[2023] KETAT 219 (KLR)

Fortec Hardware & Accessories Limited v Commissioner of Investigations & Enforcement (Appeal 439 of 2021) [2023] KETAT 219 (KLR) (Civ) (5 May 2023) (Judgment)

Neutral citation: [2023] KETAT 219 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 439 of 2021

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

May 5, 2023

Between

Fortec Hardware & Accessories Limited

Appellant

and

Commissioner of Investigations & Enforcement

Respondent

Judgment

Background 1. The Appellant is a company incorporated in Kenya that imports and sells hardware from India and is based in Mombasa County.

2. The Respondent is a principle officer appointed under and in accordance with section 13 of the Kenya Revenue Authority(KRA) Act, and the Kenya Revenue 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 received a letter of findings of a desk audit undertaken by the Respondent on March 26, 2021. The findings were that imports for the period June 2018 to December 2020 by the Appellant had been undervalued by Kshs. 8,589,213. 00. The Appellant responded to these findings on March 30, 2021.

4. Thereafter the Respondent served the Appellant with a demand letter dated June 2, 2021, making reference to a demand letter dated April 23, 2021and demanding the above stated amount within 7 days.

5. The Appellant through a letter dated 3rd June 2021 informed the Respondent that it had not been served with the demand notice dated 23rd April 2021 and referenced HQ/PCA/RRI/080/2021 that was referred to in the Respondent’s letter dated 2nd June 2021.

6. The Respondent forwarded to the Appellant the original demand notice in which the Respondent also made reference to a letter dated 13th April 2021 in which it had requested for several other documents.

7. The Appellant thereafter wrote a letter dated 10th June 2021 in which it informed the Respondent of its authorized representative and requested for time to settle the matter.

8. The Respondent vide a letter dated 16th June 2021 declined the request and stated that the demand remained valid and payable immediately.

9. The Appellant thereafter wrote to the Respondent vide a letter dated 17th June 2021 detailing the problems encountered and the procedures the Respondent had violated. The Appellant also requested the Respondent to lift a caveat it had placed on the Appellant’s import entry that effectively stopped its import process.

10. The Appellant being dissatisfied thereafter filed a Notice of Appeal on 13th July 2021.

The Appeal 11. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated July 22, 2021 and filed on the same date:a.That despite the Appellant having complied with the requirements provided for by EACCMA, 2004 Sections 34, 41, 122 and 123, read together with the Fourth Schedule on imported goods for home use ad valorem, the Respondent posted a defaulted desk audit finding which stated that nine (9) consignments imported by the Appellant were grossly undervalued despite the fact that the same documents were subjected to Valuation & Tariff during the clearance.b.That despite the goods having gone through thorough verification and valuation at the time of clearance of the same, the Respondent using his desk audit forwarded a demand notice amounting to Kshs. 8,589,213. 00 to the Appellant.c.That the Respondent erred in law and in fact in stating that there was consistent undervaluation of the FOB values on the nine (9) consignments previously imported by the Appellant without providing concrete evidence to support their claim.d.That the Respondent erred in law and in fact by applying erroneous and arbitrary figures to the Appellant’s documents insinuating that they compared their documents with other documents and felt that their invoices were falsified.e.That the Respondent erred in law and in fact by insinuating the desk audit findings they carried out noted glaring inconsistencies in two invoices that covered i.e; no. 2020MSA7703947 for Sohini Enterprises supplier and invoice covering i.e. No 2019MSA7271092 for Bowreah Jute Pvt Ltd. which the Respondent stated appeared exactly the same a fact which betrays the Respondent's observation.f.That the Respondent erred in fact and in law by failing to accurately and evidently demonstrate to the Appellant that the invoices the Appellant attached to the entries were falsified and therefore meet the parameters set out in Section 203 of the EACCMA, 2004. g.That the Respondent erred in law and in fact by stating that the Appellant’s 8 documents whose values were uplifted by the Respondent were based on an offence committed by the Appellant and therefore the Respondent failed to penalize the Appellant.h.That the Respondent erred in law and in fact by failing to understand that the arbitrary figures used to uplift the Appellant’s goods by himself was never based on proven falsified supporting documents but was based on the Respondent's erroneous and fictitious figures.i.That the Respondent erred in law and in fact by failing to religiously applyEACCMA, 2004 Section 122 as read together with the Fourth Schedule in all his dealings with the Appellant’s consignment.j.That the Respondent erred in law and in fact by failing to appreciate that during verification of the Appellant’s goods, although the Respondent indicated that he uplifted goods based on identical goods, he did not write or inform the Appellant the details on how he arrived at the arbitrary figures or his workings as prescribed in the Fourth Schedule Paragraph, 3. k.That the Respondent erred in law and in fact by stating that the Appellant had presented falsified invoices which the Respondent failed to concretely prove to the Appellant that they were indeed falsified.l.That the Respondent erred in law and in fact by carrying out a desk audit based on the documents without physical samples for comparison and also without understanding the Appellant’s products.m.That the Respondent erred in law and in fact by putting a caveat on the Respondent's import entry no. 2021MSA7795508 an entry whose duty he had collected and the entry had no issues and based it on the demand notice no. HQ/PCA/RRI/080/2021 dated 23rd April 2021 an aspect which had no relationship.n.That the Respondent failed to consider that under the best international Customs practice, World Trade Organization (WTO) agreement on customs valuation aims for a fair, uniform and neutral system for the valuation of goods for customs purposes. It is a system that conforms to commercial realities, and which outlaws the use of arbitrary or fictitious customs values.

