[2023] KETAT 940 (KLR)

Frigoken Limited v Commissioner of Customs and Border Control (Tax Appeal E077 of 2023) [2023] KETAT 940 (KLR) (20 December 2023) (Judgment)

Neutral citation: [2023] KETAT 940 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E077 of 2023

RM Mutuma, Chair, W Ongeti, EN Njeru, M Makau & BK Terer, Members

December 20, 2023

Between

Frigoken Limited

Appellant

and

Commissioner of Customs and Border Control

Respondent

Judgment

Background 1. The Appellant is a private limited liability company incorporated in Kenya under the Companies Act. Its main form of business is in the manufacturing and supplying of horticultural products.

2. The Respondent is established under the Kenya Revenue Authority Act, Cap 469 laws of Kenya. The Kenya Revenue Authority (“KRA”) is an agency of the Government of Kenya for assessing, collecting, and accounting for all revenue.

3. The Respondent conducted a Post Clearance Audit on the importation of metal caps and steel cans under tariff code 8309. 90. 90 and 7310. 29. 90 respectively and issued the audit findings to the Appellant vide a letter dated 9th November 2022 followed by a demand letter dated 15th December 2022.

4. The Appellant responded vide a letter dated 15th November 2022 and on 22nd December 2022 the Respondent issued a demand notice followed by a review decision dated 25th January 2023 partially allowing the review application.

5. Being dissatisfied with the review decision, the Appellant filed the extant Appeal.

The Appeal 6. The Appeal is premised on the following grounds listed in the Memorandum of Appeal dated 9th March 2023 and filed on 10th March 2023:-(a)The Respondent erred in law and fact in arriving at the decision that the Appellant’s importations were done out of time as provided for under the East African Community Duty Remission Scheme and the Control Documents issued by the National Treasury.(b)The Respondent erred in law and fact by demanding short-levied duty almost 4 years after the initial assessment and payment of the duty on the subject importation, hence unreasonable.(c)The Respondent erred in law and fact by declining the Appellant’s submission that the duty assessed and paid at the time of clearance of the subject goods through the duty remission scheme was the correct treatment from a practice perspective and in line with the spirit of the EAC Duty Remission Scheme.(d)The Respondent violated the Appellant’s right to fair administrative action by subjecting the Appellant to additional duties almost four years after clearing the Appellant’s consignments.(e)The Respondent’s action of demanding taxes from the Appellant’s cleared consignments after four years contravened the principle of legitimate expectation.(f)In view of the foregoing, the Appellant is apprehensive that the actions of the Respondents lack in merit, are unlawful, and a gross abuse of its office and statutory powers. Unless the orders sought are granted, the Appellant risks being unjustly required to pay an alleged additional tax amounting to Kshs. 10,388,275 which in fact is not payable under the law.(g)In the premises, the Appellant prays that this Tribunal finds in the Appellant’s favour and vacates the demand confirmation issued by the Respondent on 25th January 2023 for Kshs. 10,388,275 with costs to the Appellant.

The Appellant's Case 7. The Appellant’s case was premised on its Statement of Facts dated 9th March 2023 and filed on 10th March 2023.

8. The Appellant stated that all the shipments were declared from the Port of Importation after 5th December 2019, on the expiry of the Legal Notice that granted the remission. It added that the instrument utilized to monitor the utilization of the quantities under a particular Gazette Notice for the Duty Remission Scheme is the Control Document issued by the National Treasury.

9. The Appellant averred that in as much as Legal Notices are valid for 12 months from the date of gazettement, in practice, the Control Documents issued by the National Treasury are also valid for 12 months from the date of its approval being an internal policy by the National Treasury that has been put in place in respect of varying lead-times required to import goods into this Country and region.

10. It posited that upon arrival of the shipments, the Appellant cleared the goods using the duty rates as provided in its expired Legal Notice and the Respondent did not raise the matter of the expired Legal Notice.

