[2023] KETAT 289 (KLR)

Chandaria Industries Limited v Commissioner of Customs and Border Control (Appeal 214 of 2022) [2023] KETAT 289 (KLR) (2 June 2023) (Judgment)

Neutral citation: [2023] KETAT 289 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 214 of 2022

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

June 2, 2023

Between

Chandaria Industries Limited

Appellant

and

Commissioner of Customs and Border Control

Respondent

Judgment

1. The Appellant is a private limited liability Company incorporated in Kenya. Its main form of business is the importation and sale of printing papers.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act Cap 469 Laws of Kenya, with the mandate of assessment, receipt and accounting for all Government tax revenue, and the administration and enforcement of all laws set out in the First Schedule to the Kenya Revenue Authority Act.

3. The Respondent conducted a desk review of imports under tariff 4802. 56. 00 for the period 2nd August 2018 to 27th January 2022 which concluded that there was a short levy of taxes as a result of the application of a duty rate of 10% instead of 25%.

4. The Respondent issued a demand notice dated 8th February 2022 to the Appellant for liability of Kshs. 2,131,109. 70.

5. The Appellant responded vide a letter dated 28th February 2022 through its Advocates and applied for a review.

The Appeal 6. The Appeal is premised on the grounds in the Memorandum of Appeal dated 28th February 2022 and filed on 1st March 2022. The Tribunal, noting that the Appellant was lengthy in its pleadings paraphrased the grounds as follows:-a)There is no law approved by the East African Council of Ministers, gazetted, or passed imposing a duty rate of 25% on paper and paperboard products in the period between 2nd August 2018 and 27th January 2022. Also, the Respondent’s mandate under the law is only to enforce tax legislation set out therein.b)Even at that, should there exist a law imposing a duty rate of 25% on paper and paperboard products, it would be unconstitutional for the Respondent to make and enforce compliance with such a decision because the Respondent is the one who decided to apply the mandatory 10% duty rate (hereinafter “the mandatory rate”) on paper and paperboard products (hereinafter “the product”), and approve the application of the mandatory rate on the products which was automatically deducted in the Respondent’s SIMBA system, therefore, the Respondent cannot find a cause of action against the Appellant from their own actions.c)The Respondent’s decision and demand notice violate the Appellant’s right to fair administrative action, right to property, right to access to justice, and the right to protection of the law.d)The Appellant had a legitimate expectation that the Respondent would not employ surveillance and monitoring systems to induce the Appellant into paying Customs Duty at the mandatory rate for the products only to change its mind and punish them for making payments on the mandatory rate instead of 25%, which the Appellant could not have done because the SIMBA System would not permit it.e)It is unconstitutional for the Respondent to induce the Appellant into paying the mandatory rate for goods that were to be sold to third parties only to turn around and demand the payment of 25% long after the products have been sold off at which point it would be impossible to recover the duty from the purchasers.f)The Respondent is barred from going back on its decision to effect the changes in Legal Notice No. EAC/69/2018 which action informed the decision to configure its SIMBA system to automatically detect the products and impose the mandatory tax on them.g)The Appellant’s tax liability cannot be made wholly dependent on the personal idiosyncrasies of the individual occupants of the Respondent’s office as is the case currently and the opinions of the different holders of the office should have no effect on the Appellant’s tax liabilities.h)Section 135 of the East African Community Customs Management Act (EACCMA) does not have the intention of creating a situation where the tax due is determined by the occupant of the office of the Respondent holding the view that the previous occupant of the same office should have collected more tax than he did.i)The Respondent had inordinately delayed in carrying out the post-clearance audit and its decision to initiate a post-clearance audit and issue the impugned notice was actuated by malice as the Respondent acted unreasonably as he took improper considerations into account while failing to take into account proper considerations.j)The Respondent is estopped from changing its position after issuing Tax Compliance Certificates and averring that the Appellant has outstanding taxes.

The Appellant’s Case 7. The Appellant’s case was premised on its Statement of Facts dated 28th February 2022 and filed on 1st March 2022 where it reiterated verbatim the grounds in the Memorandum of Appeal and presented the summary of facts as follows:

8. That a gazette Notice No. EAC/21/2014 dated 20th June 2014, the Council reduced the tariff rate for paper and paperboard products imported under HS Code 4802. 56. 00 from 25% to 10%.

9. That on 30th June 2017, the Council, vide Legal Notice No. EAC/85/2017 reviewed and modified the East African Community Common External Tariff (EAC CET) to model it along the lines of the 2017 version of the Harmonized Commodity Description and coding system version 2012 and the World Customs Organization. It averred that the purpose of that review was to merely harmonize the commodity description and coding system of the EAC CET with that of the 2012 version of the World Customs Union CET, and not to review any tariff. This was later developed into the 2017 version.

10. That in line with Legal Notice No. EAC/85/2017 the secretariat developed and published the 2017 version of the Harmonized Commodity Description and Coding System which was modeled after the 2012 version of the World Customs Union CET in which the secretariat mistakenly indicated the tariff rate for paper and paperboard products at 25% without any approval and publication in the EAC gazette by the council.

11. That following the application of the 2017 version of the EAC CET and upon noticing the purported erroneous change in the tariff rate for HS Code 4802. 56. 00, the Respondent consulted the EAC secretariat for clarification on whether the tariff rate for HS Code 4802. 56. 00 had been increased from 10% to 25% and it was clarified that the Council had not increased the duty rate stating that the 25% appearing next to the impugned HS. Code occurred mistakenly during the transposition process of trying to comply with the 2012 version of the WCO CET.

12. That the EAC Secretariat erroneously tried to correct the mistake in the 2017 version of the EAC CET by causing the council to reduce the rate from 25% to 10% vide Legal Notice No. EAC/CET/69/2018 dated 30th. June 2018.

13. That the Council then realised that Legal Notice No. EAC/CET/69/2018 was mistakenly published as it purported to reduce the tariff code that was never formally increased, the Council published Legal Notice No. EAC/CET/112/2018 deleting paragraph 2 of the previous Legal Notice No EAC/CET/69/2018 thereby the Legal Notice No. 112/2018 did not have any impact on the tariff rate which had never been formally reviewed.

