[2023] KETAT 137 (KLR)

Imperial Managed Solutions East Africa Limited v Comissioner of Customs & Border Control (Appeal 294 of 2021) [2023] KETAT 137 (KLR) (Civ) (17 March 2023) (Judgment)

Neutral citation: [2023] KETAT 137 (KLR)

Republic of Kenya

In the Tax Appeals Tribunal

Civil

Appeal 294 of 2021

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

March 17, 2023

Between

Imperial Managed Solutions East Africa Limited

Appellant

and

Comissioner of Customs & Border Control

Respondent

Judgment

1. The Appellant is a limited liability company incorporated in under the Kenyan Companies Act. Its principal activity is the provision of international freight management, warehousing management, transportation management and healthcare logistics services.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, the 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 Respondent carried out Customs Post Clearance Audit (“PCA”) on the Appellant’s business operations between June 2015 to July 2019 and issued demand notice to the Appellant vide a letter dated 17th December, 2019 demanding additional duties of customs amounting to Kshs. 267,090,542.

4. The Appellant lodged an application for review vide a letter dated 14th January, 2020 pursuant to Section 229 of EACCMA.

5. The Respondent replied vide a letter dated 19th February, 2020 and requested the Appellant to provide samples of some of its products for laboratory analysis and determination of the requisite tariff codes. The products requested are tabulated in the table below;No. Trade name of the Product Package size

1 Seven Seas Cod liver oil liquid 100ml, 170ml, 450ml

2 Seven Seas High Strength Cod liver oil 60 Capsules

3 Seven Seas Joint Care Advance capsules 3o capsules

4 Seven Seas Once-A-Day Cod Liver oil capsules 30/60 Capsules

6. The Appellant replied through a letter dated 27th February, 2020 sharing with the Respondent samples of the Seven Seas Cod Liver oil liquid of package sizes 100ml and 170 ml and the Seven Seas Once-A-Day Cod Liver oil capsules of Package size 60 capsules.

7. The Appellant further informed the Respondent that it could not provide the following products samples for the reason that it had discontinued importation since 2018:No. Product Package size

1 Seven Seas Cod Liver Oil liquid 450ml

2 Seven Seas High Strength Cod liver oil 60 Capsules

3 Seven Seas Joint Care Advance capsules 30 Capsules

4 Seven Seas Once-a-Day Cod Liver Oil Capsules 30 Capsules

8. The Respondent issued its review decision vide a letter dated 28th April, 2021.

9. Being dissatisfied with the Respondent’s review decision dated 28th April, 2021, the Appellant lodged this Appeal vide a Notice of Appeal dated 27th May, 2021.

The Appeal 10. The Appeal as set out in its Memorandum of Appeal dated 10th June, 2021 is premised on the following grounds:a.That the Respondent erred in law and in fact by issuing its review decision 439 days late contrary to the express provisions of Section 229(4) of EACCMA;b.That the Respondent erred in law and fact by seeking to reclassify the Appellant’s products under HS Code 2106. 90. 99 contrary to the legitimate expectation created vide the Respondent’s private ruling dated 28th October, 2016 as well as public ruling published on the Respondent’s website;c.That the Respondent erred in law and fact in failing to appreciate that the Appellant had properly and lawfully classified its products under HS Code 2106. 90. 91;d.That notwithstanding and without prejudice to the foregoing, the Respondent erred in law and in fact by demanding penalties amounting to Kshs. 13,354,527. 00 based on an erroneous assessment of Kshs. 267,090,542. 00; ande.That notwithstanding and without prejudice to the foregoing, the Respondent erred in law and in fact by demanding late payment interest amounting to Kshs. 297,353,527. 00 based on an erroneous assessment of Kshs. 267,090,542. 00

Appellant’s Case 11. The Appellant’s case is premised on the hereunder filed documents andproceedings before the Tribunal:i.The Appellant’s Statement of Facts dated 10th June, 2021 and filed on the same date together with the documents attached thereto.ii.The Appellant’s witness statements by Martin Mbugua and Corazon Otieno Ongoro dated 17th February, 2022 and filed on 21st February, 2022 and which were admitted in evidence in chief on the 24th August, 2022. iii.The Appellant’s written submissions filed on 9th September, 2022.

12. The Appellant submitted that having lodged its application for review on 14th January, 2020, the Respondent ought to have issued its decision within the statutory timeline of 30 days, i.e by 13th February, 2020 at the least.

