[2023] KETAT 888 (KLR)

Jubilee Jumbo Hardware Ltd v Commissioner of Customs and Border Control (Tax Appeal 1565 of 2022) [2023] KETAT 888 (KLR) (20 December 2023) (Judgment)

Neutral citation: [2023] KETAT 888 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1565 of 2022

E.N Wafula, Chair, D.K Ngala, CA Muga, GA Kashindi, SS Ololchike & AM Diriye, Members

December 20, 2023

Between

Jubilee Jumbo Hardware Ltd

Appellant

and

Commissioner Of Customs And Border Control

Respondent

(Appeal against the Respondent's review decision dated 8th November 2022)

Judgment

Background 1. The Appellant is a limited liability company duly incorporated in Kenya under the Companies Act. Its principal activity is the importation of steel rods.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 of the laws of Kenya. Under Section 5(1) of the Act, the Respondent is an agency of the Government for the collection and receipt of all tax revenue. Further under Section 5(2) of the Act, with respect to the performance of its functions under subsection (1), it is mandated to administer and enforce all provisions of the written laws as set out in Part 1 &2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Respondent conducted a field audit of the Appellant’s imports covering the period 2017 to 2022. The review established that the Appellant had classified its importation under Entry Number 2018MSA7000439 and 2018MSA7002695 of plywood and hot rolled steel coils under HS Codes 4412. 33. 00 and HS Code 7208. 10. 00, respectively.

4. Further to the review the Respondent established that the Appellant had 5 declarations for the period May 2017 to October 2019 out of which only one declaration had been assessed for clearance. The 4 declarations were therefore assessed for extra taxes.

5. Vide a letter dated 29th July, 2022, the Respondent issued additional import duty and VAT assessments for Kshs 101, 225, 395. 00 being Kshs 53,311, 200. 00 from tariff misclassifications and Kshs 47,914,194. 00 from undervalue of imported goods within the audit period.

6. The Appellant applied for a review of the demand vide its letter dated 13th October, 2022 stating that the said imports under the said tariff classification had been pre-approved by the Respondent.

7. The Respondent reviewed the Appellant’s application and vide its letter dated 8th November, 2022 confirmed the tax demand for Kshs. 101,225,395. 00.

8. Aggrieved by the Respondent’s decision, the Appellant filed its Notice of Appeal dated 8th December, 2022 on 22nd December, 2022.

