[2023] KETAT 868 (KLR)

Equator Bottlers Limited v Commissioner of Customs and Boarder Control (Tax Appeal 1450 of 2022) [2023] KETAT 868 (KLR) (8 December 2023) (Judgment)

Neutral citation: [2023] KETAT 868 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1450 of 2022

E.N Wafula, Chair, E Ng'ang'a, RO Oluoch, Cynthia B. Mayaka, AK Kiprotich & B Gitari, Members

December 8, 2023

Between

Equator Bottlers Limited

Appellant

and

The Commissioner Of Customs And Boarder Control

Respondent

Judgment

Background 1. The Appellant is a limited liability company located in Kisumu and provides bottling services for non-alcoholic beverages in Kenya. The Company manufactures plastic bottles and runs soft drink and mineral water bottling plants.

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 the collection and receipt of all tax revenue.

3. The Appellant is a gazetted manufacturer under the East Africa Community (EAC) Duty Remission Scheme (DRS) approved to manufacture soft drinks. In various Legal Notices including EAC/72/2018 dated 1st July 2018 and EAC/177/2019 dated 8th October 2019.

4. During the period of 2017 – 2021, upon application and approval by the Council of Ministers, the Appellant was gazetted in the East African Community Gazette to import sugar for industrial use under the Duty Remission Scheme.

5. The Appellant imported the specified quantities and utilized the sugar for the intended purpose as stipulated in the Gazette Notice.

6. In 2022, the Respondent conducted a compliance check on the Appellant’s accounts pursuant to the provisions of Sections 140, 235 and 236 of the East African Community Customs Management Act (EACCMA), 2004. On the 14th of June 2022, the Respondents communicated its findings on imported sugar under the Duty Remission Scheme to the Appellant.

7. The Respondent conducted a review to ascertain the Appellant’s compliance with the Duty Remission Scheme thereafter assessed and demanded taxes of Kshs. 222,459. 454. 00 vide a letter dated 14th September 2022.

8. The Appellant vide a letter dated 13th October 2022 applied for a review of the Respondent’s decision pursuant to the provisions of Section 229 of the East Africa Community Customs Management Act.

9. Upon review of the objections, the Respondent issued a review decision pursuant to Section 229 of the EACCMA vide a letter dated 24th October 2022 upholding its earlier demand in its entirety.

10. Aggrieved by the Respondent’s review decision the Appellant preferred the instant Appeal.

The Appeal 11. The Appeal is premised on the following grounds as stated in the Appellant’s Amended Memorandum of Appeal dated and filed on 2nd December 2022:a.That the Respondent erred in fact and in law by demanding taxes on the basis that remission for the sugar imports is not based on the validity of the gazette notice at the point of the initiation of the import process rather at the end of the process when the goods are considered to have arrived. The position held by the Respondent fails to take into account Section 140 (1) of the EACCMA which states that “The Council may grant remission of duty on goods imported for the manufacture of goods in a Partner remission of duty on State,” whereas the Act clearly defines import as to bring or cause to be brought.b.That the Respondent erred in fact and in law by stating that no valid gazette notices were in place whereas the Appellant at the point of application for the Controls (C60s) submitted each shipment documentation and gazette notices proving that importation was done within the period stipulated in Section 140 of EACCMA.c.That the Respondent erred in fact and in law by failing to acknowledge that with each shipment, the Appellant provided agents of the Respondent with all relevant documentation supporting the importation of the sugar, and with this documentation, the Appellant’s shipment was released accordingly at the port of entry.d.That the Respondent erred in law by failing to recognise the principle of legitimate expectation existing between the parties. Over the years, the Respondent has never challenged the operation of the Appellant where the company has always ensured that a valid gazette notice was in place at the point of approval of the controls (C60S) which is the point of the commencement of the import process.e.That the Respondent erred in fact and in law by failing to appreciate 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 at the point of clearance of the goods at the port of entry. The system used by the Respondent automatically picks the exemption code which is linked to the approved C60 that is supported by a valid gazette notice and subsequently, automatically remits the 90% of the duty.f.That the Respondent erred in fact by failing to appreciate that the sugar imported was rightfully used for the purpose it was imported and the goods for which the sugar had been remitted were already sold.g.That the Respondent erred in law and in fact by computing additional customs duty and VAT taking into account that the remission granted was in line with the provisions of EACCMA.

Appellant’s Case 12. The Appellant’s case is supported by the following documents:a.The Appellant’s Statement of Facts dated and filed on the 29th November 2022 together with the documents attached thereto.b.Appellant’s witness statement of Benedict Malala dated and filed on 15thc.May 2023 that was admitted in evidence on oath on the 16th September, 2023. d.The Appellant’s written submissions dated and filed on 28th July 2023 and authorities attached hereto.

