[2023] KETAT 865 (KLR)

Blowplast Limited v Commissioner of Legal Services and Board Coordination (Tax Appeal E010 of 2023) [2023] KETAT 865 (KLR) (8 December 2023) (Judgment)

Neutral citation: [2023] KETAT 865 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E010 of 2023

E.N Wafula, Chair, E Ng'ang'a, RO Oluoch, Cynthia B. Mayaka, AK Kiprotich & B Gitari, Members

December 8, 2023

Between

Blowplast Limited

Appellant

and

Commissioner of Legal Services and Board Coordination

Respondent

Judgment

Background 1. The Appellant is a manufacturer of plastics for foods, petrochemical industries and other sectors in East Africa, with exports to over 18 African countries. It is also a member of the Kenya Association of Manufacturers, the representative body whose mandate includes policy advocacy, trade promotion and encourages the formulation, enactment and administration of sound policies that facilitate a competitive business environment.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1), of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue.

3. The Finance Act 2022, under Paragraph 35 (b) (xiv), amended the First Schedule to the Excise Duty Act (2015) by inserting the phrase “and 39. 90. 90” immediately after “3923. 30. 00” appearing in the tariff description “Imported articles of Plastics of tariff heading 3923. 30. 00”

4. The Finance Act of 2021 under Paragraph 32 (iv) had introduce Excise duty at the rate of 10% on the articles of plastics of Tariff 3923. 30. 00.

5. Based on the amendment in the Finance Act 2021, the Appellant being a manufacturer of articles of plastics of tariff 3923. 30. 00 had been charging and remitting Excise duty.

6. The Appellant filed nil returns for October 2022 despite manufacturing excisable goods. The Respondent assessed and issued an assessment of Kshs. 29,747,569. 89 on 22nd November 2022.

7. The Appellant objected to the additional Excise assessments on 23rd November 2022.

8. The Respondent issued its Objection decision confirming the assessment on the 8th December 2022.

9. Aggrieved by the Respondent’s objection decision the Appellant preferred the instant Appeal.

The Appeal 10. The Appeal is premised on the following grounds as stated in the Appellant’s Amended Memorandum of Appeal dated and filed on 20th January 2023:a.That the Respondent erred in law and fact by imposing Excise duty on locally manufactured articles of plastic of tariff Heading 3923. 30. 00 and 3923. 90. 90. b.That the Respondent erred in law and fact by failing to appreciate that Finance Act, 2022 as read with the Excise Duty Act No. 23 of 2015 imposes Excise Duty solely on imported Articles of plastics of tariff heading 3923. 30. 00 and 3923. 90. 90. c.That the Respondent erred in law and fact by disregarding the provisions of the Hansard and Order Paper of the National Assembly dated 2nd June 2022 establishing Parliament's intention that Excise duty should be solely on imported articles of plastics 3923. 30. 00 and 3923. 90. 90. d.That the Respondent erred in law and fact by disregarding the letter from the National Assembly dated 28th July 2022 averring that the intention of Parliament was to introduce Excise Duty solely on imported articles of plastic of tariff heading 3923. 30. 00 and 3923. 90. 90. e.That the Respondent erred in law and fact by imposing Excise duty on the Appellant's locally manufactured articles of plastic in contravention of the Finance Act 2022, the Excise Duty Act, No.23 of 2016, the directives by the Clerk of the National Assembly, and the intention of Parliament as evidenced by the Hansard and Order Paper of 2nd June 2022. f.That the Respondent erred in law and fact by failing to appreciate that the introduction of Excise duty solely on imported plastics was a measure meant to protect and preserve the dwindling local manufacturing industry as well as reduce cost of living.g.That the Respondent erred in law and fact by failing to appreciate that only Parliament is mandated and imbued with the obligation, duty and power to introduce laws in Kenya. Inspite of the same, the Respondent is blatantly refusing to abide by the will of the Legislature by imposing Excise duty on locally manufactured articles of plastics contra to Parliament's intention.

Appellant’s Case 11. The Appellant’s case is supported by the following documents:a.The Appellant’s Statement of Facts dated and filed on the 20th January 2023 together with the documents attached thereto.b.Appellant’s witness statement dated on 18th April 2023 and filed on 19th April 2023. c.The Appellant’s written submissions dated on 31st October 2023 and filed on 1st November 2023 and authorities attached hereto.

12. That the Appellant and the Respondent herein are at loggerheads regarding the interpretation of Section 35(b)(xiv) of the Finance Act, 2022. The provision relates to the imposition of Excise duty on plastics with the main bone of contention between the Appellant and the Respondent being whether the provision sought for the imposition of the tax head solely on imported articles of plastics, or both imported and locally manufactured articles of plastics.

