[2023] KETAT 605 (KLR)

EWCA Marketing Kenya Limited v Commissioner of Customs & Border Control (Tax Appeal 120 of 2022) [2023] KETAT 605 (KLR) (29 June 2023) (Judgment)

Neutral citation: [2023] KETAT 605 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 120 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, Jephthah Njagi & AK Kiprotich, Members

June 29, 2023

Between

EWCA Marketing Kenya Limited

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

Background 1. The Appellant is a private limited company incorporated under the Companies Act, 2015 and is located in Mombasa, Kenya.

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

3. The Appellant imported 1250 packages of punched steel heads under import entry number 2020MSA7666150 and the same was classified under 2017 EAC/CET HS Code 7326. 19. 00.

4. That upon verification the Respondent found classification of the item in EAC/CET HS Code 7326. 90. 90 as per Simba online report instead of 2017 EAC/CET HS Code 7326. 19. 00 as declared by the Appellant.

5. That the Respondent referred the matter to V&T Kilindini for guidance on tariff classification and thereafter raised an F.147 for the payment of extra revenue amounting to Kshs. 1,211,159. 00 and which amount the Appellant paid in protest in order to facilitate the release of the consignment.

6. The Appellant consequently requested the Respondent to draw a sample of the item in dispute and forward it to Nairobi for a tariff Ruling.

7. The Respondent issued a tariff ruling on 18th January, 2021, which classified the Appellant’s imports under subheading 7326. 90. 90.

8. The Appellant made an application for review of the Respondent’s ruling on 30th April, 2021, objecting to the Respondent’s ruling but did not receive any response despite two reminders on the same.

9. The Appellant thereafter filed a Notice of Appeal dated 24th January, 2022, with the Tribunal.

The Appeal 10. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated 4th February, 2022, and filed on 7th February, 2022. a.That the Respondent erred in law and fact by confirming that the punched steel heads (hereinafter referred to as “the Appellant’s products”) imported by the Appellant are classified under tariff Code 7326. 90. 90 of EAC/CET and therefore, inter alia subject to import duty at the rate of 25% and VAT at the rate of 16%.b.That the Respondent erred in law and fact in finding that the Appellant’s products fell under HS Code 7326. 90. 90 as opposed to HS Code 7326. 19. 00 despite the fact that the product does not fit within the Explanatory notes of the aforesaid classification.c.That the Respondent failed to appreciate that the punched steel heads imported by the Appellant are an intermediary product as they must be further worked on i.e. machine pressed on to the top of a nail pin through a hammering process to make a finished black steel roofing nail which then goes through a galvanizing process to make it into a galvanised roofing nail. On its own the punched steel head (cap for roofing nails) cannot be used for any other purpose as a finished product.d.That the Respondent erred in law and in fact in classifying and taxing intermediary product i.e. the punched steel heads at the same rate of 25% that is applicable to a complete roofing nail imported as a finished product.e.That Heading 73. 26 (Appendix A) provides for “other articles of iron or steel”. The heading is further subdivided in the following single dash subheading which are further divided into double dashes which fall under them:73. 26. Other articles of iron or steel - Forged or stamped, but not further worked:7326. 11. 00—Grinding balls and similar articles for mills7326. 19. 00—Other7326. 20. 00—Articles of iron or steel wire-Otherf.That from the above it is clear that the single dash subheading-Forged or stamped, but not further worked, covers other articles of iron or steel obtained by forging or punching and stamping or cutting while the third single dash subheading- Other, covers articles of iron or steel obtained by other processes (folding, welding, assembling, turning, milling etc) in line with the Explanatory note to Heading 73. 26 (Appendix B) which states “This heading covers all iron or steel articles obtained by forging or punching, by cutting or stamping, or by other processes such as folding, assembling, welding, turning, milling or perforating….”g.That according to the Respondent’s laboratory findings dated 15th January 2021 (Appendix C), the Respondent stated that “Punched steel heads are umbrella shaped, or round shaped disc like caps which are produced by stamping of a small disc of metal” which clearly concedes that the process involved in the production of the punched steel heads is “stamping” yet they failed to classify the stamped steel heads correctly under tariff code 7326. 19. 00. h.That the General Rules of Interpretation (GIR) 6 states “For legal purposes, the classification of goods in the subheading of a heading shall be determined according to the terms of those subheadings and any related Subheading Notes and….” Applying GIR 6 therefore, punched steel heads are properly classifiable under 7326. 19. 00. i.That the Respondent’s classification is therefore unlawful and is based on questionable facts rather than facts of the law and should therefore be annulled.

