[2023] KETAT 152 (KLR)

El -Amigos Enterprises Limited v Commissioner of Investigations & Enforcement (Appeal 620 of 2021) [2023] KETAT 152 (KLR) (10 March 2023) (Judgment)

Neutral citation: [2023] KETAT 152 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 620 of 2021

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

March 10, 2023

Between

El -Amigos Enterprises Limited

Appellant

and

Commissioner Of Investigations & Enforcement

Respondent

Judgment

1. The Appellant is a limited liability company incorporated in Kenya and whose principal business activity is the importation of second-hand motor vehicles and motor cycle spare parts.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for collecting and receiving all tax revenue. Further, under Section 5(2) of the Act, concerning the performance of its functions under sub Section (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts 1 & 2 of the First Schedule to the Act to assess, collect and account for all revenues under those laws.

3. The Appellant imported a consignment of container STC assorted used motor vehicle and motor cycle spares parts from Japan through a bill of lading no. NMBA 18121039 dated 14th December 2018 which arrived on 12th January 2019 and were entered through the Customs Simba system and an Import Entry No. 2019MSA7130086 dated 22nd January 2019 was generated.

4. The Respondent impounded the Appellant’s consignment on 14th March 2019 and issued a Notice of Goods Deposited in Customs Warehouse No. 202358, on establishing that the Appellant had imported used motorcycles and mis- declared them as motor cycle parts hence the need for impounding. The Notice of Goods Deposited in Customs Warehouse described the goods deposited as 15 disassembled motor cycles of various types from Japan.

5. The Respondent stated that the Certificate of Conformity indicated an HS code of 8711:50:00 for the motor cycle units, this being the appropriate tariff for the motor cycle units. In the declaration (Entry), the Appellant classified the motor cycles under tariff 8408. 20. 00 which is the tariff for classification of engines.

6. The Appellant was informed that there was misclassification contrary to Section 203 of EACCMA and the misclassification was confirmed during the offloading where on verification the Respondent found fully assembled motorcycles missing only seats and wheels.

7. The Respondent stated that it only secured the 15 motorcycle parts and placed the same in different premises and that the same have not been seized and forfeited yet. The goods were deposited for the Appellant to provide further information and documents as required by the Respondent’s letter dated 13th March 2019.

8. The Respondent stated that it rejected the release of the goods because they would operate without being properly registered by NTSA therefore hindering the Respondent from collecting revenue.

9. The Appellant being dissatisfied with the Respondent’s decision preferred the appeal herein.

The Appeal 10. The Appellant filed its Memorandum of Appeal on the 20th August, 2021 and set out the following grounds of appeal;i.That the Respondent erred in law and fact by his action which was ultra vires and therefore void when they contravened Section 5(1) and (2) of the EACCMA.ii.That the Respondent erred in law and in fact by apprehending and depositing the Appellant’s goods at the Appellant’s premises for 13 days without informing the Appellant the reasons for his action contrary to Article 35 of the Constitution on the right to freedom of information.iii.That the Respondent erred in law and in fact by abusing Section 60(1) of the Tax Procedures Act which gives an authorized officer the power to search and seize after obtaining a warrant, which the officer failed to produce during the raid and search at the Appellant’s premises.iv.That the Respondent’s agent also abused Section 60(2)of the Tax Procedure Act which gives an authorized officer the power to secure the building, place and property to which access is sought under sub-Section (1) before obtaining a warrant.v.That the Respondent erred in law and in fact by exercising the power under Section 60(1) by entering and remaining in the Appellant’s premises without written authorization from the Commissioner permitting him to exercise the powers conferred by this Section as provided for under Section 60(5) of the Tax Procedures Act.vi.That the Respondent erred in law and fact by issuing the “Notice of Goods Deposited in Customs Warehouse No. 202358 dated 14th March 2019” that was an afterthought after receiving a demand letter from the Appellant’s lawyers.vii.The Respondent erred in law and in fact by dictating to the Appellant the words to be used in the Appellant’s letter addressed to the Commissioner of Investigations and Enforcement-Rift Valley region and still failed to release the goods.viii.That the Respondent erred in fact and in law by holding on to the Appellant’s goods indefinitely affecting its business operation in breach of its right to fair administrative action.ix.That the Respondent erred in law and in fact by failing to note that the Commissioner of Customs and Boarder Control released the subject goods.x.That the Respondent erred in law and fact by failing to appreciate that the consignment was profiled for 100 % verification to confirm consent and description and it was referred to Manager Enforcement before final release.xi.That the Respondent erred in law and in fact by intercepting and holding the Appellant’s goods which had been subjected to stringent verified measures by several Government agencies at the Mombasa Port and Valuation and Tariff at Time Towers before release.xii.That the Respondent erred in law and in fact by failing to appreciate that their container had undergone three verifications.xiii.That the Respondent erred in law and fact by failing to appreciate that the Commissioner of Customs and Boarder Control who is mandated by Section 5 (1) of the EACCMA to verify the goods.