11. The Appellant avowed that during the importation of goods at any Port of entry, Customs officers always physically verify goods to confirm the accuracy and correctness of a declaration against the supporting documents then they input a message in the SIMBA system quoting the particulars of the shipment including the necessary Control Document approvals required for the goods to be evacuated from the port without the payment of the import duty under the Remission Scheme.

12. Further, it claimed that the consignments that are found to be short levied underwent the same process and verification accounts by the officers were obtained showing that the Respondent’s officers were satisfied that the items qualified to be cleared under the Duty Remission Scheme. It added that the SIMBA System is exclusively controlled by the Respondent therefore, the Respondent cannot purport to unilaterally change the tax liability of previously cleared items several years later.

13. It contended that it made an application for gazettement under the Duty Remission Scheme on 8th October 2019 and the Legal Notice was issued on 10th January 2020, therefore the Respondent’s action of assessing the short-levied duties due to importation during the short time lapse before the issuance of the subsequent Gazette Notice is unfair, unreasonable and in bad faith and against the principles of fair administrative action as under Article 47 of the Constitution of Kenya and legitimate expectation.

14. The Appellant stated that if the tax demanded was actually due and the SIMBA system had indicated that it was payable upon the entries made by the clearing agents, it would have paid the tax and adjusted its prices to reflect the cost of production which would have included tax, an opportunity which it has now lost hence would suffer huge losses if it has to pay the tax demanded.

15. It reiterated that it relied on the Respondent’s representation that the import duty payable was correct per the rates of the Legal Notice and no additional duty would be payable and it made business decisions including fixing of prices based on that representation. It added that the short-levied duties if enforced would be unfair, inequitable, and disadvantage it as it will not have an opportunity to recover the money that would have been recovered had the demand been made timeously by factoring this cost in its pricing of the final products affording them a fair and just assessment.

16. It relied on the cases of H.T.V Ltd v Price Commission [1976] I.C.R 170 at 189, Civil Appeal No. 180 of 2019 Kenya Revenue Authority v Export Trading Company Limited, Krish Commodities Limited v Kenya Revenue Authority [2018] eKLR to support its position that the Assessment orders as raised by the Respondent was in bad faith and procedurally unfair.

17. The Applicant asserted that it had a legitimate expectation that the Respondent would not issue an assessment because the applicable duties had already been assessed and the payments fully made at the time of clearing the shipment and that it was clarified that the Appellant’s reason for delay in receiving its consignment was beyond its control as the process was initiated well in advance of the Legal Notice’s expiry.

18. The Appellant contended that the Respondent never objected to the Appellant’s treatment of the duties under the Duty Remission Scheme as the Respondent had agreed with the Appellant’s treatment of the duties payable under the Duty Remission Scheme.

19. It maintained that it had consistently applied for and had been approved under the EAC Duty Remission Scheme allowing it to import specific consignments using favourable duty rates under the Scheme and has always made full payments for all duties as assessed and that during the period the importation was cleared, the Respondent did not raise an objection to the duties assessed despite being aware of the expiry of the Legal Notice proceeding to clear the Appellant’s consignments under the same controls.

20. It relied on the case of Republic v Kenya Revenue Authority Ex Parte Cooper K - Branis Limited [2016] eKLR, De Smith, Woolf & Jowell in Judicial Review of Administrative Action, 6th Edition of Sweet & Maxwell on page 106, Republic v Attorney General & Another Ex Parte Waswa & 2 Others [2005] 1 KLR 280, and Keroche Industries Limited & 6 Others v Attorney General & 10 Others [2016] eKLR and asserted that the Respondent failed to assist with it request to consider itssubmissions on the reasons for late shipments and issuing an assessment on short-levied duties amounting to double standards and is in contravention of its legitimate expectation.

21. The Appellant further cited Section 4 (1) of the Fair Administrative Actions Act and Article 47 (1) of the Constitution of Kenya 2010 and averred that the assessments were issued in contravention of its right to fair administrative action.

22. Given that the Appellant did not file its submissions with the Tribunal, the Tribunal relied on the pleadings filed by the Appellant and the documents attached thereto to determine its case.