Appellant’s Case 12. The Appellant’s case is premised on:a.The Appellant’s Statement of Facts dated 22nd July 2021 and filed on the same date.b.The Appellant’s supplementary Statement of Facts dated 21st March 2022 and filed on 24th March 2022. c.The Appellant’s written submissions dated 22nd June 2022 and filed on 24th June 2022 together with the authorities attached thereto.

13. That the Appellant imported various consignments of Burlap Hessian Jute between June 2018 and December 2020 in 9X20' containers. That entries were entered through the Simba System and entries nos. 7434521, 7512584, 7591921, 7656295, 7703947; 7107784, 7189729, 7271092, 7342803 were generated and duties paid as entered.

14. That wherein after full compliance with the procedures under the Customs and Border Control Services based on EACCMA Section 122 read together with the Fourth Schedule, duty was paid on all the consignments, however, during verification, the Respondent arbitrarily raised values on the said goods without showing the Appellant evidence of alleged low values raised F 147 and because objection of the same exposed the Appellant to other uncalled for charges the Appellant grudgingly paid the uplifted amount and the consignments were released and goods evacuated from port.

15. That on or thereabout 23rd March, 2021 the Appellant received a letter Ref. HQ/PCA/RRI/080/2021 from the Respondent claiming that a desk audit was carried out and the findings from the audit had revealed the Appellant's invoices for consignments imported and cleared between June 2018 and December 2020 were grossly undervalued by Kshs. 8,589,213. 00.

16. That in June, 2021 the Appellant realized that the Respondent had stopped the processing of its import entry no. 2021MSA7795508 and thus went to enquire what the problem was.

17. That on that date the Respondent served the Appellant with a demand notice letter Ref. no. CSD/DMU/59/537/2021 dated 2nd June, 2021 stating that the Appellant had to pay the whooping Kshs. 8,589,213. 00 within 7 days before the release of the goods which were lying at the Port.

18. That the Appellant through its letter Ref. no. FHA/001/2021 dated 3rd June 2021 informed the Respondent that it did not serve the Appellant with the demand notice no. HQ/PCA/RRI/080/2021 dated 23rd April 2021 referred to in the Respondent's letter and therefore the Appellant was not aware of the content. That in the letter the Appellant requested the Respondent to forward to it a copy of the same.

19. That when the Respondent forwarded to the Appellant a copy of the original demand notice, the Appellant noted that the Respondent had not only confirmed Kshs. 8,589,213. 00 quoted in the desk audit letter dated 26th March, 2021 but it had also written another letter dated 13th April, 2021 requesting the Appellant to forward copies of several other documents, a copy of which letter was never served to the Appellant.

20. That in the Respondent’s letter Ref. HQ/PCA/RRI/080/2021 dated 23rd April 2021, it alleged that the nine containers of 45" Jute Hessian Cloth imported and entered by the Appellant between June 2018 and December 2020 were grossly undervalued when compared with identical goods.

21. That the Appellant wrote a letter Ref. no. FHA/003/2021 dated 10th June, 2021 in which it requested for more time to look for the documents demanded for in order to resolve this problem once and for all.

22. That the Respondent vide its letter Ref: no. CSD/DMU/59/537/2021-2 dated 16th June, 2021 declined the Appellant’s request and based its decline on the post clearance audit report which insinuated that the Appellant’s invoices were falsified and that the demand notice remained valid and payable immediately.

23. That after receiving the Respondent's letter declining the Appellant’s suggestion, the Appellant wrote to the Respondent vide a letter ref: CUS/FHA/004/2021 dated 17th June, 2021 enumerating the problems encountered and the procedures that the Respondent had violated.

24. That in the same letter the Appellant requested the Respondent to lift the caveat imposed against the Appellant’s import entry no. 2021MSA7795508; an import that had no issues but stopped by the Respondent and subjecting the Appellant to accumulation of extra charges in container detention fee, customs warehouse rent and Port charges, an aspect eating into the Appellant's profit and threatening to throw the Appellant out of business.

25. That the Respondent's behavior of putting an internal caveat on the Appellant's goods which had no issues and where duty had been paid was malicious, and vindictive, an aspect that does not support facilitation of trade but the killing of trade.

26. That the Respondent's behavior caused the Appellant's goods to overstay at the Port for 39 days thus subjecting the Appellant to unnecessary extra charges in container detention fee, port charges and customs warehouse rent.

27. That the Appellant wrote letters pleading with the Respondent to release its imported goods that had no connection with the desk audit, but the Respondent took its sweet time to relax the caveat it placed on the goods until after 39 days.

28. That the Respondent's affirmation that the Appellant’s invoices were falsified without giving the Appellant the authenticated comparison invoices from its suppliers is meant to freeze and earn undeserving extra revenue from the Appellant.

29. That nothing stopped the Respondent from writing directly to the suppliers who would have provided the Respondent with demonstrated evidence of authenticated invoices from him/her in support of the Appellant's transaction values as entered.