14. That being influenced by the foregoing events, the Respondent configured their SIMBA system to automatically detect and issue the goods imported under H.S Code 4802. 56. 00 and the duty rate as well as the total tax payable.

15. That in these circumstances, it would be dishonest and in bad faith, for the Respondent to allege that the rate of 10% was not the correct rate for H.S code 4802. 56. 00 which it applied on its SIMBA system by itself.

16. That on 27th January 2022 the Respondent through a Memo to its Customs Officers by one John Gethatwa instructed customs officers to conduct Post Clearance Audits on all goods cleared under HS Code 4802. 56. 00 between 2nd August 2018 and 27th January 2022. That the Respondent claimed that it had discovered that Legal Notice No. EAC/112/2018 deleted paragraph 2 of Legal Notice No. EAC/69/2018 with the effect of importing the duty rate of 25% for H.S Code 4802. 56. 00 and that clearing agents were applying the rate of 10% instead of 25%; which claim was dishonest and in bad faith as the Respondent knew that the agents were applying the 10% rate yet it instructed its officers to update the customs system to pick import duty at 25%.

17. That the official position of the Respondent as at the time of the Memo was that the tariff rate was 10% because since 20th June 2014 when it was set at 10% and the consequent deletion of paragraph 2 of Legal Notice No. EAC/69/2018 had no effect on the duty rate for the H.S Code 4802. 56. 00.

18. That following the said Memo, the Respondent’s Officers calculated duty rates for all consignment of goods that were cleared under H.S. Code 4802. 56. 00 between 2nd August 2018 and 27th January 2022 and proceeded to demand what it felt was the tax shortfall together with penalties and interests.

The Appellant’s prayers 19. The Appellant consequently prayed that the Tribunal: -a)Allows this Appeal;b)Annuls the impugned decision as well as the impugned demand notices; andc)Awards the costs of this Appeal to the Appellant.

The Respondent’s Case 20. In its response, the Respondent raised a preliminary Objection dated 30th March 2022 and filed on even date stating, inter alia, the following grounds:a)The Appeal is incompetent and an abuse of the court process;b)The Tribunal lacks the jurisdiction to hear the Appeal at this time as there exists a statutory dispute resolution mechanism under Section 229 of the EACCMA which has not been exhausted by the Appellant.

21. The Respondent’s case is premised on its Statement of Facts dated and filed on 30th March 2022.

22. In its background and chronology of events, the Respondent averred that the Appellant filed this Appeal without waiting for a review decision from the Respondent and that the Appeal is premature since it was filed prior to the Respondent issuing its review decision on the taxpayer’s application for review.

23. It stated that in raising the tax demand dated 8th February 2022, it was well within its mandate of enforcing revenue statutes to which the EACCMA is one of the said statutes.

24. It reiterated that the post-clearance audit that was carried out was sanctioned by Sections 235 and 236 of the EACCMA and its action of carrying out the Post Clearance Audit only raised demand on the Appellant based on a rate in force for the period between 2nd August 2018 to the date of the demand in accordance with Section 5 of the Kenya Revenue Authority Act and Section 120 of EACCMA.

25. On the issue of the mandatory rate of 10% and applied rate of 25%, the Respondent contended as follows:-i.That the law adjusting the import duty rate from 10% to 25% was operational at the time the Appellant was importing its products as the East African Community Secretariat had published the gazette notices on their website adjusting the excise duty rate from 10% to 25% on paper and paper-related products.ii.That these notices were available to the public and usually highlight changes effected by the Council of Ministers to the EACCMA 2004 and the EAC CET.iii.That the EAC Gazettes usually indicate the date the legal notices come into effect hence the Appellant’s claim that there was no law that imposed a rate of 25% on paper and paperboard is not correct and the Respondent’s mandate of calling for short-levied duties is constitutional.iv.That the Respondent’s SIMBA system platform is administrative in nature and issues arising therein are subject to the provisions of the law in existence meaning any configuration of the system cannot be made contrary to the law.v.That Post-clearance audit is provided for in law and is parallel to the provisions and procedures leading to the payment of the duty and the Respondent is empowered to act under Sections 235 and 236 of the EACCMA to ensure effective clearance of goods from the point of entry making the purpose of the audits to be verification of the accuracy and authenticity of the declarations.vi.That the post-clearance audit was conducted within the statutory timelines and does not infringe on any of the Appellant’s rights. There is no legitimate expectation arising from the Appellant’s payment of duty at the incorrect rate.vii.That the Appellant’s reliance on the Respondent’s internal communications gotten through dubious means is illegal.viii.That Tax Compliance Certificates are issued based on the information provided by the Appellant and have a caveat that should new information about the taxpayer’s liability arise, the same can be withdrawn. A Tax Compliance Certificate does not absolve a taxpayer from a post-clearance audit which results in outstanding tax liabilities.

26. The Respondent averred that although the Customs System had not reflected the correct rate as per the provisions of the Gazette Notice No. EAC/112/2018 dated 2nd August 2018 resulting in short levied taxes of Kshs. 22,210,577. 00, the published Legal Notice had adjusted the duty rate of items imported under tariff 4802. 56. 00 from 10% to 25%. It added that the change in the law preceded the change in the SIMBA System and at all times both parties are to be guided by the provisions of the law.

27. It opposed the Appellant’s reliance on the Respondent’s Internal Memo dated January 2022 and email dated 23rd February 2018 to advance its case is opposed because:a)it is illegal and should be expunged from the record;b)it has been obtained using undisclosed, dubious means;c)The correspondence is protected under the Access to Information Act whose sanctity should be protected;d)the email is not of consequence to this case since it is a discussion happening in February 2018 and does not reflect the other legal notices of August 2018;e)The correspondences must be contextualised with a look at earlier and subsequent correspondence details that are not of consequence in the instant case.

The Respondent’s prayers 28. The Respondent prayed that the Tribunal:-a)Dismisses the appeal;b)Awards the Respondent the cost of the Appeal.

