[2023] KETAT 90 (KLR)

Highlands Drinks Limited v Commissioner of Customs & Boarder Control (Tribunal Appeal 1392 of 2022) [2023] KETAT 90 (KLR) (Commercial and Tax) (10 March 2023) (Ruling)

Neutral citation: [2023] KETAT 90 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tribunal Appeal 1392 of 2022

E.N Wafula, Chair, AK Kiprotich & Cynthia B. Mayaka, Members

March 10, 2023

Between

Highlands Drinks Limited

Appellant

and

Commissioner of Customs & Boarder Control

Respondent

Ruling

1. The Applicant vide a Notice of Motion dated the November 28, 2022 filed under certificate of urgency on the same date and supported by an Affidavit sworn by Joachim Westerveld, the Chief Executive Officer of the Applicant, sought for the following Orders that :-i.Spent.ii.This Honourable Tribunal issues an interim order compelling the Respondent to register the Appellant’s product, Cordial Pineapple Juice with Coconut flavor, for excise registration under tariff 2202. 99. 00 of the HS Code at the rate of Excise Duty at Kshs 5 per liter pending the hearing and determination of this Appeal.iii.The cost of this application be in the cause.

2. The application is premised on the following grounds that:-i.The Applicant intends to manufacture and sell a new excisable product namely, Highlands Codial Pineapple Juice with Coconut flavor (‘the product’) and applied to the Respondent for excise registration of the product, providing the Respondent a sample of the product.ii.The Appellant classified the product as excisable under the First Schedule of the Excise Duty Act, 2015 at Kshs 5 per liter as a ‘Bottled or similarly packaged waters and other non-alcoholic beverages, not including fruit and vegetable juices’ this is under Chapter 22. 02 HS Code (tariff 2202. 99. 00) of the East African Community Customs Union, Common External Tariff (CET).iii.The Respondent rejected the Appellant’s application for excise registration by its tariff ruling dated June 22, 2022 classifying the product as HS Code 2009. 49. 00 as a fruit juice chargeable to Excise Duty at Kshs 10 per liter under the First Schedule of the Excise Duty Act as ‘Fruit juices (include grape must), and not containing added spirit, whether or not containing added sugar or other sweetening matter.’iv.The Appellant has engaged the Respondent and objected to the Respondent’s tariff ruling and consequently its Excise Duty classification culminating in the current appeal before the Honourable Tribunal.v.The Respondent has wrongly classified the Appellant’s product under chapter 20. 09 (2009. 49. 00) which relates to fruit and vegetables juices obtained by pressing fresh, healthy, and ripe fruit or vegetables as the Appellant’s products does not contain fruit but flavouring concentrates/emulsions to add flavor.vi.The Appellant is willing to pay the Respondent the shortfall of Kshs 5 per liter if this Honorable Tribunal finds in favour of the Respondent and dismisses the Appeal.vii.The Appellant has requested that the Respondent to register the product for Excise pending the Appeal, the Respondent has however not responded to the Appellant.viii.It is in the interest of both parties that the new product be registered for Excise in the interim at Kshs 5 per liter to enable the Appellant start manufacturing and sale of the product. This will ensure that both the Respondent and the Appellant have revenue in the interim in excise duty and sales, respectively.ix.In the current position both the Respondent and the Appellant are losing revenue as the Appellant is not manufacturing and selling the product while the Respondent is not receiving any excise duty.1. The Respondent opposed the application through a Replying Affidavit sworn by Benard Oyucho, an officer of the Respondent, on the August 25, 2022 and filed on the same date. The grounds of opposition as highlighted in the Affidavit were as follows:-i.That the Appellant is undeserving of the orders sought in the applicationii.That the application seeks to compel the Respondent to accept and register the Appellant’s product by the name Highlands Cordial Pineapple Juice with Coconut flavor under HS Code 2202. 99. 00 at excisable rate of Kshs 5 per liter which position the Respondent rejected and is subject of the main appeal before the Tribunal.iii.That the application seeks to override the Respondent’s ruling and objection decision which classified the product under EAC/CET HS Code 2009. 49. 00 at excise rate of Kshs 10 per liter without proper determination of the dispute.iv.That the application herein raises weighty issues of classification which cannot be canvassed and determined at the preliminary stage and will require interrogation through witnesses who will explain the content of the product and lab analysis.v.That the application herein is a waste and an abuse of the Court process since the issues raised in the application have been materially and substantively raised in the main appeal.vi.That the Respondent is not opposed to registering the said product under EAC/CET Code 2009. 49. 00 at excise rate of Kshs 10 per liter pending hearing and determination of the Appeal before the Tribunal.vii.That the Appellant will not suffer any prejudice if the said product is registered under EAC/CET HS Code 2009. 49. 00 at excise rate of Kshs 10 per liter since the Respondent has a functional refund mechanism should the Tribunal deliver judgement in favor of the Appellant.viii.That it will be an uphill task for the Appellant to pay the difference in the event the Tribunal delivers judgement in favor of the Respondent since the Appellant would have sold the products to consumers at a lesser amount.ix.That the orders sought by the Appellant are final in nature and should not be issued at the preliminary stage.2. 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 December 9, 2022 while the Respondent filed its submissions on December 7, 2022. The Tribunal has duly considered the written submissions in arriving at its determination in this Ruling.