The Appelant’s Case 11. The Appellant has set out its case in the Statement of Facts filed on 18th August 2021 and the written submissions filed on 15th December 2022.

12. The Appellant stated that it is an importer of used motor vehicles and motor cycle parts operating under the business name, EL -AMIGOS AUTO ENTERPRISES based in Nakuru.

13. The Appellant stated that it imported a consignment of goods vide import container Entry No. 2019MSA 7130086 dated 22nd January 2019 and the goods were cleared on 1st March 2019 and forwarded to its Nakuru premises by its clearing agent, Magot Freight Services Ltd.

14. The Appellant stated that the goods arrived in Nakuru on 2nd March 2021 and officers from the Investigations & Enforcement Department arrived at its shop and demanded that the goods be offloaded from the container which was done under their supervision and they locked and sealed down the shop and warehouse.

15. The Appellant contended that it entered the entry for consignment as provided for under Section 34(1) & (2) of EACCMA, The declared and approved duty plus uplifts were paid for and the Commissioner of Customs being satisfied that all requirements had been met and all duties paid, released the goods for clearing on 1st March 2019.

16. The Appellant stated that for the Respondent to visit the importer’s shop / warehouse immediately after the goods had been officially verified and released by the Commissioner of Customs & Border Control and conduct an illegal supervision of offloading and leaving the premises under police guard for two weeks only to come back after receiving a demand from the Appellant’s lawyers was a fallacy and an illegality.

17. The Appellant contended that the actions of the Respondent were ultra vires its powers as it bears no mandate under Section 5(1) of the EACCMA, neither does it have a right to intercept nor seal goods whose duty has been paid.

18. The Appellant averred that according to the F.189 No. 202358 dated 14th March 2019, drawn by the Respondent’s officer, indicates the reason for the deposit was that,” the goods were suspected to have been mis-declared “and the description of the goods was “15 disassembled motor bikes of various types “. According to the Customs agent, the consignment consisted of 15 used motor cycle spare parts.

19. The Appellant agrees with the Respondent’s contention that the Respondent raided and impounded the Appellant’s consignment and issued a Notice of Goods Deposited in Customs Warehouse No. 202358, but disagrees with the date quoted as 14th March 2019, but instead the date of impounding was on 2nd March 2019.

20. The Appellant further stated that it disagrees with the contention of the Respondent that purport that the Respondent established that the Appellant had imported used motor cycles and mis-declared them as motor cycle parts hence the need for impounding and that on the contrary the imports were 15 used disassembled motor cycle spare parts.

21. The Appellant averred that the Respondent misinformed itself on the mis- declaration aspect since the Commissioner of Customs under whose docket the declaration of HS Code is domiciled had given approval of the HS Code as applied and therefore raised no offence and penalty under Section 203 of EACCMA.

22. It was the contention of the Appellant that its container was verified three times by three different Sections and released and all the three verification Sections presented the documents e.g. Invoices, certificate of conformity etc. which showed the actual contents in the Appellant’s container and if the Commissioner of Customs was not satisfied with the three verifications, he would have ordered and approved for destination under Section 53 of EACCMA.

23. The Appellant averred that after offloading the imported goods from the said container, the Respondent without a warrant or authority ordered the closure of its premises without disclosing to the Appellant the reasons for taking such drastic actions, while placing police officers to secure the premises and walked away.

24. The Appellant further averred that the Respondent’s unlawful and illegal actions caused the Appellant distress by subjecting it to suffer loss and damage for 13 days due to the closure of its shop for which the Appellant holds the Respondent liable.

