[2024] KETAT 1064 (KLR)

Insecretary Limited v Commissioner of Customs and Border Control (Miscellaneous Appeal E027 of 2024) [2024] KETAT 1064 (KLR) (5 July 2024) (Ruling)

Neutral citation: [2024] KETAT 1064 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Miscellaneous Appeal E027 of 2024

E.N Wafula, Chair, M Makau, E Ng'ang'a, AK Kiprotich & EN Njeru, Members

July 5, 2024

Between

The Insecretary Limited

Applicant

and

Commissioner of Customs and Border Control

Respondent

Ruling

1. The application which was by way of a Notice of Motion dated 3rd April 2024 and filed on 4th April 2024 was supported by an Affidavit sworn by the Respondent’s Director, Rosanne Wanjiku Mwangi, on the even date sought for the following Orders:-a.Spent.b.Spent.c.The Tribunal pronounces itself that pending the hearing and determination of the intended appeal, this Honourable Tribunal be pleased to stay any further intended action by the Respondent in the form of issuance of agency notices or any such related act towards the recovery of the taxes in dispute.d.This Honourable Tribunal be pleased to grant the Applicant leave to lodge an appeal against the Respondent’s decisions of 17th February 2023 and 17th August 2023 out of time.e.The costs of this application be provided for.

2. The application is premised on the following grounds:-a.That sometime in 2022, the Applicant imported into the Country 3 shipments of the product that is known as Entobel H-Meal, an animal feed ingredient (the product). The product is a novel and innovative feed ingredient that is among the very first in the industry within our Republic.b.That at the time the product was allowed/approved as a zero-rated product hence the Applicant did not have an obligation to pay import duty tax on the same.c.That the Applicant’s imported consignments of a similar product that arrived in early 2023 were retained when they came up for clearance and were taken for tariff classification. The Respondent refused to clear the same, indicating that it now wanted to re-classify the product with a view to changing its tax implication from zero-rated so that the Applicant would now be liable to pay certain taxes on the product.d.That vide a letter dated 17th February 2023 and received by the Applicant via email on 4th April 2023, the Respondent formally rendered a ruling on the classification of the product, determining in the process the tax implications of the said classification.e.That the said decision was made without any notice, without any prior indication, and without any change in the laws to justify the same.f.That desirous of having its product released so as to avoid its potential deterioration at the Port, the Applicant reluctantly paid the taxes demanded for the fourth consignment of the product that had initially been classified an zero-rated.g.That the Applicant then responded to the Respondent’s ruling vide a letter dated April 2023 disputing the said assessment and giving reasons thereto.h.That shockingly, the Respondent, having changed the tariff classification for the product, now sought to demand for taxes on the initial 3 shipments which had been approved as zero-rated at the time.i.That needless to say, the same was not only unlawful as no taxes can be demanded retroactively, it was irrational and done in bad faith.j.That meanwhile, the Applicant waited for the Respondent to reply to its letter of April 2023 but to date, no response has been forthcoming.k.That having declined, refused, and/or neglected to respond to the Applicant’s response of April 2023, the Respondent then assessed the Applicant’s tax liability vide a notice of assessment dated 17th August 2023 at Kshs. 1,107,872. 00. l.That the Applicant is aggrieved by the Respondent’s decisions and does not agree with the reasons advanced by the Respondent to warrant the ruling of February 2023 and assessment of August 2023 and thus wishes to appeal the said decision because the said taxes have not been previously made by the Respondent since the first three shipments of the subject product in the Country in 2022 clearly demonstrating that the Respondent has to adopt a flawed and strange interpretation of the existing tax or legislations in order to justify making the demands.m.That there has been no change in legislation to justify such demands being made by the Respondent clearly demonstrating that the Respondent is overstepping its mandate by attempting to legislate, a mandate reserved for Parliament only.n.That the fact of such demands never having been made before and the fact that there has been no change in legislation induced a reasonable legitimate expectation in the Applicant that such taxes would not be demanded by the Respondent without prior notice and explanation.o.That the Respondent’s Decision to suddenly make demands for taxes without any prior notice, and without any written explanation violates the Applicant’s rights to fair administrative action under Article 47 of the Constitution and Section 4 of the Fair Administrative Action Act, 2015. p.That due to the Respondent’s nonresponsiveness to the Applicant’s rebuttal of April 2023, the Applicant did not approach this Honourable Tribunal for redress hoping that the Respondent would in the meantime act on the Applicant’s response.q.That on 27th March 2024, the Applicant received a notification from its bank indicating that it had received an Agency Notice from the Respondent with a view of obtaining the assessed taxes.r.That the said Agency notice has prevented the Applicant from operating its business since as a small enterprise, they do not have alternative sources of funding to help run the business.s.That the Applicant is engaged in a new, novel and developing business venture and the actions of the Respondent threaten to not only derail the said development but also deny the Republic of Kenya a great opportunity to benefit in terms of job creation and collection of taxes once this novel area has been developed significantly.t.That the retroactive demand for taxes is unlawful and cannot be countenanced by this Honourable Tribunal.u.That while the Respondent is entitled to collect taxes as authorised by the law, the same cannot be done in a manner that is detrimental to the businesses that are supposed to provide an avenue for tax collection in the country.v.That it is further prudent that the issues in dispute between the Applicant and the Respondent be determined first by this Honourable Tribunal before the Respondent can move to recover the taxes it alleges are due.w.That in the event the Respondent is allowed to proceed with the Agency Notice issued prior to the determination of the application and the intended appeal, then the Applicant shall suffer irreparable harm that cannot be remedied by the Tax refund in the event of the appeal’s success as the business of the Applicant may have suffered significant operational lapses.x.That it is in the interest of justice that this Honourable Tribunal certifies the application as urgent and issues directions for its prompt hearing and disposal.