13. That the amendment introduced in Section 35 of the Finance Act was indeed a culmination of years of jurisprudence being laid down to govern the introduction and eventual imposition of Excise duty on plastics. Indeed, owing to the long and convoluted nature of the changes in law leading up to the Finance Act, 2022 we shall establish a brief chronology of the events and amendments that transpired.

14. That however prior to doing the same, it should be noted from the onset that both the Finance Act 2022,and the Excise Duty Act, 2015 unequivocally provide that Excise duty should only be imposed on imported articles of plastic of tariff Heading 3923. 30. 00 and 3923. 30. 90. The aforementioned provision in the Finance Act, 2022 reads

15. That 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";

16. That equally, the Excise Duty Act, 2015 states that:-“Tariff Description RateImported Articles of plastic of tariff heading 3923. 30. 00 and 3923. 90. 90 10%.”

17. Despite this being the case, the Respondent was demanding from the Appellant, as per the Excise assessments dated 22 November 2022 issued for the month of October(Appendix 1), principal taxes of Kshs 29,747,569. 89 plus the accruing interests.

18. That understandably, the Appellant objected to the assessments and demands raised by the Respondent understanding and appreciating that it is being victimized for following the provision of the law to the letter. It cannot be overstated that contrary to the assertions in the Respondent’s Objection decision, the current provision of the Excise Duty Act, 2022 provides that Excise duty at the rate of 10% is to be levied on imported articles of plastics.

19. That to establish the brief background, it should be noted that Excise duty was first introduced on plastics through Section 32 of the Finance Act 2021which amended the First Schedule to the Excise Duty Act,2015. An Excise duty of 10% was accordingly imposed on articles of plastics of tariff Heading 3923. 30. 00.

20. That when introducing the provision, the intentions of Parliament were quite benign, seeking to curb the negative environmental impact of single-use plastics. Indeed, this is not a whimsical nor naïve assertion of the Appellant as we can in fact peer into the mind of the Legislature through the Hansard of the National Assembly dated 24th June 2021. “In (d) and (e) as per the Order Paper, we are proposing to increase Excise Duty on certain items. I propose to move a further amendment to remove the term “single use plastic bottles ”and just have it as that. Single use plastic bottles are those we use every day. Because of environmental issues, we propose to impose a 10 per cent Excise Duty on them but change that particular paragraph to read "articles of plastics tariff heading 3923. 30. 00”. This is for the purposes of ease of administration of tax to ensure that the Kenya Revenue Authority can find it and impose that particular Excise Duty.”

21. That it is clear that while crafting this provision, the main factor considered was the environmental impact arising from single-use plastics, however, noting the difficulty in segregating single-use and reusable plastics and for purposes of ease of administration and taxation,the legislature resorted to imposing the duty on articles of plastics of tariff Heading 3923. 30. 00.

22. That however, in doing so, Parliament defeated the purpose for which the law was introduced. It should be noted that by imposing the Excise duty on all articles of plastics of tariff Heading 3923. 30. 00, parliament had levied taxes on both and single use plastics which were excessively detrimental to the environment, and reusable plastics which were more environmentally friendly.

23. Ideally, that despite the intention of the legislature being to levy excise only on single-use plastics, all articles of plastics, both reusable and non-reusable were now excisable leading to a sharp increase in cost of living, and equally an increased cost of production for Kenya's locaI manufacturing industry.

24. That it should be noted that plastics have a wide range of applications and cuts across all industries, from the food industry to the pharmaceutical industry with packaging being one of the most common applications. In the food industry, plastics are an integral part of the packaging process and help maintain sterility of highly perishable goods such as mil. In the pharmaceutical industry it protects the medicines from adverse effects e.g., through chemical reactions, leaching of packaging materials or absorption.

25. That accordingly, any erratic changes or adjustments to the pricing of this crucial commodity would likely impact the whole economy, and unfortunately, the introduction of this excise duty brought about the need to re-assess key variables considered in the pricing of products to factor in this prudently incurred production costs.

26. That consequently, as a result of the 2021 Finance Act amendment, the cost of basic and household commodities skyrocketed. For example, Kenyans ended up paying an additional 10%for the same packet of brookside milk among other essential commodities.

27. That for the manufacturing sector, the effects were equally detrimental. Considering that imported articles of plastics did not suffer the same fate of having Excise duty imposed on it as goods produced in Kenya, local manufacturers became uncompetitive both regionally and globally as a result of the additional operational and production costs.

