[2023] KETAT 586 (KLR)

Baraka Kenya Limited v Commissioner of Customs & Border Control (Appeal 419 of 2022) [2023] KETAT 586 (KLR) (29 June 2023) (Judgment)

Neutral citation: [2023] KETAT 586 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 419 of 2022

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

June 29, 2023

Between

Baraka Kenya Limited

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

Background 1. The Appellant is a private limited liability Company incorporated in Kenya under the Companies Act. Its main form of business is in the manufacturing and milling of wheat flour.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya. The Kenya Revenue Authority (“KRA”) is an agency of the Government of Kenya for assessing, collecting, and accounting for all revenue.

3. On 10th September 2020, the Appellant, in accordance with Legal Notice No. EAC/109/2019 approving specific quantities of grain at a duty rate of 10%, lodged entry numbers 2020MSA7633115 and 2020MSA7633143 for a milling wheat consignment.

4. The Respondent via a letter dated 13th September 2020 informed the Appellant that the consignment was imported outside the period specified in the Legal Notice thus disqualifying it for duty remission.

5. On 29th September 2020, the Appellant replied to the Respondent asserting that it was granted approval through control number 13457/2019 dated 9th June 2019 adding that the Respondent had accepted the payment of duty at 10% and that via another letter dated 13th September 2021 explained that the control number was captured in the SIMBA system before the expiry of the gazette period of 30th June 2020 and demanded taxes at the rate of 35% totaling Kshs. 18,371,493. 00

6. The Appellant applied for a review via a letter dated 4th November 2021 which was rejected by the Respondent confirming the demand notice on the basis that the Legal Notice published on 2nd July 2019 was valid until 30th June 2020.

7. Being dissatisfied with the review decision, the Appellant filed a Notice of Appeal dated 8th April 2022 on 25th April 2022.

The Appeal 8. The Appeal is premised on the following grounds listed in the Memorandum of Appeal dated 22nd April 2022 and filed on 26th April 2022:-a.The Respondent’s review decision erroneously dated 7th April 2022 and received by the Appellant on 9th March 2022 is not a valid review decision as provided for under Section 229 of the East African Community Customs Management Act.b.The Respondent in issuing its review decision erred in law and fact by disregarding the principle of the strict interpretation of tax laws.c.The Respondent in issuing its review decision erred in law and fact by frustrating the Appellant’s legitimate expectation.d.The Respondent erred in law and fact by demanding additional taxes based on the Appellant’s failure to comply with an administrative action.

The Appellant’s Case 9. The Appellant’s case was premised on its Statement of Facts dated 22nd April 2022 and filed on 26th April 2022.

10. The Appellant stated that the Respondent’s review decision erroneously dated 7th April 2022 and received on 9th March 2022 is not a proper tax decision as envisaged under the provisions of Section 229(4) and (5) of the EACCMA.

11. It quoted Sections 229(4) and (5) of EACCMA and averred that the review decision issued by the Respondent violated the law by not stating the reasons for the decision and being issued outside the 30-day timeline after receipt of the application for review thereby deemed to be allowed by operation of the law.

12. It contended that it lodged its application for review on 9th December 2021 subsequent to which the Respondent was supposed to have issued a review decision on or before 9th January 2022.

13. It averred that it held a meeting with the Respondent on 7th January 2022 in which no additional documents were requested thereby leaving the deadline for issuing the review decision at 9th January 2022.

14. It contended that the Respondent’s Minutes issued three months after the meeting giving the Appellant thirty days from the date of the meeting to respond failure to which a final reminder would be issued, was not signed by the Appellant or its legal representatives, who were not accorded the opportunity to verify the accuracy before execution. It added that the Minutes were issued as an afterthought in order to create an impression of an obligation on the Appellant to communicate and get around the Respondent’s obligation to issue the review decision within the statutory timelines.

15. To buttress its position that subsequent communication between parties does not negate the Appellant’s obligation to adhere to statutory timelines, it relied on the case of Republic v Commissioner of Customs Services Ex-Parte Unilever Kenya Limited (2012) eKLR where it was held:“By communicating the decision four months from 16th March 2011 the respondent was clearly in breach of the provisions of Section 229 EACCMA. There is evidence that the parties kept on communicating even after the 30 days had lapsed and one can say that ex-parte applicant had consented to the delay by continuing to communicate over the issue with the respondent. One can say the ex-parte applicant was being a wily fox by giving the respondent the impression that the awaited decision was going to be lawful. The ex-parte applicant was however being clever within the law and the law allows such cleverness. The law is however clear and even if the ex-parte applicant had consented to the delay, that would still not have made the respondent’s demand valid. The respondent’s letter dated 18th July, 2011 means nothing since the respondent’s failure to communicate a decision to the ex-parte applicant by 16th April, 2011 meant that the respondent had accepted the ex-parte applicant’s application for review. The implication of the respondent’s non-communication within the statutory period of 30 days is that the ex-parte applicant did not owe the taxes demanded by the demand notice of 9th February 2011…”

16. It cited the case of BIC East Africa Limited v Commissioner of Customs and Border Control TAT No. 127 of 2020 where the Tribunal held as follows:“The provisions of Sections 229(4) and (5) of the EACCMA are couched in mandatory terms vide the use of the word shall. The said provisions of the EACCMA offer the Respondent with no latitude whatsoever on the timelines within which a review decision should be issued.”

