[2024] KETAT 1249 (KLR)

Car and General Trading Limited v Commissioner of Customs and Border Control (Tax Appeal E317 of 2023) [2024] KETAT 1249 (KLR) (9 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1249 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E317 of 2023

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

August 9, 2024

Between

Car and General Trading Limited

Appellant

and

Commissioner of Customs and Border Control

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya pursuant to the provisions of the Companies Act. Its main business activity is supply of power generation, automotive, construction and industrial engineering products.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, the Authority is charged with the responsibility of among others, assessment, collection, accounting, and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Respondent conducted a post clearance audit on the Appellant and subsequently issued a demand notice vide a letter dated 30th March 2023 for total taxes amounting to Kshs 224,693,908. 00 comprising Import duty, Excise duty and VAT.

4. The Appellant made an application for review of the Respondent’s demand vide a letter dated 28th April, 2023.

5. The Respondent subsequently issued its review decision vide a letter dated 25th May 2023 confirming the assessments.

6. The Appellant being dissatisfied with the Respondent’s review decision, lodged a Notice of Appeal dated 6th June 2023.

The Appeal 7. The Appeal according to the Memorandum of Appeal is premised on the following grounds:i.That the Respondent erred in law and in fact by confirming the assessment on the Appellant's product contrary to the Respondent's own advance ruling.ii.That the Respondent erred in law and fact in classifying the Appellant's product under Heading 8711 in spite of its own Advance Ruling directing that the Appellant's product fell under Heading 8703. iii.That the Respondent erred in law and in fact by failing to appreciate that the demand notice dated 30th March 2023 cannot be based on Commissioner Customs and Border Control v Auto Industries Limited, Tax Appeal No. E008 of 2022 (Auto Industries Case), since the periods as well as circumstances of the demand notice and the above cited case are different.iv.That the Respondent erred in law and fact in failing to recognize that the Respondent had lodged an appeal at the High Court against the Appellant in Commissioner of Customs and Border Control v Car &General Trading Limited, Tax Appeal No. E012 of 2021 (High Court Appeal No. E012 of 2021), wherein the Respondent demanded that the Appellant comply with the provisions of the Advanced Ruling and classify the product under Heading 8703 and Heading 8704. v.That the Respondent erred in law and in fact in failing to appreciate the provisions of Section 248A of the East African Community Customs Management Act, 2004 (EACCMA). That the said Section provides that the Respondent shall within 30 days of receipt of the sufficient information issue an advanced ruling and that the same shall be binding on the Respondent and the Applicant for a period not exceeding 12 months.vi.That the Respondent erred in law and in fact in failing to appreciate that the Advance Ruling issued pursuant to Section 248A of EACCMA, cannot be reversed by the demand notice dated 30th March 2023. vii.That the Respondent erred in law and in fact in failing to appreciate that its Advance Ruling issued to the Appellant created a legitimate expectation in relation to the tariff classification of the Appellant's products and which was relied upon by the Appellant.

Appellant’s Case 8. The Appellant’s case is premised on the following documents filed before the Tribunal;i.The Appellant’s Statement of Facts dated 15th June 2023 and filed on 21st June, 2023 together with the documents attached thereto.ii.The Appellant’s written submissions dated 16th February 2024 and filed on 20th February 2024.

9. The Appellant stated that the Respondent reclassified the Piaggio Ape Three Wheelers (the Appellant's product) from Heading 8711 to 8703 and Heading 8704 for the period November 2015 to October 2020. That having been dissatisfied by this decision, the Appellant appealed against the Respondent's decision in Tax Appeal No. 23 of 2021 Car and General Trading Limited v Commissioner of Customs and Border Control Department (TAT Appeal No. 23 of 2021).The Appellant stated that it had been importing the Product under Heading 8711 since the year 2003 and demonstrated to the Tax Appeals Tribunal that during that period the Appellant's product qualified for classification under Heading 8711.

10. That during the pendency of TAT Appeal No.23 of 2021, due to the uncertainty created by the Respondent's new position and the potential additional taxes and late payment penalties and interest that the Appellant would have to incur should the Tribunal find in favor of the Respondent, the Appellant wrote to the Respondent on 12th May, 2021 seeking an Advance Ruling on the applicable tariff for the Appellant's product.

11. That the Respondent, being fully aware of the Appeal pending before the Tribunal, provided a Ruling via a letter dated 25th June, 2021 (the Advance Ruling). That in the Advance Ruling, the Respondent stated as follows:“Based on the above information, the three-wheeler tuk-tuks in CKD with spark-ignition internal combustion reciprocating piston engine, of a cylinder capacity not exceeding 1,000 cc, unassembled, are classifiable in EAC CET 2017 HS Code 8703. 21. 10 as guided by GIRs 1,2 (a) and 6. "

12. That in addition, the Advance Ruling, in its last paragraph stated that it was valid for one (1) year from 25th June 2021.