13. That on the back of the Appellant’s application for review, the Respondent sent a request for samples through its letter dated 19th February, 2020, being 36 days after receipt of the Appellant’s application for review as indicated in the Respondent’s stamp receipts.

14. It averred that being a cooperative taxpayer, it proceeded to respond to this request by submitting the requested samples through its letter dated 27th February, 2020. That where no products samples existed, the Appellant shared discontinuation letters from manufacturers evidencing that such samples could not be availed as the products were no longer being imported into Kenya.

15. That following the provision of the requested samples and additional information on the discontinued products, the Respondent issued its review decision through a letter dated 28th April, 2021, being 439 days after receipt of the Application for review.

16. It was the Appellant’s contention that this decision as issued was therefore in violation of the express provisions of EACCMA with regards to statutory timelines set for issuance of review decisions. To support its argument, the Appellant cited the provisions of Section 229(4) and of the EACCMA. The Appellant further stated that its application for review was validly lodged as required under the provisions of Section 229 of the EACCMA.

17. The Appellant averred that upon lodgment of a valid application for review by the Appellant, the Respondent was allowed a statutory time limit of 30 days within which the Respondent ought to have issued a decision or otherwise requested for further information as provided by Section 229(4) of the EACCMA.

18. The Appellant asserted that since the Respondent failed to issue its review decision within 30 days of receiving the application for review, and in any case also failed to issue such decision within 30 days of receiving further information requested, the application for review automatically stood allowed in law by effluxion of time as set out under Section 229(5) of the EACCMA.

19. It was the Appellant’s submission that the word “shall” is couched in mandatory terms. Therefore, due to the Respondent’s failure to issue a review decision within (30) days from 14th January, 2020, the Appellant’s application for review automatically stood allowed.

20. The Appellant averred that the word “shall” when used in statutory provisions is a command, it is not permissive, it is mandatory. Therefore, due to the Respondent’s failure to issue a review decision within (30) days from 14th January, 2020, the Appellant’s application for review stood allowed. That this position was adopted by the Tribunal in its recent decision in BIC East Africa Limited vs. Commissioner Customs & Border Control (Tax Appeal No. 127 of 2020). The Appellant further relied on the High Court ruling in the case of Associated Battery Manufacturers Limited vs. Commissioner of Customs Services (TAT Appeal No. 1 of 2015).

21. That from the foregoing, the Appellant averred that it had a legitimate expectation that the application for review was allowed when the Respondent failed to issue review decision within (30) days’ timeline provided in law.

22. It stated that on 28th April, 2021, the Respondent, contrary to the provisions of the EACCMA proceeded to issue review decision vide a letter to the Appellant.

23. The Appellant averred that it had a legitimate expectation that its application for review was allowed when the Respondent failed to issue its objection decision within the thirty (30) days’ time mandated by law. The legitimate expectation arises where a member of the public, as a result of a promise or other conduct of an administrative body expects that he/she will be treated in one way and the administrative body thereafter reneges and wishes to treat him/her in a different way.

24. The Appellant submitted that the conduct of the Respondent to issue a review decision past the legally stipulated timeline contravenes basic canons of taxation including certainty, consistency and predictability. That in any sphere of public law, these ideals and values must be protected against whimsical and capricious violation by the public authorities. Failure to adhere to these values results in unfairness.

25. It contended that the frustration of the of the legitimate expectation created was tantamount to abuse of power by the Respondent. That any illegalities created by the Respondent in establishing this legitimate expectation are mistakes of the Respondent and cannot be visited on the bona fide taxpayer. That judicial precedents on abuse of power have held that a power that is abused should be treated as a power that has not been lawfully exercised.

26. The Appellant therefore prayed that the Tribunal finds that the Respondent’s decision as issued 439 days late was null and void and as result the Appellant’s application for review having been duly and validly lodged, was allowed in law. That the additional duties of customs amounting to Kshs. 577,798,471 be vacated in their entirety.

27. Regarding reclassification of the Appellant’s products under HS code 2106. 90. 99, the Appellant averred was contrary to legitimate expectation created vide the Respondent’s private ruling dated 28th October, 2016 as well as public rulings published on the Respondent’s website.