13. That during the period 2017 to 2021, upon application and approval by the Council of Ministers, the Appellant was gazetted in the East African Community Gazette to import sugar for industrial use under the Duty Remission Scheme.

14. That the Appellant imported the specified quantities and utilised the sugar for the intended purpose as stipulated in the gazette notice.

15. That in 2022 the Respondent conducted a compliance check on the Appellant’s accounts pursuant to the provisions of Sections 140, 235 and 236 of the East African Community Customs Management Act (EACCMA), 2004. On the 14th of June 2022, the Respondent communicated its findings on imported sugar under the Duty Remission Scheme to the Appellant.

16. That the Respondent’s letter of findings highlighted that there were sugar imports for the period 2019 to 2021, which did not fall within the gazette period. That consequently, the Respondent computed import duty and requested the Appellant to share its comments regarding the compliance check findings within 7 days from the date of the letter of findings.

17. That a Meeting was held on 20th June 2022,between the Appellant and the Respondent regarding the matter highlighted. The Appellant requested for an extension of time to gather, prepare and submit the comments and all relevant documentation supporting its case to the Respondent.

18. That in a letter referenced HQ/DRS/COM/5/2022 dated July 18th 2022, the Respondent granted the Appellant 30 days to file a comprehensive response.

19. That the Appellant submitted its response on 15th August 2022. Alongside the comprehensive response, the Appellant annexed all the gazette notices for the period 2019 to 2021 and the relevant controls (C60s) in support of its transactions.

20. That in its response, the Appellant stated that prior to each import, the company ensured that it adhered to all relevant Laws and Regulations with respect to the provisions Section 140(1)of the EACCMA which stated that "The Council may grant remission of duty on goods imported for the manufacture of goods in a Partner remission of duty on State.” The Appellant had been gazetted in all the notices for the stated period.

21. That additionally, the Appellant made reference to Section 2 of the Act which defines import to mean to bring or cause to be brought into the Partner States from a foreign country. Appellant relied on the case of Frederick v. Great Northern Ry. Co.,207 Wis. 234,240 N.W.387,390. It was decided that the word “bring” means to convey to the place where the speaker is or is to be, to bear from a more distant to a nearer place, to make to come, procure, produce, draw to, to convey, carry or conduct, move. "Cause to be brought" also infers the commencement of a process.

22. The Appellant referred to Paragraph 6 (1) of the Duty Remission Regulations, which provided that remission of duty granted under the Regulations shall be valid for a period of twelve months from the date of the publication of the grant in the Gazette. Moreover, paragraph 6 (2) states that “The Council, may on the application by a manufacturer, grant remission on such further quantity of goods to be imported by the manufacturer under these Regulations.”

23. That based on the above, the Appellant’s position was that upon approval of the C60s, which are accompanied by pro-forma invoices and Import Declaration Forms (IDF), the import process commences as the approved control documents which are supported by valid gazette notices initiate the movement of goods into the Country from the foreign states and therefore the goods were imported within a valid gazette period.

24. The Appellant further averred that had the gazette notices expired, the C60s would not have been approved accordingly.

25. That the Respondent responded to the Appellant's comprehensive report on the 14th September 2022. It stated that the submission had been given due consideration however, it was rejected based on the fact that even if the import process was initialized within the period of a valid gazette notice, remission is not granted based on the initiation of the importation process rather at the end of it when goods are considered to have arrived and taxes are payable. To this end, the Respondent enclosed a demand letter with its response, requiring the Appellant to pay the taxes within 30 days.

26. That a second meeting was held on 19th of October 2022 between the Respondent and the Appellant and it was decided that the matter would be heard at the Tax Appeals Tribunal (TAT) as the Appellant objected to the position held and demand by the Respondent.

27. The parties failed to reach an amicable settlement and subsequently, the Commissioner issued a review decision on the 24th of October and made a demand of customs duty and VAT amounting to KShs 222,459,454.

28. That the Appellant maintains that the demand of taxes from the importation of sugar under the Duty Remission Scheme is not only unreasonable but also unfair to it since it had to the best of its knowledge adhered to all relevant legislation regarding the same.

29. The Appellant further stated that at the point of clearance of the goods at the Port of entry, once the agent transmits the customs entry, the exemption code picks up and ascertains the validity of the particular C60 and automatically remits the 90% duty under the duty remission scheme. To emphasize on the above, the Appellant placed reliance in the Court's decision in Krish Commodities Limited vs Kenya Revenue Authority (2018) eKLR, where the Judge stated as follows:“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 that it was aware at all material times of the right rate cannot hold any weight. More so, taking into account that the respondent's own officers verified the entries made and even inspected the perfunctor exercise. The reason they were there was to verify the accuracy of the entries and the rate applied and assessed duty as correct, a legitimate expectation arose in favour of the appellant that the assessed duty was correct.”