13. It averred that in TAT Appeal No. 23 of 2021, the Tribunal, having been satisfied with the Appellant's arguments, found in favor of the Appellant and dismissed the Respondent's decision to reclassify the Appellant's product to Headings 8703 and 8704 for the period November 2015 to October 2020 vide a decision issued on 15th October 2021.

14. That being dissatisfied with the Tribunal's decision in TAT Appeal No. 23 of 2021, the Respondent appealed against the Tribunal's decision at the High Court, in Commissioner of Customs and Border Control v Car & General Trading Limited, Tax Appeal No. E012 of 2021(High Court Appeal No. E012 of 2021) on 16th December 2021.

15. That however, before the case under High Court Appeal No. E012 of 2021 could be determined by the High Court, another case, Commissioner Customs and Border Control v Auto Industries Limited, Tax Appeal No. E008 of 2022 (Auto Industries Case), which had similar facts, was determined on 30th November 2022. That the Court found that the product, (which was similar to the Appellant's product) was correctly classifiable under Heading 8711 for the period February 2015 to January 2020.

16. The Appellant submitted that following the Judgment in the Auto Industries Case, on 16th March 2023, the Respondent wrote to C & G's legal representatives, Coulson Harney LLP, requesting to withdraw their appeal under the High Court Appeal No. E012 of 2021 (the Respondent's Request for Withdrawal). That in particular, the Respondent's Request for Withdrawal stated that:“Please note in light of the decision in Commissioner of Customs & Border Control v Auto Industries Limited H.C.I.T.C. No E008 of 2022 and after further consultation with our client, we wish to withdraw the subject Appeal under the terms of the draft consent enclosed."

17. That accordingly, the Appellant and the Respondent filed a Consent at the High Court and the matter under the High Court Appeal No, E012 of 2021 was then marked as closed on 18th April 2023 on the basis of the Consent. That the effect of the Consent was that the additional tax demanded for the period November 2015 to October 2020 was vacated by the Respondent.

18. That subsequently, the Respondent conducted a desk audit on the importation records of the Appellant's product for the period January 2022 to January 2023 (the audit period). That upon finalization of the audit, the Respondent raised the material demand notice for the amount of Ksh 224,693,908 comprised of Import duty, Excise duty and Value Added Tax (VAT) via its letter dated 30th March 2023 as tabulated below:Tax head Amount assessed-KES

Import duty 160,684,030

Excise duty 35,435,382

VAT 28,574,496

19. The Appellant averred that as per the demand notice, the basis of the additional taxes was as follows:a.That as per the Tax Appeals Tribunal's decision in TAT No. 23 of 2021, the Appellant had taken the position that the Appellant's product qualified under Heading 8711 and the Tribunal upheld the said position that the Appellant's product was correctly classifiable under tariff heading 8711;b.That as per the High Court's decision in the Auto Industries Case, the Court held that the same product as imported by another entity, Auto Industries Limited, was classifiable under tariff Heading 8711; andc.That both parties entered the Consent to withdraw the case under High Court Appeal No. E012 of 2021.

20. The Appellant stated that it lodged an application for review of the Respondent's decision per the demand notice through a letter dated 28th April, 2023. That as per the application for review, the Appellant opposed the assessment of additional taxes on the Appellant's product on the premise that the Appellant relied on the Advance Ruling in relation to the declaration in the audit period and that the demand notice cannot be based on the decision per the Auto Industries case as the Auto Industries case covered a period different from the audit period.

21. That subsequently, the Respondent issued its review decision on 25th May, 2023, wherein the Respondent confirmed its assessment per the demand notice on its entirety.

22. The Appellant submitted that it relied on the Advance Ruling issued by the Respondent in applying Heading 8703 for the audit period.

23. That from the onset, it was important to note and distinguish between the different audit periods covered by the different cases, the circumstances and events that occurred in between the periods, in order to arrive at the correct position with regard to the classification of the Appellant's product. That the said cases relate to the respective audit periods as follows:a.TAT Appeal No. 23 of 2021- audit period November 2015 to October 2020. Car & General lodged this Appeal on 10th February 2021, and Judgment was rendered on 15th October 2021;b.High Court Appeal No. E012 of 2021-audit period November 2015 to October 2020. This Appeal was lodged by the Respondent on 6th December 2021. c.Auto Industries Case-audit period February 2015 to January 2020. The KRA lodged this appeal on 10th December 2021, and Judgment was rendered on 30th November 2022.

24. That the present demand letter relates to the audit period, that is January 2022 to January 2023.

25. That given the uncertainty created by the Respondent's position and the potential costs that would have been incurred had the Tribunal found in favor of the Respondent in TAT Appeal No. 23 of 2021, the Appellant wrote to the Respondent on 12th May 2021 seeking a Ruling on the applicable tariff on the Appellant's product.

