[2023] KETAT 347 (KLR)

Gakahu v Commissioner of Customs and Border Control (Appeal 189 of 2022) [2023] KETAT 347 (KLR) (9 June 2023) (Judgment)

Neutral citation: [2023] KETAT 347 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 189 of 2022

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

June 9, 2023

Between

Peter Mwai Gakahu

Appellant

and

Commissioner of Customs And Border Control

Respondent

Judgment

Background 1. The Appellant is a sole proprietor and is in the business of importation and sale of printing paper.

2. The Respondent is a Principal officer appointed under Section 13 of the Kenya Authority Act. The Kenya Revenue Authority Act is an agency of the Government of Kenya for the assessment, collection, receipt and accounting for all tax revenue. The Authority is mandated to administer and enforce all provisions of the written laws set out in the schedule to the Act.

3. The dispute herein arose as a result of the Respondent’s decision dated 27th January 2022 to subject all paper and paperboard products imported into the Country between 2nd August 2018 to 27th January 2022 to a duty rate of 25%, and consequently serving a demand notice of Kshs 24,690,171. 00 on 7th February 2022 requiring the Appellant to pay the said sum.

4. Dissatisfied with decision of the Respondent, the Appellant preferred this Appeal on 25th February 2022.

The Appeal 5. The Appellant filed the Memorandum of Appeal in the Tribunal on the 25th February 2022, and set out the following grounds of Appeal:-i.That there is no law which imposed a duty of 25% on paper and paperboard products in the period between 2nd August 2018 to 27th January 2022 as particularized herein in the reasons (a) through to (c) in the Memorandum of Appeal.ii.That even if it were to be said arguendo that some law exists which imposed a duty rate of 25% on paper and paperboard products imported under HS code 4802. 56. 00 as aforesaid (which is denied ); and even if it were to be said arguendo that the Respondent is lawfully entitled to administer and enforce such law (Which is also denied); it would be illegal and unconstitutional for the Respondent to make or enforce compliance with the impugned demand notice by virtue of the reasons (a) through to (m) as particularized herein in the Memorandum of Appeal.

6. By reason of the grounds aforesaid the Appellant prayed to the Honourable Tribunal to annul the impugned review decision and the demand notice, and allow the Appeal with costs to the Appellant.

The Appellant’s Case 7. The Appellant has set out his case in the Statement of Facts filed on 25th February 2022, and the Written Submissions filed on 13th January 2023.

8. The Appellant being dissatisfied with the Respondent’s decision to subject all paper and paperboard products imported into the Country between 2nd August 2018 and 27th January 2022, under HS code 4802. 56. 00 to a duty rate of 25%, and the Respondent’s demand dated 7th February 2022 for Kshs 24,690,171. 00 for short levied duties appealed the said decision.

9. The Appellant stated that by a Gazette Notice No. EAC/21/2014, the EAC Council of Ministers reduced the tariff rate for paper and paperboard products imported under HS code 4802. 56. 00, which was previously set at the maximum rate of 25% to the middle rate of 10 %.

10. The Appellant also stated that on the 17th June 2017 the Council, vide a Legal Notice No. EAC/85/2017 reviewed and modified the EAC /CET to model it along the lines of the 2017version of the Harmonized Commodity Description and Coding System version 2012 of the World Customs Organization.

11. The Appellant stated further that in line with the Legal Notice No. EAC/85/2017 aforesaid, the EAC Secretariat developed and published the 2017 version of the Harmonized Commodity Description and Coding System, modelled along the WCO 2012 version. In the said version, the EAC Secretariat mistakenly indicated a tariff rate of 25% for paper and paperboard products imported under HS code 4802. 56. 00, without approval of the Council and without publication to that effect through the EAC Gazette Notice.

12. The Appellant contended that following publication of the 2017 version of the EAC/CET and upon noticing the purported erroneous change in the tariff rate for HS Code 4802. 56. 00. the Respondent deliberated on the question of whether the tariff rate for HS Code 4802. 56. 00 had been increased from 10% to 25% and resolved to consult the EAC Secretariat for clarification on the matter, whereupon the EAC Secretariat clarified to them that the Council had not increased the duty rate for HS Code 4802. 56. 00, and that the tariff rate of 25% appearing against that tariff code was caused by a mistake which occurred during the transposition process when they were changing the EAC/CET to make it comply with the 2012 WCO CET. That the Respondent also stated that the clarification by the EAC Secretariat was also contained in an email which was circulated by the Respondent’s Manager for Post Clearance Audit, to senior customs officers on 2nd February 2018.

13. The Appellant stated that the EAC Secretariat subsequently attempted to correct the mistake in the 2017 version of the EAC/CET in connection with HS Code- 4802. 56. 00 by causing the Council to reduce the rate from 25% to 10% vide Paragraph 2 of the Legal Notice No. EAC/69/2018 dated 30th June 2018.