Appellant’s Case 11. The Appellant’s case is premised on the following documents:a.The Appellant’s Statement of Facts dated 4th February 2022and filed on 7th February 2022 together with the documents attached thereto.b.The Appellant’s written submissions dated 5th December 2022 and filed on 6th December 2022 together with the authorities attached thereto.

12. The Appellant had raised two issues for determination as hereunder.a)Whether the Appellant’s review application dated 30th April 2021 and subsequent follow up letters dated 18th June 2021 and 9th November 2021 were deemed allowed by operation of lawb)Whether the Respondent erred in classifying the punched steel heads under HS Code 7326. 90. 90 instead of HS Code 7326. 19. 00 of the EAC/CET

13. The Appellant averred that following a tax dispute on the classification of imported punched steel heads, the Valuation and Tariff Section in Mombasa raised an F147 against the Appellant for the payment of extra revenue of Kshs. 1,211,159. 00 and which amount the Appellant paid under protest.

14. That this additional revenue was on the basis that the Appellant had applied the wrong tariff on its declarations done under tariff Code 7326. 90. 90 subject to import duty at the rate of 25% as opposed to the Appellant’s classification under tariff Code 7326. 19. 00.

15. The Appellant submitted that consequently it had a sample of the imported product drawn by the Respondent and sent to Nairobi for a tariff ruling and the Respondent issued the ruling on 18th January 2021.

16. That the Appellant was dissatisfied with the ruling and applied for the review of the same on 30th April 2021. That the Respondent did not respond to the application and the Appellant consequently did two reminders on the same on 18th June 2021 and 9th November 2021 highlighting that it had not received a response to the application.

17. The Appellant being dissatisfied with the Respondent’s action of not communicating its decision on the application for review of the tariff classification on its imports decided to Appeal.

18. The Appellant argued that Section 229 of EACCMAprovides an avenue for a tax payer who is aggrieved by the decision of the Commissioner on matters custom to lodge an application for review of the decision.

19. That as per the provision of Section 229(4) the Commissioner is required to make a decision on the application within thirty days.

20. The Appellant further argued that Section 229(5) of EACCMAdoes not make any provision for extension of time to the Commissioner to communicate his decision. On this issue the Appellant relied on the cases of Associated Battery Manufacturers Limited v Commissioner of Customs Services [2020] eKLR and F & S Scientific Ltd v KRA & Commissioner of Customs.

21. The Appellant averred that the Respondent is a public body with powers to make decisions tax wise and its actions therefore create expectations of the public that they can rely on it to behave in a certain way. That given this legitimate expectation, it would in all circumstances be unfair and an abuse of power for the Respondent to behave contrary to this expectation.

22. That the Respondent’s behaviour of not responding to the Appellant’s application for review on classification had been allowed in line with Section 229(5) of EACCMA. On this issue the Appellant relied on the case of The Commissioner of Domestic Taxes v Lewa Wildlife Conservancy Ltd [2019].

b) Whether the Respondent erred in classifying the punched steel heads under HS Code 7326. 90. 90 instead of HS Code 7326. 19. 00 of the EAC/CET 23. The nature of the imported product is an umbrella shaped metallic cap with a hole in the middle. The caps are made from steel plates by punching the steel plate over a correctly shaped object resulting in a semi-spherical shell with a hole in the centre. The caps together with a piece of wire make the raw materials for manufacturing of roofing nails.