Analysis and Findings 5. The Applicant’s application is primarily praying to the Tribunal to compel the Respondent to register its product for excise purposes with the intention of starting production under HS Code 2202. 99. 00 as opposed to HS Code 2009. 49. 00 which the Respondent had made a decision to register the product.

6. The power to hear such matters is donated to the Tribunal under Section 3 of the Tax Appeals Tribunal Act which provides as follows;“There is established a Tribunal to be known as the Tax Appeals Tribunal to hear appeals filed against any tax decision made by the Commissioner.”

7. The Tribunal is further enjoined under Section 18 of the Tax Appeals Tribunal Act to preserve the substrum of the appeal pending before it so as not to let the appeal process being rendered superfluous and/or nugatory. The Section 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 implantation of the decision under reviews as it considers appropriate for the purposes of securing the effectiveness of the proceedings and determination of the appeal.”

8. Further, for the Tribunal has to satisfy itself of an existence of an Appeal therefore the Applicant ought to demonstrate that it has an arguable case.

9. The court inStanley 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. Justice Bosire JA (as he then was) inMrao Limited vs First American Bank Limited (2003) KLR 125, observed that “ it is not sufficient to raise issues. The evidence must show an infringement of a right and the probability of success of the applicant’s case upon trial. That is clearly a standard which is higher than an arguable case.” He reiterated that the Applicant must have a prima facie case with a probability of success. He argued that ; a prima facie case in a civil application includes but is not confined to a genuine and arguable case and that it is a case which, on the material presented to the court, a Tribunal properly directing itself will conclude that there exists a right which has apparently been infringed by the opposite party as to call for an explanation or rebuttal from the latter. ”

11. Additionally, 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.

12. The Tribunal observed from the draft Memorandum of Appeal filed together with this Application that the Applicant had raised eight grounds of appeal. While it was not necessary to consider more than one ground, the Tribunal was of the view that the Applicant had a prima facie case that called for rebuttal by the Respondent. In line with the holding in Habib case (Supra), the Tribunal could only examine proof of arguments by both parties during the hearing of the substantive appeal.

13. The Tribunal further noted that the Applicant was willing to provide security in the interim period pending the Appeal process that will cover the excess taxes in the event that the appeal fails. The Tribunal did not see any prejudice to be suffered by the Respondent if the Applicant was allowed to provide a security deposit pending full hearing of the Appeal while it is allowed to start the manufacture of its product.

Disposition 14. In view of the foregoing, the Tribunal finds that the application has merit and accordingly proceeds to make the following Orders:-i.The Applicant to be allowed to furnish an acceptable security in form of a bank guarantee of an amount to cover six months’ production pending the hearing and determination of the Appeal.ii.In the event of any dispute as to the extent of the security to be furnished, either party shall be at liberty to move the Tribunal to fix the amount of the security.iii.The Respondent is temporarily restrained from registering the Appellant’s Product (Codial Pineapple Juice with Coconut flavour) under HS Code 2009. 49. 00 pending hearing and final determination of this Appeal.iv.The Respondent is directed to provide the Appellant with the registration for production of the excisable products under HS Code 2202. 99. 00 pending the hearing and final determination of this Appeal.v.The Appeal to be heard on priority basis.vi.The matter to be mentioned on the April 17, 2023 for pre-trial directions.vii.No orders as to costs.

15. It is so ordered.

DATED and DELIVERED at NAIROBI this 10TH day of MARCH. 2023. …………………….. ERIC N. WAFULA CHAIRMAN………………………….. ……………………….ABRAHAM KIPROTICH CYNTHIA MAYAKA MEMBER MEMBERRULING- TAT. NO. 1392 OF 2022 HIGHLANDS DRINKS LIMITED –VS- COMMISSIONER OF CUSTOMS AND BORDER CONTROL