28. It was the Appellant’s submission that vide a letter dated 12th October, 2016 it wrote to the Respondent requesting for an advance tariff ruling for Seven Seas Cod Liver oil products. That the Appellant at the time was known as ‘Imperial Health Sciences Kenya Limited’ and changed its name to ‘Imperial Managed Solutions East Africa’ as per its Certificate of Change of Name dated 26th September, 2017.

29. That pursuant to the Appellant’s request, the Respondent wrote back to the Appellant vide a letter dated 28th October, 2016 confirming that the said products constituted nutritional supplements and as such the correct tariff classification was under the HS code 2106. 90. 91.

30. The Appellant submitted that based on this clear and unequivocal advance tariff ruling from the Respondent, it proceeded to organize its affairs and classify the said Cod Liver oil products under tariff heading 2106. 90. 91.

31. It further submitted that by issuing the ruling contained in the letter dated 28th October, 2016, the Respondent created a legitimate expectation that the Appellant’s Cod Liver Oil products were correctly classifiable under the HS code 2106. 90. 91.

32. The Appellant submitted that the Respondent, via its website, maintains a database of advanced tariff rulings in respect of various goods to provide general guidance to importers. that according to an updated Microsoft Excel document “Web-posting-tariff-collection-upto-march-2021”, available through the link>>> https://www.kra.go.ke/en/downloads, Seven Seas Cod Liver Oil Capsules, which have the same constitution as the liquid product, are classifiable under HS code 2106. 90. 91 according to findings dated 24th January, 2020.

33. That further, a cursory search through the “Tariff Collection Upto March 2021” document reveals that a similar product, Olde World Icelandic Cod Liver Oil- omega 3 fatty acids, is classified under HS code 2106. 90. 91.

34. That it noted that legitimate expectation arises where a member of the public, as a result of a promise or other conduct of an administrative body, expects that he or she will be treated in one way. To support its case, the Appellant relied on the position in the case of Keroche Industries Limited vs. Kenya Revenue Authority & 5 others Nairobi [2007] eKLR.

35. That the Respondent, as evidenced by the letter dated 28th October, 2016, made clear and unequivocal representations to the effect that the Cod Liver Oil products were classifiable under the tariff heading 2106. 90. 91. The Appellant placed reliance on these representations and the Respondent should therefore be estopped from reneging on them.

36. The Appellant also cited the case ofRepublic vs. Principal Secretary Ministry of Mining Ex-Parte Airbus Helicopters Southern Africa (PTY) Ltd[2017] eKLR where the Court cited R (Bibi) vs. Newham London Borough Council [2001] EWCA Civ. 607 [2002] 1 WLR 237 where it was held as follows:“In all legitimate expectation cases, whether substantive or procedural, three practical questions rise, the first question is to what has the public authority, whether by practice or by promise, committed itself; the second is whether the authority has acted or proposes to act unlawfully in relation to its commitment; the third is what the court should do.”

37. It was the Appellant’s submission that the advanced ruling cited above prepared and written by the Respondent as well as the published tariff ruling under the Respondent’s website makes for incontrovertible proof that the Respondent made a representation which it should be bound to keep. Therefore, the first limb of the test is duly met.

38. That the second limb was whether the promise or commitment was lawful or unlawful. The Appellant submitted that the representations were lawful and were not in any way in contravention of any written law. That it was worthy to note that the Appellant’s products are all Cod Liver Oil products which the Respondent confirmed, through its advanced tariff ruling, fall under HS code 2106. 90. 91.

39. The Appellant asserted that for the foregoing reasons, it had an enforceable legitimate expectation that the Respondent should not reclassify its products under HS code 2106. 90. 99 without providing any reasons and therefore make a demand for additional taxes amounting to Kshs. 577,798,471. That the Tribunal should hold the Respondent to its clear and unequivocal tariff ruling and the assessment be set aside.

40. The Appellant further stated that the Respondent erred in law and fact in failing to appreciate that the Appellant had properly and lawfully classified its products under HS code 2106. 91. 90. The Appellant averred that it imports various Seven Seas Cod Liver oil products for sale in Kenya.

41. It submitted that in classifying the Seven Seas Cod Liver Oil products under EACET, it strictly adhered to the general Interpretation Rules (“GIR”) for the classification of goods. That GIR, which are the globally accepted rules for the classification as adopted by EACCET, are the legal basis that provide guidance on the classification of all goods in international trade. It cited Rule 1 and Rule 6 of the GIR to support its arguments.