17. It further placed reliance on the case of Republic v Commissioner of Customs Services Ex parte Unilever Kenya Limited(2012) eKLR to support its position on the expiry of the 30-day statutory timeline.

18. The Appellant asserted that the review decision fails to address substantive issues raised by its application for review and provide the rationale behind its conclusion that the tax demand still stands by not providing any statement of findings or any reasons underpinning the review decision.

19. It contended that the Minutes of the meeting held on 7th January 2022 attached to the review decision does not form part of the review decision and cannot be construed to contain the reasons for the review decision.

20. It maintained that the Respondent cannot simply conclude that the demand for taxes stands without giving detailed reasons but should at least demonstrate that the Respondent considered the information presented in the Appellant's application for review or contain a rebuttal of the Applicant’s grounds as provided in the application for review. It added that the review decision infringes on its right to fair administrative action under Article 47 of the Constitution of Kenya and Sections 4(2) and 6(1) and (2) of the Fair Administrative Actions Act.

21. It relied on the case of TAT No. 50 of 2017 Local Productions Kenya Ltd v Commissioner of Domestic Taxes where the Tribunal held that:-“Failure to give reasons for a decision amounts to breach of dictates of fair administrative actions and as such, such a decision cannot be said to be constitutional under Article 47 of the Constitution of Kenya, 2010. ”

22. The Appellant quoted Section 140(1) and (2) of the EACCMA and Regulation 6(1) and (3) of the Duty Remission Regulations and averred that the review decision goes against the principle of strict interpretation of tax laws.

23. It further averred that the Legal Notices granting remission only indicate the Millers allowed to import under the DRS, the product description for which the Millers are allowed to import and the product quantity in metric tons but no reference is made to the specific control numbers issued to an importer. It added therefore that the issuance of control numbers is not a legal requirement or procedure but an administrative measure used to control the importation of goods under DRS and quoted Paragraph 19 of the Duty Remission Regulations to buttress this position.

24. It further quoted Paragraph 4 of the clarification letter of the National Treasury dated 20th November 2020 and cited the Respondent’s letter dated 29th September 2021 which stated that controls are internal documents that could not be extended beyond the EAC gazette period.

25. The Appellant stated that the EACCMA and the DRS Regulations do not refer to Control Numbers nor do they set out a validity period for them or require an extension for applying for the same in case of expiry. It added that the validity of the control numbers for 12 months is not provided for under the DRS Regulations or the Legal Notice therefore the Respondent’s attempt at interpreting the DRS Regulations is contrary to the principle of the strict interpretation of tax laws, which demands that tax laws are to be interpreted based on the express provisions of the law with no room for intendment or implied interpretations.

26. It contended that the DRS Regulations do not expressly allow the Respondent to demand full taxes after the 12-month validity period of the Legal Notice lapses. It reiterated that the law only provides that the duty remission is valid for 12 months but does not provide for an application for an extension of time for the Legal Notice nor does it give the Respondent the power to apply full duty rates upon expiry of the time or upon failure to extend the time for the remission.

27. It stated that it applied for a control number with the Tax Remission for Export office on 5th June 2020 which was issued on 9th June 2020 and has proven that it imported the goods within the validity of Legal Notice No. EAC/109/2019 that expired on 30th June 2020. It added that based on the principle of the strict interpretation of the law, its imports qualify for the remission of duty under the DRS despite the goods arriving on 10th September 2020.

28. It relied on the case of Republic vs. Commissioner of Domestic Taxes Large Taxpayers Office Ex-Parte Barclays Bank of Kenya LTD [2012] eKLR where the court held that:-“The approach to this case is that stated in the oft cited case of Cape Brandy Syndicate v Inland Revenue Commissioners [1920] 1 KB 64 as applied in T.M. Bell v Commissioner of Income Tax [1960] EALR 224 where Roland J. stated, “ …in a taxing Act, one has to look at what is clearly said. There is no room for intendment as to a tax. Nothing is to be read in, nothing it to be implied. One can only look fairly at the language used… If a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be.” As this case concerns the interpretation of the Income Tax Act, I am also guided by the dictum of Lord Simonds in Russell v Scott [1948] 2 ALL ER 5 where he stated, “My Lords, there is a maxim of income tax law which, though it may sometimes be overstressed yet ought not to be forgotten. It is that the subject is not to be taxed unless the words of the taxing statute unambiguously impose the tax upon him” adopted in Stanbic Bank Kenya Limited v Kenya Revenue Authority CA Civil Appeal No. 77 of 2008 (Unreported) [2009] eKLR per Nyamu JA (See also Jafferali Alibhai v Commissioner of Income Tax [1961] EA 610, Kanjee Naranjee v Income Tax Commissioner [1964] EA 257). Any tax imposed on a subject is dictated by the terms of legislation and taxing authority must satisfy itself that the transaction fits within the definition of the statute. In Adamson v Attorney General (1933) AC 257 at p 275 it was held that “The section is one that imposes a tax upon the subject, and it is well settled that in such cases it is incumbent on the Crown to establish that its claim comes within the very words used, and if there is any doubt or ambiguity this defect-if it be in view of the Crown a defect can only be remedied by legislation”

29. It was asserted by the appellant that the Respondent in issuing the impugned review decision reneged on the Appellant’s legitimate expectation and cited De Smith, Woolf& Jowwll in Judicial Review of Administrative Action, 6th Edition of Sweet & Maxwell on page 106 wherein it was explained as follows:-“a legitimate expectation arises where a person responsible for taking a decision has induced in someone a reasonable expectation that he will receive or retain a benefit of advantage. It is a basic principle of fairness that legitimate expectations is at the root of the constitutional principle of the rule of law, which requires predictability and certainty in government’s dealings with the public.”