26. That the Advance Ruling provided clarity on the way forward, and it was on the basis of the same that the Appellant changed the classification of the product from Heading 8711 to Heading 8703 in order to align with the Respondent's position going forward.

27. That the Appellant brings to the attention of the Tribunal Section 248A of the East African Community Customs Management Act, 2004 (EACCMA) which provides for applications for advance rulings as follows:“(1)(a)- A person intending to import goods, may make a written application to the Commissioner for advance binding rulings on tariff classification;(3)- The Commissioner shall within thirty (30) days of receipt of the sufficient information issue an advance ruling or give reasons for the inability to issue an advance ruling on the application; and(4)- The decision issued under subsection () shall be binding on the Commissioner and the applicant for a period not exceeding twelve months."

28. That in relation to the present audit period to which the demand relates, the above process was followed. That the law is clear under Section 248A (4) cited above that the decision communicated in an Advance Ruling is binding on the Commissioner.

29. That the legal effect of the exercise of power by the Commissioner under Section 248A of EACCMA is that the Ruling cannot be reversed by the Respondent's demand notice dated 30th March 2023 or the decision in the Auto Industries Case. The Appellant stated that it had a legal basis to apply Heading 8703, being the Advance Ruling, and indeed, went on to apply that Heading on its imports for the audit period in question. That the Advance Ruling created a legitimate expectation which the Appellant relied on.

30. That the principle of legitimate expectation has long been established and ruled upon by Courts the world over, including Kenyan courts. That in the case of National Director of Public Prosecutions v Phillips and Others. [2002] (4) SA 60 (W) paragraph 28, it was stated as follows:“The law does not protect every expectation but only those which are 'legitimate'. The requirements for legitimacy of the expectation, include the following:a)The representation underlying the expectation must be 'clear, unambiguous and devoid of relevant qualification;b)The expectation must be reasonable;c)The representation must have been induced by the decision-maker;d)The representation must be one which it was competent and lawful for the decision-maker to make without which the reliance cannot be legitimate."

31. That similarly, in Communications Commission of Kenya & 5 Others v Royal Media Services & 5 Others [2014]e KLR, the Supreme Court of Kenya stated that:-“Legitimate expectation would arise when a body, by representation or by past practice, has aroused an expectation that is within its power to fulfil. Therefore, for an expectation to be legitimate,it must be founded upon a promise or practice by public authority that is expected to fulfil the expectation."

32. According to the Appellant, under Section 5(1) of the Kenya Revenue Authority Act, Chapter 469 Laws of Kenya (the KRA Act), the KRA is an agency of the Government for the collection and receipt of all revenue in Kenya. That further, under Section 5(2) of the said Act, with respect to the performance of its functions under subsection (1), the KRA is required to administer and enforce all provisions of the written laws set out in Part 1 & 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws. That further, under Part 1 of the First Schedule to the Kenya Revenue Authority Act, one of the laws the Kenya Revenue Authority enforces is the EACCMA.

33. That from the foregoing, it was not in doubt or a fact in issue that the Respondent is a public body, which has the power to make decisions that would affect the public, and to collect taxes in accordance with those decisions. That its actions, whether express or by conduct therefore, have the ability to create legitimate expectations based on its actions and conduct on the public. That based on the legitimate expectation, the Appellant proceeded to make immense investments on the its Products.

34. The Appellant asserted that the current demand cannot be based on the Judgment in the Auto Industries case.

35. It explained that the demand notice based its conclusion that the correct Heading for the Appellant's product was 8711 on the decision in the Auto Industries Case. That this was a misdirection since, while the product is the same as that which was the subject matter of the case, the time periods are different, and so are the circumstances under which the Appellant changed its product HS classification.

36. That the Appeals under both TAT Appeal No. 23 of 2021 and the Auto Industries Case were filed in response to KRA's abrupt change in tariff classification for past periods between the years 2015 and 2020. That the defenses argued in those cases were in support of the application of Heading 8711 for those periods, and both the Tribunal (in TAT Appeal No. 23 of 2021) and the High Court (in the Auto Industries Case) found that the taxes as demanded by the Respondent were not due.

37. That the demand notice fails to take into account two factors namely:a.That the decisions in both TAT Appeal No. 23 of 2021 and the Auto Industries Case dealt with historical issues, and were rendered after both the Appellant and Auto Industries Case had satisfied the Court that Heading 8711 applied for the periods to which the two cases related; andb.That following the lodging of the Appeal at the Tribunal by the Appellant in February 2021, in order to protect its future imports, it submitted an application for an Advance Ruling on the correct classification for the Appellant's product. That this Advance Ruling was granted, and the Appellant then made a decision to start applying Heading 8703 to avoid any future disruptions to its business.

