[2024] KETAT 463 (KLR)

CTM Kenya Limited v Commissioner of Customs & Border Control (Tribunal Appeal 157 of 2023) [2024] KETAT 463 (KLR) (Civ) (19 April 2024) (Judgment)

Neutral citation: [2024] KETAT 463 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tribunal Appeal 157 of 2023

Grace Mukuha, Chair, W Ongeti, Jephthah Njagi, G Ogaga & E Komolo, Members

April 19, 2024

Between

CTM Kenya Limited

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

1. The Appellant is a limited liability company incorporated in Kenya under the Companies Act. Its principal activities include import business and general supplies of ceramics and other related products.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. For the performance of its function under Subsection (1), the Authority is mandated under Section 5(2) of the Act to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act to assess, collect, and account for all revenues under those laws.

3. The Respondent’s Customs Post Clearance Team conducted a desk audit on the Appellant’s imports and issued an additional assessment demand notice of Kshs. 7,596,925. 83 in a letter dated 28th August 2020 and a reminder on 30th November 2022.

4. Consequently, the Appellant applied for a review dated 4th December 2022 to which the Respondent issued a final demand notice dated 15th December 2022

5. Dissatisfied with the Respondent’s decision of 15th December 2022, the Appellant lodged this Appeal on 21st February 2023.

The Appeal 6. The Appeal is premised on the Memorandum of Appeal dated and filed on 21st February 2023 which raised the following grounds:a.That it is the Respondent who applied the duty rate for all tiles imported into the Country under H.S. Code 6908 by feeding into its Simba System.b.That the Respondent approved all Customs entries that indicated a rate for tiles imported under H.S Code 6908 and authorized its Customs and Valuation Officers to verify and approve the correctness of import duty charged and paid with respect to tiles imported under H.S. Code 6908. c.That the change on HS Code 6907 from HS Code 6908 which imposed duty rate of 1. 75USD on tile products in the period under review was never communicated legally and by the legitimate body which is the East African Community Council of Ministers.d.That the law provides that duty payable shall be specified in the protocol on the establishment of East African Community Customs Union and published in the East African Community Gazette.e.That the Appellant had a legitimate expectation that the Respondent would encourage the Appellant into paying the import duty at a mandatory rate for all tiles imported under H.S Code 6908. f.That it is irrational for the Respondent to induce the Appellant into paying duty at the rate of 1. 75USD per square metre on all the tiles imported which the Respondent knew-or ought to have known were meant to be sold to third parties only for them to subsequently demand the Appellant to pay additional duty long after the goods have been sold and used up by the third-party purchasers.g.That Section 135 of the EACMA was intended only to deal with situations where the tax paid is lesser than what the Respondent honestly and for good reasons believed to be due and payable at the time and the Respondent’s decision to initiate a post clearance audit and issuing an impugned demand notice is unreasonable and actuated by malice.

Appellant’s Case 7. The Appellant’s case was set out in its;a.Statement of Facts dated and filed on 21st February 2023 together with the documents attached thereto.b.Written submissions dated 11th January 2024 and filed on 16th January 2024.

8. The Appellant averred that the Post Clearance Audit Team of the Respondent conducted a desk audit on the Appellant's imports and issued an additional assessment demand notice of Kshs 7,596,925. 83.

9. That it is the Respondent's contention that the Appellant had misclassified the importation heading by applying HS Code 6908 in place of HS Code 6907 which attracted a specific duty rate of 1. 75 USD per meter squared or ad valorem rate of 30% whichever is higher.

10. That it is the Appellant's contention that customs duty rates, variations or revisions thereon must be made and a Gazette Notice issued by Council of the East African Community Common External Tariff and the Harmonized Community Description and Coding System Version 2012 of the World Custom Organization.

11. The Appellant argued that post clearing audit which in itself was an afterthought and/or purely a mistaken interpretation of a Legal Notice by the Respondent's Officers amounts to an admission that up to the date of the purported audit, the Customs systems had been configured for Tariff H.S Code 6908.

12. The Appellant took the position that based on the wrong interpretation of the Legal Notices, the Respondent had rushed to calculate duty rates on all consignments cleared under HS Code 6908 and proceeded to issue demand and enforcement notices to the Appellant on what it feels is a shortfall.

