict reading of the First Schedule of the Excise Duty Act, 2015 depicts that the Appellant being a manufacturer of plastics of tariff Heading 3923-30. 00 is liable to pay Excise duty at a rate of 10%.

Respondent’s Prayers 38. The Respondent prayed that the Tribunal finds that;a.This Appeal be dismissed.b.The taxes due and unpaid together with interest thereon be paid to the Respondent.c.The Appellant be compelled to pay costs to the Respondent

Issues For Determination 39. The Tribunal has carefully studied the pleadings and documentation filed by both parties and is of the view that the issues for its determination are as follows:-a.What was the applicable law at the time of assessmentb.Whether the Respondent’s assessment was justified

Analysis And Findings 40. The Tribunal having established the issues falling for its determination, proceedes to analyse each separately as hereunder.

What was the applicable law at the time of assessment? 41. The genesis of this dispute was the Excise duty assessment by the Respondent on the Appellant’s plastic products in the months of August 2022 to April 2023.

42. The Appellant stated that it was a local manufacturer of plastics and does not fall within the ambit of the laws cited by the Respondent.

43. The Respondent on its part submitted that the grounds relied upon by the Appellant were based on the Finance Bill 2022 which had since been invalidated by the Finance Act 2022 which brought to charge Excise duty on plastics for both local manufacturers and imported, hence the Respondent went ahead and issued additional assessments for the respective months of August 2022 to April 2023.

44. That based on the Finance Act 2022, the Respondent assessed the Appellant on the period August 2022 to April 2023 after issuing a pre-assessment notice for the same period on the grounds that the Appellant had failed to declare income for Excise duty as per the provisions of the Finance Act 2022.

45. That Section 5(1)(a) of the Excise duty Act provides that Excise duty shall be charged on excisable goods manufactured in Kenya by a licensed manufacturer. That further, Section 5(2) of the Excise Duty Act provides that Excise duty shall be charged at the rate specified in the First Schedule for the excisable goods or services.

46. It was not in dispute that the Appellant was a local manufacturer of items of plastics in Kenya.

47. The Tribunal notes that the issue as to what law was applicable at the time of the assessment required it to look at the Excise Duty Act which is the statute enacted by the Kenya Parliament to enforce Excise duty in Kenya.

48. Section 5 of the Excise Duty Act, 2015 states as follows regarding imposition of Excise duty:“Imposition of excise duty(1)Subject to this Act, a tax, to be known as excise duty, shall be charged in accordance with the provisions of this Act on—(a)excisable goods manufactured in Kenya by a licensed manufacturer;(b)excisable services supplied in Kenya by a licensed person; or(c)excisable goods imported into Kenya.”

49. Further, Section 5(2) of the EDA states as follows regarding chargeability of Excise duty:“(2)Excise duty shall be charged at the rate specified in the First Schedule for the excisable goods or services in force at the time the liability arises for excise duty as determined under section 6. (3)The excise duty payable—(a)under subsection (1)(a), shall be payable by the licensed manufacturer;(b)under subsection (1)(b), shall be payable by the licensed person making the supply: or(c)under subsection(1)(c), shall be payable by the importer of the excisable goods.”

50. Further, the Tribunal notes that tax laws are amended each year through the Finance Act which lays out any amendments/changes to the taxation statutes. In this regard, the Finance Act 2021 made the following amendment to the Excise Duty Act in regard to Excise duty rates:“The First Schedule to the Excise Duty Act, 2015 is amended—(a)in paragraph 1 of Part I—(i)by inserting the following item at the end of the second table— Description Rate of Excise Duty Articles of plastic of tariff heading 3923. 30. 00 10%”

51. Tariff Heading 3923 of the East African Community Common External Tariff (EACCET) which lists all commodities by tariff codes which tax statutes borrow from for commodity descriptions, at the time, covered “Articles for the conveyance or packing of goods, of plastics stoppers, lids, caps and other closures of plastics”. Specifically, tariff code 3923. 30. 00 covered “Carboys, bottles, flasks and similar articles”.

52. The Tribunal further notes that the above description in the Excise Duty Act covered all plastic items that fell under the description however sourced; whether locally manufactured or imported.