42. The Appellant submitted that in accordance with the provisions of GIR Rule 1, the said products being food supplements were classified under HS code 2106. 90. 91.

43. That tariff heading 21. 06 covers ‘Food preparations not elsewhere specified or included.’ That further, the subheading 2106. 90. 91 covers “food supplements”, a term that has legal import. That therefore, it was the Appellant’s considered view that the said products constitute food supplements and were thus correctly classifiable under the HS code 2106. 90. 91.

44. That the World Customs Organization (WTO) Explanatory Notes to the Harmonized System (“Explanatory Notes”) provides as follows in relations to heading 2106;“The heading includes, inter alia:….Preparations, often referred to as food supplements, based on extracts from plants, fruit concentrates, honey, fructrose, etc. and containing added vitamins and sometimes minute quantities of iron compounds. These preparations are often put up in packaging’s with indications that they maintain general health or well-being.”

45. The Appellant submitted that the Respondent’s three tariff rulings, highlighted earlier, all acknowledge that the products contain vitamins A, D, and E, cod liver oil and omega 3 acid ethyl esters as the active ingredients. Therefore, the chemical components of the said products is not an issue in contention between both parties.

46. That further, the Respondent, quoting in part from Explanatory Notes, stated in its own terms;“Based on the above information the sample…examined is therefore, considered to be a preparation based on Cod Liver Oil, fortified with various vitamins and other ingredients as specified above, intended for use as a food supplement…”

47. The Appellant therefore asserted that the Respondent was keen on unabashedly flouting the rules of tariff classification, i.e. that “classification shall be determined according to the terms of the headings” and that “for legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings”.

48. By way of illustration, the Appellant added, that tariff heading 2106, shown below should be understood or interpreted as thus:a.The entire heading covers “Food preparations not elsewhere specified or included”.b.There are two broad categories under heading 2106, i.e. (1) protein concentrates and textured protein substances and (2) other.c.The second category “other” contains three subcategories, i.e., items (1) specially prepared for infants (2) preparations of a kind used in manufacturing of beverages and (3) other.d.The subcategory “other” contains three other categories, i.e., (1) food supplements, (2) mineral premix used in fortification and (3) other.

49. That it was insincere for the Respondent to acknowledge that the goods constitute ‘food supplements’ only to ignore a term of subheading which has legal implications and apply the erroneous HS code 2106. 90. 99 which should cover all other items apart from food supplements and mineral premix used in fortification within the subcategory “Other”.

50. The Appellant further submitted that it provided samples of the said products to the Pharmacy and Poisons Board (“PPB”), a body under the Ministry of Health responsible for analyzing such products prior to its first importation into Kenya.

51. That the PPB relied on the definition of “food supplement” as provided in the Pharmacy and Poisons Act Cap 244 to list the items as per their letter dated 9th September, 2015. That the Pharmacy and Poisons Act provides as follows:“Food/Dietary/Nutritional supplement or Nutraceuticals means a product other than tobacco, intended to supplement the diet and shall include all the following characteristics:a.Contains concentrated source of one or more of the following: vitamins, minerals, amino acids, essential oils, natural substances of plants or animal origin, enzymes, substances with nutritional or psychological functions or contains any combination of these;b.Is intended to be taken orally in the form of tablet, capsule, powder, soft gel, granules or liquids;c.Is not presented for use as a conventional food or as a sole item of a meal of the diet;d.Is labelled as a food supplement and has no medical claims on it”

52. That further, the Appellant submitted that in a letter dated 16th August, 2016, the PPB listed the said products as food supplements. That it was noteworthy that all this information was availed to the Respondent at the application for review stage.

53. The Appellant averred that the Seven Seas Cod Liver Oil products are imported and categorized as food supplements on the basis that scientific assessment provides that these products contain “vitamins” in the form of vitamin A, D, and E, as well as “natural substances of plants or animal origin” in the form of omega-3 fatty acids (EPA and DHA). That these substances have been scientifically proven to have “nutritional or psychological” functions in the body. That this is evidenced by the scientific assessment issued by the manufacturer and provided as part of the Appellant’s application for tariff ruling dated 12th October, 2016.

54. The Appellant further contended that it could not avail to the Respondent the products that had been discontinued since there were no samples for laboratory analysis as evidenced by the discontinuation letters from the manufacturers. However, notwithstanding the unavailability of the products, the Appellant relied on the tariff ruling dated 12th October, 2016 in its classification of the products.