13. On legitimate expectation and right to fair administrative action, it is the Appellant’s case that Article 47 of the Constitution of Kenya provides for fair administrative action. The Appellant relied on Kenya Revenue Authority V Export Trading Company Limited (Petition 20 of 2020) (2022) KESC 31 (KLR) where the Superior Court on 17th June 2022 held as follows:“This act is unreasonable for the reason that, first, it is totally irrational and unreasonable to require the Respondent to carry the burden of being aware of any mistakes made by the Tradex Simba System, a system run by the appellant. Second, it is incomprehensible how the respondent should be made to suffer the consequences of the actions of the appellant of failing to input the correct rate in a system it had full control over. This line of reasoning is with respect, misguided. It misses the point that judicial review is not concerned with the merits of the case but the decision-making process.”

14. The Appellant also submitted that the Tribunal is bound by the doctrine of stare decisis and that there is no distinction between the application of the Tradex Simba System as discussed by the Supreme Court in the Export Trading Case and its application in the present case.

Appellant’s prayers 15. The Appellant prayed that the Tribunal vacates the demand for Kshs. 7,596,925. 83 by the Respondent.

Respondent’s Case 16. The Respondent’s case is premised on the following documents:a.Its Statement of Facts dated on 23rd September 2023 and filed on 25th September 2023 and the documents attached thereto.b.Written Submissions dated on 30th October 2023 and filed on 31st October 2023.

17. The Respondent averred that its Post Clearance Audit team conducted a desk review of customs entries of importers of ceramic tiles for the period 1st July 2020 to 27th July 2020 pursuant to Sections 235 and 236 of the East African Community Customs Management Act, 2004.

18. The Respondent further added that the examination of the entries revealed that some of the importers classified the ceramic tiles under the Tariff Heading 6908 that attracted 25% import duty instead of 6907 that attracts USD1. 75/SQM or 30% whichever is higher. Consequently, the Respondent issued a demand notice to the Appellant dated 28th August 2020 pursuant to Sections 235 and 236 of the EACCMA.

19. The Respondent stated that it further issued a reminder on the demand notice vide the letter dated 30th November 2022 due to the Appellant's failure to respond to the demand.

20. That consequently, the Appellant applied for a review dated 4th December 2022.

21. That upon receipt of the said application for review, the Respondent herein issued a final demand dated 15th December 2022

22. The Appellant being dissatisfied with the Respondent's review decision lodged an Appeal dated 21st February 2023 but received on 24th August 2023.

23. The Respondent raised a preliminary objection on the ground that the Appeal is incompetent for non-compliance with Section 229(1) of East African Community Customs Management.

24. The Respondent averred that The EAC Gazette Notice No. 85 of 2017 released by the East African Community Secretariat on 30th June 2017 highlighted changes to the East African Community Customs Management Act, 2004, and the East African Community Common External Tariff with effect from 1st July 2017.

25. The Respondent further averred that among the changes, was the review and modification of the EAC Common External Tariff, 2012 into a 2017 Version in conformity with the Harmonised Commodity Description and Coding System Version 2012 of the World Customs Organisation. The changes were effected by Legal Notice No. EAC/85/2017 dated 30th June 2017.

26. The Respondent noted that the revised harmonized nomenclature amended Heading 6907 (unglazed ceramic products) and 6908 (glazed ceramic products).

27. That, in particular, both tariff heads were merged under Heading 6907 since the industry no longer made a distinction between unglazed and glazed ceramic products.

28. The Respondent noted, that it operates a self-declaration/self-assessment regime whereby, the Appellant makes declarations and pays taxes on the items that they import themselves or through their agents.

29. The Respondent averred that this creates an expectation that the Appellant will make the correct declaration and subsequently pay the correct taxes.

30. The Respondent further averred that in the event the Appellant defaults in this expectation, the law under Sections 135, 235 & 236 of EACCMA, 2004 allows the Respondent, within five years of importation, to assess and demand for the short-levied taxes.

31. The Respondent further noted that the Legal Notice that effected the changes was and still is accessible to the public from the EAC website. The Appellant therefore could have sought a copy of the revised nomenclature and confirmed the applicable headings before making the declarations.

32. The Respondent therefore submitted that it was the Appellant's duty to verify the applicable headings before making the declarations since the change on the codes was accessible and available.

33. Regarding the change on HS Code 6907 from HS Code 6908 which imposed a duty rate of 1. 75USD on tile products in the period under review was never communicated legally and by legitimate body that is East African Community Council of Ministers, the Respondent averred that the Appellant's afore-mentioned statement is incorrect and misleading. That on the contrary, the East African Community Secretariat on 30th June 2017 released the EAC Gazette Notice No. 85 of 2017.

34. That the Legal Notice was and is still accessible to the public from the East Africa Community website.

35. The Respondent therefore averred that the change on codes was legally communicated that is through the East Africa Community website and by legitimate body, that is East African Community Secretariat.