30. The Appellant further averred that the position it had taken over the years with respect to ensuring that there was a valid gazette notice at the point the controls are approved and when the import is initiated had not been challenged before by the Respondent. The Appellant therefore had a legitimate expectation that the process it had followed over the years was correct and in line with the law and practice. The Appellant relied on the case of Kenya Revenue Authority V Export Trading Company Limited (2020) eKLR.

31. The Appellant confirmed that the sugar imported was rightfully used for the purposes for which it was imported and was used to manufacture finished products which were sold to the end consumer. If these taxes were to be deemed due and payable, this would significantly impact on the business cash flow as it would be impossible to recover these costs as the items are already sold.

Appellant’s Prayers 32. That the Appellant prayed for orders, that:a.The demand of taxes of Kshs. 222,459,454 be declared null and void and be vacated in its entirety.b.The Respondent be restrained from enforcing its demand of any and all assessed taxes arising under the demand from the Appellant;c.The Appeal be allowed with costs to the Appellant; andd.Any other remedies the Honorable Tribunal deems just and reasonable.

Respondent’s Case 33. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal: -i.The Respondent’s Statement of Facts dated and filed on 29th December 2022 with the documents attached thereto.ii.The Respondent’s written submissions filed on 25th September, 2023.

34. That on 15th March 2022 the Respondent issued a notice of intention to carry out a Customs duty remission scheme compliance check under Sections 140, 235 and 236 of East African Community Customs Management Act 2004 as read together with Regulation 14 of the EACCMA (Duty Remission) Regulations 2008.

35. That on 23rd March 2022, a team from the Duty Remission Scheme conducted a compliance check exercise at the Appellant’s plant situated at the city of Kisumu.

36. That the compliance check focused on imports under the Duty Remission Scheme for the period 2017 to 2021 in line with the East African Community Customs Management (Duty Remission) Regulations, 2008 and was aimed at:a.Ascertaining the extent to which Customs laws and regulations have generally been adhered to.b.Analysing all controls issued within the period 2017 to 2021. c.Collecting extra taxes in cases where duty remission reconciliations are found to have been irregular.

37. That fundamentally, the relevant Legal Notices were Legal Notice No. EAC/72/2018 and Legal Notice No. EAC/177/2019 which granted the Appellant permission to import 10,000 metric tons of sugar at a reduced rate of 10% for industrial use with the finished product being Coca-Cola brand of soft drinks.

38. The Legal Notice No. EAC/72/2018 came into force on the 1st of July 2018 and the Appellant purported to import certain consignments as follows:Try Number Entry date C60 Number

D128360 10. 08. 2019 C60/12618/2019

132508 27. 08. 2019 ,

A7372522 31. 09. 2019 ,

A7372459 05. 11. 2019 ,

39. That the Legal Notice No. EAC/177/2019 was dated on 8th October 2019 wherein the Appellant sought to import consignment as follows:Entry Number Entry Date C60 Number

MSA7682420 20. 11. 2020 C60/13698

MSA7686257 26. 11. 2020 ,,

MSA7697156 11. 12. 2020 ,,

MSA7729097 29. 01. 2021 ,,

MSA7729440 29. 01. 2021 ,,

40. That during the review, the Respondent observed that several importation entries were lodged based on Gazette Legal Notices that had exceeded the required period of twelve months.

41. That based on the observation that the import entries were made beyond 12 months of the date of the Legal Notices, the Respondent served the Appellant with a letter dated 14th June 2022 communicating the compliance check findings. Particularly, the Respondent computed taxes payable in the instances where the Appellant had over imported on controls for the period 2017, 2018 and 2020 giving rise to a tax liability of Kshs.2,459,454. In light of the foregoing, the Respondent invited the Appellant to offer comments and/or explanations to the foregoing letter failure to which the Respondent would proceed and issue a tax assessment.

42. The Appellant requested for more time to respond to the findings, which application was granted by the Respondent vide its letter dated 18th July 2022. Consequently, the Appellant lodged its response on 15th August 2022.

43. That the Respondent was not convinced by the Appellant's submission. Particularly, the Appellant did not adequately address the finding that importation under various entries was done out of the valid gazette period of 12 months from the date of publication and therefore, the importations were not covered under any active EAC gazette. In the circumstances, the Respondent proceeded to issue the Appellant with a demand dated 14th September 2022 for payment of taxes on industrial sugar imported out of the gazetted period amounting to Kshs. 222,459,454.