30. It cited Section 7(2)(m) of the Fair Administrative Actions Act, 2015 and the case of Regina v London Borough of Newham and Manik Bibi and Ataya Alnashed (2002) 1 WLR 237(R v Bibi case) where it contended that the court established three questions that must be answered for legitimate expectation to arise which are:a.What has the public authority, whether in practice or by promise committed itself;b.whether the authority has acted or proposes to act unlawfully in relation to the commitment; andc.what the court should do? In this, the court has two functions- assessing the legality of actions by administrators, and if it finds unlawfulness on the administrator's part, deciding what relief it should give.

31. It stated that the actions of the Respondent to clear the importation of wheat under control number 13457/2019 for an importation made under the duty remission was applicable and that no additional taxes would be levied since the Appellant initiated the importation of the goods on 5th June 2020 well within the validity period of the remission and it was not disputed that the wheat was used for its intended purpose. It added that the customs clearance created a legitimate expectation that the Appellant was paying the correct rate of duty.

32. The Appellant averred that on previous occasions, the Respondent had allowed wheat importers to import wheat using control numbers despite the fact that the same arrived after the expiry of the Legal Notice granting the remission. It further averred that the practice was so rampant that the National Treasury Duty Remission Committee issued a circular on 20th November 2021 clarifying that the importation of wheat under the DRS had to be done within the timelines thereby indicating the practice of the Respondent allowing importation of wheat under the Duty Remission Scheme despite the expiry of the DRS as long as the import was initiated before expiry of the period.

33. It stated that the sudden and arbitrary and unexplained change of course by demanding full remitted taxes based on failure to comply with an administrative action thwarted its legitimate expectation thus an abuse of power. It relied on the case of Keroche Industries Limited v Kenya Revenue Authority & 5 Others [2007] eKLR:“Thus I hold that the frustration of the applicants’ legitimate expectation based on the application of tariff amounts to abuse of power… A decision tainted with abuse of power is not severable… Once tainted, always tainted in the eyes of the law.”

34. The Appellant quoted Article 210 of the Constitution and Regulations 6(1) and (3) of the DRS Regulations and reiterated that the law only provides for the validity of the duty remission and not the validity or extension of a control number issued under a Legal Notice as alleged by the Respondent.

35. It added that the law does not provide for the issuance of a control number as well, therefore, the issuance of control numbers is an administrative measure as envisaged in the East African Community Procedure Manual at Paragraph 19. It further quoted an excerpt from the letter issued by the National Treasury on 29th November 2020 and the Respondent’s letter dated 29th September 2021 in which it was stated that controls are internal documents.

36. It stated that since the Appellant’s control number was issued on 9th June 2020 (within the validity of the Legal Notice), the 12 months lapsed on 8th June 2021 thus at the point the Appellant’s consignment arrived on 10th September 2020, it still had around 8 months within which to prepare the reconciliation reports.

37. It posited that it should not be penalised to pay the full applicable taxes demanded because of a failure to perform an administrative action of utilising a control number after the expiry of the legal notice.

38. It quoted Section 2 of the EACCMA’s definition of “Import” as “means to bring or cause to be brought into the Partner States from a foreign country;” and asserted that the definition does not only refer to the arrival of the vessel but also causing the same to be brought from a foreign country. It submitted that its consignment was ordered for importation prior to the date of the expiration of the Legal Notice but the wheat arrived at the port after the date of the expiration.

39. It contended that the imported wheat was used for its intended purpose of home use and that the reconciliations were done under the DRS observing that it subsequently continued to be a licensed DRS beneficiary under the Legal Notices that followed.

40. The Appellant relied on the case of Dominion Petroleum Kenya Limited v Commissioner of Domestic Taxes, Tax appeal No. 136 of 2017 where the Tribunal held that:-“imposing a reverse VAT liability on the Appellant based on non-performance of an administrative action would go against the spirit of Article 210 of the Constitution of Kenya which provides that “no tax or licensing fees may be imposed except as provided by legislation.” Accordingly, the assessment on reverse VAT is vacated in full. However, the Applicant shall promptly provide the Respondent with documentation to assist in processing the VAT for exemption certificates for the specific services procured.”

The Appellant’s prayers 41. The Appellant prayed that the Tribunal finds for the Appellant that:-a.The Respondent’s review decision erroneously dated 7th April 2022 and received by the Appellant on 9th March 2022 be set aside;b.The Appellant’s application for review dated 9th December 2021 be allowed;c.The tax demand of Kshs. 18,371,494. 00 be vacated in its entirety; andd.The Appeal be allowed with no orders as to costs.

The Respondent’s Case 42. The Respondent’s case is premised on its Statement of Facts dated 26th May 2022 and filed on 30th May 2022.

43. It stated that the Appellant imported wheat under Entries 2020MSA7633115 and 2020MSA7633143 on 10th September 2020 outside the period provided for in the Gazette Notice No. EAC/109/2019 dated 2nd July 2019 valid until 30th June 2020.