30. That the Respondent failed to provide the grounds upon which the Appellant's declared and entered transaction values were unacceptable as provided for in Paragraphs (1) (a), (b), (c), (d) and (2) (a) of the Fourth Schedule.

31. That when the Respondent ignored transaction values as provided for in Paragraph 2 of the Fourth Schedule, the Respondent went ahead to apply Paragraph 3(1)(a) and (b) of the Fourth Schedule and failed miserably to demonstrate to the Appellant how it applied the provisions of transaction values of identical goods as provided for in Paragraph 3(1).

32. That the Appellant met its statutory obligation by paying all the required duties that added to the Respondent’s meeting the 2018, 2019 & 2020 revenue target.

33. That the Respondent should not be allowed to raid the Appellant’s accounts for imagination of falsified invoices a scenario threatening the Appellant's existence as a trader that may relegate the Appellant to abject poverty.

Appellant’s Prayers 34. The Appellant prays for Orders that this Honourable Tribunal:a.To compel the Respondent to vacate the desk audit demand of Kshs. 8,589,213. 00 as it is based on falsehood and comparison of imaginary identical goods instead of authentic goods.b.To compel the Respondent to refund the Appellant the extra demurrage charges incurred by the Appellant in container detention fees, extra port charges, and Customs warehouse rent and loss of business during the stoppage of processing the Appellant’s documents causing him to run out of supply and thus unable to supply his merchandise and earn his usual profits.c.To declare the stoppage of processing the Appellant's document of import entry no 2021MSA7795508 by the Respondent based on a desk audit report unrelated to the Appellant's document whose duty had been paid in full and had no issues was illegal and not based on any written law but meant to arm twist the Appellant.d.To award costs to the Appellant.

The Respondent’s Case 35. The Respondent’s case and responses to the Appeal, laid out hereunder, is premised on the following filed documents and proceedings before the Tribunal:-i.The Respondent’s Statement of Facts dated 27th August 2021 and filed on the same date; andii.The Respondent’s written submissions dated 7th June 2022 and filed on the same date.

36. That the Respondent carried out a customs post clearance desk audit for the Appellant’s imports of jute hessian cloth for the period between January 2019 and December 2020 pursuant to Sections 235 and 236 of the EACCMAwith the main objective of establishing compliance with Customs laws and regulations.

37. That the post clearance audit revealed consignments of jute hessian cloth imported by the Appellant that were grossly undervalued compared to identical goods from the same supplier.

38. That in some declarations, the importer declared the same FOB rates for different qualities of jute hessian cloth, case in point 5. 5Oz against 9Oz, which logically costs different in the market. That the rates applied by the importer were also quite low compared to identical goods transaction value.

39. That the Appellant’s invoices had fictitious values. For instance, a review of its attached invoices to the declarations revealed glaring inconsistencies. That the invoice attached to entry 2020MSA7703947 from Sohini Enterprises supplier was the same as the invoice from Bowreah Jute Pvt Ltd. under 2019MSA7271092, yet those were two different suppliers.

40. That the Respondent also reserves the right to enforce the law (EACCMA) for the offences committed for the entries whose values were uplifted, in accordance with Section 236 of the EACCMA, as a way to facilitate trade under the WTO TFA Article 7 on PCA mandate.

41. That the uplift was guided by Section 122 as read together with the Fourth Schedule of the EACCMA which found the Appellant’s invoices as attached to the declaration did not adequately demonstrate the transaction value.

42. That subsequently, the Appellant’s declared FOB value was adjusted upwards to USD 0. 464 per yard of 45" 9Oz and USD 0. 22 per yard of 45" 5Oz of jute hessian cloth. The demand of short levied taxes was pursuant to the provisions of Sections 135 and 259 of the EACCMA.

43. That on 26th March 2021, a desk audit finding was shared with the Appellant to allow communication and notification of audit issues found in compliance with the right to fair administrative action.

44. That on 6th April 2021, the Appellant responded disagreeing with the Respondent’s findings in writing.

45. That on 13th April 2021 the Respondent wrote back to the Appellant requesting for supporting documentation to allow an in-depth review on its declared values. That a reminder email was again sent on 20th April 2021 but the Appellant failed to respond.

46. That subsequently, a demand was issued on 23rd April 2021 based on identical goods valuation method in line with the valuation agreement and Section 122 as read together with the Fourth Schedule of the EACCMA.

47. That the demand demonstrated sample invoices from the desk audit for the Appellant to be able to pull out its records for demonstration of its used transaction value method.

48. That the Respondent begun recovery and enforcement after which the Appellant started sending proxies to the Respondent who were advised to come with an official letter authorizing them to act on behalf of the Appellant due to issues of confidentiality, which bind the Respondent.

49. That since 23rd April 2021 when the demand was issued to the Appellant, it neither responded nor acknowledged the demand notice in contravention of Section 229 of the EACCMA.

50. That the Respondent would at the hearing argue a preliminary point of law that this Appeal is time barred, for being filed outside the timeline contemplated by law without leave.