28. That indeed, the Legislature and particularly the Departmental Committee on Finance and Planning at their sitting in December 2021, took cognizance of the dire situation in their Report on the Petroleum Products (Taxes and Levies) (Amendment) Bill (National Assembly Bill No. 42 Of 2021). Quoting the relevant section from the report, the Committee noted as follows:“The Excise Duty Act, 2015 be therefore amended in order to delete the proposal levy excise objective of levying Excise Duty on imported products from countries other than EAC countries. The amendments were introduced to the Excise Duty Act, 2015 through the Finance Act, 2021. This has resulted in detrimental effects for the local manufacturers of this commodity as the operational and productions costs for supply of chocolates by local manufacturers have increased, rendering the Kenyan manufacturers uncompetitive in both the local market and exports markets which in turn also leads to over-reliance on imports.Committee's ObservationThe above Amendments were noted as having been erroneously captured. However, the Committee agreed to rectify the anomalies in the review of the Finance Bill, 2022"

29. That cognizant of the outcry from the public, and the effects of the additional excise duty on plastics, Parliament sought to ameliorate the situation by introducing an amendment in the Finance Act, 2022.

30. That accordingly, both the Finance Bill 2022 and subsequently the Finance Act 2022 introduced amendments to First Schedule of the Excise Duty Act, 2015. The Finance Bill provided as follows:-“(xviii)by inserting the expression "and 3923. 90. 90" immediately after the expression "3923. 30. 90" appearing in the tariff description Articles of Plastic of tariff heading 3923. 30. 00. ”

31. The Finance Act, 2022 similarly provided as follows:-35. Amendment of First Schedule to No. 23 of 2015The First Schedule to the Excise Duty Act,2015,is amended-(b)in the table appearing in paragraph 1 of Part I-(xiv)by inserting the expression “and 3923. 90. 90" immediately after theexpression “3923. 30. 00” appearing in the tariff description“Imported articles of plastic of tariff heading 3923. 30. 00”.

32. That Looking at the at the Hansard report dated 2nd June 2022, and the Final Order Paper of the even date, it will be noted that the National Assembly intended to introduce a 10% Excise Duty on “Imported” articles of Plastic as a measure to resuscitate the dwindling local manufacturing industry and reduce the cost of living.“Clause 34The Temporary Deputy Chairman (Hon. Christopher Omulele): Ho. Chair, you have a proposed amendment together with Hon. Aden Duale and Hon. Kimani Ichung'wah. We will start with the amendment by Hon. Chairperson.Hon. (Ms.) Gladrs Wanga (Homa Bay(CWR),ODM):Hon. Temporary DeputyThat,the Clause 3+ of the Bill be amended-a.In paragraph (b)i.By deleting sub paragraph (iii)ii.By deleting sub paragraph (v)iii.By deleting paragraph (viii) by deleting the expression “13,296,6” and substituting therefore the expression “15,296. 6”iv.By deleting subparagraph (xii)v.In subparagraph (xiv) in the new tariff description by deleting the word “white chocolate” and inserting the words “imported white chocolate, Including”vi.By deleting sub paragraph (xvi)vii.By deleting subparagraph (xvii);viii.In subparagraph (xviii) by inserting the word ”Imported” immediately before the word “Articles” in the tariff description “Article of plastic of tariff heading 3923. 30. 00”ix.By inserting the following new sub paragraph immediately after sub paragraph (xix)(xx)by deleting the following tariff description and the corresponding rates Tarriff description Rate of Excise Duty of the imported furniture of any kind used 25% in offices, kitchen, bedroom and other furniture(xxi)by deleting the following tariff description and the corresponding rates and substituting therefore the following”

33. That indeed the assertion was reiterated in the order paper dated 2nd June 2022. Quoting the relevant part from the Order Paper, the same provides:“(No 52)(v)in subparagraph (xiv) in the new tariff description by deleting the word “White chocolate” and inserting the words “Imported white chocolate, including”;(vi)by deleting sub paragraph (xvi);(vii)by deleting subparagraph (xvii);(viii)in sub paragraph (xviii) by inserting the word “imported” immediately before the word “Articles” in the tariff description “Articles of plastics of tariff heading 3923. 30. 00”

34. It is thus clear that from the Parliamentary record that the National Assembly intended to amend the relevant provision of the Excise Duty Act to provide that "Excise Duty would be applicable only on “Imported articles of plastic of tariff heading 3923. 30. 00 and 3923. 90. 90".Indeed,as per the Hansard and the Order paper, it can be noted that Parliament's intent was to exclude domestic articles of plastic from the application of Excise duty at rate specified in the Excise Duty Act.

35. That despite the aforementioned, the Respondent through its various assessments and demands intends to impose Excise duty on the plastics manufactured locally by the Appellant. This goes not just against the spirit of the law and the mischief the legislature intended to solve, but also the very letter of the law.