14. It was a submission of the Appellant that the EAC Council and Secretariat later realized that the Paragraph 2 of the Legal Notice EAC/69/2018 aforesaid was itself published in error since it was purporting to reduce the tariff for HS code 4802. 56. 00 from 25 % to 10% yet the said tariff had never been formally increased from 10% to 25%. The Council published Gazette Notice No. EAC/112/2018 deleting Paragraph 2 of the Legal Notice No. EAC/69/2018.

15. The Respondent submitted that the deletion of Paragraph 2 of the Legal Notice No. EAC /69/2018 vide the Legal Notice No. EAC/112/2018 did not have any impact at all on the tariff rate for HS code 4802/56. 00 because the Tariff rate for HS Code 4802. 56. 00 had never been formally reviewed since 2014.

16. The Appellant averred that in view of the above, the Respondent configured the Tradex System to collect duty under HS Code 4802. 56. 00 fed by the Respondent into the said system with the result that any person wishing to import any goods under HS Code 4802. 56. 00 would simply enter the HS code into the system whereupon both duty rate as well as the total tax payable would be given by the Simba system itself in the form of Form C17B Custom Entry.

17. In the circumstances, the Appellant contended that it would be dishonest, callous, malicious and in bad faith for the Respondent to allege that the rate of 10% was not the correct rate for HS code 4802. 56. 00, nor accuse any clearing agent or importer of applying wrong rate of duty since the rate of 10 % was actually applied by the Respondent who fed it into the Simba system rather than by clearing agents who merely keyed in other details of the goods being cleared, leaving it entirely to the Simba System to give the applicable duty rate as well as the total duty payable.

18. The Appellant further averred that on 27th January 2022, the Respondent through a Memo by one John Gathatwa, customs officers were instructed to immediately conduct a Post Clearance audit on all goods that were cleared under HS Code 4802. 56. 00 between 2nd August 2018 and 27th January 2022 on the basis that Legal Notice No. EAC/ 112/2018 had deleted Paragraph 2 of the Legal Notice No. EAC/69/2018, and the effect of the deletion was to impose the duty rate of 25% for HS code 4802. 56. 00, and clearing agents had been applying the rate of 10% for HS Code 4802. 56. 00 instead of 25%.

19. The Appellant further stated that the aforesaid Memo further ignored the fact that up to the date of the said Memo, the official position of the Respondent was that the tariff rate since 20th June 2014, when it was set at 10%, and consequently the deletion of Paragraph 2 of the Legal Notice EAC/69/2018 had no effect whatsoever on the rate of duty for HS Code 4802. 56. 00.

20. The Appellant stated further that following the issuance of the aforesaid Memo, the Respondent reviewed all consignment for goods that were cleared by the Appellant between 2nd August 2018 and 27th January 2022 and proceeded to demand the sum of Kshs 24,690,171 as short levied duties.

21. In view of the foregoing, the Appellant contended that the reliefs sought in the Memorandum of Appeal should be granted on the grounds set and particularized in paragraphs (a) to (m).

22. By reason of the aforesaid submissions the Appellant prayed that its Appeal be allowed and the Respondent’s decision be set aside.

The Respondent’s Case 23. The Respondent has set out its response in the Statement of Facts filed on 25th March 2022, and the Written Submissions filed on 17th November 2022, and the List and bundle of documents filed on 17th November 2022.

24. The Respondent stated that the Customs Post Clearance audit team conducted a PCA desk review audit of customs entries of the importers of paper and paperboard products under HS Code 4802. 56. 00 for the period 2nd August 2018 to 27th January 2022 pursuant to Sections 235 and 236 of EACCMA.

25. The Respondent stated that it issued a demand notice pursuant to Section 135 of EACCMA to Appellant dated 7th February 2022 requiring the taxpayer to pay short levied taxes of Kshs 24,690,171. 00.

26. Subsequently, in a letter dated 16th February 2022 the Appellant sought for review of the taxes demanded under Section 229 of EACCMA.

27. The Respondent averred that before the Commissioner could issue its decision, as provided under Section 229(4) of EACCMA, the Appellant lodged the Appeal herein before the Tribunal.

28. The Respondent therefore contended that the Appellant’s Appeal herein is premature as the Respondent’s time to issue a decision was yet to lapse at the time when the Appeal was filed, and further for reasons that no decision having been issued, the Appeal herein has no stilts with which to stand.

29. The Respondent submitted that the EAC Legal Notice No. EAC/112/2018 dated 30th June 2018 deleted item in Paragraph 2 in the EAC Legal Notice No. EAC/69/2018 dated 30th June 2018, which effectively reverted the duty rate of items imported under tariff 4802. 56. 00 from 10% to 25% and as the change was not effected in the customs systems, leading to goods being released at a lower duty rate.