44. It reiterated that the importation of raw materials under the duty remission scheme is twelve months from the date of publication of the gazette notice. It added that the controls used to facilitate the importation of the goods should be used to facilitate clearance at the entry point before the expiry of the gazette notice.

45. It averred that at the time of the importation, there was a new Legal Notice number EAC/92/2020 dated 2nd July 2020 which was valid until 30th June 2021 and the Appellant was required to apply for a new control for the importation of goods on 10th September 2020.

46. It stated that the Appellant applied for a review of the taxes demanded in the demand letter dated 13th September 2021 through its tax agents on 4th November 2021 with a review decision communicated vide the letter dated 9th November 2021 confirming the taxes.

47. It added that the Appellant subsequently through another tax agent objected to the demand letter dated 9th November 2021 vide a letter dated 9th December 2021 after which the Respondent replied vide the letter dated 4th January 2022 confirming the taxes.

48. The Respondent contended that it was in the interest of trying to resolve the issue that a meeting was held on 7th January 2022 with follow-up communications between the parties.

49. It reiterated that the letters of 7th March 2022 and 28th March 2022 were mere reminders for the payment of the taxes due hence the review decision was issued in time in conformity with Section 229 of the EACCMA 2004.

50. It averred that it is empowered by the law under Sections 235 and 236 of the EACCMA, 2004 to conduct Post Clearance Audits on imports within 5 years to ensure the correct taxes were paid, and under Sections 135 and 136 of the EACCMA to demand short-levied taxes where the audit reveals that fewer taxes were paid. Therefore, its review decision demanding for short levied taxes due to the application of the 10% duty rate instead of 35% was proper in law.

The Respondent’s prayers 51. The Respondent prayed for orders that this Tribunal finds:-a.The Respondent’s review decision dated 9th November 2021 and subsequent demand letter dated 4th January 2022 are proper in law and the same be affirmed; andb.The short-levied taxes of Kshs 18,371,494. 00 are due and payable by the Appellant.

The Parties Submissions On whether the Respondent’s Review decision dated 7th April 2022 is a valid review decision in accordance with section 229(4) of the EACCMA, 2004 52. The Appellant submitted that the Respondent’s review decision erroneously dated 7th April 2021 and received on 9th March 2022 is not a proper tax decision under Section 229 (4) and (5) of the EACCMA.

53. It quoted Section 229(4) and (5) to submit that the Respondent’s review decision failed to attain the threshold therein for being issued outside the statutory timelines thus being deemed allowed by operation of the law and also by failing to state its reasons for the decision.

54. It submitted that the review decision was issued after the statutory timelines had lapsed as the Appellant lodged its review application on 9th December 2021 making the last date for issuing the review decision 8th January 2022 instead of 9th March 2022 as issued by the Respondent.

55. It reiterated that on 4th January 2022, the Respondent invited it to a meeting wherein it did not ask for further documents from the Appellant as such, the Respondent’s time for issuing the decision started running from 10th December 2021 when the objection was lodged.

56. The Appellant relied on the case of Republic v Commissioner of Customs Services Ex Parte Tetra Pak Limited [2012] eKLR where the High Court held as follows:-“In my view, Section 229 of the Act when considered as a whole is so clear and self-explanatory that no two meanings can be attributed to. It can only be interpreted in one way using the ordinary meaning of the words used since they are plain and clear. In my opinion, it simply means that a party who is aggrieved by the decision or omission of the Respondent is allowed under Section 229(1) to make an application for review within 30 days to the Commissioner asking for a review of the decision or omission. The Commissioner can however extend the time given for the lodging of the application for review if good cause is shown for failure to comply with the 30 days time limit but once the application is received, Section 229(4) requires that the Commissioner must make and communicate a decision to the affected taxpayer within 30 days. If no decision is made and communicated within 30 days, the Respondent under Section 229(5) is deemed to have made a decision allowing the application for review. It is important to note that the section is couched in mandatory terms.”

57. To buttress its argument, the fact that it continued to communicate with the Respondent after the expiry of the thirty days does not discharge the Respondent of its duties under the law, the Appellant cited the case of Republic v. Commissioner of Customs Services Ex Parte Unilever Kenya Limited (2012) eKLR where it was held that:-“By communicating the decision four months from 16th March 2011 the respondent was clearly in breach of the provisions of Section 229 EACCMA. There is evidence that the parties kept on communicating even after the 30 days had lapsed and one can say that the ex-parte applicant had consented to the delay by continuing to communicate over the issue with the respondent. One can say the ex-parte applicant was being a wily fox by giving the respondent the impression that the awaited decision was going to be lawful. The ex-parte applicant was however being clever within the law and the law allows such cleverness. The law is however clear and even if the ex-parte applicant had consented to the delay, that would still not have made the respondent’s demand valid. The respondent’s letter dated 18th July 2011 means nothing since the respondent’s failure to communicate a decision to the ex-parte applicant by 16th April 2011 meant that the respondent had accepted the ex-parte applicant’s application for review. The implication of the respondent’s non-communication within the statutory period of 30 days is that the ex-parte applicant did not owe the taxes demanded by the demand notice of 9th February 2011. The respondent’s decision in the letter dated 18th July 2011”.