The Appellant’s prayers 23. The Appellant prayed that the Tribunal finds that:-(a)The Respondent erred by assessing the short-levied duties and disregarding the true nature of the arrangements and the spirit of the Duty Remission Scheme regarding the transaction in question.(b)The Respondent’s confirmed assessment be set aside.(c)Costs of this Appeal be awarded to the Appellant.

The Respondent's Case 24. The Respondent’s case is premised on its:(a)Statement of Facts dated 9th April 2023 and filed on 11th April 2023. (b)The Written submissions dated 19th July 2023 and filed on 21st July 2023.

25. The Respondent stated that the Appellant without approval continued importation relying on the expired Legal Notice No. 16 of 6th December 2018.

26. The Respondent averred that it raised a demand letter for import duty upon the Appellant of Kshs. 10,388,275. 00 as Sections 235 and 236 of EACCMA give it powers to call for documents and conduct a Post Clearance Audit on the import and export operations of a taxpayer within a period of five years from the date of importation or exportation.

27. The Respondent averred that the Appellant did not produce any material evidence to support its continued importation beyond the period of the Legal Notice thus invalidating the Appellant’s Objection despite seeking documentation for the same.

28. It relied on Section 56(1) of the Tax Procedures Act and averred that its review decision dated 25th January 2023 is proper.

29. On whether the Appellant provided evidence for the importation of goods under the Duty Remission Scheme without a valid Legal Notice or consent the Respondent cited Article 210 (1) of the Constitution and submitted that its Customs Officer is supposed to verify the accuracy of the entries made by the clearing agent within the shortest time possible in order to facilitate the release of the goods and mitigate the accrual of demurrage and customs warehouse rent and under Sections 235 and 236 of the EACCMA conducted a Post Clearance Audit to verify the accuracy of the entries after the goods have been released from customs control.

30. It provided the definition of “import” under the EACCMA and maintained that it made a ruling that the time of importation was past the allowed time as the Legal Notice in question allows importation for a period of 12 months from the date of the Legal Notice which is 6th December 2018 and ends on 5th December 2019.

31. It argued that the Appellant contravened the time validity of the Legal Notice and failed to pay Kshs. 10,388,275. 00 which taxes are due and payable at time of importation.

32. It relied on Section 56 (1) of the Tax Procedures Act, Section 30 of the Tax Appeals Tribunal Act and the case of Commissioner of Domestic Taxes v Golden Acre Limited (2021) eKLR and submitted that the documents and literature provided by the Appellant did not provide any additional information, which would have led to the validation for the Appellant’s import beyond the Legal Notice period.

33. On whether the Respondent caused an unreasonable delay in raising its assessment, the Respondent relied on Sections 135, 235 and 236 of the EACCMA and the case of Pharmaceutical Manufacturing (K) Ltd & 3 Others v Commissioner General of Kenya Revenue Authority & 2 Others [2017] eKLR and submitted that it acted within its powers to conduct a Post Clearance Audit within 5 years and sought for documents to verify the correctness of the taxes declared and paid and the Appellant is required to correctly declare the goods it is importing and subject the same to the applicable HS Code for purposes of charging appropriate taxes at all times.

34. On whether the Respondent owed the Appellant a legitimate expectation, the Respondent submitted that there was no representation made to the Appellant that Import VAT would not be charged on its imports or it would be exempt from the provisions of Sections 235 and 236 of the EACCMA, thus claim for legitimate expectation by the Applicant must fail.

35. It relied on Sections 235 and 236 of the EACCMA and the case of R (Bibi) v Newham London Borough Council [2001] EWCA Cave 607 [2002] 1 WLR 237 at [19] and reiterated that legitimate expectation cannot be contrary to statutory provisions and that demands made by the Respondent on the import duty was anchored in law and cannot be said to be unilateral, unreasonable or unfair and that legitimate expectation cannot arise where a person’s actions are in breach of clearly written provisions of the law.

The Respondent's prayers 36. The Respondent prayed for orders that this Tribunal: -(a)Upholds the Respondent’s review decision as proper and in conformity with the provisions of the law.(b)Dismisses the Appeal with costs to the Respondent as the same is devoid of any merit.