36. That it cannot be overstated that provisions of Section 35 of the Finance Act, 2022 as read with the First Schedule to Excise Duty Act No 23 of 2015 are couched in very mandatory terms, that is Excise duty is to be imposed solely on imported articles of plastics. Despite this being the case, the Respondent is demanding from the Appellant Kshs 29,747,569. 89 being undeclared Excise duty on locally manufactured plastics.

37. That through various correspondences with the Respondent, the Appellant's representative association, the Kenya Association of Manufacturers urged the Respondent to consider that the intention of Parliament in using the word “imported" was to exclude Excise duty on domestic articles of plastics. Unfortunately, their pleas fell on deaf ears.

38. That the Respondent has indeed been arguing that the amendment sought to expand the scope of Excise duty on plastics under tariff 3923. 90. 90. Furthermore, it was its argument that the word "imported" mentioned in the Finance Act, is not in the current provision of the law and accordingly, the Excise duty is applicable on all articles of plastic under the two tariffs, whether manufactured locally or imported. Despite having stated this in its various correspondences, it should be noted that this was not a ground nor a factor for rejecting the Appellant's Objection dated 23"' November 2022.

39. That indeed, the Respondent is clinging on to the fact that the Excise Duty Act contains a manifest error. Notably, despite the introduction of the new tariff description, “Imported Articles of plastic of tariff heading 3923. 30. 00and 3923. 90. 90", the tariff description "Articles of Plastic of tariff heading 3923. 30. 00" as introduced by the Finance Act 2021 was still retained.

40. To the Appellant's great consternation, the Respondent even while disputing the introduction of the tariff heading "Imported Articles of plastic of tariff heading 3923. 30. 00 and 3923. 90. 90" is still making demands for Excise duty on articles of plastic of tariff Heading 3923. 90. 90. This is indeed a contradiction as on one hand the Respondent is saying that owing to the clerical error, the new tariff code cannot be used and yet on the other hand, it is still demanding for Excise duty under the new tariff heading.

41. That fundamentally, as established in the Hansard and Order Paper, the intention of the Legislative body in Kenya was to impose Excise duty solely on imported articles of plastics as a response to the hue and cry from the public. Inspite of being made aware of that fact, the Respondent is still making demands on the basis of the manifest clerical error in place.

42. That before progressing further, it is worth remembering that a change in law is always driven by a motive, be it one to enhance revenue collection or as a trade remedy to support local manufacturers against cheaper imports, among others. The intention of the law makers must therefore be understood, and the starting point to understand the amendment in question can be obtained first-hand from the National Assembly of Kenya's Hansard report.

43. That indeed, this was the position laid out in the Supreme Court case of of Gatirau Peter Munya vs. Dickson Mwenda Kithinji & 2 Others Petition 2B of 2014 [2014]eKLR adopting the words of Lord Griffiths In the case of “In Pepper vs. Hart [1992] 3 WLR In the aforementioned case, the Honorable Justices observed that:-“purposive approach to legislative interpretation" has evolved to resolve ambiguities in meaning. In this regard, where the literal words used in a statute create an ambiguity, the Court is not to be held captive t such phraseology. Where the Court is not sure of what the legislature meant, it is free to look beyond the words themselves, and consider the historical context underpinning the legislation. The learned Judge thus pronounced himself: “The object of the court in interpreting legislation is to give effect so far as the language permits to the intention of the legislature. If the language proves to be ambiguous, I can see no sound reason not to consult Hansard to see if there is a clear statement of the meaning that the words were intended to carry. The days have long passed when courts adopted a strict constructionist view of interpretation which required them to adopt the literal meaning of the language. The courts now adopt a purposive approach which seeks to give effect to the true purpose of legislation and are prepared to look at much extraneous material that bears upon the background against which the legislation was enacted.”

44. That equally, the Court of Appeal in County Government of Nyeri & Anor. Vs. Cecilia Wangechi Ndungu [2015] eKLR pronounced itself as follows:“Interpretation of any document ultimately involves identifying the intention of Parliament, the drafter, or the parties. That intention must be determined by reference to the precise words used, their particular documentary and factual context, and, where identifiable, their aim and purpose. To that extent, almost every issue of iterpretation is unique in terms of the nature of the various factors involved. However, that does not mean that the court has a completely free hand when it comes to interpreting documents; that would be inconsistent with the rule of law, and with the need for as much certainty and predictability as can be attained, bearing in mind that each case must be resolved by reference to its particular factors.”

45. That for the avoidance of doubt, it cannot be overstated that as per the Hansard and Order Paper dated 2nd June 2022, Parliament had made its intent very clear, that Excise duty was to be introduced solely on imported articles of plastics. This position would indeed later be reiterated by the Clerk of the National Assembly in a letter dated 28th July 2022.