58. It cited the case of BIC East Africa Limited v. Commissioner of Customs and Border Control TAT No. 127 of 2020 to argue that Section 229(4) and (5) of the EACCMA are mandatory by the use of the word “shall” and it doesn’t offer the Respondent any latitude on the timelines for issuing a review decision.

59. It contended that the Respondent’s review decision fails to address the substantive issues raised in the Appellant’s application for review and provides a rationale behind its conclusion that the tax demanded still stands.

60. It argued that the Minutes referred to in the objection decision by the Respondent wrongfully allege that the Appellant was given thirty days from the date of the meeting to respond to the Respondent, failure to which a final reminder would be given for the taxes due.

61. It added that the same was issued three months after the meeting and was not signed by the Appellant or its representatives who were not afforded the opportunity to verify its accuracy before its execution by the Respondent.

62. The Appellant submitted that the Minutes were submitted by the Respondent as an afterthought to give the impression that there was an expectation that the Appellant was supposed to communicate at a later date.

63. It quoted Article 47 of the Constitution of Kenya and Section 4(2) of the Fair Administrative Actions Act to assert that the Respondent’s failure to set out the reasons in a review decision infringes on the Appellant’s right to fair administrative action.

64. It relied on the case of Local Productions Kenya Ltd. v Commissioner of Domestic Taxes TAT Appeal No. 50 of 2017 to buttress its position that failure to give reasons for a decision amounts to a breach of the dictates on fair administrative actions therefore such a decision cannot be said to be Constitutional under Article 47 of the Constitution of Kenya, 2010.

65. It urged the Tribunal to consider its decision in the case of Githima Limited v. Commissioner of Domestic Taxes TAT Appeal No. 162 of 2021 where the Tribunal held that:-“... from the edicts of the foregoing sections of the law, we shall proceed to analyse whether the Commissioner’s Objection Decision was issued in accordance with these laws. To begin with… the TPA, being the primary procedural law on the subject matter at hand, stipulates that an objection decision issued by the Commissioner shall include a statement of findings on the material facts and the reasons for the decision. It is worth noting, in the first instance, that the Section is framed in mandatory terms, meaning that it grants the commissioner no latitude whatsoever in the manner of rendering an objection decision. Simply put, the commissioner might choose any format at his disposal of writing an objection decision but must at all times include a statement of findings on the material facts and reasons for the decision. ”

On whether the Appellant’s letter of 4th November 2021 meets the threshold of proper applications under Section 229 of the EACCMA 66. The Appellant submitted that it only filed one review application with the Respondent which application was filed on 9th December 2021 and has since been acknowledged by the Respondent and its letter of 4th November 2021 does not amount to a review application but an ordinary letter aimed at responding to the issues raised by the Respondent’s demand and explaining why the taxes demanded were not due and nothing in the said letter of 4th November 2021 indicates that the Appellant intended to invoke the provisions of Section 229 of the EACCMA. It added that the letter of 4th November 2021 does not meet the statutory threshold for a review application.

67. It relied on the case of Republic v Commissioner of Customs Services Ex-Parte Africa K-Link International Limited [2012] eKLR where it was held as follows:-“an application for review under Section 229 of the Act must be worded in a way that leaves no doubt that a taxpayer is applying for a review of a decision under Section 229(1) of the Act and must clearly state the grounds upon which the application for review is premised. Clarity on this matter is important since it will enable the Respondent to know whether it was dealing with an application for review under Section 229(1) of the Act or with ordinary correspondence from a taxpayer objecting to a demand to pay tax as assessed… Looking at the contents of the letter dated 1st December 2011, I am of the firm view that it does not qualify to be an application for review within the meaning of Section 229(1) and (2) of the Act. It was just a letter responding to issues raised in the Respondent's management letter of 17th November 2011 concerning anomalies in the Applicant's operations discovered during the post clearance audit seeking an opportunity to demonstrate that no tax was due owing to the Respondent… ”

68. It reiterated that the letter of 4th November 2021 references Section 50 of the Tax Procedures Act, 2015 and that a review application referred to in Section 229(1) of the EACCMA cannot be brought under Section 50 of the Tax Procedures Act, 2015 as the provisions of Section 229 of the EACCMA are supreme to the provisions of TPA in matters customs.

69. It relied on the case of MJ v. NK and another [2017] eKLR HC Misc. Civil Application No. 359 of 2012 where the court held, in reliance on the Indian Supreme Court decision in the case of Commercial Tax Officer, Rajasthan v. M/S Binani Cement Ltd and Another as follows:“The rule of statutory construction that the specific governs the general is not an absolute rule but is merely a strong indication of statutory meaning that can be overcome by textual indications that point in the other direction. This rule is particularly applicable where the Legislature has enacted a comprehensive scheme and has deliberately targeted specific problems with specific solutions. A subject-specific provision relating to a specific, defined, and descriptable subject is regarded as an exception to and would prevail over a general provision relating to a broad subject.”

70. It asserted that the fact that the tax agent relied on Section 50 of the TPA demonstrates that the Appellant was not seeking a review but rather attempting to respond to the Commissioner’s demand and the letter neither provided any documentary evidence to the Commissioner nor did its heading indicate the same and that in customs matters, the EACCMA takes precedence over the Tax Procedures Act.