The Appeal 9. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated 8th December, 2022 and filed on 22nd December, 2022:a.That since the Respondent’s assessments commence from period January 2017 to March 2021 and being raised by the Respondent in May 2021 and July 2022, the Respondent erred in law and fact in accessing and demanding taxes beyond five-year rule contrary to Section 235 of East African Community Customs Management Act, 2004 [hereinafter ‘EACCMA’] yet the Appellant was not in possession of the documents due to effluxion of time.b.That the Respondent erred in law and fact in demanding the Appellant to produce documents beyond five years yet Section 13 of EACCMA only requires the tax payer to retain documents for five years only.c.That since May,2022 and July 2022, the Respondent relied on supplier ledgers for years 2017, 2018, 2019, 2022 and 2021, the Respondent erred in law and fact in finding that there was undervaluation amounting to Kshs 47,914,195. 00 yet the Respondent unlawfully took into account ledgers from suppliers that are beyond five-year rule contrary to Section 235 of EACCMA yet the Appellant was not in possession of some of the documents due to effluxion of time.d.That the Respondent failed to demonstrate in its assessment a list of all entries purported to be undervalued as per provisions of EACCMA and thus the amount purported relates to excel workings that are projections and estimates. The Respondent goes ahead to indicate that the difference may relate to timing difference between payments and actual purchases and thus not an undervaluation as envisaged in the EACCMA.e.That whereas the goods were liable to import duty ad valorem under Section 122 of EACCMA as read together with the Fourth Schedule, and whereas the Appellant provided all invoices in its possession showing price actually paid for the goods, the Respondent unlawfully resorted to using supplier ledgers for the years 2017, 2018, 2019, 2022 and 2021 and in doing so, ended up relying on ledgers from suppliers that are beyond five year rule contrary to Section 235 of EACCMA.f.That whereas the Respondent purports to have carried out comprehensive audit, the Respondent is not sure of the source of alleged undervaluation and guessingly states and speculates that “it is possible that some payments made in a given financial year could be for goods received in the preceding financial year”. But which years are these?g.That since the Respondent unlawfully took into account supplier ledgers for the years 2017, 2018, 2019, 2022 and 2021 yet some of the documents relied upon are beyond five year rule contrary to Section 235 of EACCMA and bearing in mind that the Respondent is speculating that “it is possible that some payments made in a given financial year could be for goods received in the preceding financial year,” it is obvious and beyond reasonable doubt that the alleged “undervaluation may be any other figure but cannot be Kshs 47,914,195. 00 as the Respondent alleged.h.That the Respondent assessed and claimed documents and additional taxes concerning five (5) import entry no. 6485781 wherein the imported goods were:i.Hot rolled steel in coil size 1. 00m x1219mm x c SPHT-1Bii.Hot rolled steel in coil size 135 mm x 12. 19 mm x c SPHT -1Biii.Hot rolled steel in coil size 1. 15mm x 1219 mm x CSHPHT-1Biv.Hot rolled steel in coil size1. 85 mm x 1219 mm x SPHT- Bv.Hot rolled steel in coil size 2. 80 mm x 1219 MMXC SPHT-1Bi.Which were imported on 26th May, 2017 and as such, the Respondent erred in law and fact in assessing, demanding production of documents and demanding taxes beyond five-year rule contrary to Section 235 of EACCMA yet the Appellant was not in possession of the documents due to effluxion of time.j.That the Respondent erred in law and fact by using wrong CIF value for two imports under entry No. MSA6894488 and by referring to wrong dates, therefore, the Respondent’s tax demand is fatally inaccurate and the Respondent’s tax assessments are based upon wrong documents.k.That the Respondent erred in law and fact by using wrong CIF value for five imports under Entry No. MSA6893044 and by referring to wrong dates, therefore, the Respondent’s tax demand is fatally inaccurate and the Respondent tax assessments are based upon wrong documents.l.That whereas the Respondent clearly states in its audit reports dated 23rd May 2022, 29th July 2022 and the review decision dated 8th November 2022 that , “the audit review focussed on hot rolled steel coils SPHTI-1B of width 1219mm consignments imported by yourselves and certificates issued by Rizhao steel based in China and manufactured under standard JISG 3132”, the Respondent in its audit dated 29th July 2022 sneaked in consignments imported and certificates issued by Rizhao steel under standard JISG 3101 in their working schedule leading to inflated tax demands.m.That whereas the Respondent stated in its audit reports dated 23rd May 2022,29th July,2022 and the review decision dated 8th November 2022 that “the audit review focussed on hot rolled steel coils SPHTI-1B of width 1219mm consignments imported by yourselves and certificates issued by Rizhao steel based in China and manufactured under standard JISG 3132”, the Respondent in its audit letter dated 29th July, 2022 sneaked in consignments imported under Entry No.7353003 from Ferlink Sal (Offshore) Allenby Street No.1 Bldg 8th Flr Beirut Central Dt Beirut, Lebanon which inflates the tax demand in the Objection decision, therefore the Appellant was not given a fair hearing.n.That the Respondent erred in law and fact failing to issue objection decision within 30days contrary to Section 229 (4) of EACCMA when the Respondent through a letter dated 19th September 2018 assessed the Appellant for consignment 2018 MSA7002695 and the Appellant objected to the said assessment vide a letter dated 21st September 2018. o.That the Respondent erred in law and in fact by issuing two comprehensive audit reports, the first one is dated 23rd May, 2022 and the second one is dated 29th July 2022 and the Respondent has not cancelled or recalled any of them prejudicing the Appellant as there is a confusion as to which assessment is applicable hence the Appellant was unable to file a proper notice of objection neither is the Appellant able to argue its case at this Appeal since the applicable audit report is unclear.p.That the Respondent erred in law and fact by subjecting goods that were imported in 2018 and 2019 to regulations that were passed in 2020, 2021 and 2022 contrary to doctrine of non-retroactivity of laws.q.That whereas Section 38(2) of EACCMA allows the owner to deposit in addition to the amount estimated as the duty for the purpose of making such provisional entry, the Respondent erred in law and fact in concluding that the Appellant paid additional taxes without protest yet the Appellant paid the amount to allow the goods to be released.r.That the Respondent erred in law and fact by finding that the consignment under Entry Number 2018MSA700439 was wrongfully classified yet the Appellant relied upon the original invoices from the manufacturer to arrive at the classification.s.That the Respondent erred in law and fact in failing to deduct from the taxes demanded, the tax already paid.t.That the totality of the above confirms that the Respondent’s review decision dated 8th November, 2022 is fatally defective, with opaque tax figures therefore, null and void.u.That the totality of the above confirms that the Respondent’s review decision dated 8th November 2022 is fatally defective, null and void and the Tribunal should find and hold as such.