38. That it should be noted that the application for the Advance Ruling had nothing to do with the cases filed at the Tribunal, and subsequently at the High Court. That the court cases were lodged against demands that were issued in the past 5 years and were meant to justify why Heading 8711 had been used in the past. That on the other hand, the application for Advance Ruling was meant to provide certainty going forward.

39. That in addition, given the ambiguity with regards to classification of the Appellant's products, not only in Kenya but across many other jurisdictions, the Appellant relied on the TAT's decision at the time. That subsequently, the issuance of the Advance Ruling by the Respondent created legitimate expectation that the correct code for the company to apply going forward was under Heading 8711.

40. It stated that there was therefore no link between the decisions of the Tribunal and the High Court, and the company's current application of HS Code 8703.

Appellant’s Prayers 41. The Appellant prayed that the Tribunal;i.Sets aside the assessment and demand of Ksh 224,693,908. 00 issued via a letter dated 30th March 2023. ii.Awards costs of the Appeal.

Respondents Case 42. The Respondent’s case is premised on the following filed documents and before the Tribunal.i.The Respondent’s Statement of Facts dated 20th July 2023 and filed on 21st July 2023 together with the documents attached thereto.ii.The Respondent written submissions dated 23rd February 2024 and filed on the same date.

43. According to the Respondent, the details to this dispute was canvased in TAT No 83 of 2021 between the same parties and a Judgement delivered in favor of the Appellant on 15th October 2021.

44. That the observations and holding in the TAT No 83 of 2021 was applied in a subsequent similar matter in Auto Industries Limited vs Commissioner of Customs & Border Control TAT No 21 of 2021 where a Judgement was delivered on 12th November 2021, with this holding being upheld by the High Court in Nairobi High Court Income Tax Appeal NO. E008 OF 2022: Commissioner of Customs & Border Control versus Auto Industries Limited on 30th November 2022.

45. The Respondent stated that it reclassified the Piaggio Ape Three Wheelers (the Appellant's product) from Heading 8711 to 8703 and Heading 8704 for the period November 2015 to October 2020. That having been dissatisfied by this decision, the Appellant appealed against the Respondent's decision in Tax Appeal No. 23 of 2021 Car and General Trading Ltd V Commissioner of Customs and Border Control Department (TAT Appeal No. 23 of 2021). That the Appellant alleged that it had been importing its product under heading 8711 since 2003.

46. That during the pendency of Tax Appeal No.23 of 2021, the Appellant wrote to the Respondent on 12th May 2021 seeking an Advance ruling on the applicable tariff for the Appellant's product.

47. The Respondent stated that it provided a ruling via a letter dated 25th June 2021 (the Advance Ruling). That in the Ruling, it stated as follows:-“based on the above information, the three-wheeler tuk-tuks in CKD with spark-ignition internal combustion reciprocating piston engine of cylinder capacity not exceeding 1,000 cc, unassembled are classified in EAC CET 2017 HS Code 8703. 21. 10 as guided by GIRs 1, 2 (a) and 6. ”

48. That the Tribunal dismissed the Respondent's decision to reclassify the Appellant's product to Headings 8703 and 8704 for the period November 2015 to October 2020 vide a decision issued on 15th October 2021.

49. That the Respondent being dissatisfied with the Tribunal's decision in TAT Appeal No. 23 of 2021 appealed against the Tribunal's decision in the High Court, in Commissioner of Customs and Border Control vs Car and General Trading Ltd (High Court Appeal No. E012 of 2021).

50. That however, before High Court Appeal No. E012 of 2021 could be determined, another case Commissioner Customs and Border Control v Auto Industries Ltd, Tax Appeal No.E008 of 2022 which had similar facts was determined (similar Appellant's product) the Respondent filed a Consent to withdraw the Appeal in the High Court, the demand in this case was for the period February 2015 to January 2020.

51. That subsequently, the Respondent conducted a desk audit on the importation records of its product for the period January 2022 to January 2023. That upon finalization of the audit the Respondent raised the material demand notice for the Ksh 224,693,908. 000 for the period January 2022 to January 2023 comprising of Import duty, Excise duty and Value Added Tax on 30th March 2023 and further a review decision dated 25th May 2023. That this was in addition to the World Customs Organization (WCO) Ruling dated 7th October 2022.

52. It was the Respondent’s view that the issues for determination could be summarized as:i.Whether the reclassification as carried out by the Respondent was within the law for the period January 2022 to January 2023ii.Whether the Respondent erred in law in demanding taxes contrary to its Advance Ruling dated 25th June 2021 and did the Advance Ruling create a legitimate expectation vis a vis the pendency of the dispute and the Judgment delivered on 15th October 2021 which taxes were for the period November 2015 to October 2020.