55. Based on the foregoing, the Appellant submitted that its tariff classification of Seven Seas Cod Liver Oil Liquid of packages sizes 100ml, 170ml, and 450ml, the Seven Seas Once-a-Day Cod Liver Oil Capsules of package sizes 60 Capsules and 30 Capsules, the Seven Seas Joint Care Advanced Capsules of package size 30 Capsules and Seven Seas Once-a-Day Cod Liver Oil Capsules of package size 30 Capsules under HS code 2106. 90. 91 was merited in law.

56. Regarding penalties, the Appellant stated that the Respondent erred in law and in fact demanding penalties amounting to Kshs. 13,354,527. 00 based on an erroneous assessment. That the Respondent sought to subject the alleged unpaid customs duties and thereby demand to a tax shortfall penalty levied at the rate of 5%.

57. That in light of the detailed grounds of appeal above, the Appellant submitted that there was no tax shortfall due to the Respondent given that the products in question were correctly classified under the correct HS codes.

58. That further, in any case, the Appellant’s application for review automatically stood allowed in law thus the Respondent’s assessment dated 28th April, 2021 was erroneous, lacks any legal basis and is not due and payable. That the tax shortfall penalty of Kshs. 13,354,527 based on an erroneous demand of Kshs. 267,090,542 was erroneous and should be vacated in its entirety.

59. Regarding late payment interest, the Appellant submitted that it noted that the Respondent vide its assessment letter had sought to levy late payment interest at the rate of 2% on an erroneous assessment.

60. That Section 249 of the EACCMA provides as follows;“Where an amount of duty or other sum of money which is due under this Act remains unpaid after the date upon which it is payable, an interest of two per cent per month or part of the month, of the unpaid amount shall be charged.”

61. The Appellant submitted that Section 249 of the EACCMA envisions payment of interest where one fails to pay a tax by the due date. That a tax is only due if one has an obligation to pay the tax. The Appellant further submitted that the Respondent had erred in law and fact by imposing the late payment interest on a tax obligation that did not exist in the first place.

Appellant’s Prayers 62. The Appellant prays thata.The Appeal be allowedb.The Respondent’s decision dated 28th April, 2021 be set aside.c.The Appellant’s application for review dated 14th January, 2020 is allowed in law.d.The Respondent’s review decision dated 28th April 2021 be set aside.e.The Respondent’s assessment for additional duties amounting to Kshs 577,798,471 be set aside.f.The costs of and incidental to this Appeal be awarded to the Appellant.g.Any other orders that the Tax Appeals Tribunal may deem fit.

Respondent’s Case 63. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal:a.The Respondent’s Statement of Facts dated 5th June, 2021 and filed on 6th June, 2021 together with the documents attached thereto.b.The Respondent’s written submissions filed on 7th September, 2022.

64. The Respondent stated that it analyzed the Appellant’s imports through a field audit covering period January, 2016 to July 2019 pursuant to Sections 235 and 236 of the EACCMA. That during the review, it was discovered that the Appellant had classified its importations of dietary supplements under tariff headers 2106. 90. 91 and 1504. 10. 00 which attracts import duties at the rate of 0% and 10%, respectively.

65. That it applied the tariff for supplements as 2106. 90. 99 which attracts import duty at the rate of 25%. Consequently, a demand for taxes amounting to Kshs. 267,090,542 was served on the Appellant vide letter dated 17th December, 2019.

66. The Respondent averred that vide a letter dated 17th December, 2019 it requested the Appellant to account for exports which were lacking Certificate of Exports (COE) and unperfected entry failure to which an offence was to be raised against them.

67. In response to the Appellant’s contentions, the Respondent stated that an audit was carried out pursuant to Section 235 and 236 of EACCMA and it issued an audit finding and a demand letter for taxes on 19th December, 2019.

68. It averred that upon objection it requested further information from the taxpayer as provided for in Section 229(4) vide various email correspondences between 4th February, 2020 and 12th January, 2020 and a letter dated 19th February, 2020 requested for the following additional information:a.Samples of the products namely:i.Seven Seas Cod Liver Oil liquid 100ml, 170ml & 450mlii.Seven Seas High Strength Cod Liver Oil, 60 Capsules.iii.Seven Seas One-A-Day Cod Liver Oil capsules, 30/60 Capsules.b.The Respondent further requested the Appellant to respond on the query regarding entries without Certificate of Exports and unperfected entries, the Respondent having attached the list of the entries for the action of the Appellant.