25. The Appellant also averred that the Respondent after 13 days of illegal closure of the Appellant’s premises, went back after receiving the Appellant’s lawyer’s demand letter dated 11th March 2019, opened the shop and further illegally impounded 15 assorted used motor cycle spare parts that were offloaded from the container import entry No. 2019MSA7130086 dated 22nd January 2019.

26. It was further the averment of the Appellant that the Respondent deposited the 15 used motor cycle spare parts in the nearby private empty shop whose rent is Kshs 50,000. 00 per month without caring on the cost implication- and without talking to the landlord served the Appellant with a Notice of Goods Deposit in Customs warehouse No. 202358 dated 14th March 2019 and also served the Appellant with a letter that demanded the production of various documents, which were unrelated to the impounded goods.

27. It was the submission of the Appellant that the Respondent does not have any mandate or powers under EACCMA to enforce or manage or control customs matters as the mandate is legally vested on the Commissioner of Customs by EACCMA.

28. The Appellant also submitted that the Respondent raided its premises, closed its shop and warehouse, for 13 days and did not produce any document to show authorization by the Commissioner of Customs to do so, neither did it have a court warrant to sanction its actions, which was a violation of Section 5(3) of EACCMA.

29. The Appellant is therefore aggrieved by the administrative action taken by the Respondent and consequently apply to this Tribunal to review the administrative action as provided for under Article 47 of the Constitution and the Fair Administrative Actions Act, Section 7(2).

30. It was also the submission of the Appellant that the raid, closure for 13 days and impounding by the Respondent was not justified and violated Article 40 of the Constitution on the “right of protection of property”.

31. The Appellant also submitted that the Respondent was not justified to impound 15 used motor cycle spare parts imported vide import entry No. 2019MSA7130086 among other used items, deposit them in a private shop, issue F.189 No. 202358, close shop indefinitely and walk away. The Appellant contended that the 15 used motor cycle spare parts impounded and detained by the Respondent are neither prohibited nor restricted goods specified in Part A or B of the Second Schedule of EACCMA.

32. By reasons aforesaid the Appellant prayed that the Tribunal allows its Appeal and issues the orders as prayed in its Memorandum of Appeal.

The Respondent’s Case 33. The Respondent in its response to the Appellant’s case relied on its Statement of Facts filed on 1st of November 2021, the witness statement of Ben Kiptoo filed on 19th January 2022, and the written submissions filed on 20th December 2022.

34. The Respondent stated that the Appellant imported a consignment of container STC assorted used motor vehicle and motor cycle parts from Japan through a bill of landing Bo. NMBA 181.

35. The Respondent impounded the Appellant’s consignment on 14th March 2019 and issued a Notice of Goods Deposited in Customs Warehouse No. 203358. The Notice of Goods Deposited, described the goods deposited as 15 disassembled motor bikes of various types from Japan. The Respondent stated that it impounded the goods because the Appellant had imported used motor cycles and mis-declared them as motor cycle parts.

36. The Respondent further stated that the Certificate of Conformity indicated an HS code of 8711:11, which is a tariff code for classification of engines. The Respondent contended that this classification was contrary to Section 203 of EACCMA, 2004.

37. The Respondent therefore rejected the release of the goods because it would operate without being properly registered by NTSA therefore hindering the Respondent from collecting revenue.

38. The Respondent also contended that the Appellant’s appeal offends the doctrine of exhaustion. The Respondent submitted that the Appellant failed to exhaust the laid down internal remedies mechanism as provided for under Section 229 of the EACCMA Act and should have sought the alternative remedies before approaching this Honourable Tribunal.

39. To buttress its case, the Respondent relied on the case of Kapa Oil Refineries - vs- Kenya Revenue Authority CA 305 of 2012 eKLR, where the court cited the case of The Speaker of National Assembly -vs- Njenga Karume (2008) eKLR, where the court held that, “in our view there is considerable merit... that where there are clear procedures for the redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed.”

40. The Respondent averred that the Appellant did not provide any evidence that it lodged a Notice of Objection as alleged, thereby failing to exhaust the laid down internal remedial mechanisms as provided for under Section 229 of EACCMA.