46. That despite several correspondences and deliberations between the Appellant and the Respondent, a stalemate was reached culminating in the decision to refer the matter to the Attorney General for guidance on the correct interpretation of the Section. Accordingly, the Appellant's consultants wrote to the Attorney General's office on 13th July 2022 seeking guidance on the correct interpretation of Clause 35 of the Finance act, 2022. (Appendix 5)

47. That failing to receive a response by the Attorney General, the Kenya Association of Manufacturers wrote to the Clerk of the National Assembly on 8th August 2022 seeking its intervention and guidance on the correct interpretation of the provision in light of the actions by the Respondent. A prayer was indeed made to the National Assembly that should it agree in favor of the Appellant's interpretation of the provision, it should write and direct the Attorney General to make a correction to the provision using the revisionary powers vested by the Revision of Laws Act.

48. That the request by the Kenya Association of Manufacturers was not ludicrous as it was made cognizant of the Honorable Attorney General's powers imbued by Section 13 of the Revision of Laws Act allowing for the rectification of formal, clerical and printing errors by the Attorney General.

49. That furthermore, this power had already been exercised by the good offices of the Attorney General. It should be noted that when the Finance Bill 2022 was published had referenced HS Code 3923. 30. 90 which is not in existence, yet this error was corrected in the Finance Act 2022.

50. That on 16th August 2022,the Clerk of the National Assembly wrote to the Kenya Association of Manufacturers and indicated that it had received a similar request from the Attorney General to whom a substantive response had been issued in a letter dated 28th July 2022.

51. That in the aforementioned letter, the Clerk of the National Assembly averred as follows:“We wish to confirm the National Assembly considered and passed the particular amendment to clause 34 of the Finance Bill, 2022 as proposed by the Departmental Committee on Finance and National Planning. In this regard, the amended item should read as follows:Tariff Description RateImported Articles of plastics of tariff heading 3923. 30. 00 and 3923. 90. 90 10%”

52. That this meant that in addition to the Hansard and the Order Paper, the National Assembly had indeed confirmed as per its intention, Excise duty was only to be imposed on imported articles of plastics of tariff Heading 3923. 30. 00 and 3923. 90. 90.

53. That in light of all that has been mentioned, the Respondent is indeed subverting the will of the Legislature as the duly elected representatives of the people of Kenya and is further blatantly refusing to adhere to the correct provision of Excise Duty Act No 23 of 2015 as read with the Finance Act, 2022.

54. That indeed, one has to bear in mind that the grundnorm of the Country, the Constitution of Kenya 2010, unequivocally provides that it is only Parliament that is mandated and imbued with the obligation, duty and power to introduce laws; this is in fact the very foundation of the doctrine of separation of powers.

55. That in light of this legislative mandate, it and it alone is responsible for the legislation of laws within Kenya. This mandate is manifested to a great extent in Parliament’s duty to legislate laws that raise revenue collection as enshrined by Section 209 of the Constitution of Kenya and empowered by Section 94(5) which provides:“No person or body, other than Parliament, has the power to make provision having the force of law in Kenya except under authority conferred by this Constitution or by legislation."

56. The Appellant stated that it was at loggerheads with the Respondent regarding the interpretation of Section 35(b)(xiv) of the Finance Act, 2022. The provision relates to the imposition of Excise duty on plastics with the main bone of contention between the Appellant and the Respondent being whether the provision sought for the imposition of the tax head solely on imported articles of plastics, or both imported and locally manufactured articles of plastics. The provision read as follows:“The First Schedule to the Excise Duty Act, 2015 is amended —(b)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”;

57. The Appellant stated that the history pre-dating the introduction of this amendment is crucial to appreciating the mind and thought process of the Legislature when drafting this particular provision. That the Respondent herein refused to take cognizance of the very letter and spirit of the law as enshrined in the Finance Act, 2022 and Excise Duty Act, 2015.

58. The Appellant averred that it should be appreciated that the Finance Act, 2022 was not the legislature’s first attempt to introduce Excise duty on the plastics sector. In 2021, Parliament first introduced Excise duty on plastics through the Finance Act, 2021 by amending Section 32 of the Finance Act 2021 and the First Schedule to the Excise Duty Act, 2015 to provide that an Excise duty of 10% be imposed on Articles of plastics of tariff Heading 3923. 30. 00.

59. The Appellant argued that the intention of Parliament when introducing the Excise duty was purely environmental, seeking to curb the negative impact of single use plastics. For ease of administration and to ensure that the Kenya Revenue Authority would be able to find it, Parliament imposed the 10% Excise duty on articles of plastic of tariff heading 3923. 30. 00

60. The Appellant argued that this position is lucidly averred and confirmed in the Hansard of the National Assembly dated 24th June 2021. That unfortunately, when Parliament imposed the Excise duty on articles of plastic of tariff Heading 3923. 30. 00, contra to its intention, all articles of plastics became excisable and not just single-use plastics.