The Appellant’s Case 10. The Appellant argued its case through its Statement of Facts dated 8th December, 2022 and filed on 22nd December, 2022:

11. It stated that the Respondent issued two letters after its comprehensive audit findings. The said letters were dated 23rd May, 2022 and 29th July 2022. It stated further that the Respondent failed to withdraw the first letter before issuing the second which it ought to have done.

12. It argued that the contents and taxes demanded in the two letters dated 23rd May 2022 and 29th July,2022 were different hence it is not clear as to which audit finding is enforceable. As such it feels prejudiced as it was not aware of what to defend against and to what extent.

13. The Appellant contended that in the two letters stated above, the Respondent assessed for tax from January 2017 to March 2021 and demanded documents contrary to Section 13 of EACCMA which requires the taxpayer to retain documents for five years only yet the Respondent is demanding taxes from the year 2017 to 2022 which is unlawful.

14. The Appellant asserted that in relying on suppliers’ ledgers for the years 2017, 2018, 2019, 2022 and 2021 the Respondent erred in law and fact in finding that there was an undervaluation of Kshs 47,914, 195. 00 as the period was beyond the five-year rule as stipulated in Section 235 of EACCMA. It was therefore not in possession of some of the documents due to effluxion of time. It asserted further that whereas it provided all invoices in its possession showing price actually paid for the goods, the Respondent action in resorting to using supplier ledgers for the period stated above was unlawful.

15. The Appellant argued that the Respondent acted speculatively and guessingly in its purported comprehensive audit when it stated that, “it is possible that some payments made in a given financial year could be for goods received in the preceding financial year.” It argued further that what was obvious and beyond reasonable doubt that the alleged undervaluation may be any other figure but cannot be Kshs. 47, 914, 195. 00 hence the Respondent failed in its statutory mandate of demanding accurate payable tax, although in this case there was no undervaluation.

16. It was the Appellant’s contention that the Respondent’s assessment of five (5) imports under Import Entry No. 6485781 was defective in law as these imports were done on 26th May, 2017, hence it was not in possession of the documents due to effluxion of time. It therefore faulted the Respondent’s reliance on statute time barred documents that were not in its possession.

17. The Appellant contended that the Respondent’s use of wrong CIF value for two imports under Entry No. MSA6894488 and by referring to wrong dates was erroneous. It argued further that the same error of using wrong CIF value and wrong dates was also applied to the five imports under Entry No. MSA6893044. This therefore rendered the Respondent’s demand fatally inaccurate hence the tax demand was null and void.

18. The Appellant asserted that the Respondent erred by sneaking in consignments imported and certificates issued by Rizhao Steel under standard JISG3101 and consignments imported under Entry No.7353003 standard JISG 3132 from Ferlink Sal. This had the effect of inflating the tax demand therefore these claims should be expunged from the review decision.

19. The Appellant stated that in issuing its review decision on 8th November, 2022 the Respondent acted contrary to Section 229(4) of EACCMA as the Appellant responded to the Respondent’s letter of 19th September, 2018 on 21st September, 2018.