30. The Respondent averred that Legal Notice No. EAC/112/2018 dated 2nd August 2018 clearly provided for the import duty of 25% to be applied when dealing with goods imported under HS Code 4802. 56. 00.

31. The Respondent further stated that for a duty rate to be changed, the same must first be changed by operation of the law and in return the Appellant herein being an importer ought to have known all the laws and regulations that govern its operations and therefore ignorance of the law is no defense.

32. The Respondent further maintains that failure to capture the amendment in the system does not take away the fact that the taxes are due and payable by law as the duty to pay the proper tax falls on the Appellant herein, and further asserted that it does not instruct any of its officers to approve form C17B customs entries as all entries are processed at the Data Processing Center by customs officers.

33. The Respondent stated that the PCA was therefore conducted by the Authority as mandated by statute and it is only at the audit stage that it could be determined whether the Appellant paid the correct taxes. In this regard, the Respondent stated that its demand notice issued on 7th February 2022 was based on the law and prays that the same be upheld.

34. The Respondent submitted that the Appeal herein is premature as the statutory time within which the Respondent was to issue its decision upon consideration of Appellant’s application for review had not lapsed for the Appeal to be filed and prays that the Appeal be struck out with costs.

35. By reason of the foregoing submissions, the Respondent prayed that the Honourable Tribunal strikes out the Appellant’s Appeal for being prematurely lodged, and the matter be referred back to the Respondent for determination.

Issues for Determination 36. The Tribunal having carefully considered the parties’ filings and the submissions made is of the considered view that that the Appeal herein distils into two issues for determination;i.Whether the Appellant’s Appeal is proper and competent before the Tribunal; andii.Whether the Respondent was justified in assessing the Appellant for short levied duties.

Analysis and Determination i. Whether the Appellant’s Appeal is proper and competent before the Tribunal. 37. The contention between the parties in this Appeal is the correct rate of duty applicable for imported paper and paperboard products under HS code 4802. 56. 00.

38. On the 27th January 2022, the Respondent directed that an audit be conducted on paper and paperboard products imported under HS Code 4802. 56. 00. Consequently, the Respondent’s customs PCA team conducted an audit on the products by a desk review audit of the customs entries of the importers of items under the tariff code for the period 2nd August 2018 to 8th February 2022 pursuant to Sections 235 and 236 of EACCMA, and the Appellant was on 7th February 2022 issued with a demand for payment of the short-levied duties in the sum of Kshs 24,690,171. 00.

39. On 16th February 2022, the Appellant sought for a review of the demand under Section 229 of EACCMA.

40. The Respondent averred that before the Commissioner could issue its review decision, as provided for in Section 229(4) of EACCMA, the Appellant lodged this Appeal on 25th February 2022.

41. The Respondent has therefore opposed the Appeal on the basis that the Appeal is premature as it was filed when the Commissioner was yet to issue its decision as provided, and the time within which to issue the decision had not lapsed as provided for under Section 229(4) of EACCMA, and therefore cannot stand until the decision is issued.

42. According to Section 229(4) of EACCMA,“(4)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”.

43. According to the pleadings and submissions herein, the Appellant lodged its application for review on 16th February 2022 and filed the Appeal herein on 25th February 2022, which was within nine days of lodging the application for review. The Commissioner had at most up to 16th March 2022 within which to consider and render a review decision on the Appellant’s application for review. The statutory period provided for rendering a review decision had therefore not lapsed.

44. In view of the foregoing, the Tribunal agrees with the Respondent that the Appellant filed its Appeal prematurely before the lapse of the statutory period provided for the Commissioner to render a review decision, and consequently there was no review decision upon which the Appeal is grounded and therefore the Appeal cannot stand.

45. In light of the above therefore the Tribunal finds and holds that the Appellant’s Appeal is not competent and is not properly before the Tribunal.

ii. Whether the Respondent was justified in assessing the Appellant for the short-levied duties 46. The Tribunal having found that the Appellant‘s Appeal is incompetent and not properly grounded in law, lacks the jurisdiction to proceed to consider substantively the second issue herein which has been rendered moot.

Final Decision 47. The upshot of the foregoing is that the Appeal is incompetent and unsustainable in law and the Tribunal accordingly proceeds to issue the following Orders:-i.The Appeal be and is hereby struck out.ii.Each party to bear its own costs.

48. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF JUNE, 2023. ……………………………ROBERT M. MUTUMACHAIRPERSON………………………RODNEY O. OLUOCHMEMBER………………………ELISHAH NJERUMEMBER………………………DELILAH K. NGALAMEMBER