71. It argued that the Respondent, upon receipt of the letter dated 4th November 2021 corresponded with the Appellant referring to the said letter as the review application thus estopping it from reneging on the position.

72. It relied on the case of Carol Construction Engineers Limited & Another v National Bank of Kenya [2020] eKLR where Ngugi J held that:-“From a scan of our decisional law, one must show the following five elements in order to establish estoppel by representation or promissory estoppel: a. Representation: There must be a representation by the representor in words or by acts or conduct; b. Reasonableness: The person relying must satisfy the Court that it was reasonable for them to rely on the representation; c. Reliance: the victim must demonstrate that he was induced by the representation and in such reliance acted on it; d. Detriment: the victim must show that in acting in reliance of the representation he suffered some detriment or changed his position; and e. Unconscionability: the victim must demonstrate that it would be unconscionable to permit the representor to resile from the representation.”

On whether the Respondent adopted an erroneous interpretation of the term “importation” 73. The Appellant submitted that the purported review decision goes against the principles of strict interpretation of tax laws and is premised on an erroneous interpretation of the term ‘importation’.

74. It quoted Sections 2 and 140(1) and (2) of the EACCMA and Regulation 6(3) of the Duty Remissions Regulations and submitted that the definition of the term import does not refer to the date of arrival of the vessel into the Country but also encompasses the steps taken by the taxpayer to initiate the process of importation.

75. It maintained that in the instant case, it initiated the importation process by engaging the supplier of the wheat and applying for the control number before the expiry of the Legal Notice, therefore, qualifying under the DRS.

76. It submitted that the control number is issued before the imported goods land in the Country and it is used to process payment of duties under the DRS. It added that it lodged its application on 5th June 2020 and issued on 9th June 2020 making the Appellant’s importation valid and within the timelines of the Legal Notice that expires on 30th June 2020.

77. It urged the Tribunal to consider the case of Republic v Commissioner of Domestic Taxes Large Taxpayers Office ex-parte Barclays Bank of Kenya Ltd [2012] where Majanja J held as follows:-“The approach to this case is that stated in the oft cited case of Cape Brandy Syndicate v Inland Revenue Commissioners [1920] 1 KB 64 as applied in T.M. Bell v Commissioner of Income Tax [1960] EALR 224 where Roland J. stated, “ …in a taxing Act, one has to look at what is clearly said. There is no room for intendment as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used… If a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be.” As this case concerns the interpretation of the Income Tax Act, I am also guided by the dictum of Lord Simonds in Russell v Scott [1948] 2 ALL ER 5 where he stated, “My Lords, there is a maxim of income tax law which, though it may sometimes be overstressed yet ought not to be forgotten. It is that the subject is not to be taxed unless the words of the taxing statute unambiguously impose the tax upon him” adopted in Stanbic Bank Kenya Limited v Kenya Revenue Authority CA Civil Appeal No. 77 of 2008 (Unreported) [2009] eKLR per Nyamu JA (See also Jafferali Alibhai v Commissioner of Income Tax [1961] EA 610, Kanjee Naranjee v Income Tax Commissioner [1964] EA 257). Any tax imposed on a subject is dictated by the terms of legislation and taxing authority must satisfy itself that the transaction fits within the definition of the statute. In Adamson v Attorney General (1933) AC 257 at p 275 it was held that “The section is one that imposes a tax upon the subject, and it is well settled that in such cases it is incumbent on the Crown to establish that its claim comes within the very words used, and if there is any doubt or ambiguity this defect-if it be in view of the Crown a defect-can only be remedied by legislation.”

78. It argued that the DRS Regulations provide for the validity of the remission of duty and not control numbers and there is no provision of the law expressly on control numbers or applying for an extension of the same and the legislature would have included the expiry and extension of control numbers in the Regulations if it intended to do so. It posited that the DRS Regulations should be interpreted with the utmost precision to the extent that the Appellant shall not become liable to tax.

79. It relied on the case of Commissioner of Domestic Taxes (Large Taxpayers Officers) v Barclays Bank of Kenya Ltd NRB CA Civil Appeal No. 195 of 2017 [2020] eKLR where the court held as follows:-“There is no doubt in our minds that the decisions in Adamson v. Attorney General (supra), Cape Brandy Syndicate v. Inland Revenue Commissioners [1920] 1 KB 64, T. M. Bell v. Commissioner of Income Tax [1960] EA 224, Republic v. Commissioner of Income Tax ex parte SDV Transami (supra) and the first judgment represent a correct statement of the law, namely strict construction of tax legislation so that the tax demand must fall within the terms of the statute without ambiguity. If there’s any ambiguity in the legislation, it is not to be rectified by considerations of intendment, but by amending the legislation. However, the determination of whether there is clarity or ambiguity in the legislation or whether a tax demand is precise and within the terms of the legislation is not an abstract or pedantic exercise. It must be based on the evidence and the circumstances of each case. We agree with the majority of this Court in Stanbic Bank Ltd v. Kenya Revenue Authority [2009] eKLR that the meaning of words should not be stained so as to find ambiguity.”

On whether the Respondent violated the Appellant’s legitimate expectation through the demand for additional taxes 80. The Appellant argued that the Respondent, in issuing the purported review decision reneged on the legitimate expectation created by the Appellant. It argued that the Respondent's clearance of the importation created a legitimate expectation that the duty remission was applicable and the Appellant was paying the correct customs duty.