44. That the Appellant and Respondent further engaged through meetings held on 4th & 19th October 2022 but failed to arrive at a compromise.

45. That the Appellant challenged the tax assessment through its application for review dated 13th October 2022. That after due consideration and review of its submissions, the Respondent vide a letter dated 24th October 2022 confirmed as due and payable taxes of Kshs. 222,459,454.

46. That the Appellant being aggrieved by this decision preferred an Appeal to the Tribunal.

47. The Respondent stated that the definition of import under Section 2 of the EACCMA provides thus:“Import” means to bring or to be caused to be brought into the Partner States from a foreign country.

48. The Respondent averred that the application of the duty remission scheme is limited to goods actually being brought into the relevant Partner state or causing to be brought, so that in each case, the goods must be physically present in the Partner State.

49. The Respondent further stated that the process undertaken to prepare or facilitate arrival of such goods does not amount to importation. The Respondent stated that the Appellant insisted, and wrongly so, that the phrase “caused to be brought into” envisions that the process of bringing into forms part of the import. This is not so. On the contrary, the Respondent averred that a purposive interpretation of the phrase “caused to be brought into” was provided to broaden the definition of an importer of goods to include those who bring goods through clearing agents and other third parties.

50. The Respondent averred that if the definition of import was meant to include preparatory acts, then this would have been clearly and expressly provided for under EACCMA. However, this is not the case. The concept of "bringing into” or entry is so vital to the definition of import since it even determines the import duty applicable. This is why Section 120(1) of the EACCMA states clearly that the import duty rate applicable is payable at the time of entry as follows:-“Subject to subsection (3) and section 94, import duty shall be paid at the rate in force at the time when the goods liable to such duty are entered for home consumption:Provided that in the case of goods imported overland, the time of entry of such goods for home consumption shall be deemed to be the time when the import duty on the goods is paid.”

51. That in addition to the foregoing, the Respondent places reliance on Part III of the EACCMA titled "Importation" which strictly refers to acts done when goods are actually brought into a Partner state for example arrival, unloading and removal, entry, examination and delivery. There is no reference made to any preparatory acts for example ordering goods, obtaining invoices and bills of lading from the exporting party and preparing the customs declaration entry documents.

52. That the Appellant's contention that import occurs at its commencement when the preparatory acts are done is an overreach and is not in accordance with strict reading of Section 2 of EACCMA. The Appellant cannot infer what is not expressly stated in a tax legislation. As such the import occurs when goods are brought in, entered into Kenya and at which point duty is payable.

53. The Respondent stated that by the time the entries were lodged the Legal Notices had ceased to have effect. Section 140(1) of the EACCMA provides for remission on certain imports used for manufacture of goods in the following terms:“The Council may grant remission of duty on goods imported for the manufacture of goods in a Partner State.”

54. The Respondent relied on Section 140(2) of the EACCMA which further provided that:“The Council may prescribe regulations on the general administration of the duty remission under this section.”

55. The Respondent also relied on the East African Community Customs Management (Duty Remission) Regulations of 2008 (hereinafter "the Remission Regulations") which were made pursuant to the immediately foregoing provision. Regulation 6(1) of the Remission Regulations limits the validity of a remission granted to 12 months from date of its publication in a Gazette and provides thus:“Remission of duty granted under these Regulations shall be valid for a period of twelve months from the date of the publication of the grant in the Gazette”

56. The Respondent stated that the date of entries of the goods show that they were imported more than 12 months after the publication of the relevant Legal Notices. The Respondent averred that import Entries 128360 dated 10. 08. 2019, Entry No. 131508 dated 27. 08. 2019, Entry No.7372522 dated 31. 10. 2019 and Entry No.7372459 dated 05. 11. 2019 could not be covered under the 1st Legal Notice published on 30th June 2018 which was in effect up to 29th June 2019.

57. The Respondent averred that further, Import Entry No.7682420 dated 20. 11. 2020, Entry No. 7686257 dated 26. 11. 2020, Entry No. 7G971SG dated 11. 12. 2021, Entry No.7729057 dated 29. 01. 2021 and Entry No. 7729440 dated 29. 01. 2021 could not be covered by the 2nd Legal Notice commencing 8th October 2019 to 7th October 2020.

58. That in light of the foregoing, the Respondent correctly averred that the remissions were irregularly given and the tax amount for Kshs. 222,459, 454. 00 should be found due and collectible.

59. The Respondent stated that it is required by law to verify the accuracy of declarations made during import within five years of import. Additionally, the argument of legitimate expectation cannot be raised to negate an express legal mandate.

