[2023] KETAT 625 (KLR)

Bharat General Agency v Kenya Revenue Authority (Appeal 516 of 2022) [2023] KETAT 625 (KLR) (3 November 2023) (Judgment)

Neutral citation: [2023] KETAT 625 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 516 of 2022

Grace Mukuha, Chair, G Ogaga, E Komolo, Jephthah Njagi & T Vikiru, Members

November 3, 2023

Between

Bharat General Agency

Appellant

and

Kenya Revenue Authority

Respondent

Judgment

Background 1. The Appellant is a registered taxpayer whose core business is importation and trading in various commodity items.

2. The Respondent is a principal officer appointed pursuant to Section 5(1) of the East African Community Customs Management Act, 2004, (EACCMA) as read together with Section 13 of the Kenya Revenue Authority (KRA) Act, with a mandate to ensure proper administration of customs laws and the collection of customs duties on behalf of the Government of Kenya.

3. A demand was issued dated 7th March 2022 amounting to Kshs. 1,384,520. 00 and served on the Appellant via e-mail on the same day.

4. The Appellant objected to the demand through a letter dated 5th April 2022.

5. The Respondent issued a review decision dated 6th April 2022 upholding the demand.

6. The Appellant being dissatisfied with the Respondent's review decision filed the Appeal through its Notice of Appeal filed on 6th May 2022.

The Appeal 7. The Appeal is premised on the Memorandum of Appeal dated and filed on 19th May 2022 raising the following grounds:i.That the Respondent erred in fact and in law by failing to consider or properly consider the documentary evidence, explanations, reconciliations and supporting documents submitted by the Appellant as required by Section 51[3] of Tax Procedure Act, No. 29 of 2015. ii.That the Respondent erred in fact and in law by handling the Appellant's objection in an arbitrary procedurally unfair and unjust manner without paying due heed and regard to the material factual matters thereby depriving the Appellant to its right to fair administrative action and legitimate expectation of fair tax assessments protected under Article 47 of the Constitution of Kenya 2010 and The Fair Administrative Actions Act No.4 of 2015. iii.That the Respondent's actions also constitute an infringement of the Appellant's property rights as protected under Article 40 of the Constitution of Kenya 2010 by attempting an arbitrary deprivation thereof.iv.That the Respondent wrongly held and passed on the burden to the Appellant of its Simba System when in fact the system allows no material change to the duty calculation to be made by the Appellant once all proper declarations are made which the Appellant did.v.That in its aforesaid decision, for the first time, Respondent made an allegation and finding [without affording the Appellant any opportunity to address the matter] that the Appellant had applied the wrong tariff code when, in fact, it had not and this matter had never been raised by the Respondent in any of its correspondence prior to the objection.vi.That the Respondent failed, refused and/or neglected to consider that the Appellant had made all the pertinent declarations and it is the Respondent's Simba system that calculated the duty which was only paid and accepted by the Respondent following a full verification process. The Respondent further failed to consider that the Appellant had no control over a duty generation by the System due to its own internal configuration flaws.

Appellant‟s Case 8. The Appellant‟s case is premised on the documents set out hereunder:a.The Statement of Facts dated and filed on 19th May 2022b.The Written Submissions dated 14th April 2023 and filed on 18th April 2023.

9. The Appellant averred that it objected to the Respondent's assessment as the same infringed upon its Constitutional property rights protected under Article 40 of the Constitution of Kenya and its legitimate expectation of being treated fairly and justly by the Respondent.

10. That the Appellant had imported shuttering Plywood - Black Film in July 2018 which was cleared by the Respondent after verification of the entry and cargo. That the entry was lodged in the Respondent's Simba System portal which then generated the duty payable on each representative consignment.

11. That an entry and Official Entry Number was then generated by the Respondent's Simba System and/or its Officers and once the entry documents and cargo were verified the import duty was paid by the Appellant thereafter.

12. That the Appellant made the correct declarations and paid. That at the stage of the IDF application, the importer is required to declare the HS Code for the item intended for import amongst other particulars. That the Simba System generates the duty, taxes and other charges payable.