51. In response to the grounds of appeal submitted by the Appellant, the Respondent submitted as stated herein below.

52. That the Appellant has completely failed to appreciate and acknowledge the purpose of post clearance audit whose duties start at post clearance. That under the WTO Trade Facilitation Agreement, Article 7 on Release and Clearance of Goods Paragraph 5 provides as follows:­“1. With a view to expediting the release of goods, each Member shall adopt or maintain2. Each Member shall select a person or a consignment for post-clearance audit in a risk-based manner, which may include appropriate selectivity criteria. Each Member shall conduct post clearance audits in a transparent manner. Where the person is involved in the audit process and conclusive results have been achieved the Member shall without delay, notify the person whose records audited of the results, the person's rights and obligations, and the reasons for the results.3. The information obtained in post-clearance audit may be used in further administrative or judicial proceedings.4. Members shall, wherever practicable, use the result of post-clearance audit in applying risk management.”

53. That the Appellant failed to follow the Valuation Agreement that dictates how customs value is arrived at. That the Appellant’s transaction value method was not reliable. That the Commissioner guided by Section 122(4) and Part I& II of the Fourth Schedule of the EACCMA, found that the Appellant's invoices as attached to the declarations did not adequately demonstrate the transaction value, hence why method 1 of the Valuation Agreement could not be used.

54. That sample invoices that were submitted to the Tribunal for reference showed glaring inconsistencies, typing errors, varying fonts, varying use of commas and decimal points, etc.

55. That the Commissioner as guided by Article 17 and Annex Ill, Paragraph 6 of the Valuation Agreement requested for documentation from the importer which the importer failed to respond to and got time barred under the law.

56. That at the point of clearance, the Respondent had adopted faster clearance of goods in a bid to facilitate trade and remove non-tariff barriers to minimize costs of the importers and exporters. That this also helps improve the country's doing business index across borders, one of the main factors that boosts economic growth of the country.

57. That the Respondent's post clearance audit mandate is anchored at Sections 235 & 236 of the EACCMA which allows the Respondent to be satisfied beyond reasonable doubt of the compliance with all Customs Laws and Regulations for imports and exports. That in this case, the Post Clearance Audit Section of the Respondent checked retrospectively the importations of the importer as guided by the law.

58. That it is the Respondent’s submission that the Customs process ends with a post clearance audit. That the Post Clearance Audit process also gives the importer and in this case the Appellant an opportunity to provide documents to allow the use of the transaction value methods declared, but the call to do so went unanswered, despite several reminders to that effect.

59. That the fact that each time the Appellant imported a consignment was flagged for under valuation is indication that there was a deliberate scheme to abate taxes. The Post Clearance Audit office is the final section in any customs operations.

60. That the importer also quoted sample entries that had discrepancies in the presented invoices against those presented under the COC for pre-verification approval.

61. That an analysis of similar and identical goods from the same origin showed that the importer had a gross under valuation.

62. That in case the Appellant had responded with sufficient evidence as requested on numerous occasions, then the transaction value method would have been used. That however, the Appellant failed on all fronts to provide documents and failed to respond to the demand notice within the statutory timelines.

63. That there is sufficient evidence from the attached documents on the declaration Simba system and the COC documents. That the glaring inconsistencies show hurriedly edited invoices in a deliberate action to abate taxes, an offence under Section 203 of the EACCMA.

64. That for instance, there is no way two different suppliers can have the same phone number and address, formatting and same formatting variances.

65. That when the Appellant was requested to provide evidence to demonstrate that indeed the declared value was what was remitted to the suppliers, it failed to do so, as a deliberate action to conceal evidence that would implicate it. That such evidence has also not been demonstrated in the Appeal herein.

66. That an examination of entries 2019MSA7271092 and 2020MSA7703947 reveals that the two invoices were declared from two suppliers Bowreah & Sohini. That however, the invoices attached have same formats, different from other invoices attached to COC and other entries. That they also have a similar phone number, and fax number.

67. That the invoices are clearly edited and doctored in contravention to production of actual documents for verification by the Respondent.

68. That during clearance, the Respondent relies on documentary evidence as attached by the importers for the determination and verification of the customs value used. That in this case, the Appellant was well aware of what it uploaded, hence why the PCA office quoted the entries for it to retrieve from its records. That it is not up to the Respondent to retrieve the documents but to verify what is attached in its systems for satisfaction of compliance levels by an importer.

69. That therefore, in quoting the declaration number should have prompted the Appellant to go back to its records, which it is are required by law to maintain within a period of 5 years, and present to Customs in support of its own values in case the same is requested for.

70. That the Appellant did not do any of this, and failed to retrieve documents for verification when requested by the Respondent in exercise of its statutory mandate.

71. That it is the Appellant who used arbitrary and fictitious values as evidenced by the invoices. That these were attached to the Respondent’s pleadings as evidence of the disparity between the invoices presented to Customs and those presented to COC in the country of origin. That they all were a subject of manipulation.

72. That the uplift by the PCA unit was based on a comparative analysis with compliant traders from the same country of origin and same supplier. That the constant interception of the Appellant's consignments is evidence of a deliberate undervaluation.

73. That the first method in the determination of Customs value is the transaction value method. That this is based on the actual price paid or payable when the goods are sold for export.

74. That following failure by the Appellant to provide documents as requested in support of its transaction value upon its objection to the audit findings, the Respondent used identical goods transaction value Method 2.

75. That “identical goods” means goods which are same in all respects, including physical characteristics, quality and reputation. That minor differences in appearance shall not preclude goods otherwise conforming to the definition from being regarded as identical.

76. That in this case, the comparable value was from the same Country of origin, India, from the same suppliers, e.g Bowreah Jute Mills Pvt Ltd & Sohini.