60. That the Respondent mandate is principally derived from Section 5(1) of the EACCMA which provides as follows:“There shall be appointed, in accordance with Partner States' legislation, a Commissioner responsible for the management of Customs by each of the Partner states and such other staff as may be necessary for the administration of this Act and the efficient working of the Customs.”

61. The Respondent averred that in the management of customs, the Respondent clears goods as quickly as reasonable to facilitate trade. Resultantly, the Respondent therefore releases the vast majority of shipments and retain only consignments matching the risk profiles. Non-selected cargo will be released immediately but may be subjected to compliance checks later.

62. That the clearance is therefore conditional as provided by Section 235(1) which allows the Respondent to conduct an audit within five years of importation. That the Section reads:-“The proper officer may, within five years of the date of importation, exportation or transfer or manufacture of any goods, require the owner of the goods or any person who is in possession of any documents relating to the goods-(a)to produce all books, records and documents relating in any way to the goods; and(b)to answer any question in relation to the goods; and(c)to make declaration with respect to the weight, number, measure, strength, value, cost, selling price, origin, destination or place of transhipment of the goods, as the proper officer may deem fit.”

63. That in carrying out this function the Respondent is mandated to check the accuracy of a taxpayer's declaration under Section 236(a) of the EACCMA as follows:-“The Commissioner shall have the powers to-(a)verify the accuracy of the entry of goods or documents through examination of books, records, computer stored information, business systems and all relevant customs documents, commercial documents and other data related to the goods;”

64. The Respondent therefore stated that its authority to conduct the duty remission scheme compliance check is legally derived under Sections 235 and 236 of EACCMA and has not therefore been exercised arbitrarily.

65. The Respondent stated that it does not question the fact that the sugar imported was used in the intended manufacture. This is not a fact in dispute and did not form a basis of the assessment.

Respondent’s Prayers 66. The Respondent’s prays to this Tribunal for orders that:a.That the Respondent’s decision to demand Kshs. 222,459,454 for the relevant period was proper in law and in conformity with the East African Community Customs Management Act 2004b.That this Appeal be hereby dismissed with costs to the Respondent as the same is without merit.

Issues For Determination 67. The Tribunal having evaluated the pleadings and submissions of the parties is of the view that there is a one issue that calls for its determination being;Whether the Respondent was justified to issues a Review Decision dated 24th October 2022 demanding taxes of Kshs. 222,459. 454. 00.

Analysis And Findings 68. The Tribunal having determined the issue falling for its determination proceeds to analyse it as hereunder.

69. The Appellant submitted that Section 140 of the East African Community Customs Management Act 2004 (EACCMA) states that the Council may grant remission of duty on goods imported for the manufacture of goods in a Partner State.

70. The Appellant submitted that the Council may prescribe regulations on the general administration of the duty remission under the Section. In view of this provision, the East African Community Customs Management (Duty Remission) Regulations 2008 provides that the Council of Ministers shall approve remissions of duty on raw materials and inputs to be imported by manufacturers for one year.

71. To this end the Appellant, having being granted approval and being gazetted by the Council of Ministers, imported sugar for industrial use under the Duty Remission Scheme during the period 2017 to 2021. The Appellant applied for C60s which were approved by National Treasury following the annual allocation of the quantity of sugar granted to be imported under the duty remission scheme in the EAC Gazette. The C60 covered the quantity of sugar to be imported at a particular time. The approval of the C60s and the import declaration forms were the commencement of the importation process.

72. The Appellant posited that Section 2 of EACCMA defined import to mean to bring or cause to be brought into the Partner States from a foreign country and further making reference to Black's Law Dictionary as decided in the case of Frederick v. Great Northern Ry. Co., 207 Wi.234,240 N.W.387,390, the word “bring” means to convey to the place where the speaker is or is to be, to bear from a more distant to a nearer place, to make to come, procure, produce, draw to, to convey, carry or conduct, move. “Cause to be brought" also infers the commencement of a process.

73. Based on the above provisions of the law, it was the Appellant's position that upon approval of the C60s, which are accompanied by pro-forma invoices and IDF's, the import process commences as the approved control documents initiates the movement of goods into the Country from the foreign States. That at this point when the importation process commenced, all the approved C60s were supported by valid Gazette Notices.

74. The Appellant further relied on the case of Mount Kenya Bottlers Ltd & 3 others v Attorney General & 3 others [2019] eKLR where the Court stated as follows in paragraph 49;“In our view there cannot be an equitable construction of income tax legislation. The norm construction is against the State or against the person sought to be taxed. If, however there is any real ambiguity in a taxing Act, such ambiguity may be resolved in favour of the taxpayer, or, as it is sometimes stated:contra fiscum.”