13. The Appellant averred that the Respondent had amended its Simba System by increasing the duty rate from 25% [applicable in 2017] to 35% which was applied by the Appellant and paid.

14. That the Respondent having amended the system to reflect the increased duty rate of 35%, its irrational for the Respondent to demand duty on the alternative basis four years after the import.

15. The Appellant averred that the Respondent. in its review decision, for the first time alleged that the Appellant misdeclared the tariff Code and condemned the Appellant unheard on this account without affording it an opportunity to present a defence to this allegation.

16. That the Respondent also did not state what wrong classification was used and the objection decision confirmed that “plywoods are specifically provided for in the tariff code between 4412. 10 and 4412. 39” and the Appellant declared the goods under Tariff code 4412. 39. 00 which falls within the accepted category.

17. The Appellant added that the applicable duty rate for the Tariff codes 44. 12. 10 and 4412. 39 are the same and its therefore incongruous for the Respondent to contend otherwise and seek to impute wrongdoing on the part of the Appellant.

18. That the Respondent was all along aware that the subject goods were being imported for trading purposes and that taxes collected would form a fundamental component of the respective Appellant's cost of goods in order to determine its selling price.

19. That the demand for additional taxes being made by the Respondent infringed upon the Appellant's Constitutional property rights as well as its right to fair administrative action in terms of the national values and principles of governance specified under Article 10 of the Constitution.

20. The Appellant averred that its efforts to engage the Respondent in discussion and appreciate that its conduct is ultra-vires and in gross abuse of its powers was unsuccessful and, the Respondent wrongfully persisted in its unlawful conduct by reason of which the Appellant is likely to suffer irreparable loss and damage particularly because the Respondent could enforce the demands made.

21. That the Appellant has no control over the Kenya Revenue Authority's Simba Systems nor can it make any changes to the computations generated by the System and subsequently verified, together with the cargo, by its officers.

22. That it is morally repugnant to justice and the national values and principles of governance set out in Article 10 of the Constitution for the Respondent to saddle the Appellant with additional duty on goods imported way back in 2018 as the same will result in direct loss to the Appellant.

23. The Appellant in support of the matter relied on the cases of Krish Commodities Ltd vs KRA [Mombasa Civil Appeal No.67 of 2017];KRA vs Export Trading Co. Ltd [Kenya Supreme Court Petition No.20 of 2020] and Nairobi HC Petition No. 122 of 2015 [Prof. Tom Ojienda SC & Associates vs Ethics and Anti-Corruption Commission and Others.

Appellant‟s Prayers. 24. The Appellant prayed for the Tribunal to find that:a.The desk audit demand made is erroneous, irrational, unconscionable, unjust and in breach of the Appellant‟s various Constitutional rights and its legitimate expectation and the same be vacated.b.Costs of the Appeal

Respondent‟s Case 25. The Respondent case is premised on the following documents:a.The Respondent‟s Statement of Facts dated and filed on 26th August, 2022b.Respondent‟s Written Submissions dated 13th January, 2023 and filed on 16th January 2023.

26. The Respondent averred that the decision to arrive at the demanded amount was justified and had basis in law as provided for under Sections 135 and 249 of the EACCMA, 2004.

27. The Respondent averred that the Appellant had not provided additional evidence showing that the Respondent's review decision was wrong and therefor the Appeal lacks merit.

28. The Respondent averred that the Simba System allows for a self-declaration and as such the burden of proof lies with the importer to capture all the details and use the correct classification.

29. That in any case where the Appellant claimed otherwise, its duty to provide proof in support of the alleged position as per the provision of Section 56 of the Tax Procedures Act.

30. The Respondent in support of the matter relied on the cases of Law Society of Kenya vs A.G & 2 Others [2022] eKLR and Commissioner for Investigations & Enforcement vs Menengai Oils Ltd.

Respondent‟s Prayers. 31. The Respondent prayed the Tribunal to find that:a.The outstanding tax arrears are due and payable by the Appellant.b.The confirmed assessments were proper in lawc.The Appeal be dismissed with costs to the Respondent

Issue For Determination 32. The Tribunal, upon reading the pleadings and the written submissions by the Parties identified only one issue for determination as set out hereunder.Whether the Respondent was justified in assessing the Appellant for additional taxes.