53. Further, the Finance Act 2022 was amended in the following manner in regard to items of plastic:“The First Schedule to the Excise Duty Act, 2015 is amended —in the second table appearing in paragraph 1 of Part I—(xiv)by inserting the expression “and 3923. 90. 90” immediately after the expression “3923. 30. 00” appearing in the tariff description “Imported Articles of plastic of tariff heading 3923. 30. 00”; (Emphasis added)

54. The Tribunal notes that the word “imported” appeared in the 2022 amendment to the Excise Duty Act whereas it was not in the amendment that introduced Excise Duty to the items falling under tariff code 3923. 30. 00 in the Finance Act 2021.

55. In this regard, it is discernible that the Finance Act introduced the word “imported” ahead of the description of the articles falling under the tariff code 3923. 30. 00. The literal interpretation of this is that this change in the Finance Act 2022 was intended to levy this duty only on items that fall within the description of imported plastic items of the specified tariff codes. This means that only imported items falling within the description of tariff codes 3923. 30. 00 and 3923. 90. 90 were excisable with effect from the effective date of 1st July, 2022 under this particular amendment.

56. The role of the Tribunal is limited to the textual interpretation of the law. The textual interpretation of what was contained in the Excise Duty Act which was effective from the 1st of July 2022 was that only imported items that fell within the tax remit of tariff codes 3923. 30. 00 and 3923. 90. 90 were excisable.

57. The provisions of the law surrounding the charge of Excise duty on commodities are clear and that items listed in the First Schedule of the Excise Duty Act are chargeable based on their descriptions and the rates specified therein.

58. The Tribunal is thus enjoined to interpret the law as it is without looking at its intendment or any other justification which may have formed its enactment. Tax statutes must be interpreted literally and without equity as was explained in the classicus case of Cape Brandy Syndicate vs. Inland Revenue Commissioner [1921] 1 KB 64, where it was held that:“In a taxing Act one has to look merely at what is clearly stated. There is no room for any intendment. There is no equity about tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.”

59. This view has also been recently affirmed by Majanja j in Equity Group Holdings Limited v Commissioner of Domestic Taxes [2021] eKLR where he stated as follows:-“In construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the .If the revenue satisfies the court that the case falls strictly within the provisions of the law,the subject can be taxed.If, on the other hand,the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter.”

60. In view of the foregoing, and guided by the above case laws, the Tribunal finds and holds that the law in place at the time of the assessment that is the subject matter of this Appeal provided that imported articles of plastic that fell under tariff codes 3923. 30. 00 and 3923. 90. 90 were excisable at 10%.

61. That Locally manufactured articles of plastic were left out of this descriptions under the Finance Act 2022. It is not the place of the Tribunal as was stated in “Cape Brandy case” to impose tax by inference, probe intentions of the Legislature or investigate and give a determination on what the law ought to be as allegedly passed by the Legislature. The statutory limit of the Tribunal is to read, apply and interpret the law as it is.

62. The Tribunal therefore finds and hold that Respondent in its attempt to bring locally manufactured articles of plastic within tariff codes 3923. 30. 00 and 3923. 90. 90 to charge as this was not the applicable law on Excise duty chargeability for locally manufactured articles of plastic under the two codes.

Whether the Respondent’s assessment was justified 63. The Tribunal having established that effective 1st July 2022, only imported articles of plastic of tariff codes 3923. 30. 00 and 3923. 90. 90 were excisable at 10%, concludes that the Respondent was not justified in levying Excise Duty on the Appellant’s locally manufactured items of plastic in the months in dispute.

Final Decision 64. The upshot of the foregoing analysis is that the Appeal is merited and consequently the Tribunal makes the following Orders: -a.The Appeal be and is hereby allowed.b.The Respondent’s Objection decision dated 1st December, 2022 be and is hereby set aside.c.Each Party to bear its own costs.

65. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 28TH DAY OF JUNE, 2024ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERDR. RODNEY O. OLUOCH - MEMBERABRAHAM K. KIPROTICH - MEMBERTIMOTHY B.VIKIRU - MEMBER