69. That the Appellant vide letter dated 27th February, 2020 partly responded to the issues raised by the Respondent by providing the following samples;i.Seven Seas Cod Liver Oil liquid 100ml & 170ml.ii.Seven Seas Once-A-Day Cod Liver Oil capsules, 60 Capsules.

70. The Respondent further asserted that the Appellant did not provide part of the samples requested and failed to provide a response on the entries with no certificate of exports and an explanation on unperfected entries despite extension of time. Despite the Commissioner engaging the taxpayer and giving further extension to provide the information vide email correspondences dated 4th June, 2020, the Appellant did not provide the required information.

71. The Respondent submitted that the laboratory analysis of the products submitted which were communicated to the Appellant placed the samples in HS 2106. 90. 99 hence the Respondent as per law confirmed the taxes demanded consequently confirmed the taxes as per the laboratory results and upon the taxpayer failing to provide further information as provided for in Section 229 of EACCMA.

72. The Respondent further asserted that the Appellant had failed all necessary entries and declared the Seven seas products using an erroneous transaction value which they asserted themselves. The Respondent found that the values as declared by importers including the Appellant were too low and were not a true reflection of the prices charged by the manufacturer as compared to the previously used by the importer. The Respondent added that the Transaction Value applied was lawful and justified under Section 122(4) of EACCMA.

73. The Respondent submitted that the Commissioner issues private rulings as per the provisions of Section 248(A) of EACCMA and are only binding to the Commissioner for a period of one year. Further, that there was a disclaimer on the tariff rulings that the classification is based on the sample tested and material information and do not absolve the importer from any liability that may arise at the time of importation. Therefore, the private ruling issued by the Commissioner on 28th August, 2016 did not create a legitimate expectation on the Appellant.

74. The Respondent averred that it strictly adhered to the General Interpretative Rules (GIR) while classifying the goods. To support its arguments theRespondent cited Note 16 of WCO explanatory notes to the harmonized system.

75. The Respondent submitted that the laboratory results from the samples submitted indicated that the products contained Vitamin A, D, E and cod liver oil and omega 3 acid ethyl esters as the active ingredients.

76. The Respondent further asserted that Seven Seas Cod Liver Oil is specified to be a body supplement preparation containing Vitamin A (as retinyl palminate), Vitamin D (as cholecalciferol), Cod liver oil, fish oil, omega 3 nutrients, capsule shell and glycerol. Cod liver oil is obtained from the liver of codfish. It is one of the source of omega 3 fatty acids (EPA and DHA), and it contains high amounts of vitamin A and vitamin D. HS code 2106. 90. 91 food supplements covers preparations often referred to as food supplements based on extracts from plants, fruit concentrates, honey, fructose, etc. and containing added vitamins and sometimes minute quantities of iron compounds.

77. That moreover, the samples subjected to the laboratory tests contained cod liver oil and fish oil, which are animal extracts and not extracts from plants, and concentrates of honey. The samples were therefore correctly classifiable under HS code 2106,90,99.

78. The Respondent averred that it demanded penalty amounting to Kshs. 13,354,527. 00 on the short levied import duty and resultant VAT as per provisions of Section 135(2) of EACCMA, having subjected the product for laboratory analysis and determined that the same was properly classifiable under tariff heading 2106. 90. 99.

79. The Respondent insisted that the Appellant was uncooperative in the provision of records and failed to respond to request for documents hence the Respondent’s actions were necessary in order to harmonize the valuation of goods and do away with undervaluation that led to attracting lower duty than others even where the goods imported were identical or similar.

80. Further to that, the Respondent asserted that it demanded interest amounting to Kshs. 297,353,402. 00 on the short-levied import duty and resultant VAT as per the provisions of Section 249(1) of EACCMA, having subjected the product for laboratory analysis and determined that the same was properly classifiable under tariff heading 2106. 90. 99.

81. The Respondent further claimed that it was not restricted by law to accept the documents of the Appellant or any taxpayer as provided by Section 122(4) of the EACCMA. That it was allowed to depart from the transactional value method where there is doubt for which reason the EACCMA provides other valuation methods to be used where the Transaction Value Method fails. That guided by the law, it followed the method permissible in law and found that the value of the seven seas products as given by the Appellant was erroneous and the same changed an act which law allows for.