The Parties’ Submissions On whether KRA can administer or enforce non-existent revenue law 29. The Appellant relied on the following provisions of the law and their contents:a)Section 110 (1) of the EACCMA: Liability to Duty shall be paid on goods at the rate and the circumstances specified in the Protocol.b)Article 12(3) of the Protocol for the Establishment of the EAC:-“The Council may review the common external tariff structure and approve measures designed to remedy any adverse effects which any of the Partner States may experience by reason of the implementation of this part of the Protocol or, in exceptional circumstances, to safeguard Community interests.”c)Chapter 5 of the EAC treaty Protocol duty rates Article 14(5) of the EAC Treaty:-“The Council shall cause all regulations and directives made or given by it under this Treaty to be published in the Gazette, and such regulations or directives shall come into force on the date of publication unless otherwise provided therein.”

30. The Appellant submitted that a directive under the treaty must be gazetted first and then published. It contended that the EAC Council of Ministers fixed the duty rates of paper and paperboard products at 10% through Legal Notice No. EAC/21/2014 gazetted and published on 20th June 2014 and no other directive has been issued by the EAC Council of Ministers to increase the duty rate for paper and paperboard products from 10%.

31. It argued that the directive under Legal Notice No. EAC/85/2017 was only to harmonize the EAC CET that had the classification systems of the 2012 version of the World Customs Organization and not to change or review any duty rate on any product which states:“...the Council of Ministers has reviewed and modified the EAC Common External Tariff into a 2017 Version in conformity with the Harmonised Commodity Description and Coding System Version 2012 of the World Customs Organisation. The EAC Common External Tariff 2017 Version comes into force on 1st July 2017. ”

32. It quoted Article 71 of the EAC treaty to submit that the EAC Secretariat does not have the power to review any Common External Tariff and therefore the document published by the EAC Secretariat purporting to rate the duty of paper and paperboard products at 25% was erroneous and had no legal effect.

33. It relied on the following authorities: -a)Whartman’s Law Lexicon, Universal Law Publishing Co. Pvt Ltd, 15th Edition’s definition of Publish.b)Regulation 14(3)(d) of the Treaty for the Establishment of the EAC:-“For purposes of paragraph 1 of this Article, the Council shall: (d) make regulations, issue directives, take decisions, make recommendations, and give opinions in accordance with the provisions of this Treaty;”c)Article 16 of the Treaty for the Establishment of the EAC:“Subject to the provisions of this Treaty, the regulations, directives, and decisions of the Council taken or given in pursuance of the provisions of this Treaty shall be binding on the Partner States, on all organs and institutions of the Community other than the Summit, the Court and the Assembly within their jurisdictions, and on those to whom they may under this Treaty be addressed.”

34. It submitted that the Kenya Revenue Authority acted ultra vires and in contravention of Section 5(2)(a) of the Kenya Revenue Authority Act which only permits the Respondent to administer and enforce provisions of written laws and not administer and enforce non-existent laws.On whether KRA can keep changing its position on a matter and then punish taxpayers for every changed position

35. The Appellant submitted that the Respondent’s action of adapting one interpretation of a law one moment and resiling the same another moment with the resultant effect of imposing new taxes on taxpayers as punishment is legally impossible. It added that doing so goes against the principle of precedence which also applies to administrative bodies and will be tantamount to collective irrationality.

36. It cited the definition of collective irrationality as per the Article published by the Australians, Hon. Justice Stephen Gageler and Brenden Lim; Collective irrationality and the doctrine of precedence, Melbourne Law Review Vol 38: 525 at pages 534, 528, and 544 where it was defined as:-“the simultaneous acceptance of propositions that are illogical and inconsistent… a divergence of reason and outcome… a function of aggregating individual judgments. It is an incident of the decision-making procedure and not an incident of any faulty reasoning by individual decision-makers… it is a precept of justice and a motivating norm or precedent-based decision-making that cases should be treated alike… to treat cases ‘alike’ is to treat them alike in respect of their actual outcomes in the sense that the outcome in the subsequent case cannot be different when the circumstances of that subsequent case are not reasonable distinguishable from those which gave rise to the decision”.

37. It further relied on the opinion of Ray Jay Davis, the Doctrine of Precedent as Applied to Administrative Decisions, West Virginia College of Law Volume 59 issue 2 at pages 125-126

38. It submitted that the publication used by the Respondent emanates from the EAC Council of Ministers which capped the rate at 10% prompting the Respondent to configure its system to adapt the rate in 2014 thus the Respondent cannot depart from it as doing so would amount to collective irrationality and actions that are ultra vires.On whether KRA can punish the taxpayers for faithfully obeying its directions as per the Simba system

39. The Appellant argued that the Respondent is estopped from alleging that the duty rate should have been 25% instead of 10% after configuring its digital revenue collection infrastructure to collect duty for paper products making it impossible for the taxpayer to pay duty at any other rate even if they wanted to.

40. It submitted that the Simba System is an automated tax collection and import clearance system which ascertains the applicable rate of duty law. That this is what informs the tax payable by the Appellant therefore if the system reflects the rate of 10%, it is only fair for the Appellant to pay the tax thereon which it did. It added that there was no rational explanation for why the Respondent did not reflect the change on the SIMBA system thus they cannot purport to push a taxpayer for being compliant with the terms in the system.

41. It relied on the case of Kenya Revenue Authority v. Export Trading Company Limited (2020) where the court cited the case of R v. Institute of Certified Public Accountants ex parte Vipivhandra Bhatt T/A Bhatt & Company Nairobi HCMA No. 285 of 2006 where the court stated:-“It was held that in the absence of a rational explanation, one must conclude that the decision challenged can only be termed irrational within the meaning of the Wednesbury unreasonableness, was in bad faith and constitutes a serious abuse of statutory power since no statute can ever allow anyone on whom it confers a power to exercise such power arbitrarily and capriciously or in bad faith.”