3. The Applicant in its written submissions dated 30th April, 2024 and filed on the even date raised the legal issues as hereunder.

a. On whether there is an appealable decision 4. The Applicant submitted that it was given leave to file a Further Affidavit adducing further documents after the Honourable Tribunal inquired on whether there was an appealable decision before it during the Mention of the application.

5. It cited Section 229 of the East African Community Customs Management Act and submitted that on 25th April 2023, it sought leave to amend its application with the Honourable Tribunal declining to grant the leave as while the Applicant sought to lift the Agency notice issued, it further sought leave to lodge an appeal out of time but the prayer seeking leave to file the appeal out of time had been erroneously made because the Applicant had erroneously indicated that it intended to appeal against, inter alia, the notice of assessment of 7th August 2023 in error.

6. It contended that it ought not have made a request for leave to appeal out of time as prayed in the application because legally its application for review was allowed and the only grievance was the Agency Notices given its averment that its application for review of the tariff classification dated 4th May 2023 was not responded to and also given the provisions of Section 229 (5) of the EACCMA, the lack of response from the Respondent is deemed to mean that the Respondent allowed the application.

7. It reiterated that on the morning of 25th April 2023, during the Mention of the instant application, the Respondent filed a Replying Affidavit wherein it surreptitiously attached a document dated 7th June 2023 which it deemed to be a response to the review application by the Applicant.

8. The Applicant maintained that the said letter was never served on it and this is the reason why it was under the impression that the Respondent had allowed its Application until it was served a Notice of Assessment dated 17th August 2023 then it instructed its agent to write to the Respondent which it did vide the letter dated 24th August 2023.

9. It asserted that it never received the purported response of 7th June 2023 otherwise it would have immediately lodged an appeal based on the said response.

10. It added that in any case, Section 229 of the EACCMA requires the Respondent to render a decision on an application for review within 30 days of receipt of the Application meaning the Respondent ought to have rendered a decision by 5th June 2023 which did not happen therefore the Respondent cannot be allowed to rely on the same as its decision on the review Application.

11. The Applicant disputed having been served the purported decision of 7th June 2023 but argued that it cannot challenge the fact that there was no service of the letter of 7th June 2023. It added that the said document was served to it on 25th April 2024 at 9:03 am at a time when the Tribunal’s session had commenced.