82. The Respondent asserted that the Appellant paid all its tax dues based on the correct transaction value and reiterated that it was correct under law.

83. That the Appellant was undeserving of the prayers sought due to the aforementioned reasons.

Respondent’s Prayers 84. The Respondent prays that the Tribunal considers the case and finds that:a.The Respondent’s transaction value applied be upheld.b.The confirmed transaction values were proper in law.c.The Appeal herein be dismissed with costs to the Respondent

Issues For Determination 85. Having considered the rival submissions of the parties, the Tribunal determined that there were two issues for determination namely;i.Whether the Appellant’s application for review was allowed by law.ii.Whether the Respondent erred in classifying the Appellant’s products under HS Code 2106. 90. 99.

Analysis And Findingsa.Whether the Appellant’s Application for review was allowed by law.

86. The Tribunal noted that the dispute arose from the Respondent’s classification of the Appellant’s seven Seas Cod Liver Oil products under HS code 2601. 90. 99 as opposed to HS code 2106. 90. 91 which the Appellant had used over time to declare the products for tax purposes.

87. The Respondent carried out Customs Post Clearance Audit (“PCA”) on the Appellant’s business operations between June 2015 to July 2019 and issued demand notice vide a letter dated 17th December, 2019 demanding additional duties of customs. The Appellant lodged an application for review vide a letter dated 14th January, 2020 pursuant to Section 229 of EACCMA.

88. It was the Appellant’s submission that having lodged its application for review on 14th January, 2020, the Respondent ought to have issued its decision within the statutory timeline of 30 days, i.e by 13th February, 2020 at the least.

89. That on the back of the Appellant’s application for review, the Respondent sent a request for samples through its letter dated 19th February, 2020, being 36 days after receipt of the Appellant’s application for review as indicated in the Respondent’s stamp receipts.

90. The Respondent on its part averred that upon objection it requested further information from the taxpayer as provided for in Section 229(4) of EACCMA vide various email correspondences between 4th February, 2020 and 12th January, 2020 and that a letter dated 19th February, 2020 requested for the following additional information;a.Samples of the products namely;i.Seven Seas Cod Liver Oil liquid 100ml, 170ml & 450mlii.Seven Seas High Strength Cod Liver Oil, 60 Capsules.iii.Seven Seas One-A-Day Cod Liver Oil capsules, 30/60 Capsules.b.The Respondent further requested the Appellant to respond on the query regarding entries without Certificate of Exports and unperfected entries, the Respondent having attached the list of the entries for the action of the Appellant.

91. Section 229(4) of the EACCMA provides as follows regarding timelines for issuance of review decision by the Respondent;“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.”

92. It was not in dispute that the Appellant lodged its application for review on 14th January, 2020. The Respondent therefore ought to have issued its review decision on or before 13th February, 2020 or in the event that it required additional information it ought to request for it within the 30 days.

93. The Tribunal perused through the documents submitted by the parties and noted that the Respondent vide a letter dated 19th February, 2020 requested the Appellant for samples of its products for laboratory analysis. This was 36 days subsequent to the Appellant’s application for review. Although the Respondent in its Statement of Facts alleged that it had requested further information from the taxpayer as provided for in Section 229(4) of EACCMA vide various email correspondences between 4th February, 2020 and 12th January, 2020, an assertion which the Appellant denies, no such emails were provided as evidence to the Tribunal.

94. Section 107 of the Evidence Act, Cap 80 of the Laws of Kenya provides as follows regarding proving existence of any fact;(1)Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist?(2)When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person.”

95. The Respondent therefore did not prove that there existed any correspondence between it and the Appellant subsequent to the application for review of 14th January, 2020 and prior to its letter to the Appellant of 19th February, 2020. Consequently, the Tribunal concluded that the Respondent wrote to the Appellant on 19th February, 2020 which was 36 days subsequent to the issuance of the application for review by the Appellant. This was six (6) days late.

96. Additionally, the Tribunal noted that in its demand letter dated 28th April 2021, the Respondent referred to Tariff Ruling Ref CUS/V&T/TARI/MEM/089/21 as being the basis of demanding the taxes assessed.