42. To buttress its submission that the Respondent cannot impose a punitive rate on the Appellant, it cited the case of Krish Commodities Ltd. v Kenya Revenue Authority (2018) eKLR where the court held:“Moreover, it is common ground that the identification of the applicable rate of duty and assessment of duty payable was done by the Simba System. The appellant had no role in declaring or setting the rate to be applied. For the respondent to turn around and pass the buck to the appellant by contending that it was aware at all material times of the right rate cannot hold any weight.”On whether KRA can lawfully punish taxpayers for the acts and/or omissions of their own officers

43. The Appellant submitted that the allegations that the taxpayer made a wrong declaration is an admission that four officers of the Respondent who, by law, independently confirmed and certified that the duty rate indicated on the declaration was the correct rate in law and whose certifications were accepted by the taxpayer as correct misled the taxpayer into paying a wrong duty.

44. It relied on the case of Krish Commodities Limited v Kenya Revenue Authority (Supra) where it was held:-“More so, taking into account that the respondent’s own officers verified the entries made and even inspected the consignments. The respondent’s officers were not acting as a conveyor belt performing a perfunctory exercise. The reason they were there was to verify the accuracy of the entries and the duty payable before clearance of the consignments in question. Having verified the entries in issue, rate applied and assessed duty as correct, a legitimate expectation arose in favour of the appellant that the assessed duty was correct.”

45. It also relied on the case of Kenya Revenue Authority v. Export Trading Company Limited (2020) where the court cited the reasoning of Odunga J in the case of Republic v Kenya Revenue Authority ex parte Cooper K - Branis Limited (2016) who reasoned as thus:-“That the applicant is in control of the instruments through which the actual taxes are payable is not in doubt. By not regularly monitoring its said instruments with a view to determining the actual taxes payable, the Respondent placed the applicant in the unenviable position where the applicant is being exposed to shouldering the burden which legally ought not to have been shouldered by it. In my view, the circumstances of this case cry loud against the imposition of the burden on the applicant. The Respondent, in my view by its failure to act prudently, cultivated in the applicant legitimate expectation that the position prevailing before 2001 would continue to prevail notwithstanding the 2001 amendments to the Finance Act.”On whether any decision taken by KRA under Sections 135, 235, 236, and 249 of EACCMA can lawfully be impugned for violating the Appellant’s right to legitimate expectation.

46. The Appellant argued that its right to fair administrative action under Article 47 of the Constitution was violated by the Respondent’s demand for duty at the rate of 25% long after the Appellant was lured and coerced into paying a 10% rate and the goods had been sold to third parties who cannot be asked to pay additional duty. It added that the Respondent’s mandate to conduct a post-clearance audit and demand short levies taxed under the EACCMA can be challenged and invalidated for violation of the right to fair administrative action.

47. It relied on the case of Export Trading Company v. Kenya Revenue Authority (2018) eKLR where the court found that:-“... the Respondent cannot simply stand behind the time limit given to justify its conduct of demanding the short levied duty in question about 4 years later. I am guided by the decision of the Court of Appeal in Fleur Investments Limited vs. Commissioner of Domestic Taxes & Another Civil Appeal No. 158 of 2017 (unreported), while considering the absence of a rational explanation for a conduct/decision in question, such as in this case, adopted with approval the High Court's decision in republic vs. Institute of Certified Public Accountants of Kenya ex parte Vipichandra Bhatt T/A J V Bhatt & CompanyNairobi HCMA No. 285 of 2006. ”

48. It quoted Paragraph 33 of the Export Trading Company case (supra) where the principle of legitimate expectation was elaborated upon in the case of Keroche Industries Limited vs. Kenya Revenue Authority & 5 Others Nairobi [2007] eKLR where the Court held that:“...legitimate expectation is based not only on ensuring that legitimate expectations by the parties are not thwarted, but on a higher public interest beneficial to all including the respondents, which is, the value or the need of holding authorities to promises and practices they have made and acted on and by so doing upholding responsible public administration. This in turn enables people affected to plan their lives with a sense of certainty, trust, reasonableness, and reasonable expectation. An abrupt change as was intended in this case, targeted at a particular company or industry is certainly an abuse of power. Stated simply legitimate expectation arises for example where a member of the public as a result of a promise or other conduct expects that he will be treated in one way and the public body wishes to treat him or her in a different way... Public authorities must be held to their practices and promises by the courts and the only exception is where a public authority has a sufficient overriding interest to justify a departure from what has been previously promised.”

On whether KRA is guilty of inordinate delay 49. The Appellant argued that just because the Respondent has the mandate in the law to conduct a Post Clearance Audit does not mean that it is lawful and proper to conduct the same within 4 years where the taxpayer cannot recover the additional taxes since the subject goods have already been sold and consumed by third parties.

50. It relied on the Export Trading 2020 (supra) case where it was held that:-“the learned judge (Okwany, J) aptly summed up the appellant’s acts of omission as follows: “I further find that the Respondents officers cannot be said to have been acting as a conveyor belt performing a perfunctory exercise while totally oblivious of their solemn duty to the public to furnish them with accurate information regarding the applicable taxation rate. It would appear that the respondent that the respondent (sic) abdicated its duty to the taxpayers by remaining tight-lipped even upon being prompted by the petitioner, through the letter dated 26th July 2007, to declare the correct applicable tax rate, only to wake up from the slumber several years down the line and demand what it alleges is the underpaid taxes. It is in the performance of their duty that the respondent was expected to verify the accuracy of the entries and the duty payable before clearance of the consignments in question. Having verified the entries in issue, rate applied, and assessed duty as correct, I find that a legitimate expectation arose in favour of the petitioner that the assessed duty was correct and the respondent cannot, in the circumstances of this case be seen to hide behind the provisions of EACCMA in making a belated demand for taxes.” Given the circumstances obtaining in the present case as already set out, we agree with the Judge. In our view, the appellant’s actions were irrational, arbitrary, and capricious. Fortunately for the respondent, Article 47 of the Constitution declares that it is entitled ‘… to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair’ ”.

51. It quoted the case of Republic v. Kenya Revenue Authority Ex Parte Universal Corporation Ltd (2016) eKLR where it was discussed as follows:“Nevertheless, where the delay in exercising statutory power has led to injustice which would otherwise have been avoided and no explanation is forthcoming for such inaction the law must step is to ameliorate the injury. In my view, this was the genesis of the principle of legitimate expectation. In the circumstances of this case, the respondent’s actions and inactions legitimately created an expectation on the applicant that the taxes were not payable as was held by Nyamu, J in Akaba Investments Limited vs. Kenya Revenue Authority [2007] eKLR, that legitimate expectation may arise either from an express promise given on behalf of a public authority or from the existence of a regular practice which the claimant can reasonably expect to continue.”