12. It reiterated that on 11th April 2024, the Honourable Tribunal directed the Respondent to file a response by 19th April 2024 but it filed its response 1 week out of time on the morning of the mention which was by design since the Respondent banked on the fact that the Applicant would not be in a position to challenge the document and true to the Respondent’s gamble, the Tribunal disallowed the filing of any subsequent documents and directed that parties file submissions.

13. It maintained that it was never served with the purported response of 7th June 2023 and in the event the Tribunal allows it, then the same would amount to the appealable decision envisaged in Section 230 of the EACCMA to which the Applicant would seek the Honourable Tribunal’s indulgence to appeal out of time on the basis that the same was never received in time and the Respondent has not demonstrated proof of service of the same.

b. On whether the intended appeal is meritorious and not frivolous 14. The Applicant submitted that its product first shipped into the Country in 2022 were the first of its kind in the Country and if there had been a prior shipment of the produce, there would have been a set tariff classification so that the Respondent would have immediately rejected its tariff declaration in 2022 by stating that the same was at variance with the already set tariff clause of the product. Therefore the shipment was groundbreaking.

15. It argued that even in its purported response of 7th June 2023, the Respondent barely dove into the substance of why the reclassification was proper. It added that the Respondent only stated “We retain our position due to its material composition.” Therefore the Respondent was being exposed to the product for the first time.

16. It contended that in its letter dated 4th May 2023, it stated that the product had just made its entry into the Kenyan Market therefore moving forward, the tariff classification issued by the Respondent vide its Ruling of 17th February 2023 will be applicable for the foreseeable future in the event this Honourable Tribunal disallows this application. It added that it would be prudent that the Tribunal pronounces itself on the rebuttal to the tariff ruling in order to provide a precedent so that the Respondent would be free to demand the 10% import duty on similar products until when the law is repealed or this Honourable Tribunal pronounces itself differently in a different matter before it.

17. It asserted that its agent in the letter dated 24th August 2023 which the Respondent acknowledged receipt of, laid out the reasons why the ruling was erroneous and invited the Respondent to constitute an Independent tariff classification team to revisit the matter in order to provide a basis for future use but the said request was not responded to by the Respondent who instead, vide an email dated 1st November 2023 insisted that the taxes remained payable.

18. It argued that despite demonstrating that the product is a premix used in the manufacture of animal feeds, the Respondent chose to classify the product under the very broad heading of “Other” without ever giving specific reasons why it thinks the product is not a premix in the manufacture of animal feeds.

19. It maintained that being a new product in the market, to disallow the application and deny the Tribunal an opportunity to pronounce itself on the technical rebuttal to the tariff classification would be to condemn the Applicant and future insect farmers to the prison of paying tax that should not be paid.