Analysys and Findings 33. The dispute between the parties herein was initiated by the customs post clearance desk audit the Respondent conducted on the Appellant in 2022 pursuant to Sections 235 and 236 of the East Africa Community Customs Management Act (EACCMA). It covered the period between July to December 2018.

34. The audit resulted in a post clearance audit finding communicated to the Appellant vide the Respondent‟s letter dated 7th March, 2022.

35. The main issue of contention in the audit finding is tariff declarations. In particular, the Respondent averred that it noted that the Appellant had made some imports of film faced plywood under entry No 2018MSA6986169 whose duty was paid at the advalorem rate instead of under specific duty calculation.

36. The Respondent argued that the Appellant‟s duty tabulation aforesaid resulted in a short levy of taxes and interest amounting to ksh.1,384,520. 00. The Respondent added that the Appellant‟s tabulation was against the law and in particular the provisions of Gazette Notice Vol.AT1 No.8 of 30th June 2018.

37. The Appellant on its part averred that it had used the Simba System installed by the Respondent to arrive at the correct duty. That it had fed the system with all the relevant information and had no control over the tabulation(s) and in any case it had no powers to configure the system to change the results of its tabulation.

38. The Appellant had also argued that the cargo was verified, the correct declarations made and if the System had any deficiencies the same ought not to be visited on the Appellant.

39. The Appellant averred that it was the Simba system that gave the tabulation of the due taxes and it relied on the same to pay the taxes.The Respondent argued that the system generates the taxes figures based on the information fed to it.

40. The Parties are in agreement that in the year 2018 the applicable law on the import duty of plywoods was as laid out in Gazette Notice Vol.AT1 No.8- of 30th June 2018 which stipulated as follows:On “Plywood,Veneered panels and similar laminated wood”Kenya to stay application of EAC/CET/rate of 25% and apply a duty rate of 35% or USD 110/MT whichever is higher”.

41. The law as above demonstrated required the Appellant to pay taxes by applying a duty rate of 35% or USD 110/MT whichever is higher. The Appellant paid the duty at 35% and this option of the Appellant provided the lower tax as opposed to what the law laid down.

42. The Appellant did not demonstrate in details the information and or data fed into the system to produce the taxes paid. Its trite law that in all the circumstances the taxpayer bears the burden of proving that the Respondent was wrong in its assessment. This is as per the provisions of Sections 30 of TAT Act.

43. The Tribunal also notes that the Respondent is empowered under Sections 235 and 236 of the EACCMA to carry out post clearance audit on taxpayers and in the circumstances therefore the demand for the short- levied tax was in order.

44. The Tribunal is guided by the holding in the case of Mount Kenya Bottlers Ltd & 3 others v Attorney General & 3 others [2019] eKLR while reiterating the Cape Brandy case the Court of Appeal judges held as follows: -“Judge Rowlett in his decision in Cape Brandy Syndicate v I.R. Commissioners [1921] 1KB (cited by the appellants), expressed the common law position in this area when he stated;„…in a taxing Act one has to look at what is clearlysaid. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to beimplied. One can only look fairly at the language used'”.

45. The Tribunal noted that the applicable law was clear to the Appellant. The Appellant nevertheless failed to apply the same. The Respondent was therefore justified to assess the Appellant for additional taxes, and in the circumstances the Tribunal finds that the Appeal lacks merit.

Final Decision 46. On the basis of the foregoing analysis, the Tribunal proceeds to make the following Orders:a.The Appeal be and is hereby dismissedb.The Respondent‟s review decision dated 6th April 2022 is hereby upheldc.Each party to bear its own costs.

47. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 3RD DAY OF NOVEMBER, 2023GRACE MUKUHACHAIRPERSON..............................................GLORIA A. OGAGAMEMBER..............................................DR ERICK KOMOLOMEMBER..............................................JEPHTHAH NJAGIMEMBER..............................................TIMOTHY VIKIRUMEMBER