53. The Respondent urged these issues as follows:

i. Whether the reclassification as carried out by the Respondent was within the law for the period January 2022 to January 2023 54. The Respondent stated that the power to reclassify goods for tax purposes lies with the Respondent as was held in Republic vs. KRA ex parte Harsh Avadan & Others Civil Appeal No. 153 of 2007, Republic vs. KRA ex parte Beta Heathcare International Ltd HC Misc. Application No. 4 of 2009 and Republic vs. KRA ex parte Metro Pharmaceuticals Limited HC Misc.Application No.108 of 2011.

55. That the issue of legitimate expectation is that a promise made to a party by a public body that it will act or not act in a certain manner and for the promise to hold, the same must be made within the confines of law since a public body cannot make a promise which goes against the express letter of the law as stated in the case of Republic vs. Kenya Revenue Authority Ex parte Shake Distributors Limited [2012] eKLR.

56. The Respondent stated that the demand for taxes was made in compliance with the TAT Judgement delivered on 15th October 2021 upholding the Appellant’s classification of the Piaggio Ape Three Wheelers (the Appellant's Product) under Heading 8711.

57. That the Tax Appeal Tribunal Judgement which the Respondent was complying with held as below;“Based on the facts before it, the Tribunal pursuant to GIR 3(c) and GIR 4found that Piaggio Ape three-wheeler vehicles imported by the Appellant did not meet the design characteristics of vehicles of heading 87 03 and 87 04 and were most appropriately classifiable under HS 87 11. The Tribunal accordingly determined that the Respondent erred in classifying the three-wheel vehicles imported by the Appellant under HS87 03 and 8704. ”

58. The Respondent stated that the current demand is based on the reclassification of the Appellant’s imports based on the decision in TAT No 83 of 2021 and was specifically for the period January 2022 to January 2023 and not based on the Auto Industries Judgment as advanced by the Appellant notwithstanding that the cases are similar and involve Piaggio Ape Three Wheelers. That in addition, the taxes being demanded substantially dropped from Ksh 1,194,383,014. 00 to Ksh 224,693,908. 00

ii. Whether the Respondent erred in law in demanding taxes contrary to its advance ruling dated 25th June 2021 and did the advance ruling create a legitimate expectation vis a vis the pendency of the dispute and the Judgement delivered on 15th October 2021 which taxes were for the period November 2015 to October 2020. 59. The Respondent stated that the EACCMA is a valid law that it derives its force from the provisions of Article 8 of the Treaty for the Establishment of the East African Community, 2000 and that Section 135(3) of EACCMA empowers the Respondent to carry out post clearance audits and demand for short levied duty within 5 years.

60. That in its letter dated 25th June 2021, it was informing the Appellant of the tariff classification of the Piaggio Ape Three Wheelers noting and as observed by the Tribunal in TAT No 23 of 2021.

61. The Respondent stated that even if the letter dated 25th June 2021 could be classified as an advance ruling, it did not comply with provisions of Section 248A of EACCMA.

62. That Section 248A of EACCMA provides that it is important to provide sufficient information when making the request. That the Section provides as follows;“(1)A person intending to import goods, may make a written application to the Commissioner for advance binding rulings on any of the following -(a)tariff classification;(b)rules oforigin;or(c)customs valuation.(2)Subject to subsection (1) and upon direction from the Commissioner, the applicant shall furnish to the Commissioner sufficient information that may be used to make the decision.(3)The Commissioner shall within thirty days of receipt of the sufficient information issue an advance ruling or give reasons for the inability to issue an advance ruling on the application.(4)The decision issued under subsection (3) shall be binding on the Commissioner and the applicant for a period not exceeding twelve months.”

63. That the Respondent on the issue of legitimate expectation created by the Advance Ruling associates itself with the holding in Tarmal Industries Ltd -vs- Commissioner of Customs and Excise where the High Court was examining a similar situation where the Commissioner of Customs had misadvised on the tariffs goods were dutiable under and the importer relied on the Commissioner's advice. That the court had this to say;“It would be the duty of the Commissioner to classify the substance under tariff item 105 which attracts duty, rather that under tariff 108(k) which does not. The fact that he failed to do s, on the authorities above cite, cannot estope him from carrying out his duty when he discovers the original error. Indeed his earlier classification under item 108(k) was in breach of s. 105 of the East African Customs Management Act. It was in breach of a statutory duty, and in that sense it was not lawful and estoppel cannot be raised against him to prevent him from correcting that act.”

