[2023] KETAT 313 (KLR)

Hemwil Investment Limited v Commissioner of Customs & Border Control (Appeal E208 of 2023) [2023] KETAT 313 (KLR) (26 May 2023) (Ruling)

Neutral citation: [2023] KETAT 313 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E208 of 2023

E.N Wafula, Chair, EN Njeru, RO Oluoch, AK Kiprotich & Cynthia B. Mayaka, Members

May 26, 2023

Between

Hemwil Investment Limited

Appellant

and

Commissioner Of Customs & Border Control

Respondent

Ruling

1. Before the Tribunal is an application by way of a Notice of Motion dated the 8th day of May, 2023 and filed by the Appellant under a Certificate of urgency on the 9th May 2023 seeking for the following Orders:-i.Spentii.The Tribunal be pleased to grant an order that the following Motor vehicles be released upon payment of duty under code 8702. 10. 20 pending hearing an determination of the Tax Appeal Number E208 of 2023. iii.The Tribunal be pleased to stand over any attempt by the Respondent to collect taxes under dispute as it is illegal, arbitrary, and erroneous.iv.Any reliefs the Tribunal deems fit to grant.

2. The application which is supported by an Affidavit sworn by Mburu Mungai, a Director of the Appellant, is premised on the following grounds:-i.That the Appellant being dissatisfied with the review decision issued by the Respondent on the 14th day of April 2023 appealed to the Tribunal on 8th May 2023 by way of a Notice of Appeal which was duly served on the Appellant on the same date.ii.That on 8th May 2023, the Appellant further filed a Memorandum of Appeal and a Statement of Facts together with all annexures, which were duly served upon the Respondent.iii.That the Appellant invites the Honourable Tribunal to take notice that the dispute herein relates to whether the correct declared subheading for its code is 8702. 10. 20 instead of 8703. 33. 90. iv.That the Appellant asserts that the Respondent has refused and/or blatantly disregarded the urgency to clear the twenty (20) motor vehicles from the port, and they continue to accrue customs warehouse rent and port charges for the last five (5) months at approximate rate of Kshs 5,000 per motor vehicle.v.That out of the twenty motor vehicles, the Appellant had declared and paid the tax due for five (5) motor vehicles, which still need to be cleared from the port.vi.That the actions of the Respondent have occasioned the Appellant’s frustrations and will continue to cause the business major losses if the orders sought are not granted.vii.That the Appellant is willing to pay the sums due and payable under subheading 8712. 10. 20 pending the hearing and determination of this Appeal.viii.That the Appellant stands to suffer prejudice if the Respondent is allowed to continue holding the said motor vehicles in the Port of Mombasa.

3. In opposition to the application, the Respondent through a Replying Affidavit sworn by Evanson Mairura, a Chief Officer of the Respondent, on the 18th day of May, 2023 and filed on the 19th May, 2023 raises the following grounds in opposition to the application:-i.That on 14th April 2023, the Respondent issued the Appellant with a review decision on demand notice.ii.That the Appellant had objected to the Respondent’s decision vide a letter dated 28th March 2023. iii.That the Appellant states that according to GIR 4 the closest tariff to be applied for commercial vans or matatu is Heading 87. 02 and 87. 04 than Heading 87. 03iv.That the Heading 87. 02 covers motor vehicles for the transport of ten or more persons including the driver.v.That if the carrying capacity is less than ten the motor vehicle should be reclassified.vi.That Heading 87. 03 covers motor cars and other motor vehicles principally designed for transport of persons (other than those of Heading 87,02 including station wagons and racing cars).vii.That the Appellant/Applicant states that they have paid tax due for only five (5) motor vehicles.viii.That the Tribunal has to determine which HS Code each of the twenty motor vehicles imported by the Appellant falls under.ix.That the Tribunal should deal with the main appeal as this cannot be determined at the interim stage.x.That failure to pay tax due for the twenty (20) motor vehicles does not warrant this Tribunal to exercise its discretion in favour of the Appellant.xi.That the Appellant has failed to lay a basis to the satisfaction of the Tribunal for release of the motor vehicles.xii.That the taxes demanded by the Respondent continues to accrue interest on a monthly basis .xiii.That the Tribunal should determine the instant Appeal that is properly before it and dismiss the premature application before it.xiv.That the application is an afterthought, brought in bad faith, meant to delay the Respondent from collecting taxes that are due and payable and should not be entertained by this Tribunal.xv.That the Appellant is not deserving of the orders sought in the application as the Appellant has not paid atleast the taxes demanded by the Respondent and explained satisfactorily to the Tribunal thus the application ought to be dismissed.xvi.That in the circumstances, it is in the interest of justice that this Tribunal dismisses the application to pave way for the Respondent to collect taxes due from the Appellant which are key to the economic development of the Country.xvii.That the indolence of the Appellant should not bar the Respondent from fulfilling its mandate of collecting taxes that are due and payable.xviii.That the Respondent has satisfied the principles as set out in the case of Republic v Kenya Revenue Authority Ex Parte Universal Corporation Ltd (2016) Odunga J.