52. It further quoted the case of Republic v. Kenya Revenue Authority Ex Parte Universal Corporation Ltd [2020] eKLR which was an appeal by KRA against the above decision where the Court of Appeal, in upholding the High Court’s Decision held:“On the duty to act fairly, the learned Judge reviewed the case of Pharmaceutical manufacturing and 3 others vs. KRA and 2 Others [2014] eKLR, for the holding inter alia that Public agencies have a duty to act fairly failing which they risk the court’s intervention to have those actions quashed by way of prerogative orders. Applying the above threshold to the rival positions before the court, the learned Judge reasoned as follows: “156 ... Whereas the period for which the taxes were being demanded was within the statutory grace period of 6 years when it comes to the consideration of legitimate expectation, it is the effect of the delay as opposed to its length coupled with the conduct of the parties that comes into focus. Where the inability by the taxing authority to discover the actual taxes payable was as a result of concealment by the taxpayer, the taxpayer cannot hide behind legitimate expectation to escape the payment of taxes. 159. However, where the taxing authority goes to sleep and as a result lulls the taxpayer into a false sense of security that the taxes in question would not be demanded, as a result of which the taxpayer loses recourse which would have been legally available to it had the tax been demanded promptly, it may well be unfair and unjust for the demand to be sustained.”

On whether there is a rational explanation for KRA’s failure to collect taxes at 25% 53. The Appellant submitted that the Respondent had no authority to collect taxes as they claim they should have and the decision is irrational and made in bad faith. It relied on the case of Fleur Investments Limited v. Commissioner of Domestic Taxes and Another (2018) eKLR where the court observed:-“whereas this Court is not entitled to question the merits of the decision of taxing authority, that authority must exercise its powers fairly and there ought to be a basis for the exercise of such powers. A taxing authority is not entitled to pluck a figure from the air and impose it upon a taxpayer without some rational basis for arriving at that figure and not another figure. Such action would be arbitrary, capricious, and in bad faith. It would be an unreasonable exercise of power and discretion and that would justify the Court in intervening. In Republic vs. Institute of Certified Public Accountants of Kenya ex parte Vipichandra Bhatt T/A J V Bhatt & Company Nairobi HCMA No. 285 of 2006, it was held that in the absence of a rational explanation, one must conclude that the decision challenged can only be termed irrational within the meaning of the Wednesbury unreasonableness, was in bad faith and constitutes a serious abuse of statutory power since no statute can ever allow anyone on whom it confers a power to exercise such power arbitrarily and capriciously or in bad faith. Faced with circumstances similar to the present case in Republic vs Kenya Revenue Authority Ex parte Jaffer Mujtab Mohammed (2015) eKLR, Odunga J held as follows; “a taxing authority is not entitled to pluck a figure from the air and impose it upon a taxpayer without some rational basis for arriving at that figure and not another figure. Such action would be arbitrary, capricious and in bad faith. It would be an unreasonable exercise of power and discretion and that would justify the court intervening.”

On Whether the email annexed by the Appellant in its Statement of Facts is admissible 54. The Appellant quoted Section 79 of the Evidence Act to submit that the email by the Respondent is admissible as it is a public document. It maintained that the Respondent is an official body established under the KRA Act and email circulated to its Senior Customs officers from the Post Clearance Audit Manager with the same being shared by public officials.

55. It quoted Section 82 of the Evidence Act to contend that an email falls within the ambit of a proceeding of a corporate body and the same being printed and shared/published with clearing agents should be relied on as prima facie evidence and admitted by the Honourable Tribunal for consideration.

On whether the appeal at the Tribunal is premature on the grounds that the commissioner is yet to give its decision on the Applicant’s Application for review 56. The Appellant quoted Section 9(4) of the Fair Administrative Actions Act, and Section 229(1) and (5) of the EACCMA to assert that its Objection of 25th February 2022 ought to have been deemed allowed by operation of the law seeing as the Commissioner has never issued a review decision and as such the demand Notice of Kshs. 2,131,109. 97 ought to be set aside.

57. It reiterated that there are exceptional circumstances that warranted the filing of the instant appeal prior to the issuance of the Review Decision and the Tribunal can waive the technicality in the interest of justice.

58. It relied on the case of Krystalline Salt Limited v. Kenya Revenue Authority (2019) eKLR where it was held that:-“what constitutes exceptional circumstances depends on the facts and circumstances of the case and the nature of the administrative action at issue. Thus, where an internal remedy would not be effective and/or where its pursuit would be futile, a court may permit a litigant to approach the court directly. So too where an internal appellate tribunal has developed a rigid policy which renders exhaustion futile. These requirements have not been shown to exist in this case. The Fair Administrative Action Act [62] does not define ‘exceptional circumstances.’ However, this court interprets exceptional circumstances to mean circumstances that are out of the ordinary and that render it inappropriate for the court to require an applicant first to pursue the available internal remedies. The circumstances must in other words be such as to require the immediate intervention of the court rather than to resort to the applicable internal remedy… where an internal remedy would not be effective and/or where its pursuit would be futile, a court may permit a litigant to approach the court directly.”

59. It maintained that the current Appeal is part of a series of appeals involving paper and paperboard products inevitably affecting the Appellant’s business and despite the Appellant applying for a review by way of an Objection, the Respondent to this date has not issued a Review Decision.

60. It submitted that it was ordered by the Respondent in the demand notice dated 25th February 2022 to pay the sum owing to the Respondent within 30 days from 8th February 2022 when the demand was issued thus the Appellant could not wait for the 30 days to lapse and the Review Decision which has never been issued to date.

61. It contended that the Respondent acted in bad faith by issuing a demand notice and Agency notice to the Appellant’s bankers, Bank of Africa Kenya Limited for the payment of the demanded sum meaning the Respondent was intent on enforcing the demand notice without a review decision, all despite the Appellant filing an Application dated 3rd June 2022 and the parties filing a consent.