64. On the question of legitimate expectation, the Respondent relied on the Supreme Court Case of Kenya Revenue Authority vs Export Trading Company Limited Petition No 202 of 2020 where it was observed that;“Further according to De Smith Woolf & Jowell, "Judicial Review of Administrative Action "6th Edn. Sweet & Maxwell page 609; “A legitimate expectation arises where a person responsible for taking a decision has induced in someone a Petition No.20 of2020-22- reasonable expectation that he will receive or retain a benefit of advantage." [52] As can be discerned from these two definitions, legitimate expectation may take many forms. It may take the form of an expectation to succeed in a request placed before the decision maker or it may take the objective form that a party may legitimately expect that, before a decision that may be prejudicial is taken, one shall be afforded a hearing. [53] Respectfully, we take the view that the question of whether a legitimate expectation arose is more than a factual question. It is not merely confined to whether an expectation exists in the mind of an aggrieved party, but whether viewed objectively, such expectation is in a legal sense, legitimate. [54] This is the position taken by this Court in the CCK Case where it was held that legitimate expectation would arise when a body, by representation or by past practice, has aroused an expectation that is within its power to fulfil. For an expectation to be legitimate therefore, it must be founded upon a promise or practice by a public authority that is expected to fulfil the expectation. We then went on to find the emerging principles on legitimate expectation to be that; “a. there must be an express, clear and unambiguous promise given by a public authority; b. the expectation itself must be reasonable; c. the representation must be one which it was competent and lawful for the decision-maker to make; and (d) there cannot be a legitimate expectation against clear provisions of the law or the Constitution."

65. The Respondent submitted that the Appellant was in clear breach of Article 201(b)(i) of the Constitution of Kenya, 2010 as all along it had indicated that its classification of its product under HS 8711 was correct, a fact affirmed by both the Tax Appeal Tribunal and High Court.

66. The Respondent further stated that on the 30th March 2023, it issued a demand notice of Kshs. 224,693,908. 00 arising from the tariff reclassification of the three-wheeler motor vehicles from tariff Heading 8703 to tariff Heading 8711. That the Appellant being a licensed assembler of motor vehicles, had imported the three wheelers completely knocked down (CKD) and enjoyed remission of both Import and Excise duties under tariff subheading 8703. That tariff Heading 8711 attracted 25% Import duty and a specific Excise duty regardless of the form the vehicles were imported in.

67. That the reclassification was founded in the determination made by the Tribunal on TAT no. 83 of 2021 on 15th October 2021. That a similar determination on the tariff reclassification of the three wheelers was made by the High Court Judgment issued on 30th November 2021. That the Appellant applied for a review of the decision in a letter dated 28th April 2023 citing the following reasons.i.That they relied on an Advance Ruling given by the KRA in applying Heading 8703 for the audit period. That this created a legitimate expectation on the Commissioner.ii.That the current demand could not be based on the Judgement in the Auto Industries case.

68. The Respondent stated that the Commissioner issued the review decision that upheld the taxes assessed on 25th May 2023

69. That by its own admission, the Appellant averred that given the ambiguity with regards to the classification of its products and the uncertainty created by the Respondent's position and the potential costs that would have been incurred had the Tribunal found in favor of the Respondent in TAT Appeal No. 83 of 2021, it wrote to the Respondent on 12th May 2021 seeking a ruling on the applicable tariff on its product. That the Advance Ruling was issued on 25th June 2021.

70. That it was important to note that the matter was still under litigation during this period. That the Appellant failed to disclose this to the KRA during application. That the position held by the Commissioner in the Advance Ruling was however invalidated by the Appellant's own Tribunal determination on 15th October 2021.

71. That the scope of this Appeal is January 2022 to January 2023. It averred that the Appellant was legitimately expected to abide by the determination made by the TAT which cleared any uncertainty, ambiguity it had and any potential costs to be incurred at the time. That the Tribunal concluded as below:“The Tribunal analysed the features described by the Respondent and found nothing in the submission excluded the Piaggio Ape three-wheeler from being classified under HS 8711. In fact, it was the Appellant's submission that clearly distinguished the vehicles from being classified under either HS 8703 or 8704. .....Based on the facts before it, the Tribunal pursuant to GIR 3(c)and GIR 4 found that Piaggio Ape three-wheeler vehicles imported by the Appellant did not meet the design characteristics of vehicles of heading 8703 and 8704 and were most appropriately classifiable under HS 8711. "

72. The Respondent stated that similar matter aforementioned was determined at the High Court which concluded that the Respondent (Auto Industries Limited), provided pima facie and unrebutted proof that the Tuk Tuks have a handle steering as opposed to the motor car type of steering system, that they have a differential that is different from that of a car, that they have a monocoque chassis as opposed to a T-type chassis and that they do not have a single central control stick as the gears are operated from the handle bar type steering. That these features are not characteristics of vehicles under tariff heading 8703 which as per the Explanatory Notes in tariff Heading 8703 means they fall under tariff Heading 8711.