41. The Respondent also contended that the Appellant misdeclared motorcycles as “motor cycle parts” under tariff classification HS Code 8408;20;00 instead of 8711:50:00.

42. It was the submission of the Respondent that the Harmonized Tariff Schedule is a systematic classification or enumeration of all goods found in international trade along with international rules of interpretation. The Respondent further stated that since Kenya is a signatory to the World Customs Organization, parties are required to rely on the Harmonized Commodity Description and Coding System.

43. The Respondent therefore submitted that the classification of goods under HS Code is determined by characteristics, composition and components of the product and not what the product is called or what it is alleged to do.

44. According to the Respondent’s submission, General Interpretative Rule 1 on interpretation of tariff classification provides that:-“The titles of Sections, chapters and sub-chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the heading and any relative Sections and chapter notes and provided that such headings or notes do not otherwise require, according to the following provisions.”

45. Further, the Respondent stated that the General Interpretative Rule 6, directs that classification shall be determined according to the terms of those subheading notes. In addition, the explanatory notes to the HS constitute the official interpretation of the Harmonized System at the International level and are an indispensable complement to the system.

46. The Respondent averred that there was misclassification contrary to Section 203 of EACCMA. The misclassification was said to have been confirmed during the offloading where on verification the Respondent found full- assembled motor cycles- missing only the seats and wheels.

47. The Respondent further averred that the Appellant’s documents described the goods as “15 pieces disassembled motor bikes” and “15 pieces of used fuel tanks”. The Respondent therefore submitted that with these parts assembled then there will be 15 motor bikes, therefore those goods ought to have been declared as motor bikes and not motor cycle parts.

48. The Respondent also averred that the Appellant contravened Section 203 of EACCMA by making an entry that was incorrect and fraudulently evading payment of duty.

49. It was also the submission of the Respondent that it has the mandate to assert the accuracy of the entries declared under Sections 235 and 236 of EACCMA, and submitted that the classification was correctly issued and conform to the Customs tax laws and the onus of proof in tax objections is on the taxpayer who in this case failed to avail evidence that would support a contrary classification or that would have guided the Respondent at arriving at a different objection decision.

50. The Respondent asserted that Section 56 of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act places the burden of proof on the taxpayer. The Respondent buttressed this submission with the case of Mulheim -vs- Commissioner of Taxation (2013) FCAFC 115, and submitted that the documents and the literature provided did not provide any additional information, which would have led to the change in tariff classification.

51. The Respondent submitted that releasing the goods would be detrimental to it and the Country at large because the motor cycles attract a higher duty than other parts and the Government will be denied the opportunity to collect the revenue due and payable.

52. By reason of the submissions aforesaid, the Respondent prayed to the Tribunal to dismiss the Appeal in its entirety, uphold the objection decision and award costs to the Respondent.

Issues For Determination 53. The Tribunal having carefully considered the pleadings filed and the Submissions made by the parties is of the view that this Appeal distils into two issues for determination;i.Whether the Appellant’s appeal is incompetent and defective for offending the principle of exhaustion; andii.Whether the Respondent was justified in seizing the Appellant’s goods for mis-declaration.

Analysis And Determination Whether the Appellant’s appeal is incompetent and defective for offending the principle of exhaustion.** 54. The Respondent has opposed the Appellant’s Appeal on the basis that it offends the exhaustion principle in that the Appellant failed to exhaust the laid internal remedies mechanism as provided under Section 229 of EACCMA and ought to have pursued the alternative remedies before coming to this Honourable Tribunal.

55. The Respondent cited the case of The Speaker of the National Assembly -vs- Njenga Karume (2008)1992 eKLR, where the court held,“In our view, there is considerable merit … that where there is clear procedure for the redress of any particular grievance prescribed by the Constitution or an Act of parliament, that procedure should be strictly followed since there are good reasons for such special procedure.”

56. Section 229 (1) of the East African Community Customs Management Act, 2004, provides as follows:-“A person directly affected by the decision or omission of the Commissioner or any other officer on a matter relating to customs shall within thirty days of the date of the decision or omission lodge an application for review of the decision or omission.(2) The application for review referred to under subsection (1) shall be lodged with the Commissioner in writing stating the grounds upon which it is lodged .”