81. It reiterated and relied on the R v. Bibi (supra) case, the Keroche case (supra), and the definition of legitimate expectation by De Smith, Woolf & Jowell, in Judicial Review of Administrative Action, 6th Edition of Sweet & Maxwell at Page 609 restating that the Respondent’s previous actions of allowing importation using control numbers despite the same arriving after the expiry of the Legal Notice granting the remission created a legitimate expectation prompting the National Treasury Duty Remission Committee to issue clarification that the importation of wheat under the DRS had to be done within the timelines and that the sudden unexplained change of course by demanding full remitted taxes based on failure to comply with an administrative action thwarted the legitimate expectation thus an abuse of power.

82. It asserted that the legitimate expectation created by the Respondent is not contrary to the legal provisions as it imported the goods within the validity period citing the case of Communications Commission of Kenya & 5 Others v Royal Media Services & 5 Others SC Petition Nos. 14, 14A, 14B & 14C of 2014 where the Supreme Court held as follows:“... legitimate expectation would arise when a body, by representation or by past practice, has aroused an expectation that is within its power to fulfill. A party that seeks to rely on the doctrine of legitimate expectation, has to show that it has locus standi to make a claim on the basis of legitimate expectation.”

On whether the Appellant should be penalised by demand for additional taxes for failure to comply with an administrative action not provided for in the legislation 83. The Appellant cited Article 210 of the Constitution and Regulations 6(1) and (2) of the DRS Regulations to reiterate that the issuance of Control numbers is not a legal requirement set out in the law but an administrative measure used to control importation of goods under DRS and that the Respondent’s interpretation that control numbers are issued pursuant to specific Legal Notices is misconstrued contrary to the principle of strict interpretation of tax law.

On whether the Appellant’s letter dated 4th November 2021 amounted to a Review Application and whether the letter dated 9th December 2021 amounted to a Review decision pursuant to the provisions of Section 229 of the EACCMA 2004 84. The Respondent quoted Section 229 of the EACCMA to argue that it demanded for Kshs. 18,371,493. 00 vide its letter dated 29th September 2021 and on 4th November 2021 the Appellant raised an objection through its tax agent, Grant Thornton.

85. It argued that contrary to the Appellant’s averment, its letter dated 4th November 2021 meets the threshold of an objection application as envisaged in Section 229 of the EACCMA wherein the Appellant noted in its last paragraph “therefore as per provisions of the Tax Procedures Act, we Object to the amount demanded of Kshs. 18,371,493. 00 based on the following grounds…” which were subsequently listed.

86. It maintained that in its letter dated 9th November 2021, it referenced the letter as: “Re: Response to Application for Review of Demand of the Payment of Duties under DRD Control No. 13457” wherein it gave the reasons for upholding its decision.

87. It submitted that the correspondence between the parties subsequent to the issuance of the objection decision dated 9th November 2021 was done in good faith and in the spirit of enhancing Alternative Dispute Resolutions.

On whether the Respondent in its Decision dated 9th November 2021 arrived at an erroneous decision 88. The Respondent cited Regulation 6 of the East African Community Customs Management (Duty Remission) Regulations, 2008 to submit that the expiry date for Legal Notice No. EAC/109/2019 was 30th June 2020 and entries 2020MSA7633143 and 2020MSA7633115 were lodged on 10th September 2020, three months after the expiry of the notice.

89. It maintained that the Appellant never applied to the Council for an extension of time and having imported the subject goods outside the gazetted period, the Respondent was right in issuing a demand of Kshs. 18,371,494. 00.

Issues For Determination 90. After perusing the Memorandum of Appeal and parties' Statements of Facts together with their submissions and documentation attached therewith, the Tribunal is of the considered view that the following are the issues for determination:a.Whether the Respondent’s Review decision dated 9th March 2022 is time-barredb.Whether the Respondent's Decision disqualifying the Appellant for duty remission is justified.

Analysis And Findings 91. The Tribunal wishes to analyse the issues as hereinunder.

a. Whether the Respondent’s Review decision dated 9th March 2022 was time-barred. 92. The Appellant contended that the Respondent’s review decision erroneously dated 9th March 2022 is time-barred as it applied for a review on 9th December 2021.

93. The Respondent argued that its review decision was rendered on 9th November 2021 after the Appellant made an application for review on 30th September 2021 thus making its review decision valid within the statutory timelines.

94. The Appellant contended that the letter dated 30th September 2021 was a mere letter done after its review application.

95. Section 229 of the EACCMA provides as follows:-“(1)A person directly affected by the decision or omission of the Commissioner or any other officer on matters relating to Customs shall within thirty days of the date of the decision or omission lodge an application for review of that decision or omission.(2)The application referred to under subsection (1) shall be lodged with the Commissioner in writing stating the grounds upon which it is lodged.(3)...(4)The Commissioner shall, within a period not exceeding thirty days of the receipt of the application under subsection (2) and any further information the Commissioner may require from the person lodging the application, communicate his or her decision in writing to the person lodging the application stating reasons for the decision.(5)Where the Commissioner has not communicated his or her decision to the person lodging the application for review within the time specified in subsection (4) the Commissioner shall be deemed to have made a decision to allow the application…

96. Upon perusal of the letters of 29th September 2021 from the Appellant and the letter dated 9th November 2021, the Tribunal notes that they were in compliance with Section 229 of the EACCMA in that the Appellant states its grounds for the application as having been granted a control number by the Respondent who cleared the goods on the strength of the Control Number. Additionally, the Appellant referenced the subject of the letter as “Review of Consignment Under 13457/2019 - Control Numbers 2020MSA7633143 And 2020MSA7633115, Against Legal Notice EAC/109/2019. ”

97. Under the subject, “Response To Application Review of Demand of Payment of Duties Under DRS Control 13457” the Respondent’s letter dated 9th November 2019 listed the Appellant’s grounds for review replying to them individually and ended with a confirmation of the demanded amount due with an order for payment of the amount within 14 days.