36. Regarding the Appellant’s legitimate expectation that the Respondent would encourage the Appellant into paying the import duty at a mandatory rate for all tiles imported under H.S Code 6908 the Respondent averred that provisions of the law supersedes any legitimate expectation the Appellant claims especially in the event the claim has no justification.

37. It is the Respondent's view was that there was no legitimate expectation on the Respondent for claiming the short-levied taxes since Sections 235 and 236 of EACCMA allows it to call for documents and conduct a Post Clearance Audit on the import and export of the Appellant within a period of five years from the date of importation or exportation.

38. The Respondent further averred that where the Post Clearance Audit reveals that the taxes were short levied, Section 135 of EACCMA empowers it to recover the amount short levied.

39. The Respondent further averred that the change on the codes was and is still accessible to the public and that Appellant's failure to conduct its due diligence should not create legitimate expectation against the Respondent. The Respondent relied on Republic V KRA; Pronto Energy Limited (Ex-parte) (Judicial Review Application E023 0f 2021)(2022) KEHC 5(KLR) wherein the Court concludes that;“……There cannot be legitimate expectations against clear provisions of a statute”

40. On whether the Respondent breached the principles against the retrospective application of the law it relied on Section 135 of the East African Community Customs Management Act, 2004.

Respondent’s prayers 41. The Respondent prayed that this Tribunal:-a.Finds that this Appeal lacks merit;b.Upholds the Respondent’s demand notice dated 15th December, 2022; andc.Dismiss the Appeal with costs to the Respondent.

Issues For Determination 42. The Tribunal has considered the facts of the matter and the submissions made by the parties, and considers the issues for determination as follows:a.Whether there is a valid appeal on record.b.Whether the Respondent was justified in issuing a Demand Notice dated 15th December 2022

Analysis And Findings 43. The Tribunal proceeds to analyze the issues as hereunder;a)Whether there is a valid appeal on record.

44. The Respondent raised a preliminary objection on the ground that the Appeal is incompetent for non-compliance with Section 229(1) of East African Community Customs Management.

45. Section 229 (1) of East Africa Community Customs Management Act, 2004 provides that:“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”.

46. The Tribunal observes that the Respondent averred that it issued a demand notice to the Appellant dated 28th August 2020 pursuant to Sections 235 and 236 of the EACCMA.

47. Conversely, the Appellant in a letter dated 4th December 2022 seen in the Respondent’s bundle of documents, the Appellant referred to having responded to the letter dated 28th August 2020 on 20th September 2020. However, the Tribunal was not furnished with a copy of this letter by the Appellant. Indeed, the Respondent, in its response to the Appellant, in the letter dated 15th December 2022 requested the Appellant to furnish it with copies of the correspondence which would naturally, in the view of the Tribunal have included its letter of 20th September 2020.

48. Further, the bare minimum that would have been expected by the Tribunal in the Appellant’s bundle of documents in this Appeal would be correspondence between itself and the Respondent in support of its application for review of that decision or omission by the Respondent as anticipated by the provisions of Section 229 of EACCMA.

49. In the absence of such documents, the Tribunal is persuaded that the Appellant did not comply with the provisions of Section 229 (1) of EACCMA. Therefore, the Tribunal finds that there is no proper Appeal on record. The Tribunal has no jurisdiction in this matter and therefore the Tribunal must down its tools.

50. The Tribunal is guided by the decision in the case of Nicholas Kiptoo Arap Korir Salat v IEBC & 6 Others [2013] eKLR, where the Court held that; -“This Court, indeed al l courts, must never provide succor and cover to parties who exhibit scant respect for rules and timelines. Those rules and timelines serve to make the process of judicial adjudication and determination fair, just, certain and even-handed. Courts cannot aid in the bending or circumventing of rules and a shifting of goal posts for, while it may seem to aid one side, it unfairly harms the innocent party who strives to abide by the rules. I apprehend that it is in the even-handed and dispassionate application of rules that courts give assurance that there is a clear method in the manner in which things are done so that outcomes can be anticipated with a measure of confidence, certainty and clarity where issues of rules and their application are concerned.”

51. Having found that the Appeal filed is invalid thereby denying the Tribunal jurisdiction in this matter the Tribunal did not delve into the second issue for determination as it had been rendered moot.

Final Decision 52. The upshot to the foregoing is that the Appeal is not merited, and the Tribunal consequently makes the following orders; -a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

53. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF APRIL, 2024. GRACE MUKUHACHAIRPERSONDR. WALTER J. ONGETI JEPHTHAH NJAGIMEMBER MEMBERGLORIA A. OGAGA DR. ERICK KOMOLOMEMBER MEMBER