[2023] KETAT 891 (KLR)

Blowplast Limited v Commissioner of Legal Services & Board Coordination (Tax Appeal 12 of 2023) [2023] KETAT 891 (KLR) (8 December 2023) (Judgment)

Neutral citation: [2023] KETAT 891 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 12 of 2023

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

December 8, 2023

Between

Blowplast Limited

Appellant

and

Commissioner of Legal Services & Board Coordination

Respondent

Judgment

Background 1. The Appellant is a private limited company incorporated in Kenya. Its principal activity is the manufacturing of plastics for food, petrochemical industries and other sectors in East Africa with exports to other African countries.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act. Under Section 5(1) of the said Act, the Respondent is an agency of the Government for the collection and receipt of all tax revenue. Further under Section 5 (2) of the Act with respect to the performance of its functions under subsection (1), the Respondent is mandated to administer and enforce all the provisions of the written laws as set out in Part 1 & 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenue in accordance with those laws.

3. The Respondent issued the Appellant with an additional Excise duty assessment for Kshs. 70,445, 842. 98 vide Assessment Orders dated 27th September 2022 and 21st October 2022. The assessment was for the period August 2022 and September 2022 respectively.

4. The Appellant objected to this demand on 30th September 2022 and 8th November 2022, respectively.

5. The Respondent then issued its Objection decision vide its letter dated 25th November 2022 confirming the demand for Excise duty for Kshs 70, 445, 842. 98. being Excise duty assessments for the period July 2022 to September 2022.

6. Dissatisfied with the Respondent’s decision, the Appellant filed a Notice of Appeal dated 23rd December, 2022 on 6th January, 2023.

The Appeal 7. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal dated 6th January 2023 and filed on even date.a.That the Respondent erred in law and fact by imposing Excise duty on locally manufactured articles of plastic of tariff Heading 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 plastic 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 is 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. 90e.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 directive 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 Legislative by imposing Excise duty on locally manufactured articles of plastic contrary to Parliament intention.

The Appellant’s Case 8. The Appellant stated that the bone of contention between itself and the Respondent was the interpretation of Section 35(b)(xiv) of the Finance Act 2022 as to whether the provision sought for the imposition of the tax head solely on imported articles of plastic, or both imported and locally manufactured articles of plastic. It argued 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 Headings 3923. 30. 00 and 3923. 30. 00.

9. It argued that the intention of the National Assembly to amend the relevant provision of the Excise duty was to provide that Excise duty would be applicable only on imported articles of plastic of tariff Heading 3923. 30. 00 and 3923. 90. 90. According to the Appellant, the Respondents’ demand 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.

10. It was the Appellant’s contention 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.

11. The Appellant stated that the Kenya Association of Manufacturer wrote to the Clerk of the National Assembly on 8th August 2022 seeking its interpretation and guidance on the correct interpretation of the provision of Finance Act. In the Clerk’s response, the Association was referred to a similar enquiry that had been done to the Attorney General whose response was that the rate for imported articles of plastics of tariff Headings 3923. 30. 00 and 3923. 90. 90 was 10%. The Respondent, according to the Appellant, acted in blatant disregard of the will of the Legislative in collecting Excise duty on the Appellant’s locally manufactured articles of plastics.

12. The Appellant therefore prayed that:a.The Appeal be allowedb.The Respondent’s demand and Objection decision dated 25th November 2022 be set aside.c.The Respondent be compelled to impose Excise duty solely on imported articles of plastics of tariff Heading 3923. 30. 00 and 3923. 90. 90.

The Respondent’s Case 13. The Respondent addressed the Appellant’s grounds of Appeal through its Statement of Facts dated 20th January 2023 and filed on even date. It choose to address the grounds by identifying two issues for determination

a. Whether the Appellant’s Objection was valid 14. It averred that Appellant’s self-assessment return for July was invalid as it was not a tax decision and that the Appellant ought to have lodged an objection against that self-assessment. It sought to describe what a tax decision is by relying on Section 31(1) of the Tax Procedures Act (TPA) which states that when a taxpayer has made a self-assessment, he/she may make an application to the Commission to amend that self-assessment whereas Section 31(3) of the TPA prescribes that the Respondent may either accept or reject the amended self-assessment return within thirty days of receiving the application.

15. The Respondent averred that the Appellant filed a self-assessment return for July 2022 with a tax liability of Kshs 24,998,166. 95 but failed to pay the tax that was due. This prompted the Respondent to issue a demand dated the 27th September,2022. Further that the Appellant made an application to amend its self-assessment when the Respondent acknowledged on 19th August 2022. It had therefore not issued a tax decision either to accept or reject the Appellant’s amended return by the time it was issuing the Objection decision.

16. The Respondent reiterated that the Appellant’s self –assessment return was not a tax decision and as such the Appellant’s objection of Kshs 24,789,641. 72 to self –assessment return for July 2022 is invalid.

b. Whether the additional Assessments were justified in law. 17. The Respondent averred that its decision to arrive at the assessment was justified and had basis in law arising from the fact that the Finance Act 2022 under Paragraph 35 (b) (xiv) had 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 Plastic of tariff heading 3923. 30. 00

18. It was the Respondent’s contention that the Finance Act 2021 under Paragraph 32(iv) had introduced Excise duty at the rate of 10% on articles of plastics of tariff 3923. 30. 00 and that the Appellant being a manufacturer of articles of plastics of tariff 3923. 30. 00 had been charging Excise duty and remitting the same.