97. Section 229(5) of the EACCMA provides as follows regarding situations where the Commissioner has not communicated its review decision within 30 days of being served with the application for review by a taxpayer;“Where the Commissioner has not communicated his or her decision to the person lodging the application for review within the time specified in subsection (4) the Commissioner shall be deemed to have made a decision to allow the application”

98. The High Court in emphasizing the strict application of statutory timelines had this to say in Equity Group Holdings Limited vs. Commissioner of Domestic Taxes 2021 (eKLR):-“A statutory edict is not procedural technicality. It’s a law which must be complied with. Parliament in its wisdom expressly and in mandatory terms provided………”

99. The compliance with the statutory timelines in the issuance of a review decision is to that extent a fundamental and substantive statutory obligation on the part of the Respondent that cannot be whimsically termed as a “mere procedural technicality”. This was more aptly captured by the Court of Appeal in Nicholas Kiptoo Arap Korir Salat –Vs- Independent Electoral and Boundaries Commission & 6 Others(2013) eKLR when Justice Kiage stated as thus:-“I am not in the least persuaded that Article 159 of the Constitution and the oxygen principles which both command courts to seek to do substantial justice in an efficient, proportionate and cost-effective manner and to eschew defeatist technicalities were ever meant to aid in the overthrow or destruction of rules of procedure and to create an anarchical free-for-all in the administration of justice. This Court, indeed all courts, must never provide succour and cover to parties who exhibit scant respect for rules and timelines. Those rules and timelines serve to make the process of judicial adjudication and determination fair, just, certain and even-handed. Courts cannot aid in the bending or circumventing of rules and a shifting of goal posts for, while it may seem to aid one side, it unfairly harms the innocent party who strives to abide by the rules. I apprehend that it is in the even- handed and dispassionate application of rules that courts give assurance that there is clear method in the manner in which things are done so that outcomes can be anticipated with a measure of confidence, certainty and clarity where issues of rules and their application are concerned.”

100. The Respondent had stated in its submissions alluded to the same in its letter of 19th February, 2020 that during the intervening period between the date the Appellant lodged the application for review and the date when it requested for documents on 19th February, 2020 there were engagement between the parties through emails purportedly calculated to facilitate the Appellant on resolving the tax issues at hand. There was however no evidence adduced on the part of the Respondent to lend credence to such an engagement that would have otherwise had the effect of enlarging the time within which the Respondent would have ordinarily been enjoined to issue the review decision.

101. The consequences of the default on the part of the Respondent to timeously issue a review decision within the mandatory statutory timeline were well settled in the case of Republic –Vs- Commissioner of Customs Services ex-parte Uniliver Kenya Limited (2012) when the court stated as follows:-“The ex-parte applicant says that this tax cannot be paid since it is assumed that the respondent had allowed its application for review when it failed to make a decision within 30 days from the date of the application for review namely 8th March, 2011. The ex-parte applicant’s case is squarely premised on the interpretation of subsections 4 and 5 of Section 229 of EACCMA. For the purpose of this judgment, I find it necessary to reproduce the entire Section 229 EACCMA which states as follows:-………………….(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.My understanding of the above quoted section is that once a taxpayer lodges an application for review, the Commissioner of Customs who is the respondent in this case has 30 days within which to make and communicate a decision to the taxpayer. If the respondent does not communicate a decision within 30 days, then the respondent “shall be deemed to have made a decision to allow the application.” The law is so clear that it can only be interpreted in one way.”

102. Accordingly, the Tribunal finds that the Appellant’s application for review dated 14th January, 2020 was allowed by operation of the law.

103. Having entered the above finding, the Tribunal did not delve on the second issue for determination namely; Whether the Respondent erred in classifying the Appellant’s products under HS Code 2601. 90. 99 as it had been rendered moot

Final Decision 104. The upshot of the foregoing analysis is that the Appeal is merited and the Orders that recommend themselves are as follows;a.The Appeal be and is hereby allowed.b.The Respondent’s review decision dated 28th April, 2021 be and is hereby set aside.c.The Tariff Ruling Ref CUS/V&T/TARI/MEM/089/21 be and is hereby revoked.d.Each party to bear its own costs.

105. It is so ordered

DATED AND DELIVERED AT NAIROBI THIS 17TH DAY OF MARCH, 2023. ....................ERIC N. WAFULACHAIRMAN.....................CYNTHIA B. MAYAKAMEMBER.....................GRACE MUKUHAMEMBER.....................ABRAHAM KIPROTICHMEMBER.....................JEPHTATH NJAGIMEMBER