24. That the nail caps at the point of importation are not ready for use as they must consequently be further worked on, that is, machinery pressed onto the top of a nail pin through a hammering process to make a finished black steel roofing nail which then goes through a galvanizing process to make a finished product.

25. That the punched steelheads are an intermediary product and must therefore be classified as such and their applicable rate of tariff is 10%.

26. That heading 73. 26 covers other articles of iron or steel and states “This heading covers all iron or steel articles obtained by forging or punching, by cutting or stamping or by other processes such as folding, assembling, welding, turning, milling or perforating”.

27. That from the above the term in the highlighted parts denotes that the iron steel articles covered under this heading can be obtained by either of the methods listed that is forging, punching, cutting and or stamping,

28. The Appellant averred that as per the Respondent’s laboratory findings dated 18th January 2021 they have stated that “punched steel heads are umbrella shaped or round shaped disc like caps which are produced by die stamping of a small disc of metal. That this clearly showed that they understood the process involved in the production of the punched steelheads is stamping, yet they failed to classify them correctly.

29. The Appellant concludes that it has classified its imports under the right head under HS Code 7326. 19. 00 and that the Respondent’s case has no basis in law.

Appellant’s Prayersa)That the Appeal be allowedb)The Respondent’s ruling dated 18th January 2021 be set asidec)The Appellant be allowed to import the punched steel heads under HS Code 7326. 19. 00

Respondent’s Case 30. The Respondent’s case is premised on the documents set out hereundera.The Statement of Facts dated 8th March, 2022, and filed on the same date.b.The submissions dated 26th October, 2022, and filed on 27th October, 2022. c.The evidence of the Respondent’s witness, Paul Ikmat, as per his Witness Statement dated 30th June, 2022, and filed on 1st July, 2022, and his oral evidence given in the Tribunal.

31. The Respondent raised and argued on one issue for determination and which is:

Whether the Commissioner erred in classifying the Appellant’s punched steel heads under 7326. 90. 90 32. The Respondent argued that classification is guided by the General Rules of Interpretation (GIRS) that are applied sequentially and they provide that classification must be determined according to the terms of the Headings and any relative Section or Chapter Notes. That the Respondent’s decision is based on a sample of the punched steel heads imported by the Appellant.

33. That Heading 73. 26 covers the classification of other articles of iron and steel and includes products which after stamping or forging may have been subjected to working or surface treatments. That the explanatory notes to the heading support the Respondent’s ruling that the imports do not fall within working/surface treatment anticipated under 7326. 19. 00 but fall under Other 7326. 90. 90.

34. The Respondent added that the law dictionary defines stamping/forging as forming a specific, wanted shape during the manufacturing process in this case being the umbrella or disc shaped like cap, whereas punching is defined as metalworking process that is used extensively in the manufacturing industry which involves punching a hole through a workpiece.

35. The Respondent averred that the Appellant’s classification in 7326. 19. 00 is erroneous for the reason that the punched steel heads are excluded for being further worked within the provisions.

36. The Respondent also added that Section 56 of the TPA places the burden of proof on the taxpayer and there is no compelling evidence to controvert the Respondent’s decision.

37. The Respondent in support of its case has relied on the cases of Mt. Kenya Bottlers and three others v A.G. and three others Nairobi Civil Appeal No.164 of 2013 [2019] eKLR and Keroche Breweries Ltd v The Commissioner of Customs and Border Control.

Respondent’s Prayers 38. The Respondent prayed for the Tribunal to find that:a.The Respondent’s decision issued on 18th January, 2021, is valid and uphold the same.b.The Appeal be dismissed with costs.

Issues For Determination 39. The Tribunal upon due consideration of the pleadings of the parties was of the considered view that the Appeal has two issues falling for its determination as set out hereunder.a)Whether the Appellant’s Review application dated 30th April 2021 was deemed allowed by operation of law.b)Whether the Appellant erred in classifying the punched steel heads under HS Code 7326. 90. 90 instead of HS Code 7326. 19. 00 of the EAC/CET.