61. The Appellant averred that this led to a drastic rise in cost of living owing to the numerous uses of plastics. The manufacturers were equally affected as costs of production skyrocketed. Naturally, the Government was faced with backlash and hues and cries from the public.

62. The Appellant argued that the Departmental Committee on Finance and Planning in their Report on Petroleum Products) Taxes and Levies ) (Amendment ) Bill(National Assembly Bill No. 42 of 2021) noted the dire situation and stated that the Excise duty levied on local products had resulted in detrimental effects for the manufacturers and accordingly, the Committee stated that the Excise Duty Act, 2015 should be amended to delete Excise duty on reusable plastics of tariff Heading 3923. 30. 00 with the intended objective of levying the same on imported products from countries other than those in the EAC. The Committee thus agreed that the amendments would be introduced in the Finance Act, 2022

63. The Appellant further argued that having gone through the Legislative process, the Finance Bill and Finance Act, 2022 introduced changes to the Excise laws of Kenya as hereunder:-

64. The Finance Bill 2022 provided as follows:-“(xviii)by inserting the expression “and 3923. 90. 90” immediately after the expression “3923. 30. 90” appearing in the tariff description Articles of Plastic of tariff heading 3923. 30. 00. ”b.The Finance Act, 2022 similarly provided as follows:Amendment of First Schedule to No. 23 of 2015The First Schedule to the Excise Duty Act, 2015, is amended—(b)in the 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”.

65. The Appellant averred that despite the aforementioned, the Respondent imposed Excise duty on its locally manufactured articles of plastics despite knowing very well that the same are not excisable as per the provisions of the Finance Act, 2022 and the Excise Duty Act 2015.

66. That the Respondent sent the Appellant herein a demand of Kshs 29,747,569. 89 being undeclared Excise duty on locally manufactured articles of plastics. Being aggrieved with the demands raised, the Appellant naturally objected to the same resulting in the Objection decision which is the subject of this Appeal.

67. The Appellant posited that prior to the issuance of the decision however, it is worth noting that the Appellant and its representative body had approached the Respondent severally indicating and urging it to consider the letter of the law and Parliament’s intention in utilizing the word “imported” in the Finance Act, 2022. It was indeed the Appellant's assertion that the Legislature was very specific that Excise duty was to be levied solely on imported articles of plastic of tariff Heading 3923. 30. 00 and 3923. 90. 90.

68. That as such, where the National Assembly has indeed stated that Excise duty should only be levied on imported articles of plastics of tariff Heading 3923. 30. 00 and 3923. 90. 90,it is baffling why the Respondent would insist on collecting Excise duty on the Appellant's locally manufactured articles of plastics, in blatant disregard of the will of the Legislature.

69. That from the above, it is clear that the Respondent has erred in fact and in law by imposing Excise duty at the rate of 10% on the Appellant's locally manufactured articles of plastics of tariff Heading 3923. 30. 00 and 3923. 90. 90 considering that the law and the Legislature clearly provide that Excise duty should only be levied on imported articles of plastic.

Appellant’s Prayers 70. That the Appellant prayed for orders, that:a.The Tribunal finds the Respondent’s decision dated 8th December 2022 has no basis in fact and in lawb.The Appeal be allowed in favour of the Appellant

Respondent’s Case 71. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal: -i.The Respondent’s Statement of Facts dated and filed on 16th February 2023 with the documents attached thereto.ii.The Respondent’s written submissions filed on 8th May, 2023 and filed on 9th May, 2023.

72. That the Finance Act 2022, under Paragraph 35 (b) (xiv), amended the First Schedule to the Excise Duty Act (2015) by inserting the phrase "and 3923. 90. 90" immediately after "3923-30. 00" appearing in the tariff description "Imported Articles of Plastics of tariff heading 3923-30. 00. "

73. That the Finance Act of 2021 under Paragraph 32 (iv), had introduced Excise duty at the rate of 10% on articles of plastics of Tariff 3923. 30. 00.

74. That based on the amendment in Finance Act 2021, the Appellant being a manufacturer of articles of plastics of tariff 3923-30. 00 had been charging and remitting Excise duty.

75. The Appellant however filed nil returns for October 2022 despite manufacturing excisable goods. The Respondent therefore assessed and issued an assessment of Kshs.29,747,569. 89 on 22nd November 2022.