77. That throughout the official communication between the Respondent and the Appellant, the Respondent made sure to state the method used to arrive at the value of uplift.

78. That for instance, in the letter of findings dated March 26, 2021, the importer was notified that the comparison was done based on identical products (Bowreah) and similar goods (Sohini) following the glaring inconsistencies in its invoices.

79. That a workings schedule was also attached for the importer with the demand, clearly showing the item number and the entry number affected.

80. That the Appellant, however, failed to provide any document to support its transaction value, which is an offence as it shows a deliberate action against compliance.

81. That its declared values are same FOB values for different qualities of the jute hessian cloth. This goes against any business logic, and when called upon to demonstrate otherwise, the Appellant went mute.

82. That the Respondent followed the Valuation Agreement on transaction value of identical goods for the uplifts. That the value used was from the same supplier from the same country of origin, and an analysis done with similar goods - different importers but same COO, which showed great variance with the importer's declared values of 9Oz and 5. 5Oz, same range of quantity imported, etc.

83. That the attaching of exhibit invoices by the Respondent is proof that the importer falsified the documentation.

84. That the invoices attached to COC are different from the ones attached during declaration on the Simba System.

85. That the Respondent relied on documentary evidence as provided by the Appellant in its systems, and found an offence under section 203 of the EACCMA, 2004, which was categorically stated in the demand and findings letters to the Appellant.

86. That the Appellant failed to respond to the demand notice within the statutory period of 30 days as provided undersection 229 (1), (2) of EACCMA which states that :“(1)A person directly affected by the decision or omission of the Commissioner or any other officer on matters relating to Customs shall within thirty days of the date of the decision or omission lodge an application for review of that decision or omission.(2)The application referred to under subsection (1) shall be lodged with the Commissioner in writing stating the grounds upon which it is lodged."

87. That in light of that, the file was forward for enforcement of recovery of taxes. That the Commissioner instituted the provisions ofsection 235 (2) & (3) which states as follows:-“(2)Where any owner fails to comply with any requirement made by the proper officer under this section, the proper officer may refuse entry or delivery, or prevent exportation or transfer, of the goods, or may allow the entry, delivery, or exportation or transfer, upon the deposit of such sum, pending the production of the books and documents, as the proper officer may deem fit;(3)Where any requirement made by the proper officer under this section relates to goods which have already been delivered, exported, or transferred and the owner fails to comply with the requirement, the proper officer may refuse to allow the owner to take delivery, export or transfer any other goods.”

88. That Kenya is a member of the WTO and is thus mandated to follow the due Regulations set by the Organization for all member countries in a bid to facilitate trade.

89. That Kenya also formally accepted the WTOTFA Protocol that binds all members on 10th December, 2015. That it has since sent notification to the WTO on the status of implementation, and one of the notifications is Article 7 Paragraph 5 on Post Clearance Audit.

90. That the Appellant is the one who failed to demonstrate that its values were indeed the price actually paid or payable when the goods were sold for export from the Country of Origin.

91. That if by any chance they were the actual values, the Appellant would not shy away from demonstrating, by way of documentary evidence provision as requested via a letter on 13th April, 2021. That it would also have communicated without fear of retribution.

92. That the Respondent’s Post Clearance Audit mandate is to enhance compliance by ensuring that all customs laws are applied as should. That the Authority is not out to frustrate but to facilitate trade, hence why a PCA Section exists to ensure that goods are cleared faster, with the substantive issues getting resolved at the PCA level.

93. Further, the Respondent is of the view that the below are the issues for determination by the Tribunal:a.Whether the Memorandum of Appeal dated 22nd July 2021 is properly lodged before the Tribunal.b.Whether the Post Clearance Audit was conducted in accordance with the law.c.Whether the tax assessment demanded because of the Post Clearance Audit is enforceable.d.Whether the Appellant adhered to the relevant provisions of the law.

a. Whether the Memorandum of Appeal dated 22nd July 2021 is properly lodged before the Tribunal 94. The Respondent submitted before this Honourable Tribunal that the Appellant lodged an Appeal which is defective for being time barred according to the timeline contemplated in the Tax Appeals Tribunal Act.

95. That the procedure for Appeal is as set out in section 13 of the Tax Appeals Tribunal Act which provides that: -“A notice of Appeal to the Tribunal shall:·(a)be in writing or through electronic means;(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner."

96. The Respondent submitted that the Appellant never adhered to the timelines provided in section 13(1) supra. That the demand notice was issued by the Respondent on 23rd April, 2021 however the Appellant filed the Memorandum of Appeal and Statement of Facts on July 22, 2021, roughly three months later.

97. That in Tax Appeals Tribunal Case Number 21 of 2018; Tangazo Letu Limited vs. the Commissioner of Investigations & Enforcement, the Tribunal held as follows:“We find that the. procedural guidelines enshrined in the Tax Appeals Tribunal Act and the Tax Procedures Act, among other tax legislations, are not merely instructive but a guideline in achieving substantive justice. These rules cannot be cast aside in the quest for achieving substantive justice, as they have deeper roots in the Constitution of Kenya 2010 to safeguard due process.”

98. That following the above, it is the Respondent's prayer that the members of this Honourable Tribunal find that the Appellant has failed to adhere to the timelines contemplated in law hence the Respondent's assessment should be upheld.