Analysis and Determination. 4. In compliance with the directions of the Tribunal to the effect that the application was to be canvassed by way of written submissions, the Applicant filed its submissions on 23rd May, 2023 while the Respondent filed its submissions on 22nd May, 2023. The Tribunal has duly considered the written submissions in arriving at its determination in this Ruling.

5. This application is primarily seeking a temporary stay of execution of the Respondent’s review decision and demand notice dated 14th April 2023 which arose from reclassification of the Applicant’s imported motor vehicles under Hs Code 8703. 33. 90 pending the hearing and determination of the Appeal it has filed with the Tribunal. The Applicant had imported the motor vehicles and declared them under HS Code 8702. 10. 20 which is the HS code that it had been declaring for previous imports of Toyota Hiace Vans and Nissan Caravans without any issue.

6. The Appellant filed the Appeal herein with the Tribunal on 9th May 2023 challenging the Respondent’s review decision dated 14th April 2023 and the matter is now pending hearing and determination of the Appeal.

7. The powers of the Tribunal to consider such applications as filed by the Appellant and to issue stay orders is donated by Section 18 of the Tax Appeals Tribunal Act which provides as follows;“Where an appeal against a tax decision has been filed under this Act, the Tribunal may make an order staying or otherwise affecting the operation or implementation of the decision under review as it considers appropriate for the purposes of securing the effectiveness of the proceeding and determination of the appeal.”

8. In Multimedia University & Another –Vs- Professor Gitile N. Naituli (2014) eKLR the Court of Appeal stated that when an applicant prays for orders of stay of execution the applicant must satisfy the court on both of the twin principles: First, the applicant must present an arguable appeal and second, the intended appeal would be rendered nugatory if the interim orders sought were denied.

9. The court in Stanley Kangethe Kinyanjui vs. Tony Ketter & others [2103[ eKLR stated that an arguable appeal is not one which must necessarily succeed, but one which ought to be argued fully before the Court; one which is not frivolous. On whether the appeal is arguable, it was held in Damji Pragji Mandavia v Sara Lee Household & Body Care (K) Ltd, Civil Application No. Nai 345 of 2004 that it is sufficient if a single bona fide arguable ground of appeal is raised.

10. It was argued in the case of Habib Bank AG Zurich vs. Eugene Marion Yakub Civil Application Number Nairobi 43 of 1982, by Madan, Law and Potter JJA that probability of success means the court is only to gauge the strength of the plaintiff’s case and not to adjudge the main suit at the stage since proof is only required at the hearing stage.

11. The Tribunal has observed from the Memorandum of Appeal filed together with the application that the Appellant has raised seven (7) grounds of appeal. While it is not necessary to consider more than one ground, the Tribunal is of the view that the Appellant on the basis of the grounds of appeal set out in the Memorandum of Appeal has a prima facie case that calls for appropriate rebuttal by the Respondent. In line with the holding in Habib case (Suppra), the Tribunal can only examine the veracity and relevancy of the arguments on the classification of the motor vehicles during the hearing of the substantive appeal.