76. That the Appellant objected to the additional Excise assessment on 23rd November 2022.

77. The Respondent issued its Objection decision confirming the assessment on 8th December 2022.

78. That the objection decision is the basis of the Appeal herein.

79. That the Appeal is based on the grounds that: -i.The Respondent erred in law and fact by imposing Excise duty on locally manufactured articles of plastic of tariff heading 3923-30. 00 and 3923. 90. 90;ii.The Respondent erred in law and in fact by failing to appreciate that the Finance Act, 2022 as read with the Excise Duty Act No 23 of 2015 imposes Excise duty solely on imported articles of plastics of tariff Heading 3923-30 and 3923. 90. 90;iii.The Respondent erred in law and in fact by disregarding the provisions of the Hansard and Order Paper of the National Assembly dated 2nd June 2022 establishing Parliament's intention that Excise duty should be solely on imported plastics 3923-30. 00 and 3923. 90. 90;iv.The Respondent erred in law and fact by disregarding the letter from the National Assembly dated 28th July 2022 averring that the intention of Parliament was to introduce Excise duty solely on imported articles of plastic of tariff Heading 3923-30. 00 and 3923. 90. 90;v.The Respondent erred in law and fact by imposing Excise duty on the Appellant's locally manufactured articles of plastic in contravention of the Finance Act 2022,the Excise Duty Act, No 23 of 2016, the directives by the Clerk of the National Assembly and the intention of Parliament as evidenced by the Hansard and Order Paper of 2nd June 2022;vi.The Respondent erred in law and fact by failing to appreciate that the introduction of Excise duty solely on imported plastics was a measure meant to protect and preserve the dwindling local manufacturing industry as well as reduce cost of living;vii.The Respondent erred in law and in fact by failing to appreciate that only Parliament is mandated and imbued with the obligation, duty and power to introduce laws in Kenya. Inspite of the same, the Respondent is blatantly refusing to abide by the will of the Legislature by imposing Excise duty on locally manufactured articles of plastics contrary to Parliament's intention.

80. In regard to the Respondent’s reply to the Appeal the Respondent relied on the following provisions of statute for its defence:-i.First Schedule of the Excise Duty Act, 2015ii.Paragraph 35 (b)(xiv) of the Finance Act 2022iii.Paragraph 32 (iv) of Finance Act 2021iii.Staff Technical Circular No.70 page 23

81. The Respondent reiterated its position as stated in the objection decision communicated to the Appellant and responded to the Memorandum of Appeal and Statement of Facts as hereunder:-

82. The Respondent averred that it is not bound by the Appellant's returns and may assess a taxpayer's tax liability using any information available to it.

83. That Section 24(2) of the Tax Procedures Act provides that: -“The Commissioner shall not be bound by a tax return or information provided by, or on behalf of a taxpayer and the Commissioner may assess a taxpayer's tax liability using any information available to the Commissioner.”

84. That Section 31(c) of the Tax Procedures Act empowers the Respondent to make alterations or additions to original assessments from available information for a reporting period based on the Commissioner’s best judgment. It provides that:-“Subject to this section, the Commissioner may amend an assessment (referred to in this section as the "original assessment") by making alterations or additions, from the available information and to the best of the Commissioner's judgement, to the original assessment of a taxpayer for a reporting period to ensure that-(c) In any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates.”

85. That guided by the above provisions, the Respondent issued additional Excise Duty assessments based on available information and best judgement for the month of October 2022. The Appellant had declared nil returns under the Excise tax head despite manufacturing excisable goods (plastics).

86. The Respondent stated that the assessment was within the law as the alleged amendment which exempts local plastic articles from Excise duty is non-existent.

87. That as guided by Staff Technical Circular 70, the Commissioner had communicated to the Appellant that the intention of Finance Act 2022 was to widen the scope of articles of plastic that are subject to Excise duty to include those of tariff 3923. 90. 00 in addition to those of tariff 3923-30. 00 that were already excisable as per Finance Act 2021, whether locally produced or imported and that was the basis of the assessment.

88. That the reading of the Hansard of 2nd June 2022, a proposal was tabled by the Committee to amend Clause 34(b) of the Finance Bill, 2022 as follows;“in subparagraph (xviii) by inserting the word "Imported”immediately before the word “Articles" in the tariff description "Articles of plastic of tariffheading 3923·30. 00”.

89. That the Finance Act 2022 did not bear the amendment as discussed by the House on 2nd June 2022. This is in reference to the word “imported” where it did not exist in the Finance Act 2021 and was not inserted before its use in reference to “articles of plastic” under the Finance Act 2022.

90. That the intention of Finance Act 2022 was to widen the scope of articles of plastic that are subject to Excise duty to include those of tariff 3923. 90. 00 in addition to those of tariff 3923-30. 00 that were already excisable as per Finance Act 2021, whether locally produced or imported and that was the basis of the assessment.

91. That the Attorney General however had not made the correction requested for through the letter referenced by the Appellant.

92. The Respondent therefore averred that it bases its tax decisions on the current laws, and as such, Excise duty was correctly charged based on the current tax laws.