75. The Respondent relied on Inland Revenue Commissioners V. Duke of Westminster [1936] A.C.1;[1]19TC 490 where Lord Atkinson, stated as follows in construing tax laws;“It is well established that one is bound, in construing Revenue Acts,to give a fair and reasonuble construction to their language without leaning to one side or the other,that no tax can be imposed on a subject by Act of Parliament without words in it clearly showing an intention to lay the burden upon him, that the words of a statute must be adhered to, and that so-called equitable constructions of them are not permissible.”

76. The Appellant made reference to Article 2 of the World Trade Organization Foreign Trade Law (WTO) which further defines an import as follows;“Import shall mean the transportation or delivery of goods or services from any foreign country or territory into the territory of the Republic in accordance with the customs legislation."

77. The Appellant averred that in the WTO definition of the word import, transportation of goods is included, which stresses the point that importing is a process, as opposed to a one-time occurrence. It is the Appellant's submission that by the time the Appellant was transporting the goods, there was a valid Gazette Notice in place, and therefore in compliance with the duty remission scheme requirements.

78. From a review of the entries which the Respondent indicated as not having approved Gazette Notices, the Appellant submitted that the approved C60s and the completed IDF's were initiated in periods where there were approved Gazette Notices and the import process of the goods commenced at this stage.

79. It was therefore the Appellant’s case that it imported the sugar when there were valid Gazette Notices. The assertion by the Respondent that valid Gazette Notices needed to be in place upon landing of the goods at the point of entry was therefore incorrect. It was also for this reason that the automated KRA system, in determining whether the remission rate would be applied, relied on the validity of the C60 that were on the system which were supported by valid gazette notices.

80. The Appellant submitted that it ensured that it followed all the necessary processes while importing the sugar and below is the importation and clearance process duly followed by the Appellant;a.Applying to the National Treasury for the inclusion in the approved Kenya Manufacturers gazette under the duty remission scheme as per Section 140 (3) of the EACCMA.b.Preparation of the relevant pro-forma invoices and Import Declaration Forms (IDF) which is a pre-declaration of the intended import. The Appellant received proforma/commercial invoices from the supplier and applied for the Import Declaration Form (IDF) and respective entries.The Appellant initiated the process by applying for the import declaration forms (IDF) in KRA's ORBUS system at that time.c.As soon as the IDFs were approved, the Appellant proceeded to make an application for the exemption documents (Form C.60) at The National Treasury as a listed industrial sugar importer in the EAC Gazette. The applications went through the normal process spanning an average of 5 days considering the application and approval procedure was then manual. Completion of a C60 form with the quantity and unit measure of sugar being imported which is approved by the National Treasury is in accordance with the approved gazctte notice.d.Ensuring that all C17 forms and sugar imported are within the limit indicated in the C60 in line with paragraph 8 (1) of the Duty Remission Regulations 2008. e.Ensuring that each C60 is accompanied with the approved Agricultural Authority Sugar Directorate (ASD) import permit.

81. The Appellant claimed that having followed the due importation process, the shipment arrived in the Country as expected and the clearance process was duly adopted in line with KRA customs clearance process. The import entries were generated in the KRA Simba system and taxes paid under the DRS regime following the activation of the duty exemption codes issued by KRA. The system automatically applied the exemption codes based on the validity of the C60 and subsequently, the entries were approved and the entries/shipments released.

82. The Appellant asserted that all due processes were followed when importing the sugar. That upon approval of the C60s, which were accompanied by pro-forma invoices and IDF's, the import process commenced as the approved control documents initiated the movement of goods into the country from the supplier's origin states. That if the Gazette Notices expired, the C60s would not have been approved accordingly. That at no previous occasion at the clearance process, did the Respondent point out that the gazette notice had expired and this created a legitimate expectation that the process the Appellant had followed over the years was correct and in line with the law and practice.

83. The Appellant relied on Keroche Industries Limited vs.Kenya Revenue Authority & 5 Others Nairobi HCMA No. 743 of 2006 [2007]KLR 240 which was held (on page 25) 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 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....In order to ascertain whether or not the respondents decision and the intended action is an abuse of power, the court has taken a fairly broad view of the major factors such as the abruptness, arbitrariness, oppressiveness and the quantum of the amount of tax imposed retrospectively and its potential to irretrievably ruin the applicant. All these are traits of abuse of power. Thus I hold that the frustration of the applicants' legitimate expectation based on the application of tariff amounts to abuse of power."

84. The Appellant submitted that when the Respondent cleared the Appellant's goods upon approval of the valid C60s, the Appellant had a legitimate expectation that the goods were cleared correctly, that the assessed tax by the Respondent which the Appellant paid was correct and the Appellant therefore went ahead to manufacture products which were sold in the market.