20. It was the Appellant’s assertion that a perusal of the Respondent’s review decision clearly indicated that the Respondent erred by subjecting goods that were imported in 2018 and 2019 to Regulations that were passed in 2020, 2021 and 2022 which is contrary to the doctrine of non-retroactivity of laws therefore rendering the Respondent’s tax decision as unlawful, null and void.

21. The Appellant averred that whereas Section 38(2) of EACCMA allows the owner to deposit, in addition to the amount estimated as the duty for purposes of making such provisional entry, it faulted the Respondent’s conclusion that the Appellant paid additional taxes without protest, yet it paid the amount to allow the goods to be released.

22. The Appellant faulted the Respondent in its finding that the consignment under Entry number 2018MSA7000439 was wrongly classified yet the Appellant had relied upon the original invoices from the manufacturer to arrive at the classification and that it had availed all original copies of the documents to the Respondent.

23. The Appellant stated that it paid taxes as and when they fell due which the Respondent acknowledged that it “paid taxes without protest.” It therefore follows automatically that all the taxes already paid under protest should be carried forward as a refund to be utilized for future taxes.

24. The Appellant faulted the Respondent for ignoring various documents including working ledgers which indicated the Appellant’s workings and the amount of taxes paid. Further that the Respondent also ignored and failed to analyse bank statements which clearly show that taxes were paid to the Respondent.

25. It was the Appellant s averment that it had legitimate expectation that once goods had been inspected by the Respondent using the systems and offices it put in place, the Appellant expected to have smooth commercial transactions. It argued that the goods were inspected by the Respondent’s agents and various certificates of conformity issued which created legitimate expectation.

26. Considering the totality of the above facts and provisions of law, the Appellant averred that the Respondent‘s review decision dated 8th November, 2022 was fatally defective, null and void.

27. The Appellant therefore prayed that the review decision dated 8th November 2022 be nullified and the Appeal be allowed.

Respondent’s Case 28. The Respondent addressed the Appellant’s grounds of Appeal through its Statement of Facts dated 23rd January 2023 and filed on 24th January 2023.

29. The Respondent asserted that an audit was carried out pursuant to Sections 235 and 236 of EACCMA. It asserted further that the assessments were correctly issued and conformed to the law.

30. The Respondent argued that the Appellant did not provide evidence that would have altered the tax assessment based on the transaction value method used and that the law places the onus of proof in tax objections on the taxpayer.

31. The Respondent stated that the Appellant in this case failed to avail evidence that would support a contrary assessment or that would have guided the Respondent at arriving to a different transaction value.

32. The Respondent stated that the Appellant had filed all necessary entries and declared the plywood and hot rolled steel coils using an erroneous transaction value which it had assessed itself. The Respondent stated that these values as declared by Appellant were too low and were not a true reflection of the correct transaction value for the imports.

33. The Respondent argued that the transaction value applied was lawful and justified under Section 122(4) of the East Africa Community Customs Management Act (EACCMA).

34. The Respondent asserted that Section 135 of EACCMA allows the Respondent to audit 5 years retrospectively. It argued that the Section 135 of EACCMA is also backed by the World Trade Organization, Trade Facilitating Agreement and Article 7 on Post Clearance Audit.

35. The Respondent stated that the five years under review were 2017, 2018, 2019, 2020 and 2021 and that the Appellant did not pay the additional taxes under protest.

36. The Respondent asserted that the analysis of the products submitted were communicated to the Appellant which places the samples in HS 7225. 90. 00 and 4412. 33. 00. Consequently, it confirmed the taxes when the Appellant failed to provide further information as provided for under Section 229 of EACCMA.

37. The Respondent submitted that the Transactional Value Method as proposed by the Appellant was not justified as there were no documents availed to back up the Appellant’s position.

38. The Respondent averred that there were also discrepancies of the value declared by the Appellant and values as changed by the Respondent. It stated therefore that it was unconvinced by the documents produced by the Appellant forcing it to change the valuation method as it is empowered by law to do so where a taxpayer had under declared its imports.