93. Further, the Respondent averred that arguments advanced by the Appellant point to the intention of the Finance Act 2022 and not the intention of the Finance Act 2021 which introduced Excise duty on plastics.

94. 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. 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.

95. 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%.The Respondent therefore based its decision on current tax laws as is/ as they are and not on future or anticipated revisions of the tax laws.

96. The Respondent submitted that the burden lies with the Appellant to prove that the decision of the Respondent to demand the unpaid taxes is wrong or excessive, pursuant to Section 56(1) of the Tax Procedures Act which states as follows:-“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

97. It was the Respondent's argument that the amendment sought to expand the scope of Excise duty on plastics under tariff 3923. 90. 90. Furthermore, it argued that the word “imported” mentioned in the Finance Act, was not in the current provision of the law and accordingly, the Excise duty is applicable on all articles of plastic under the two tariffs, whether manufactured locally or imported. That despite having stated this in its various correspondences, it cannot be overstated that this was not a ground nor a factor for rejecting the Appellant's objection.

98. The Respondent submitted that the taxes demanded from the Appellant are due and payable.

Respondent’s Prayers 99. The Respondent prayed that the Tribunal dismisses the Appeal and upholds the assessment and objection decision.

Issues For Determination 100. The Tribunal has carefully considered the pleadings and documentation filed by both parties and is of the view that the issues falling 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 101. The Tribunal having established the issues for its determination proceeds to analyse them as hereunder.

What Was The Applicable Law At The Time Of Assessment 102. The genesis of this dispute was the imposition of Excise duty by the Respondent on the Appellant’s plastic products in the month of October 2022.

103. The Appellant argued that that as per the Hansard and Order Paper dated 2nd June, 2022, Parliament had made its intent very clear, that Excise duty was to be introduced solely on imported articles of plastics. That this position would indeed later be reiterated by the Clerk of the National Assembly in a letter dated 28th July. 2022.

104. The Appellant averred that it should be noted that when the Finance Bill 2022 was published it referenced HS Code 3923. 30. 90 which was not in existence, yet this error was corrected in the Finance Act 2022.

105. That it is clear that the Respondent erred in fact and in law by imposing Excise duty at the rate of 10% on the Appellant's locally manufactured articles of plastics of tariff Headings 3923. 30. 00 and 3923. 90. 90 considering that the law and the Legislature clearly provide that Excise duty should only be levied on imported articles of plastic.

106. The Respondent, on its part, submitted that the First Schedule to the Excise Duty Act provided that articles of plastic of tariff heading 3923. 30. 00 and 3923. 90. 90 shall be charged Excise duty at 10%. That the Appellant is a manufacturer of plastics in Kenya and hence plastics are excisable goods under the Excise Duty Act and accordingly, the goods manufactured by the Appellant are subject to Excise Duty.

107. The Respondent further submitted that Paragraph 32 (iv) of the Finance Act 2021 (amended), provided that Excise duty should be charged at the rate of 10% on the articles of plastic of tariff 3923. 30. 00. That the Parliament sought to amend the said provision in the Finance Bill 2022 and Finance Act 2022. That Paragraph 35 (b) (iv) of the Finance Act 2022 amended Paragraph 32 (iv) of the Finance Act 2021 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”.

108. That therefore a reading of the Finance Act 2021 establishes that there was no use of the word “imported”. That therefore, the amendment introduced by the Finance Act 2022 was the insertion of the words 'and 3923. 90. 90' the intention of which was to widen the scope of the tax.

109. 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.

110. 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.”

111. 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.”

112. 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 as follows:-“The First Schedule to the Excise Duty Act, 2015 is amended—a.in paragraph 1 of Part I—iii.by inserting the following item at the end of the second table—Description Rate of Excise DutyArticles of plastic of tariff heading 3923. 30. 00 10%”

113. 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”.

114. 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.

115. 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”;

116. 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.

117. 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.

118. 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.

119. 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.

120. 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.”

121. 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.”

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

123. 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 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.

124. The Tribunal therefore finds and holds 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 125. 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 126. In view of the foregoing, the Tribunal finds that the Appeal is meritorious and accordingly proceeds to make the following Orders:-a.That the Appeal be and is hereby upheld.b.That the Respondent’s Objection decision dated 8th December 2022 be and is hereby set aside.c.Each Party to bear its own cost.

112. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 8TH DAY OF DECEMBER, 2023ERIC NYONGESA WAFULA......................CHAIRMANEUNICE NG’ANG’A ........................MEMBERDR RODNEY O. OLUOCH..............MEMBERCYNTHIA B. MAYAKA....................MEMBERABRAHAM K. KIPROTICH.............MEMBERBERNADETTE GITARI.....................MEMBER