57. This provision is the counterpart of Section 51 of the Tax Procedures Act, which provides that:-“(1) A taxpayer who wishes to dispute a tax decision shall first lodge an objection against the tax decision under this Section before proceeding under any other written law.(2) A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing with the Commissioner within thirty days of being notified of the decision.”

57. A plain reading of Section 229(4 & 5) of EACCMA clearly indicates that the Respondent has 30 days to consider and determine an application for review and provides that where the Commissioner fails to communicate his or her decision within the prescribed period then the Commissioner will be deemed to have decided to allow the objection application.

58. Under Section 230 of EACCMA, a person dissatisfied with the objection decision issued by the Commissioner under Section 229 is entitled to appeal to a Tax Tribunal established in accordance with Section 231 of EACCMA.

59. Section 12 of the Tax Appeals Tribunal provides that:-“A person who disputes the decision of the Commissioner on any matter arising under the provisions of any tax law subject to the provisions of the relevant tax law, may upon giving notice in writing to the Commissioner, appeal to the Tribunal …”

57. The Tribunal is alive to the principle that where a specific dispute resolution mechanism is prescribed by the Constitution or a statute, parties should first resort to that mechanism before invoking the jurisdiction of the court.

58. In the instant Appeal, the matter in dispute is subject to the provisions of EACCMA. Consequently, Section 229 thereof provides the mechanism of the internal dispute resolution mechanism between the aggrieved taxpayers and the Commissioner.

59. Specifically, Section 229 (1) provides that a person directly affected by the decision or omission of the Commissioner, shall lodge an application for review of the decision or omission within thirty days of the receipt of the decision. Noting the use of the word “shall” in the Section connotes that the requirement to apply for review is mandatory and the taxpayer is compelled to proceed under this mandatory requirement, before proceeding under any other law.

60. The Tribunal has perused and reviewed the Appellant’s pleadings and documents submitted and there is no evidence of it applying for review with the Commissioner nor receiving a review decision or objection decision as required, which would then have entitled it to file the instant Appeal with this Tribunal.

61. There are always good reasons for special procedures of dispute resolution set out by the Constitution or by statute.

62. In the case of Geoffrey Mutinja Kabiru & 2 others -vs- Samuel Munga Henry & 1756 others, the court held,“It is imperative that where a dispute resolution mechanism exists outside courts, the same be exhausted before jurisdiction of the courts is invoked. Courts ought to be a fora of last resort, and not the first port of call the moment a storm brews. The exhaustion doctrine is a sound one and serves the purpose of ensuring that there is postponement of judicial consideration of matters to ensure that a party is first of all diligent in the protection of his interest within the mechanisms in place for resolution outside courts… This accords with Article 159 of the Constitution which commands courts to encourage alternative means of dispute resolution.”

57. As the Appellant did not seek a review decision with the Commissioner as provided for under Section 229 of EACCMA, and there being no review decision by the Commissioner, which would be the basis upon which the Appellant’s Appeal is grounded, it logically follows that the Appellant jumped the gun and filed its appeal before exhausting the mandatory process of dispute resolution as set out in the law.

58. In light of the foregoing, the Tribunal finds the Appellant’s appeal is incompetent as it was filed without a review decision and without following the laid down dispute resolution procedure thus offending the doctrine of exhaustion. There is therefore no appealable decision upon which the appeal is grounded and consequently the same fails.

59. The upshot of the foregoing is that the Tribunal finds the Appeal herein premature and therefore incompetent in law, as it is filed without an appealable decision and in breach of the doctrine of exhaustion.

ii. Whether the Respondent was justified in seizing the Appellant’s goods for misdeclaration?** 57. The Tribunal having found this Appeal incompetent under the first issue hereinabove, this second issue becomes moot and the Tribunal will not proceed with the issue.

58. In view of the foregoing, the Tribunal determines that the Appeal is devoid of merit and consequently fails.

Final Decision 57. The upshot of the foregoing is that the Appeal is unsustainable in law and the Tribunal accordingly proceeds to issue the following Orders;a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

57. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 10TH DAY OF MARCH, 2023…………………………ROBERT M. MUTUMACHAIRPERSON……………………………RODNEY O. OLUOCHMEMBER…………………………ELISHAH NJERUMEMBER…………………………DELILAH K. NGALAMEMBER…………………………EDWIN K. CHELUGETMEMBER