62. It submitted that the Respondent, being responsible for issuing an agency notice to the Appellant's bankers acted in bad faith and in contravention of a consent judgment, and having taken part in the current appeal, cannot disassociate itself with the appeal on the premise that there is no review decision having issued an agency notice and taken part in the current Appeal.

63. It cited the case of Serah Njeri Mwobi v. John Kimani Njoroge [2013] eKLR where the court held:“The doctrine of estoppel operates as a principle of law which precludes a person from asserting something contrary to what is implied by a previous action or statement of that person. See Seascapes Limited v Development Finance Company of Kenya Limited, Nai Civil Appeal No. 247 of 2002. ”

64. It asserted that the Respondent’s conduct shows that it has effectively waived its right to rely on the review decision. It relied on the case of 748 Air Services Limited v. Theuri Munyi [2017] eKLR where it was stated as thus:-“Waiver is an intentional relinquishment or abandonment of a known right or priviledge. In the case of Banning vs Wright (1972) 2 All ER 987, at page 998 the House of Lords stated thus:- "The primary meaning of the word waiver in legal parlance is the abandonment of a right in such a way that the other party is entitled to plead the abandonment by way of confession and avoidance if the right is thereafter asserted. A person who is entitled to a stipulation in a contract or of a statutory provision may waive it, and allow the contract or transaction to proceed as though the stipulation or provision did not exist. Waivers are not always in writing. Sometimes a person's actions can be interpreted as a waiver - waiver by conduct".

On whether there is a proper and competent appeal for determination before the Honorable Tribunal. 65. The Respondent quoted Section 27 of the Tax Appeals Tribunal Act and relied on the case of Muhungu Limited v Commissioner of Domestic Taxes[2020]eKLR where the Tribunal held that:-“once the Applicant… moved to the Tribunal… for a withdrawal… for all intents and purposes ceased to be an Appellant before the Tribunal. The Appeal… came to an end and nothing remained pending before the Tribunal. ”

66. It cited the case of Bahati Shee Mwafundi v. Elijah Wambua [2015] eKLR where it was held that:-“Notice of discontinuance takes effect and brings the proceedings to an end as against each defendant, on the date it is served upon the defendant.”

67. It also cited the case of Smt Raisa Sultana Begam & Others v. Abdul Qadir & Other AIR (1966 ALL 318) where the court found as follows:-“The consequence of an act of withdrawal is that the plaintiff ceases to be a plaintiff before the Court. If he is the only plaintiff and withdraws the whole of the suit, the suit comes to an end and nothing remains pending before the Court; ... If he withdraws only a part of the suit that part goes out of jurisdiction of the Court and it is left with only the other part. This is the natural consequence of the act ... It follows as a corollary that he cannot revoke or withdraw the act of withdrawal... There is no provision allowing revocation of the withdrawal.”

68. It submitted that the Appellant filed an Appeal on 1st March 2022 and filed a Notice of Withdrawal on 14th April 2022 serving it on the Respondent on 20th April 2022 withdrawing the Appeal pursuant to Section 27 of the Tax Appeals Tribunal Act thus the appeal stood terminated and the Tribunal rendered functus officio.

69. It asserted that the Appellant’s attempt at revoking the withdrawal via a Notice of Cancellation of the withdrawal is alien in law and the Section 27 of the Tax Appeals Tribunal Act relied upon by the Appellant does not provide for reinstatement in instances where an Appellant exercises their absolute right to withdraw a suit.

70. It argued that Section 27 of the Tax Appeals Tribunal Act only grants the Tribunal discretion to reinstate suits dismissed for failure by the parties to appear for a hearing and failure of the Appellant to proceed with the appeal or comply with a direction by the Tribunal and the Appellant cannot now cherry-pick the legal consequence of the said section.

71. It contended that the law does not provide room for the Tribunal to reinstate an appeal terminated voluntarily by withdrawal as was held by Justice Mativo in the case of Priscilla Nyambura Njue v. Gevhem Middle East Ltd: Kenya Bureau of Standards (Interested Party) [2021] eKLR:-“While it is true that this Court's inherent power to protect and regulate its own process is not unlimited, it does not, for instance, extend to the assumption of jurisdiction not conferred upon it by statute. . .”

72. It asserted that the reinstatement of the appeal through the notice of cancellation of the withdrawal is not in accordance with the constitution and procedural fairness mandates proportionality between litigants’ competing interests.

73. It summarised its submissions on this issue to be as follows:a)The Notice of Cancellation of withdrawal filed by the Appellant is alien in law and of no legal consequence.b)The Appellant filed an Appeal prior to the Respondent having issued a Review Decision and as such the appeal was prematurely filed.c)Section 27 of the Tax Appeals Tribunal Act relied upon by the Appellant does not provide for reinstating in instances where an Appellant exercises their absolute right to withdraw a suit.d)The Appellant ought to have filed a fresh Appeal once it noted that the filed Notices of withdrawal were not merited.

On whether the Respondent was proper in concluding the post-clearance audit and whether the resultant findings and demand for taxes was justified 74. The Respondent quoted Sections 235 and 236 of the EACCMA 2004, cited the case of Kenya Revenue Authority v. Export Trading Company Limited [2020] eKLR and the case of Krish Commodities Limited v. Kenya Revenue Authority [2018] eKLR to argue that a court’s concern under the provisions of the law is whether the process of demanding the duty under the post-clearance audit is fair and whether the Respondent acted fairly or not.

75. It reiterated that the Post Clearance Audit was done by the Respondent according to the set law and in furtherance of its statutory mandate of ensuring that all taxes due and owing have been assessed and paid and the periods covered by the audit and subsequent demand letter are within the 5-year limit prescribed by law. It maintained that the Appellant has not provided any evidence before the Tribunal to prove the post-clearance audit conducted by the Respondent was not procedural or improper.