98. Nothing in the Appellant’s documents suggests that the letter dated 29th September 2021 from the Appellant was not an application for review. It met all the criteria for an application for a review and was received as such by the Respondent. The Tribunal finds that the letter was indeed an application for a review thereby making the Respondent’s letter dated 9th November 2021 a valid review decision issued within the stipulated statutory timelines.

99. Further, the Tribunal notes that the subsequent communication with the Appellant including the letter dated 9th March 2022 were demand letters and not review decisions as the Appellant suggests.

b. Whether the Respondent's Decision disqualifying the Appellant for duty remission is justified. 100. The Appellant averred that it applied for a control number with the Tax Remission for Export office on 5th June 2020 which was issued on 9th June 2020 and has argued that it imported the goods within the validity of Legal Notice No. EAC/109/2019 which expired on 30th June 2020 and its imports qualify for the remission of duty under the DRS despite the goods arriving on 10th September 2020.

101. It argued that no additional taxes would be levied since the Applicant initiated the importation of the goods on 5th June 2020 well within the validity period of the remission and that the Respondent’s act of clearing the goods created a legitimate expectation that the Appellant was paying the correct rate of duty.

102. The Appellant averred that on previous occasions, the Respondent has allowed wheat importers to import wheat using control numbers despite the fact that the same arrived after the expiry of the Legal Notice granting the remission to the extent that the National Treasury Duty Remission Committee issued a circular on 20th November 2021 clarifying that the importation of wheat under the DRS had to be done within the timelines.

103. The Respondent contended that the Appellant imported wheat under entries 2020MSA7633115 and 2020MSA7633143 on 10th September 2020 outside the period provided for in the Gazette Notice No. EAC/109/2019 dated 2nd July 2019 valid until 30th June 2020.

104. It reiterated that the importation of raw materials under the duty remission scheme is twelve months from the date of publication of the gazette notice and that the controls used to facilitate the importation of the goods should be used to facilitate clearance at the entry point before the expiry of the gazette notice.

105. It averred that at the time of the importation, there was a new Legal Notice number EAC/92/2020 dated 2nd July 2020 which was valid until 30th June 2021 and the Appellant was required to apply for a new control for the importation of goods on 10th September 2020.

106. Upon perusal of the documents provided by the parties, the Tribunal notes that at the review stage, the Respondent only viewed the date of importation as the date in which the goods made entry into the Country.

107. The Respondent also argued that the Appellant’s argument that it initiated importation on the date it engaged the supplier was incorrect as the same was just a mere declaration of interest.

108. The Tribunal observes that the control number was issued few days before the expiry of the Duty Remission Scheme in which the Respondent could not have reasonably expected the goods to have been purchased for imports, shipped and declared at the port of entry within such a short time. It is therefore only reasonable to believe that the control number, issued before the expiry of the Duty Remission Scheme, served as an extension of the benefits accruing from the Duty Remission Scheme after the expiry date.

109. It is however further observed that whereas the Appellant alleged that it had initiated imports before the expiry of the Duty Remission Scheme, it has not sufficiently demonstrated to the Tribunal its assertions as there is no documentation tabled before the Tribunal proving that indeed the Appellant had initiated importation of the wheat before the expiry date.

110. In the case of Republic vs. Commissioner of Domestic Taxes Large Taxpayers Office Ex-Parte Barclays Bank of Kenya LTD [2012] eKLR the court stated as thus:“The approach to this case is that stated in the oft cited case of Cape Brandy Syndicate v Inland Revenue Commissioners [1920] 1 KB 64 as applied in T.M. Bell v Commissioner of Income Tax [1960] EALR 224 where Rowlatt J. stated, “ …in a taxing Act, one has to look at what is clearly said. There is no room for intendment as to a tax. Nothing is to be read in, nothing it to be implied. One can only look fairly at the language used… If a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be… (emphasis ours)

111. To this end, the Tribunal finds that the Respondent’s decision disqualifying the Appellant for the Duty Remission Scheme, however unreasonable it may seem to the Appellant, was justified.

Final Decision 112. The upshot to the foregoing is that the Appeal is not meritorious and the Tribunal consequently makes the following orders;-i.The Appeal be and is hereby dismissed.ii.The Respondent’s review decision dated 9th November, 2021 be and is hereby upheld.iii.Each party to bear its own costs.

113. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 29TH DAY OF JUNE 2023. ..............................................ROBERT M. MUTUMACHAIRPERSON..............................................ELISHAH N. NJERUMEMBER..............................................RODNEY O. OLUOCHMEMBER..............................................DELILAH K. NGALAMEMBER..............................................EDWIN K. CHELUGETMEMBER