99. That be that as it may, if a taxpayer wishes to file its appeal out of time, it must make a formal application [emphasis added] to the Tribunal to have audience before the Tribunal.

100. That this is provided for undersection 13(3) of the Tax Appeals Tribunal Act which provides as follows:“The Tribunal may, upon application in writing (emphasis added), extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).”

101. The Respondent submitted that the Appellant never made such an application and therefore the Appellant is improperly before this Court. That there is, therefore, no appeal capable of determination before this Tribunal.

b. Whether the Post Clearance Audit was conducted in accordance with the law 102. That in discussing the issue of whether the PCA was conducted in accordance with the law, the Respondent is guided by Section 135(3) of EACCMAwhich states that;“The proper officer shall not make any demand after five years from the date of the short levy or erroneous refund, as the case may be, unless the short levy or erroneous refund had been caused by fraud on the part of the person who should have paid the amount short levied or to whom the r fund was erroneousy made, as the case, may ...”

103. That the courts have expressed themselves severally on guiding principles when applying section 135 of EACCMA That in the case of Krish Commodities Limited vs. Kenya Revenue Authority [2018] eKLR, the court stated as follows:“The issue was not whether the respondent had the power to conduct the post clearance audit and demand the short-levied duty. It is given that the respondent has such powers under the EACCMA, in our view, the pertinent issue was whether the manner in which the decision was made or the process followed was reasonable, fair and in conformity with article 47 of the Constitution. It follows that the learned Judge ought to have looked into the decision-making process; whether the appellant was treated fairly by the respondent in the circumstances.To us, the fact that the respondent was empowered to carry out the post clearance audit and demand short levied duty did not excuse the respondent from exercising such power in a reasonable, fair, efficient and effective manner. As a public authority the Respondent’s obligation to act in the aforementioned manner while rendering decisions is delineated under Article 47 of the Constitution. Sub-Article (1) thereof reads:-‘Every person has the right to administrative action that Is expeditious, efficient, lawful. reasonable and procedurally fair.’”

104. The court went on further to add that:-“It is not in dispute that Section 135(3) of the EACCMA allows the respondent to make such a demand within 5 years. However, that is not to say that the respondent should wait until the tall end of the said period before making such a demand. There ought to be sufficient reason(s) as to why such audit and demand ls made at the tail end.”

105. That in the instant case, the Respondent submitted that the process by which the PCA was conducted was in conformity to article 47 of the Constitution in that it was expeditious, efficient, lawful, reasonable and procedurally fair. That furthermore, it is the Respondent’s considered submission that it did not wait to the tail end of the five years to conduct the Audit.

106. That the findings of the desk audit were communicated on 26th March, 2021 and conducted for imports done between 31st January, 2019 and 21st December, 2020 thereby falling within the stipulated timelines as per the above-mentioned provision.

107. The Respondent further submitted that the Appellant was allowed a period of seven (7) days from the date of receipt of the desk audit findings to respond to the same as provided for in the WCO Guidelines for Post Clearance Audit.

108. The Respondent submitted that the process by which the PCA was done followed the law to the letter and should therefore not be disputed.

c. Whether the tax assessment demanded because of the Post Clearance Audit is enforceable 109. The Respondent submitted that the findings of the Post Clearance Audit are admissible since it was conducted in adherence to the law as submitted herein above. That the Appellant argued that the Respondent applied arbitrary figures to its documents and further demanded Kshs. 8,589,213. 00 using the findings of the desk audit despite them having gone through verification and valuation at the time of the clearance.

110. That in denying the Appellant's assertions, the Respondent is guided by section 56 of the Tax Procedures Act, which places the burden of proof in tax cases on the taxpayer. That this Section is buttressed by Section 30 of the TAT Act which provides that: -“In a proceeding before the Tribunal, the appellant has the burden of provlng-(a)where an appeal relates to an assessment, that the assessment is excessive;or(b)in any other case, that the tax decision should not have been made or should have been made differently.”

111. That in TAT No. 115 of 2017 - Dlgltal Box Limited vs. Commissioner of Domestic Taxes, the Tribunal held that the taxpayer bears the burden of proof, which burden is discharged by adducing evidence. The Tribunal relied on the decision in Alfred Kioko Muteti vs. Timothy Miheso & Another[2015] eKLR where the court held that:“Thus, the burden of proof lies on the party who would fall if no evidence at all were given by either party...”

112. The Respondent further relied on the decision of the learned judge in the case of Kenya Revenue Authority vs. Man Diesel & Turbo Se, Kenya[2021] eKLR in which the court held as follows with regard to Section 30 of the TAT Act:-“31. The importance of the above provision is that the party with the obligation of persuasion (what Wigmore termed the risk of non­ persuasion) is said to bear the burden of proof. The flip side of the foregoing is the effect of non-persuasion on a party with the burden of proof which is that the particular issue at stake in the litigation will be decided against him/her. Generally, the taxpayer has the burden of proof in any tax controversy. The taxpayer must demonstrate that the commissioner's assessment is incorrect. The taxpayer has a significantly higher burden. The taxpayer must prove the assessment is incorrect.32. The shifting of the burden of proof in tax disputes flows from the presumption of correctness, which attached to the Commissioner's assessments or determinations of deficiency. The commissioner's determinations of tax deficiencies are presumptively correct. Although the presumption created by the above provisions is not evidence in itself, the presumption remains until the taxpayer produces competent and relevant evidence to support his position. If the taxpayer comes forward with such evidence, the presumption vanishes and the case must be decided upon the evidence presented, with the burden of proof on the taxpayer."