76. It cited the case of Anne Wanjiku Kahawi v. Kenya Revenue Authority & Another (2019)eKLR where the court found that:-“In summary, I find that the Respondents were and are, entitled to carry out investigations and utilize the information obtained in the fulfillment of their statutory mandates. Further, the Respondents were, and are, entitled to inform the Petitioners of the outcome of their investigations insofar as such outcome will affect the Petitioners. This would include identifying unpaid or apparently unpaid taxes, and requiring the Petitioners, by notice to appear before the 2nd Respondent to produce records and information in respect of the tax liability or for any other purposes relating to a tax law, pursuant to sections 61 and 59 of the Tax Procedures Act.”

77. It reiterated that its conduct of Post Clearance Audit must be premised on reasonable conduct and it only charged short levied tax upon discovering the variance between the prescribed statutory tariff of 25% and the value inputted in the iTax system of 10%.

78. It argued that its primary function is to facilitate the clearance of goods at the preliminary stage of importation and thus its officers conduct due diligence to ascertain that the goods are not restricted and correspond with the importation documents. It added that the phrasing of the amendment does not effectively communicate the nature of the amendment effected under Legal Notice EAC/69/2018.

79. It relied on the case of Export Trading (Supra) where to submit that human error and system errors are reasonable and expected in tax administration as long as the same are rationally explained where the court held:-“Granted, it is possible to have technological and human errors.”

80. It asserted that the mere existence of an error on the applicable tax rate in its simba System does not extinguish the Appellant’s obligation to pay its fair share of its tax obligation and the Respondent to collect taxes as provided for under the law. It added that the Applicant did not take any positive steps to clear the confusion on the correct tariff or pay the correct tariff.

81. It added that there must be an obligation on the Appellant to act reasonably in ensuring it pays its taxes as conversely, had the Respondent overcharged the Appellant, the Appellant would have drawn the Respondent’s attention to the error as was the case with the Export Trading case (Supra).

82. It further relied on the case of Export Trading (Supra) where the Supreme Court held as follows:-“A state under the rule of law is obliged to balance administrative action and the claims of legitimate expectation…”

83. To buttress its argument that there is no legitimate expectation arising out of the Respondent’s actions, it relied on the case of Republic v Principal Secretary, Ministry of Transport, Housing and Urban Development Ex parte Soweto Residents Forum CBO [2019] eKLR where it was held that:-“Additionally, statutory words override an expectation howsoever founded. Thus, a decision maker cannot be required to act against clear provisions of a statute just to meet one's expectations otherwise his decision would be outrightly illegal and a violation of the principle of legality, a key principle in the Rule of Law. There cannot be legitimate expectation against the clear provisions of a statute.”

84. It contended that it conducted a procedural Post Clearance Audit within the letter of the law and statutory mandate and the Appellant has failed to prove that the audit was done without following the laid down procedures.

85. It further cited the case of Republic v. Commissioner of Customs & Excise Ex Parte Abdi Gulet Olus [2014] eKLR where Justice Murithi held that:-“Having found that the respondent acted reasonably within its statutory authority, without arbitrariness, bad faith, bias or discrimination, there is no occasion for the grant of the judicial review orders sought. It must be accepted that where a statute grants power to a body, the court will not interfere with its exercise unless it is exercised without the necessary statutory basis or it is being exercised oppressively. ”

On whether the resultant findings and demand for taxes was justified 86. The Respondent cited the case of Kenya Bankers Association v. Kenya Revenue Authority [2018] eKLR where it was held as follows:-“…in a taxing Act, one has to look at what is clearly said. There is no room for intendment as to a tax… If a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be.”

87. It argued that Section 110 of the EACCMA imposes liability on duty payable at the rate of the circumstances specified in the protocol which empowers the Council of Ministers, vide Legal Notice No. EAC/21/2014 was published in the EAC Gazette on 20th June 2014 to decrease the duty rate for the products from 25% to 10% for several materials classified under HS Code 4802. 56. 00. That this decision was revised by the Council of Ministers via legal notice no. EAC/57/2014 on 7th October 2014 which changed the rate of print material under HS Code 4802. 56. 00 from 10% to 25%.

88. It asserted that the World Customs Organization on 1st January 2017 published an updated version of the existing customs compendium.

89. It added that on 30th June 2017 the Council of Ministers via Legal Notice No. EAC/85/2017 gazetted on 30th June 2017 essentially updated and expanded the nomenclature of all physical goods moving across EAC borders and the legal notice was amended on 30th June 2018 through Legal Notice No. EAC/69/2018 on HS Code 4802. 56. 00 from 25% to 10% which was again amended by the council of ministers through Legal Notice No. EAC/112/2018 by deleting item No. 2 therein.

90. It reiterated that at all material times, as of 7th October 2014 the rate of 25% prescribed under Legal Notice No. EAC/57/2014 applied for all goods under HS Code 4802. 56. 00 imported between 2nd August 2018 and 27th January 2022.

91. It submitted that the Appellant is under a duty, given the nature of its business, to know the tax rates on imported goods change with time and apply the correct tax rates even when the provided systems do not reflect the position as systems set by the Respondent are merely for making work easier for importers.

92. It concluded that it conducted a proper post-clearance audit in accordance with the law and having noted a short levy on the Appellant, it was proper in demanding the unpaid taxes amounting to Kshs. 2,131,109. 97 as the correct tax rate was 25% and not 10%.

Issues for Determination 93. After perusing the pleadings and documentation produced before it, the Tribunal is of the opinion that this Appeal raises two issues for determination:-a)Whether the Appeal before the Tribunal is proper.b)Whether the Respondent’s decision to charge a 25% tax rate on imports under H.S Code 4802. 56. 00 was proper in law.

Analysis and Findings 94. The Tribunal wishes to analyse the issues as herein-under:

a) Whether the Appeal before the Tribunal is proper. 95. The Respondent raised a Preliminary Objection dated 3rd March 2022 where it averred that the Appellant filed this Appeal without waiting for a review decision from it and that the Appeal is premature since it was filed prior to the Respondent issuing its review decision on the taxpayer’s application for review.

96. The Appellant quoted Section 9(4) of the Fair Administrative Actions Act, and Section 229(1) and (5) of the EACCMA to assert that its application for review of 25th February 2022 ought to have been deemed allowed by operation of the law seeing as the Commissioner has never issued a review decision to date therefore the demand notice should be set aside.