12. The Court in Damji Pragji (supra) observed that in considering an application the court must not make definitive or final findings of either fact or law at that stage as doing so may embarrass the ultimate hearing of the main appeal. In Reliance Bank Ltd v Norlake Investments Ltd [2002] 1 EA 227 the Court stated that, “the term “nugatory” has to be given its full meaning. It does not only mean worthless, futile, or invalid, but also means trifling. Whether or not an appeal will be rendered nugatory depends on whether or not what is sought to be stayed if allowed to happen will be reversible, or if it is not reversible whether damages will reasonably compensate the party aggrieved.”13. The Tribunal considered the decretal amount claimed by the Respondent to be so substantial that even if the amount was to be refunded in the event that the Appellant was to succeed in its case, the injury caused to the business by withdrawal of the amount would be irreparable as to render the Appeal nugatory.

14. In Industrial Cause No. 7715 of 2011, Elena Doudoladova Korir vs Kenyatta University [2014] KLR at (Nairobi) the Court of Appeal held that;“The High Court’s discretion to order a stay of execution of its order or decree is fettered by three conditions. Firstly, the applicant must establish a sufficient cause, secondly the court must be satisfied that substantial loss would ensue from a refusal to grant stay and thirdly the applicant must furnish security. The application must of course be made without unreasonable delay.”

15. In County Executive of Kisumu vs County Government of Kisumu and 8 others Civil Application No. 3 of 2016 the Supreme Court held that: “Each case has to be determined on its own merit and all relevant circumstances considered.” Similarly, in Butt v Rent Restriction Tribunal [1982] KLR 417 the Court of Appeal while giving guidance on how a court should exercise discretion in an application of stay of execution held that:“The general principle in granting or refusing a stay is; if there is no other overwhelming hindrance, a stay must be granted so that an appeal may not be rendered nugatory should that appeal court reverse the judge’s discretion.……The court in exercising its discretion whether to grant [or] refuse an application for stay will consider the exceptional circumstances of the case and unique requirements. The special circumstances in this case were that there was a large amount of rent in dispute and the appellant had an undoubted right of appeal.”

16. The Tribunal noted that in the present dispute, the Applicant is a going concern and no evidence had been shown of its inability to settle the amount claimed should it fail in its Appeal. Furthermore, the Applicant is a resident company and its directors have not been shown to be a flight risk. Moreover, the Tribunal did not see any prejudice to be suffered by the Respondent if an order was made for the release of the motor vehicles under HS Code 8702. 10. 20 in the interim pending full hearing of the Appeal on its proper merit. It is the Tribunal’s view that the Respondent would still collect from the Appellant the differential in tax should the Appellant fail in its Appeal.

17. It is further the view of the Tribunal that since there is a valid pending Appeal, it is in the best interests of justice that the efficacy of the proceedings in the Appeal is preserved and to avoid further accumulation of costs associated with holding of the motor vehicles at the Port the orders sought ought to be granted to allow the Appeal be heard on its full merits.

Disposition

18. In view of the foregoing, the Tribunal makes the following Orders:-i.A temporary order stay of execution of the decision by the Commissioner of Customs and Border Control to classify the Appellant’s imported motor vehicles under tariff code 8703. 33. 90 be and is hereby granted pending the hearing and final determination of the Appeal.ii.A temporary order is hereby issued directed at the Commissioner of Customs & Border Control to allow the Appellant’s declaration and clearance of imported motor vehicles being Toyota Hiace Vans and/or Nissan Caravans, imported by the Appellant and now lying at the Port of Mombasa, under HS Code 8702. 10. 20 pending the hearing and final determination of the Appeal challenging the decision by the Commissioner Customs and Border Control delivered on the 14th April, 2023. iii.The Appeal to be heard on priority basis.iv.The Appeal to be mentioned on the 20th June, 2023 for directions on the hearing of the Appeal.v.No orders as to costs.

19. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 26TH DAY OF MAY, 2023…………..…………..ERIC N. WAFULACHAIRMAN…………..…………..ELISHAH N. NJERUMEMBER…………..…………..RODNEY O. OLUOCHMEMBER…………..…………..ABRAHAM KIPROTICHMEMBER…………..…………..CYNTHIA MAYAKAMEMBER