Response to the Application 20. The Respondent filed a Replying Affidavit sworn by Jane Karen Kigoro, an officer of the Respondent, on the 24th April 2024 and filed on 25th April 2024 citing the following as the grounds for opposition of the application:-a.That the Applicant imported a consignment for assorted animal feed supplements, described as Entobel H- Meal, and declared them under Heading 2309. 90. 10. b.That the Respondent carried out a verification exercise at the point of entry before clearance and it was established that the Applicant had instances of misdeclaration.c.That the Respondent tested a sample and found it to be a preparation of protein content of 50. 61%, suitable for use in animal feeds. Further, the H-Meal animal feed additive was said to be an insect-based protein source that is deemed an alternative to fishmeal in feeds. The correct classification of such full-feed supplements is tariff 2309. 90 90 which attracted import duty at the rate of 10%.d.That the findings of the Respondent were communicated to the Applicant’s appointed clearing agent.e.That the Respondent further sent the tariff classification to the Applicant through its Postal mail address P.O Box 22517-00100, Nairobi.f.That the Applicant did not object to the tariff classification issued by the Respondent.g.That the Respondent issued a demand on 4th April 2023 for short levied Import duty amounting to Kshs 888,145. 00. h.That on 4th May 2023, the Applicant wrote to the Respondent objecting against the classification rendered on 17th February 2023. i.That on 7th June 2023, the Respondent communicated to the Applicant indicating that the communication was made contrary to Section 229 of the EACCMA and it had failed to object within 30 days of the issuance of the Tariff Ruling.j.That on 17th August 2023, the Respondent proceeded with enforcement by issuing a Notice of Enforcement for outstanding taxes.k.That on 25th March 2024, the Respondent in pursuit of recovery of unpaid taxes issued Agency Notices.l.That on 2nd April 2024, upon receipt of the Agency Notice the Applicant wrote to the Respondent requesting to be allowed an extension of time to lodge an Objection out of time and renamed the Notice of Enforcement of outstanding tax dated 18th August 2023 as an assessment.m.That since the taxes owed by the Applicant is a debt due to the Government and ought to be paid, the Respondent therefore in line with its statutory mandate for collecting taxes sought to issue an Agency Notice to the Applicant’s bank under the provisions of Section 249 of the EACCMA.n.That the enforcement measures taken by the Respondent are necessary to ensure the Applicant complies with the Constitutional duty to pay taxes.o.That the Respondent has not faulted any procedure or acted contrary to the law. Due process has been followed by the Respondent in assessing, demanding, and enforcing the collection of taxes.p.That it is in the interest of the public for the Respondent to recover tax in order to finance the growth and development of the Nation which is a very important public duty and for which the public must have an immense interest.q.That the Applicant has not tendered any explanation why it seeks the discretion of the Tribunal to file an appeal out of time.r.That the instant application is misconceived as the Applicant has not demonstrated that it has met the provisions of Section 13(4) of the Tax Appeals Tribunal Act. The Applicant has therefore not demonstrated to the Tribunal why the orders sought should be granted.s.That the Applicant has not demonstrated why it deserves a favourable discretion of this Honourable Tribunal and the application should be dismissed with costs to the Respondent.

21. The Respondent in its written submissions dated 24th April, 2024 and filed on the 25th April, 2024 raised several legal issues as hereunder.

a. On whether the Respondent’s demand was justified in law 22. The Respondent relied on Sections 235 and 236 of the EACCMA and submitted that it is not bound by the Applicant’s returns information of self-assessment (which in this case were wrong) and it is empowered to vary the demand using any available information in its possession.

23. It relied on the case of Republic v Kenya Revenue Authority Ex Parte Cooper Brands K-Brands Limited [2016] eKLR and contended that the verification carried out on the Applicant’s consignment was well anchored in law and the resulting tariff classification of 17th February 2023 was proper.

24. It reiterated that despite being in receipt of the Tariff Ruling of 17th February 2023, the Applicant did not dispute it.

25. It relied on Section 229(1) of the EACCMA and argued that the Applicant ought to have lodged an Objection on or before 17th March 2024 but failed to dispute the tariff ruling by way of objection which is further demonstrated by the Applicant’s request to extend the time to lodge a late Objection.

26. It contended that the failure to lodge an objection entitles the Respondent to demand the taxes that arise from the change of classification and thus the demand of 4th April 2023 is valid and ought to be upheld as the Applicant was under-declaring the value of its products in order to evade payment of taxes.

b. On whether the Respondent was justified in issuing Agency Notices 27. The Respondent submitted that the taxes owed by the Applicant is a debt due to the Government and ought to be paid and therefore the Respondent in line with its statutory obligation of collecting taxes sought to issue an agency Notice to the Applicant’s bank according to the provisions of Section 249 of the EACCMA.

28. It reiterated that the enforcement measures it takes are necessary to ensure the Applicant complies with the Constitutional duty to pay taxes and that it has not flaunted any procedure or acted contrary to the law. It added that due process has been followed in assessing, demanding, and enforcing the collection of taxes from the Applicant.

29. It contended that from 4th April 2023, it communicated to the Applicant severally concerning the payment of taxes due and therefore its enforcement actions were not unreasonable.

b. On whether the Applicant has demonstrated that it is deserving of the orders sought. 30. The Respondent submitted that there is no appealable decision that has been presented by the Applicant or illustrated from the sequence of events and it would be improper to allow an extension of time to file an appeal against where there is no appealable decision.

31. It asserted that the extension of time to file an appeal is an exercise of judicial discretion and Section 13(4) of the Tax Appeals Tribunal Act requires the Applicant to provide a reasonable cause that may have prevented it from filing the Notice of Appeal or submitting the documents within the specified period.