Issues for Determination 37. After perusing the Memorandum of Appeal and parties' Statements of Facts together with the Respondent’s submissions and documentation attached therewith, the Tribunal filters the following as the main issue for determination:Whether the Respondent’s decision to raise short-levied tax on the Appellant’s imported goods was justified.

Analysis and Findings 38. The Tribunal wishes to analyze the issue as hereinunder.

39. The Appellant averred that all the shipments were declared from the Port of Importation after 5th December 2019, on the expiry of the Legal Notice that granted the remission, and that the instrument utilized to monitor the utilization of the quantities under a particular Gazette Notice for the Duty Remission Scheme is the Control Document issued by the National Treasury.

40. The Appellant asserted that in as much as Legal Notices are valid for 12 months from the date of gazettement, in practice, the Control Documents issued by the National Treasury are also valid for 12 months from the date of its approval being an internal policy by the National Treasury that has been put in place in respect of varying lead-times required to import goods into this Country and region.

41. The Respondent maintained that the Appellant without approval continued importation relying on the expired Legal Notice No. 16 of 6th December 2018 and that the Appellant did not produce any material evidence to support its continued importation beyond the period of the Legal Notice thus invalidating the Appellant’s Objection despite seeking documentation for the same.

42. The Respondent further contended that it made a Ruling that the time of importation was past the allowed time as the Legal Notice in question allows importation for a period of 12 months from the date of the LegalNotice which is 6th December 2018 and ends on 5th December 2019 thus the Appellant contravened the time validity of the Legal Notice and failed to pay taxes due and payable at the time of importation.

43. Section 2 of the East African Community Customs Management Act, 2004 provides the definition of import as follows:“import" means to bring or cause to be brought into the Partner States from a foreign country;” (Emphasis added)

44. The Tribunal observes that the Control Numbers were Applied for on 30th September 2019 and approved on 4th October 2019 and another one was applied for on 2nd December 2019 and issued on 3rd December 2019, mere days before 5th December 2019, the date of the expiry of the Duty Remission Scheme.

45. It is further observed that the Appellant provided Inspection Verification Reports dated 11th, 13th, 27th, 28th, and 31st December 2019 for goods showing approval for entry of the Appellant’s goods under Control No. 16412 of 2nd December 2019 and Control number 16388 dated 30th September 2019.

46. The function of the Control Code 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 the East Africa Community Gazette Notice.”

47. Having said that, the Appellant has not demonstrated having done anything to seek for the Gazette Notice No. EAC/2/2021 which lapsed on 5th December 2019 to be extended for a further period of 12 months and therefore valid for importation under the Duty Remission Scheme. By dint of such failure by the Appellant, the Respondent is entitled to charge the goods to tax in accordance with the Regulations which provide for full taxation. The mistake of the Appellant cannot be transferred to the Respondent. The burden to ensure proper submissions of documents for duty remission purposes remains the sole responsibility of the importer. The Appellant ought to have realized its mistakes and taken necessary steps to make amendments as opposed to terming it an administrative error on the part of the National Treasury.

48. The Tribunal is satisfied that the Appellant did not sufficiently demonstrate that it imported the goods during the subsistence of a valid Gazette Notice.

49. To this end, the Tribunal finds that the Respondent’s decision to raise short-levied tax on goods imported under the Duty Remission Scheme was justified.

Final Decision 50. The upshot to the foregoing is that the Appeal is without merit and the Tribunal consequently makes the following Orders; -(i)The Appeal be and is hereby dismissed.(ii)The Respondent’s review decision dated 25th January, 2023 be and is hereby upheld.(iii)Each party bears its own costs.

51. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 20TH DAY OF DECEMBER, 2023ROBERT M. MUTUMA....................CHAIRPERSONDR. WALTER ONGETI....................MEMBERELISHAH N. NJERU.........................MEMBERMUTISO MAKAU............................MEMBERBONIFACE K. TERER......................MEMBER