113. That ultimately, it is the Respondent’s submission that the Appellant bears the onus of proving that the assessment arrived at through the desk audit is excessive and provided that no evidence is adduced by the Appellant, the Respondent's determination should continue being presumed as correct.

d. Whether the Appellant adhered to the relevant provisions of law 114. That the Appellant herein has asserted that it complied with the requirements of Sections 34, 41, 122 and 123 of EACCMA as read together with the Fourth Schedule on imported goods for home use ad valorem for the goods imported between June 2018 and December 2020, and should have, therefore, not been issued with a desk audit finding or a demand.

115. That on the contrary, the Respondent submitted that these provisions of the law were not adhered to since the Appellant used the wrong valuation method in assessing the customs value and failed to produce supporting documentation as requested and the same is demonstrated herein under.

116. The Respondent submitted that the Appellant has a statutory obligation to keep all documents relating to its tax affairs as required by Section 23 of the Tax Procedures Act. The Section 23(1) reads as follows: -“A person shall-(a)maintain any document required under a tax law, in either of the official languages;(b)maintain any document required under a tax law so as to enable the person's tax liability to be readily ascertained; and(c)subject to subsection (3), retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law.”

117. That despite the request for supporting documentation having been made to the Appellant on 13th April, 2021 and the reminder email sent on 20th April 2021, the Appellant failed and/or refused to respond. That therefore, based on the Appellant's failure to produce supporting documentation, the Respondent made an assessment based on the information available to it as mandated by section 29 of the TPA and audited the Appellant.

118. That the Appellant cunningly and surreptitiously through a supplementary Statement of Facts dated 21st March 2022 and served upon the Respondent on March 24, 2022, sought to introduce fresh documents that were never supplied to the Commissioner at the objection stage.

119. The Respondent submitted that this is in flagrant breach of the law and portends an ambush on the Respondent. That the Appellant cannot seek to rely on documents it never availed to the Respondent before this Appeal was filed. The Respondent requested the Tribunal to disregard these documents in their entirety and order that the same be expunged from the record.

120. That admitting these documents would disenfranchise and disadvantage the Respondent contrary to the provisions of article 50 of the Constitution. That the Appellant must be stopped on its tracks.

121. That as relates to the method of valuation used by the Appellant, the Respondent submitted that the Appellant failed to rely on the Valuation Agreement that dictates the methods to be used in assessing customs value. That Method 1, as applied by the Appellant, could not be used since it did not adequately demonstrate the transaction value.

122. That it is therefore clear that Appellant failed to lodge its Appeal within the time stipulated in the Tax Appeals Tribunal Act and this notwithstanding, the Appellant failed to make the requisite application for extension of time within which to file the Appeal. That further, the Appellant did not also adhere to the provisions of the law in declaring its Customs value.

123. That the Appellant never satisfied the statutory obligation of providing documents to compel the Commissioner arrive at a different decision in so far as the tax assessment was concerned and therefore the assessment and demand the Respondent issued pursuant to the provisions of EACCMA ought to be enforced.

Respondent’s Prayers 124. The Respondent prayed that this Tribunal considers the case and:a.Upholds the Respondent's decision the subject of this Appealb.The Appeal herein be dismissed with costs to the Respondent.

Issues for Determination 125. The Tribunal upon due consideration of the pleadings and submissions of the parties was of the considered view that the Appeal raises the following issues for its determination:a.Whether there is a valid Appealb.Whether the assessment by the Commissioner was justified

Analysis and Determination 126. The Tribunal having ascertained the issues for determination as set out above proceeds to deal with the same separately as hereunder.

a. Whether there is a valid Appeal 127. This dispute arose from an uplift of the customs value of the Appellant’s imports for the period June 2018 to December 2020.

128. The Tribunal has established that the Respondent initially issued a letter of findings of a desk audit on March 26, 2021. The Appellant responded on March 30, 2021 and the Respondent acknowledged the Appellant’s response vide a letter dated 1April 3, 2021.

129. The Respondent’s letter of April 13, 2021 requested the Appellant to provide documentation to support its transaction values for its imports.

130. On April 23, 2021, the Respondent issued a demand notice amounting to Kshs. 8,589,213. 00.

131. The Appellant averred that it received the demand letter of April 13, 2021 late due to Covid-19 issues and before it could respond to the same, the Respondent issued the demand notice dated April 23, 2021. The Appellant also stated that the law gives it 45 days from the date of the demand of 23rd April 2021 to respond to the same.

132. On its part, the Respondent submitted that after it issued the demand notice dated April 23, 2021, the Appellant neither responded nor acknowledged the demand notice in contravention of section 229 of the EACCMA.