32. It argued that no credible reason has been advanced by the Applicant to warrant an extension of time to file an appeal as provided at Section 13(4) of the Tax Appeals Tribunal Act.

Analysis and Findings 33. The Tribunal, guided by the principles set out in Wasike V Swala [1984] KLR 591, Joseph Ondiek Tumbo v Sony Sugar Co Ltd [2014] eKLR and Section 13 of the Tax Appeals Tribunal Act, 2013 used the following criteria to consider the application with regard to enlargement of time in filing a late appeal:-a.Whether the appeal is merited.b.Whether there will be prejudice suffered by the Respondent if the extension is grantedc.Whether the application for extension has been brought without undue delayd.Whether there is a reasonable cause for the delay

a. Whether the Appeal is merited 34. The Tribunal examined whether the actions complained of by the Applicant were merited and whether there was an arguable appeal to be filed before the Tribunal or the intended appeal was frivolous and would only result in a waste of the Tribunal’s time.

35. An appeal being merited does not mean that it should necessarily succeed rather it is arguable. The Tribunal in this regard was guided by the findings of the Court in Kenya Commercial Bank Limited Vs Nicholas Ombija (2009) eKLR where it was held that:-“an arguable appeal is not one which must necessarily succeed, but one which ought to be argued fully before the court.”

36. The Applicant seeks for leave to file an appeal as against what it indicates to be the Respondent’s decisions made on the 17th February, 2023 and 17th August, 2023.

37. The Tribunal notes that the Respondent issued a tariff classification ruling on the products imported by the Applicant. The Applicant vide its undated letter received by the Respondent’s officer by the name Ashley on the 4th May, 2023 indicated that it received the tariff classification ruling dated 17th February, 2023 in its email on the 4th April, 2023. The Applicant thereby proceeded to seek for a review of the tariff classification ruling.

38. The Respondent vide a letter dated 7th June, 2023 declined to consider the Applicant’s application for review encapsulated in the letter of 4th May, 2023 on the basis that the timelines for lodging a review application as against the tariff classification ruling of 17th February, 2023 had already been surpassed by the Applicant. The timelines for lodging a review application are provided for under Section 229 of the East Africa Community Customs Management Act, which permits the taxpayer a period of thirty (30) days from the date of receipt of such a tariff classification ruling to seek for a review of the ruling.

39. In the letter dated 7th June, 2023 the Respondent pointed out to the Applicant the provisions of Section 230 of the East Africa Community Customs Management Act as relates to filing of an appeal before the Tribunal against such a decision of the Respondent in disallowing the Applicant’s application for review of the tariff classification ruling.

40. The Tribunal notes that upon the Applicant’s default in lodging an appeal as against the Respondent’s decision issued on the 7th June, 2023 and upon the lapse of the forty five (45) days permissible for lodging such an appeal the Respondent vide a letter dated 17th August, 2023 initiated the process for the enforcement of the taxes payable on the part of the Applicant as a consequence of the tariff classification ruling.

41. It is manifestly clear that both the tariff classification ruling of 17th February, 2023 and the notice of enforcement of outstanding taxes vide a letter of 17th August, 2023 are not appealable decisions and cannot to that extent found a cause of action for any appeal process.

42. In the circumstances the Tribunal finds that the intended appeal on the part of the Applicant is a none-starter, without merit and completely unsustainable in law.

43. The Tribunal having made a finding to the effect that there is no appeal with merit capable of being filed by the Applicant as intended, the consideration of the other factors ordinarily determined in such an application has been rendered moot.

Disposition 44. The upshot to the foregoing analysis is that the application lacks merit and as such the Tribunal accordingly proceeds to make the following Orders:-a.The application be and is hereby dismissed;b.No orders as to costs

DATED AND DELIVERED AT NAIROBI THIS 5THDAY OF JULY, 2024ERIC NYONGESA WAFULACHAIRMANELISHAH N. NJERU MUTISO MAKAUMEMBER MEMBEREUNICE N. NG’ANG’A ABRAHAM K. KIPROTICH**MEMBER MEMBER*