73. That the Auto Industries Limited case only emphasized the Commissioner's position but was not the sole basis for the tax assessment in this matter.

74. That the Appellant's attempt to delink the current matter to the matter determined by the Tribunal and the High Court in 2021 and 2022 respectively, had no basis. That the difference in scope does not mean a difference in product.

75. It was the Respondent’s submission that the Piaggio Ape three wheelers have not changed in structural and mechanical forms to warrant a change in the tariff classification. That the Appellant did not prove otherwise.

76. That the Respondent was guided by the Constitution and the EACCMA, 2004.

77. It averred that tax and customs jurisprudence envisages that a decision made by the Commissioner can be appealed to the subordinate and superior courts of law in Kenya upon application by the affected person. That the same jurisprudence allowed the Appellant to appeal the Commissioner's review decision to the TAT. That the Advance Ruling of tariff Heading 8703 was issued on 25th June 2021 and was binding to the Commissioner for a period not exceeding 12 months as per Section 248 (4) of the EACCMA, 2004.

78. The Respondent submitted that the Tribunal Ruling (TAT 83 of 2021) of tariff Heading 8711 was issued on 15th October 2021. That the three wheelers were imported from January 2022, two months after the TAT determination. That it was therefore the Respondent’s position that the determination by the TAT should have taken precedence, especially given that the merits and demerits of the subject goods were well articulated in the previous cases. That the Respondent's Advance Ruling was invalidated by the Tribunal's Ruling. That the Appellant was legitimately expected to abide by this determination and cannot therefore legitimately expect the Respondent to uphold a position contrary to the Tribunal's determination.

79. That the decision by the Tribunal was the basis for the assessment and it was further emphasized in the High Court ruling. That it was in favor of the Respondent in this case.

80. The Respondent stated that it relied on the following provisions of the law;a.Sections 135, 229, 235, 236 of the EACCMA 2004. b.Sections 235 and 236 which gives the Commissioner powers to call for documents and conduct a PCA on the import and export operations of a taxpayer within a period of five years from the date of importation or exportation. That where the PCA reveals that taxes were short levied, or erroneously refunded, Section 135 empowers the Commissioner to recover any such amount short levied or erroneously refunded.c.Section 229 which provides for application for review by any person affected by the decision or omission of the Commissioner on matters relating to Customs and provides the statutory timelines to be observed.

Respondent’s Prayers 81. The Respondent prayed that;i.The Appeal be dismissed with costs.ii.The Commissioner’s review decision and demand notice dated 30th March 2023 be upheld

Issue for Determination 82. The Appeal herein raises only one issue for determination namely; Whether the Respondent erred in its demand for additional taxes from the Appellant for the period January 2022 to January 2023.

Analysis and Determination 83. Having identified the issue for its determination, the Tribunal proceeds to analyze the same as hereunder.

84. At the heart of this dispute is the Respondent’s demand for additional taxes for imports of Piaggio Ape three wheelers imported by the Appellant during the period January 2022 to January 2023.

85. Before delving into the issue in dispute, the Tribunal notes the following events prior to this dispute;a.The Respondent reclassified the Appellant’s Piaggio Ape three wheelers from Heading 8711 to 8703 and 8704 for the period November 2015 to October 2020 leading to a dispute.b.The Appellant challenged the Respondent’s classification at the Tribunal in TAT No. 83 of 2021 Car and General Trading Ltd V Commissioner of Customs and Border Control. The Tribunal’s decision was delivered on 15th October, 2021 where the Tribunal ruled that the Appellant’s product was classifiable under Heading 8711. c.The Respondent appealed the Tribunal’s decision in High Court on 16th December 2021 but subsequently withdrew the case and a Consent entered between the parties marking the case as closed on 18th April 2023. d.The Appellant vide a letter to the Respondent dated 12th May 2021 sought advance ruling on the applicable tariff for its imported Piaggio Appe three-wheeler product.e.The Respondent issued the Advance Ruling vide a letter dated 25th June 2021 advising that the Appellant’s product was classifiable under Heading 8703. The Ruling was to be valid for one year.f.The Respondent following a post clearance audit issued the demand notice vide a letter dated 30th March 2023 for additional taxes in relations to the Appellant’s imported products relating to the period January 2022 to January 2023. g.The Appellant applied for review vide a letter dated 28th April 2023 and the Respondent subsequently issued its review decision on 25th May 2023 confirming the assessments. This review decision is the subject of this Appeal.

86. It was the Appellant’s contention that given the uncertainty created by the Respondent's position and the potential costs that would have been incurred had the Tribunal found in favor of the Respondent in TAT Appeal No. 23 of 2021, the Appellant wrote to the Respondent on 12th May, 2021 seeking a Ruling on the applicable tariff on the Appellant's product.