85. Further on the issue of legitimate expectations the Appellant relied on the following cases:i.Republic V Kenya Revenue Authority Ex Parte M-Kopa Kenya Limited [2018] eKLRii.Export Trading Company Limited V Kenaya Revenue Authority (2018)Eklriii.Republic v Attorney General & Another Ex Parte Waswa & 2 others (2005) 1 KLRiv.Kenya Revenue Authority v Export Trading Company Limited (Petition 20 of 2020) (2022) KESC 31 (KLR)

86. In light of the above, the Appellant submitted that there existed a legitimate expectation that the Appellant was compliant since the Respondent had not challenged this issue before. Over the years, the Respondent conducted itself in a way that created an understanding that so long as there is a valid gazette in place, and a control is done within its (Gazette Notice) stipulated period, the duty remission would be granted and the sugar cleared at customs.

87. The Appellant argued that at no point was the issue of validity of the Gazette Notice brought up during the clearing process. It would therefore be unfair and unreasonable for the Respondent to claim the liability, yet it has cleared the Appellant's goods from 2017 up to 2020 on the basis of the control date clearly indicated in the C17 and not the entry date. It is important to note that the C17s which are the clearing documents, indicate the Control Number (C60 number).

88. The Appellant stated that it had no role in the clearance process, and therefore when goods were cleared by the Respondent, the Appellant was of the view that the importation of the sugar in contention was in adherence with the law. The Appellant relied on the Court's decision in Krish Commodities Limited vs Kenya Revenue Authority (2018) eKLR which in Paragraph 30 stated as follows:“Moreover, it is common ground that the identification of the applicable rate of duty and assessment of duty payable was done by the Simbu 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. More so, taking into account that the respondent's own officers verified the entries made and even inspected the consignments. The respondents 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 consignment 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.”

89. The Appellant averred that it is useful to note that effective 2022, the Respondent's system has since been changed moderately to block the allocation of exemption codes which is an indication of acknowledgement of error on the part of the Respondent.

90. It is the Appellant’s case that at all times, the Appellant’s position was in line with what the Respondent held and in compliance with the requirements of the automated system. This is because the importation process commenced upon the approval of the C60s and at that point, there were valid gazette notices that allowed for the approval of the C60. The clearance of goods at the point of entry was subject to the approved C60 which was identified and picked automatically by the system.

91. The Appellant's argued that it believed that the Government's intention is to support the local manufacturing industry through the sugar remission scheme. It is also important for the Government to ensure that the sugar imported is used for the purpose for which it was intended to.

92. The Appellant stated that additionally, it was useful to note that the importation process, experiences challenges which may be beyond the control of the importers. That case in point, in as much as the import process is done early, the challenges of unavailability of vessels and lack of containers may lead to delayed shipping. Moreover, global shipping delays lead to long transit time which contributes to the time over run. The Respondent's position that the validity of the Gazette Notices is to be determined at the entry point negates the spirit of the sugar remission process.

93. The Appellant averred that it used the sugar to manufacture finished products which were sold to the end consumer. The cost of tax and most specifically indirect taxes which are borne by the final consumer, plays a significant role in determining the price of the final product. If these taxes were to be deemed due and payable, this would significantly impact on the business's cash flow as it is almost impossible to recover this cost as the items which the additional taxes relate to were already sold in those past years.

94. The Respondent stated that it was not in dispute that the Appellant is a gazetted manufacturer under the East Africa Community (EAC) Duty Remission Scheme (DRS) approved to manufacture soft drinks in the various legal notices.

95. The Respondent averred that both Legal Notices granted the Appellant remission to import 10,000 Metric tonnes of sugar for industrial use to be imported at a duty rate of 10% under the duty remission Scheme for 12 months.

96. The Respondent averred that said Legal Notices clearly indicated that the remission granted pursuant to the said Gazette Notices are valid for 12 months beginning from the date of the Gazette Notice. Legal Notice No. EAC/177/2019 is dated 8th of October 2019 and it therefore follows that it was valid until 7th October 2020 11:59PM. On review, the Respondent noted that the Appellant had imported sugar beyond the twelve months allowed within the respective Legal Notices.

97. The Respondent stated that it was not in dispute that some entries were outside the 12 months that was allowed under the two Legal Notices and that that being the case the Respondent demanded additional duty with regards to the importation in issue.

98. It is the Respondent's position that although the Appellant was issued with two Gazette Notices, the validity periods of each Gazette Notice differed. The Respondent also claimed that the Appellant is aware of this position as its witness admitted that the entries subject to this dispute were outside the validity period.

99. The Tribunal notes that the Duty Remission Committee made a clarification on the period for importation of goods under the East African Community Duty Remission Scheme and held that:“any raw materials/inputs imported after the expiry of the East Africa Community gazette is subject to applicable taxes, duties and charges including penalties under the tax laws."