97. It reiterated that there are exceptional circumstances that warranted the filing of the instant Appeal prior to the issuance of the review decision and the Tribunal can waive the technicality in the interest of justice as the current Appeal is part of a series of appeals involving paper and paperboard products which its business is involved in.

98. It added that the Respondent demanded in the notice dated 20th February 2022 that the sum owing was to be paid within 30 days from when the demand was issued thus the Appellant could not wait for the 30 days to lapse for the review decision which has never been issued to date.

99. It contended that the Respondent acted in bad faith by issuing a demand notice and Agency notice to the Appellant’s bankers, Bank of Africa Kenya Limited for the payment of the demanded sum meaning the Respondent was intent on enforcing the demand notice without a review decision, all despite the Appellant filing an application dated 3rd June 2022 and the parties filing a consent. It added that the Respondent’s actions were in bad faith and its participation in the current Appeal implied a waiver of its right to rely on the review decision.

100. Sections 230 and 231 of the East African Community Customs Management Act mandates the Tax Appeals Tribunal with jurisdiction over tax disputes that arise. The Sections provides as thus:“230. (1)A person dissatisfied with the decision of the commissioner under section 229 may appeal to a tribunal established in accordance with section 231.

(2)A person intending to lodge an appeal under this section shall lodge the appeal within forty-five days after being served with the decision and shall serve a copy of the appeal on the Commissioner. 231. Subject to any law in force in the Partner States with respect to tax appeals, each Partner State shall establish a tax appeals tribunal for the purpose of hearing appeals against the decisions of the Commissioner made under section 229. ”

101. Section 229 hence provides for the procedure to be followed by anyone who is aggrieved by the decision of the Commissioner as follows:“229. A person directly affected by the decision or omission of the Commissioner or any other officer on matters relating to Customs shall within thirty days of the date of the decision or omission, lodge an application for review of that decision or omission.

(2)The application referred to under subsection (1) shall be lodged with the Commissioner in writing stating the grounds upon which it is lodged.(3)...(4)The Commissioner shall, within a period not exceeding thirty days of the receipt of the application under subsection (2) and any further information the Commissioner may require from the person lodging the application, communicate his or her decision in writing to the person lodging the application stating reasons for the decision.(5)Where the Commissioner has not communicated his or her decision to the person lodging the not application for review within the time specified in subsection (4) the Commissioner shall be deemed to have made a decision to allow the application…”

102. Section 12 of the Tax Appeals Tribunal Act states as follows:-“A person who disputes the decision of the Commissioner on any matter arising under the provisions of any tax law may, subject to the provisions of the relevant tax law, upon giving notice in writing to the Commissioner, appeal to the Tribunal...”This is the enabling provision that mandates the Tribunal to hear and determine disputes that arise from any tax statute in Kenya including the EACCMA which envisions the creation of the Tax Appeals Tribunal in Section 231.

103. The Tribunal notes that it is not in dispute that the Appeal was filed prior to the issuance of the objection/review decision by the Respondent.

104. The issue of adherence to statutory timelines was dealt with in the case of Republic V. Commissioner of Customs Services Ex Parte Unilever Kenya Limited [2012] eKLR, in which the High Court held as follows:“My understanding… is that once a taxpayer lodges an application for review, the Commissioner of Customs, who is the respondent, in this case, has 30 days within which to make and communicate a decision to the taxpayer…”

105. Section 52(1) of the Tax Procedures Act also provides:-“A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act, 2013 (No. 40 of 2013).”

106. In the case of Republic v Magistrates Court, Mombasa; Absin Synergy Limited (Interested Party) (Judicial Review E033 of 2021) [2022] KEHC 10 (KLR) (24 January 2022) (Judgment) the court held that:-“Jurisdiction may be defined to be the power of the court to hear and determine a cause, to adjudicate and exercise any judicial power in relation to it. Jurisdiction means the power conferred by law upon the court to try and hear the cases and give appropriate judgements. By jurisdiction is meant the authority, which a court has to decide matters that are litigated before it or to take cognizance of matters presented in a formal way for its decision. The statute, charter, or commission under which the court is constituted imposes the limit of this authority. The authority may be extended or restricted by like means. If no restriction or limit is imposed, the jurisdiction is said to be unlimited.”

107. From the foregoing authorities, it is indeed trite that the Tribunal derives its jurisdiction from the law and as such, it cannot impart in itself any powers not provided for under the law.

108. The Tribunal observes that there is no review decision tabled before it by the parties for perusal and determination. It is clearly not in dispute that there is no review decision rendered in this matter.

109. It is noted that while the Appellant applied for a review of the Respondent’s demand on 20th February 2022, with the current Appeal being filed on 1st March 2022, the statutory timelines for issuance of the review decision had not yet crystalised.

110. The Tribunal finds that there is no provision of any tax law that allows it to expand its jurisdiction under any circumstances, it therefore rejects the Appellant’s argument that there existed extenuating circumstances that pushed the Appellant into filing the Appeal before exhausting all the internal remedies available to it and is therefore in breach of the doctrine of exhaustion.

111. The Tribunal, therefore, does not wish to depart from the law and finds that the current Appeal is improperly before it as there exists no appealable decision before it.

112. In view of the foregoing, the Tribunal having found that the Appeal herein is premature and defective, the second issue herein is rendered moot.

Final Decision 113. The upshot to the foregoing is that the Appeal is incompetent and unsustainable in law and the Tribunal consequently proceeds to make the following Orders;-i.The Appeal be and is hereby struck outii.Each party to bear its own costs. 114. Orders accordingly.

DATED AND DELIVERED AT NAIROBI THIS 02ND DAY OF JUNE, 2023ROBERT M. MUTUMACHAIRPERSONDELILAH K. NGALA ELISHAH N. NJERUMEMBER MEMBEREDWIN K. CHELUGET RODNEY O. OLUOCHMEMBER MEMBERJUDGEMENT APPEAL NO. 214 OF 2022 CHANDARIA INDUSTRIES LIMITED VS. COMMISSIONER OF CUSTOMS & BORDER CONTROL Page | 13