87. That the Respondent being fully aware of the pending Appeal, issued the Advance Ruling on 25th June 2021 which advised that the product was classifiable under HS Code 8703. 21. 10

88. That in addition, the last paragraph of the Respondent's Ruling stated that it was valid for one (1) year from 25th June 2021, which period extended into the audit period currently under assessment by the Respondent, that is January 2022 to January 2023.

89. That the Advance Ruling provided clarity on the way forward, and it was on the basis of the same that the Appellant changed the classification of the product from Heading 8711 to Heading 8703 in order to align with the Respondent's position going forward.

90. The Respondent on its part stated that the demand for taxes was made in compliance with the TAT Judgment delivered on 15th October 2021 upholding the Appellant’s classification of the Piaggio Ape Three Wheelers (the Appellant's product) under Heading 8711.

91. The Respondent stated that the current demand was based on the reclassification of the Appellant’s imports based on the decision in TAT No 23 of 2021 and was specifically for the period January 2022 to January 2023 and not based on the Auto Industries Judgment as advanced by the Appellant notwithstanding that the cases are similar and involve Piaggio Ape Three Wheelers. That in addition, the taxes being demanded substantially dropped from Ksh 1,194,383,014. 00 to Ksh 224,693,908. 00.

92. On the issue of its Advance Ruling the Respondent stated that in its letter dated 25th June 2021, it was informing the Appellant of the tariff classification of the Piaggio Ape Three Wheelers noting and as observed by the Tribunal in TAT No 83 of 2021.

93. The Respondents stated that even if the letter dated 25th June 2021 could be classified as an Advance Ruling, it did not comply with provisions of Section 248A EACCMA.

94. The Tribunal notes that the dispute arose from the tariff classification used by the Appellant which was based on the Advance Ruling of the Respondent dated 25th June 2021 wherein the Respondent classified the Appellant’s imported product under Heading 8703. The actual classification of the Appellant’s product which is not in dispute was settled by the Tribunal and the High Court, which ruled in both cases that the Appellant’s product was classifiable under Heading 8711.

95. The Appellant had further argued on legitimate expectation raised by the Respondent’s Advance Ruling. It argued that it was not in doubt or a fact in issue that the Respondent is a public body, which has the power to make decisions that would affect the public, and to collect taxes in accordance with those decisions. That its actions, whether express or by conduct therefore, have the ability to create legitimate expectations based on its actions and conduct on the public. That based on the legitimate expectation, the Appellant proceeded to make immense investments on its products.

96. The Respondent on its part stated that it was important to note that the matter was still under litigation during this period. That the Appellant failed to disclose this to the KRA during the application for the advance ruling. That the position held by the Commissioner in the Advance Ruling was however invalidated by the Tribunal’s determination on 15th October 2021 made at the instance and in favour of the Appellant.

97. The Tribunal notes that the period covered by the tax demand in this dispute is January 2022 to January 2023 which was subsequent to the Tribunal’s Judgment delivered on 12th November 2021. The Tribunal’s Judgment ruled that the Appellant’s product was classifiable under Heading 8711. It therefore follows that in the absence of any other orders of a superior court, the subsisting law at the time was the Tribunal’s decision in TAT No. 83 of 2021 Car and General Trading Ltd V Commissioner of Customs and Border Control as delivered on 15th October, 2021 which stated as follows;“126. Based on the facts before it, the Tribunal pursuant to GIR 3(c) and GIR 4 found that Piaggio Ape three-wheeler vehicles imported by the Appellant did not meet the design characteristics of vehicles of heading 87 03 and 87 04 and were most appropriately classifiable under HS 87 11. “

98. The Tribunal’s position is that the Appellant having received the Tribunal’s Judgment of 15th October, 2021 which ruled in its favour, the Appellant could not continue hanging onto the Respondent’s Advance Ruling issued on 25th June 2021 in relation to taxes assessed for the period January 2022 to January 2023. Furthermore, the Tribunal notes that in its application for Advance Ruling, the Appellant did not indicate that the application was meant to cover the period pending any Judgment or completion of litigation.

99. The Tribunal therefore determined that the Respondent did not err in its demand for additional taxes from the Appellant for the period January 2022 to January 2023.

Final Decision 100. Based on the foregoing analysis the Tribunal finds that the Appeal lacks merit and the orders that accordingly recommend themselves are as follows;i.The Appeal be and is hereby dismissed.ii.The review decision dated 25th May 2023 be and is hereby upheld.iii.Each party to bear its own costs.

101. It is so ordered

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF AUGUST, 2024ERIC NYONGESA WAFULA - CHAIRMANDR. RODNEY O. OLUOCH - MEMBERABRAHAM K. KIPROTICH - MEMBERCYNTHIA B. MAYAKA - MEMBERDR. TIMOTHY B. VIKIRU - MEMBER