39. The Respondent reiterated that the Appellant was uncooperative in the provision of records and failed to respond to requests for documents hence the Respondent’s actions were necessary in order to harmonize the valuation of goods and do away with undervaluation. That this is because it leads to certain importers attracting lower duty than others even where the goods imported were identical or similar.

40. The Respondent argued that it is not restricted by law to accept the documents of the Appellant as provided by Section 122(4) of EACCMA. However, it is allowed to depart from the transactional value method where there is doubt as EACCMA provides other valuation methods to be used where the transactional value method fails.

41. The Respondent asserted that it was keen to ensure that imports were valued correctly and at a more standard rate where necessary. It argued therefore that the demanded penalty amount on the short-levied import and resultant VAT was proper as per the provisions of Section 135(2) of EACCMA having subjected the products to laboratory analysis and determined that the same was properly classified under tariff Heading HS 7225. 99. 00 and 4412. 33. 00.

42. The Respondent reiterated that the Appellant was uncooperative in the provision of records and failed to respond to requests of documents hence its actions were necessary in order to harmonize the valuation of goods. Further, that it is allowed to depart from the transactional value method where there is doubt.

43. The Respondent stated that the Appellant paid all its tax dues based on the correct transaction value and reiterated that it was correct under the law. It therefore averred that the Appellant was underserving of the prayers sought due to the aforesaid reasons.

Respondent’s Prayers 44. The Respondent prayed that this Tribunal considers the case and finds:-a.That the Respondent’s transaction value applied be upheld.b.That the confirmed transaction values were proper in law.c.That the Appeal herein be dismissed with costs to the Respondent.

Parties Submissions 45. In its Written Submissions dated 16th May 2023 and filed on 22nd May 2023, the Appellant raised four issues falling for its determination:-

Whether the Respondent’s assessments for year 2017 as raised by the Respondent in May 2021 and July 2022 are statute time barred 46. The Appellant submitted that the audit findings dated 29th July 2022 were unlawful, illegal therefore null and void for being statute time barred. It submitted that the Respondent demanded production of documents and payment of taxes from the Appellant from the year 2017 which is beyond five-year rule contrary to Section 235(1) of EACCMA. It asserted that the amendment of Section 234 by inserting a new Section 234 1A required the taxpayer to retain documents for five years only yet the Respondent in this case demanded taxes for the year 2017 in July 2022.

47. The Appellant submitted that the Respondent kept unlawfully claiming that the Appellant had failed to avail the documents in support of the application for review yet the 2017 tax assessments are statutory time barred and cannot form part of the assessments whether the tariff classifications is right or wrong.

In light of the assessment dated 19th September 2018, whether the Respondent’s Review Decision dated 8th November, 2022 is statutory time barred. 48. The Appellant submitted that the Respondent failed to issue its review decision within 30 days as provided for under Section 229(1) of EACCMA for the assessment dated 19th September 2018 affecting consignment number 2018MSA70002095. The Appellant argued that it objected to this assessment on 21st September, 2018 and that the Respondent had no right to include this consignment into the assessments dated 23rd May 2022 and audit findings dated 29th July 2022. It argued further that by including this assessment in its review decision of 8th November 2022 the Respondent erred considering the Appellant had paid Kshs 17,822. 982. 00 concerning the said consignment yet the Respondent did not issue a review decision thereon until 8th November,2022.

49. The Appellant submitted that the tax assessment for the year 2017 is time barred and that the Respondent’s claim for tax from 2017 to 2021 for Kshs 25,839097. 00 is ambiguous since the 2017 taxes cannot be severed from other years making the entire tax decision null and void.