133. The Tribunal has, however, established that there was further correspondence exchanged between the two parties as follows:a.A letter dated 2nd June 2021 by the Respondent referring to the demand notice dated 23rd April 2021 and asking the Appellant to settle the outstanding taxes within 7 days.b.A letter dated 3rd June 2021 from the Appellant to the Respondent stating that it had not received the demand letter of 23rd April 2021. c.Shared Minutes of a meeting held between the two parties on 9th June 2021. d.A letter dated 10th June 2021 by the Appellant to the Respondent introducing its authorised representative and requesting to be given an opportunity to process the matter and settle the same to its logical conclusion.e.A letter dated 16th June 2021 by the Respondent referring to the Appellant’s letter dated 10th June 2021 in which the Respondent declined the Appellant’s request and stated that the demand remained valid and payable.f.A letter dated 17th June 2021 from the Appellant to the Respondent bringing up various challenges it had faced due to Covid-19 pandemic and requesting the Respondent to lift a caveat on one of its consignments and allow it more time to respond to the issues raised by the Respondent in its demand.g.A letter dated 28th June 2021 by the Appellant requesting the Respondent to lift the caveat on its consignment.

134. The Tribunal notes that notwithstanding the Appellant’s assertion that it never received the demand letter dated 23rd April 2021, its letter of 17th June 2021 to the Respondent alludes to receiving the demand notice late and that it had 45 days to respond to the same. It is however, not clear to the Tribunal when the Appellant received the demand letter.

135. The Tribunal went further to review the Minutes of the meeting held on 9th June 2021 and established that it is not in dispute that the letter of findings dated 26th March 2021 was sent to the Appellant by email (fortechardwareltd@gmail.com) and that the same email was used to seek supporting documents to the Appellant’s response to the letter of findings. As per the Minutes, it is also not in dispute that the Appellant did not communicate further to the Respondent and after 30 days, the demand file was sent to the Debt Management Unit within Customs at KRA for enforcement measures to be undertaken.

136. The Tribunal further observes that, from the pleadings, the Appellant has neither confirmed the date when it received the demand notice of 23rd April 2021 nor attached an application for review of the same regardless of the date received.

137. The Tribunal is clear that a person aggrieved by the decision of the Commissioner under theEACCMA must respond by lodging an application for review within 30 days as per Section 229(1) of the EACCMAwhich states as follows:“A person directly affected by the decision or omission of the Commissioner or any other officer on matters relating to Customs shall within thirty days of the date of the decision or omission lodge an application for review of that decision or omission.”

138. Section 229(3) further states as follows regarding the lodgement of a late application:“Where the Commissioner is satisfied that, owing to absence from the Partner State, sickness or other reasonable cause, the person affected by the decision or omission of the Commissioner was unable to lodge an application within the time specified in subsection (1), and there has been no unreasonable delay by the person in lodging the application, the Commissioner may accept the application lodged after the time specified in subsection (1).”

139. In regards to the above quoted provisions of the EACCMA, and of the fact that the Appellant has consistently stated that it received the Commissioner’s decision late, the Appellant should have lodged an application for review out of time giving reasons why the same is out of time and requesting the Commissioner to accept the same.

140. The Tribunal notes that the Appellant only raised the issue of Covid-19 difficulties having affected its response to the Commissioner in its letter dated 17th June 2021 yet it had communicated with the Respondent prior to that date; specifically, on 3rd June 2021 and on 10th June 2021. It is further noteworthy that the letter of 10th June 2021, which was submitted after a meeting between the parties, held on 9th June 2021, neither made reference to the demand of 23rd April 2021 nor rebutted the contents of the demand letter yet it is clear to the Tribunal that by this time the Appellant was aware of the demand notice.

141. The Tribunal is also of the considered view that, if indeed the Appellant only became aware of the demand notice by the Respondent due to the Respondent’s letter dated 2nd June 2021 that referenced the same, it should have made an application for review within 30 days of this knowledge; which would be on or about 2nd July 2021. It is apparent to the Tribunal that an application for review was never lodged before the Appellant filed its Notice of Appeal to the Tribunal as none is attached to the Appellant’s pleadings.

142. The Tribunal makes reference section 13 of the Tax Appeals Tribunal Act that lays out the documentation to be filed with the Tribunal at the point of filing an appeal. Section 13 states as follows:“(2)The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Clerk, of –(a)a memorandum of appeal;(b)statements of facts; and(c)the tax decision.”

143. The Tribunal notes that the Notice of Appeal lodged by the Appellant on 13th July 2021 makes reference to a decision by the Respondent indicated to have been made on 13th July 2021. A perusal of the documentation filed by both parties did not reveal such a decision. In any event, if such a decision existed, the Appellant would be in breach because the said decision was not attached to the Appeal documents.

144. As a result of the foregoing, the Tribunal finds that the Appellant did not make an application for review to the Commissioner and further, the instant Appeal was not backed by a review decision by the Commissioner.

145. The upshot of the above is that the Tribunal finds that the Appeal as filed has no legs to stand on and is therefore invalid.

146. The Tribunal having determined that the Appeal is invalid did not deal with the other issue falling for determination as it had been rendered moot.

Final Decision 147. On the basis of the foregoing the Appeal is incompetent and the Tribunal accordingly proceeds to make the Orders as hereunder:-a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

148. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 5TH DAY OF MAY, 2023. ………………………ERIC N. WAFULACHAIRMAN………………………………CYNTHIA B. MAYAKAMEMBER………………………………GRACE MUKUHAMEMBER………………………………ABRAHAM KIPROTICHMEMBER………………………………JEPHTHAH NJAGIMEMBER