19. The Respondent averred that the Appellant filed nil returns for the months of August 2022, September 2022 and October, 2022. It was therefore prompted to issue assessments for Kshs 20,658, 034. 71, Kshs 24,789,641 and Kshs 29, 747, 569. 89 respectively contending that it is empowered by Section 24(2) of TPA to vary the assessments using any available information in its possession. It stated further that Section 31 of the TPA empowers it to make alterations or additions to original assessments from available information for a reporting period based on its best judgement.

20. In refuting the Appellant’s claim that it erred in imposing Excise duty on the Appellant’s locally manufactured articles of plastic in contravention of the Finance Act, 2022, it averred 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 that 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.

21. The Respondent averred that a strict reading of 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%.It averred further that a strict reading of the First Schedule of the Excise Duty Act, 2015 depicts that the Appellant being a manufacturer of plastics under tariff Heading 3923. 30. 00 is liable to pay Excise duty at a rate of 10%

22. It stated that it issued the Appellant with additional Excise duty assessments for the period August to October 2022 after noticing that the Appellant was declaring nil returns despite manufacturing excisable goods.

23. The Respondent prayed that this Tribunal;a.Upholds the Respondent’s Objective decision dated 25th November 2022 as proper and in conformity with the provisions of the law.b.That this Appeal be dismissed with costs to the Respondent as the same is devoid of any merit.

Parties’ Submissions 24. During the hearing of the Appeal on 6th September 2023, parties were directed to file their written submissions by 20th September 2023. However, by the said date none of the parties had filed their submissions. The Tribunal will therefore only consider the parties pleadings in determining this Appeal.

Issues For Determination 25. Having considered the documentation availed and the parties’ pleadings, the Tribunal is of the considered view that this Appeal raises the following issue for determination.Whether the Respondent erred in imposing a 10% Excise Duty on the Appellant’s products

Analysis And Findings 26. The Tribunal will now proceed to analyse the said issue as herein under.

27. The Tribunal notes that the bone of contention between the parties is the interpretation of Section35 (b) (xiv) of the Finance Act, 2022 which relates to the imposition of Excise duty on articles of plastics. The argument between the Appellant and Respondent is whether the provision sought for the imposition of tax head solely on imported articles of plastics or both imported and locally manufactured articles of plastics.

28. It should be noted that the Finance Act 2022 and the Excise Duty Act prescribe the duty rate for articles of plastics for the tariff Headings 3923. 30. 00 and 3923. 90. 00. The Finance Act, 2022 provides as follows:-“(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 3923. 30. 00”

29. The Appellant herein locally manufactures articles of plastic and its understanding of the amendment of the Finance Act 2022 was that the 10% duty rate was for any imported articles of plastic whereas the Respondent levied the 10% duty rate on its locally manufactured articles of plastic hence the tax demand of Kshs 70,455. 842. 95.

30. The Tribunal has sighted the letter written to the Clerk of the National Assembly dated 8th August 2022 seeking for an accurate interpretation of the provision of Section 35 b(xiv) of the Finance Act, 2022 on Excise duty rate of 10% on articles of plastics tariff Heading 3923. 30. 00. The response was through an earlier clarification that had been given to the Attorney General in which the clarification was given as follows:-“the amended item should read as follows:Tariff Description Imported Articles of plastic of tariff heading 3923. 30. 00 and 3923. 90. 90 rate 10%”

31. It is the Tribunal’s considered view that this clarification specifically stated that the 10% duty rate for tariff Heading 3923. 30. 00 and 3923. 90. 90 was for only imported articles of plastic. It should be noted further that Parliament in its wisdom, provided clarity on the issue through the Finance Act 2023 by providing an amendment as follows:“iii)Insertion of the word “imported” immediately before the tariff description “Articles of Plastic of tariff heading 3923. 30. 00 and 3923. 90. 90”

32. 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.

33. 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.

34. 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.”

35. 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.”

36. 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%.

37. Locally manufactured articles of plastic were left out of this descriptions under the Finance Act 2022. It is thus not the place of the Tribunal 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.

38. Accordingly, the Tribunal finds and hold that Respondent erred in imposing the 10% Excise duty on the Appellant’s products.

Final Decision 39. The upshot of the foregoing is that the Appeal is meritorious and the Tribunal will proceed to make the following final Orders:-a.The Appeal be and is hereby allowedb.The Respondents Objection decision dated 25th November 2022 be and is hereby set aside.c.Each party to bear its own costs.

40. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 8TH DAY OF DECEMBER, 2023ERIC NYONGESA WAFULA - CHAIRMANDELILAH K. NGALA - MEMBERGEORGE KASHINDI - MEMBERCHRISTINE A. MUGA - MEMBERSPENSER S. OLOLCHIKE - MEMBERMOHAMED ADIRIYE - MEMBER