Analysis And Determination 40. The Tribunal having determined the issues for consideration as stated thereabove proceeds to deal with the same as hereunder.

a. Whether the Appellant’s Review application dated 30th April 2021 was deemed allowed by operation of law 41. The Appellant submitted that the Commissioner had made a tariff ruling on 18th January 2021 classifying its imports under HS Code 7326. 19. 00 as against the Appellant’s claim that the same ought to have been made under HS Code 7326. 90. 90. The Appellant further added that consequently it made an application for review against the tariff ruling on 30th January 2021 under the provisions of Section 229 (1) EACCMA.

42. Section 229 (1) EACCMArequires a taxpayer dissatisfied with the Commissioner’s decision to make such an application. The Section states as follows:“A person directly affected by the decision or omission of the Commissioner or any other officer on matters for review or relating to customs shall within thirty days of the date of the Commissioner’s decision or omission lodge an application for review of that decision or omission”.

43. The Appellant further argued that upon making the application and lodging the same with the Commissioner, the latter was required legally to make a decision on the same within thirty days as per the provisions of Section 229 (4) EACCMAwhich states as follows:“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.”

44. The Appellant further argued that the Commissioner failed to make a decision within the stipulated time and consequently the Appellant wrote to him on the issue reminding him of the application made. This was vide the letters dated 18th June 2021 and 9th November 2021 and which two letters the Respondent did not respond to.

45. The Appellant argued that the consequence of the failure of the Commissioner to make a decision within the stipulated time is well laid out in Section 229 (5) EACCMAwhich states as follows:“Where the Commissioner has not communicated his or her decision to the person lodging the application for review within the time specified in subsection (4) the Commissioner shall be deemed to have made a decision to allow the application”

46. The Respondent has not refuted the Appellant’s claim that the application for review was made or that no decision on the same was made by the Commissioner. The Respondent is basically silent on the issue and the Tribunal can only in the circumstances conclude that the Appellant’s averments are factual. The Appellant has also annexed to its statement of facts the evidence in support of its averments.

47. Taking into consideration the provisions of EACCMAaforementioned the Tribunal notes that the Commissioner failed to comply with the same. The Tribunal’s resolve in the matter is cemented in the light of the fact that Section 229 (4) of EACCMA is cushioned in mandatory terms hence the same has to be complied with.

48. The Tribunal has also taken into consideration the holding in the case of W.E.C. Lines Ltd v the Commissioner of Domestic Taxes [TAT case No.247 of 2020] on the issue of observing procedures and set statutory timelines where it was held in Paragraph 70 and reiterating the holding in Krystalline Salt Ltd v KRA [2019] eKLR stated that:“Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures”. The relevant procedure here is process of making an application for review upon receiving the Respondent’s decision.”

49. A similar holding, with regard to the issue of observing rules was made in the case of Nicholas Kiptoo Arap Korir Salat v IEBC & 6 Others [2013] eKLR, where the court held that; -“This Court, indeed all 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.”

50. The Tribunal upon taking into consideration all the evidence in the matter and the laws in issue determines that the Commissioner failed to comply with the specific procedure set out in Section 229 EACCMAand determines that the Appeal must succeed as the same is merited. The Appellant’s application for review was therefore deemed allowed by operation of law.

51. In the circumstances, the Tribunal will not delve into the other issue raised as it has been rendered moot.

Final Decision 52. The final decision in the matter taking into consideration the overall proceedings in the matter is that the Appeal is merited and the Tribunal accordingly proceeds to make the following orders.a.The Appeal be and is hereby allowed.b.The Respondent’s tariff ruling dated 18th January, 2021 be and is hereby set aside.c.Each party to bear its own costs.

DATED AND DELIVERED AT NAIROBI THIS 29TH DAY OF JUNE 2023. ERIC N. WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERGRACE MUKUHA - MEMBERJEPHTHAH NJAGI - MEMBERABRAHAM K. KIPROTICH - MEMBER