100. It is also not in dispute that a valid Gazette Notice was in place at the point of approval of the controls (C60S) which is the point of the commencement of the import process.

101. The Appellant’s main contention is that the system used by the Respondent automatically picks the exemption code which is linked to the approved C60 that is supported by a valid Gazette Notice and subsequently, automatically remits the 90% of the duty. The approved (C60S) are issued by the National Treasury and are used to import goods for use in the manufacture of approved goods for home consumption as the Council may from time to time by notice in the Gazette Notice on duty remission.

102. The function of the controls and its applicability with regard to the Gazette Notices issued under Duty Remission System was clarified by the Duty Remission Committee in its notice to importers under the EAC Duty Remission Scheme on 20th November 2020 which in part reads as follows;“The Duty Remission Committee wishes to clarify that importation of raw materials/inputs under the Duty Remission Scheme shall be done within twelve months from the date of publication of an East Africa Community Gazette Notice.This implies that all controls that have been used to facilitate importation of raw material/inputs under the Duty Remission Scheme should be utilized to facilitate clearance of goods at the point of entry before the expiry of the respective East Africa Community Gazette notice.”

103. The Tribunal notes that the control issued by the National Treasury facilitates the importation of goods under the Scheme but does not change the importation period of goods as specified in the East Africa Community Gazette Notice. The law that governs the importation and window period for importation of items under the duty remission scheme are the relevant Gazette Notices.

104. The controls govern the period for reconciliation of goods imported and utilized as specified in the EAC Gazette Notice as follows:-“The period of submission of reconciliation reports to the Customs Duty Remission Audit Section is 12 months from the date the control was issued…..” (Emphasis Added)

105. In the foregoing clarification the Committee added as follows:-“….Any raw material/inputs imported after expiry of the East African Community Gazette shall be subject to the applicable taxes, duties and charges including penalties under tax laws.”

106. The Tribunal is further guided by Regulation 22(1) of The EAC Procedure Manual for Application of the Duty Remission Regulations which provides as follows:-“Without prejudice to the right of the Commissioner or the Committee to audit correctness of record submitted, all returns submitted to the Commissioner under this manual should be accurate.”

107. The Tribunal takes note that the Appellant was a gazetted manufacturer under the East Africa Community (EAC) Duty Remission Scheme (DRS) approved to import 10,000 metric tons of sugar at a reduced rated of 10% for industrial use. In various Legal Notices including EAC/72/2018 dated 1st July 2018 and EAC/177/2019 dated 8th October 2019.

108. The Tribunal notes that said Legal Notices clearly indicated that the remission granted pursuant to the said Gazette Notices were valid for 12 months beginning from the date of the Gazette Notice. Legal Notice No EAC/177/2019 is dated 8th of October 2019 and it therefore follows that it was valid until 7th October 2020 at 11:59pm while EAC/72/2018 dated 1st July 2018 was valid until 30th June 2019 at 11:59pm.

109. The Tribunal takes note of the fact that all Gazette Notices under EAC Duty Remissions Schemes are valid for 12 Months as indicated in all Gazette Notices under the Scheme. “.. quantities of sugar for industrial use to be imported at a duty rate of 10% under duty remission scheme for 12 months” . This view was upheld by the Tribunal in TAT 520 of 2021: Glaxosmithkline (Kenya) Ltd vs. Commissioner of Customs & Border Control where it was held that:“It is thus the Tribunal’s view that the failure to submit a new Control code for the import made in 2021 and submitting the control code issued the EAC Gazette Notice 177/2019 renders the claim for relief under the Duty Remission Scheme on the part of the Appellant invalid and unsustainable in law.”

110. Similarly in this Appeal, the the Tribunal finds and holds that Appellant’s decision to rely on Gazette Notices that had expired to claim for relief under the Duty Remission Scheme was invalid and unsustainable in law. The Respondent was thus justified to issues a review decision dated 24th October 2022 demanding taxes of Kshs. 222,459. 454. 00.

Final Decision 111. In view of the foregoing analysis, the Tribunal finds that the Appeal is unmeritorious and accordingly makes the following Orders;a)That the Appeal be and is hereby dismissed.b)That the review decision dated the 24th October 2022 be and is hereby upheld.c)Each Party to bear its own costs.

112. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 8TH DAY OF DECEMBER, 2023ERIC NYONGESA WAFULA - CHAIRMANEUNICE NG’ANG’A - MEMBERDR RODNEY O. OLUOCH - MEMBERCYNTHIA B. MAYAKA - MEMBERABRAHAM K. KIPROTICH - MEMBERBERNADETTE GITARI - MEMBER