50. The Appellant relied on the case of Republic of Kenya vs Kenya Revenue Authority Ex Parte M-Kopa Kenya Ltd (2018) eKLR which addressed the consequences of not adhering to statutory timelines where the Court observed at Para 106 as follows:-“In my view since there is no format for making an objection, what is required is the substance rather than the form. What the law frowns at is an objection that is framed in such an ambiguous manner as not to be certain whether the tax payer is seeking further particulars or indulgence to enable it pay the taxes demanded. In this case the applicant had clearly made what was in substance an objection as envisioned under section 51 of the Tax Procedures ACT, 2015. Accordingly, the Respondent was required to make a decision in respect thereof within sixty(60) days under section 51(II) of the said Act. As the Respondent defaulted in making a termination thereon within the prescribed time, the said objection was deemed to have been allowed.”

Whether there was Tariff Misclassification concerning ply wood and steel coils to justify tax demand of Kshs 25,839,097. 00. 51. On this issue, the Appellant submitted that the Respondent had no right to claim tax amounting to Kshs 25,839,097. 00 as it had not specified the exact tax for the year 2017 that it alleged was outstanding. This is because the demanded amount covers alleged taxes from the year January 2017 to March 2021 making this demand unlawful and illegal. It therefore argued that whether the classification was right or wrong, the Respondent ought to have expunged the 2017 assessments from the Respondent’s final review decision dated 8th November.2022 because these assessments were time barred.

52. The Appellant submitted that the Respondent never served the Appellant with the laboratory tests results, the basis for which it claimed the Appellant imported steel alloys hence reclassifying the Appellant’s imports under HS subheading 7225. 99 instead of HS Heading 7208. The Appellant submitted further that it was denied the opportunity to cross examine and examine the laboratory tests results and doubts if indeed the Respondent carried out any tests.

53. The Appellant submitted that the Respondent has a legal burden to prove it conducted the laboratory tests upon the imported consignment. It relied on Section 107 of the Evidence Act to support its argument. That the said Section provides that:-“(i)Whoever desires any court to give judgement as to any legal right or liability dependent on the existence of facts which the he asserts must prove that those facts exist.ii.When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person.”

54. It was the Appellant’s submission that whereas in its audit reports dated 23rd May 2022 and 29th July 2022 the Respondent had focused its review on the imports manufactured under standard JISG3132, it sneaked in consignments imported and certificates issued by Rizhao steel under standard JISG3101 in its working schedule leading to inflated tax demands. It therefore submitted that these should be expunged from the review decision dated 8th November 2022.

55. The Appellant submitted that it paid all its taxes, a factor that was also acknowledged by the Respondent at paragraph 28 of its Statement of Facts. Further that it paid Kshs 17,822,982 for the year 2018 under protest which the Respondent also acknowledged. The Respondent therefore ought to have subtracted this amount from the Kshs 25,839,097. 00 to arrive at a balance of Kshs 8,016,155. 00.

Whether the Appellant paid taxes in full 56. The Appellant reiterated its assertion that it paid all its taxes and that the taxes so paid were not deducted from the sum demanded by the Respondent which fact the Respondent has not denied. It submitted therefore that the Respondent is subjecting it to double taxation and prays that all the taxes already paid under protest should be carried forward as a refund to be utilized for future taxes.

57. The Respondent’s Written Submission dated 23rd May, 2023 and filed on 25th May, 2023 raised one issue for determination:

Whether the Respondent wrongfully interpreted and appointed the description of HS Code 4412. 33. 00 and 7225. 99. 00 on the Appellant’s assessed products. 58. The Respondent submitted that the Appellant did not provide any evidence that would have altered the tax assessment based on the HS Code used. Further that the law places the onus of proof in tax objections on the taxpayer who in this case failed to avail evidence that would support a contrary assessment or that would have guided the Respondent at arriving to a different HS Code.

59. The Respondent asserted that it carried out the audit pursuant to Section 235 and 236 of EACCMA and that the HS Code proposed by the Appellant was not justified as there were no documents given to back up its position. It asserted further that there were discrepancies of HS Code declared by the Appellant and was unconvinced by the documents produced by the Appellant forcing it to change the HS Code. It averred that the Appellant failed to avail all the documents required to proof its position in order to result into a different tax decision and that Section 153 of EACCMA empowers it to bring to charge taxes where a short levy is established.

60. The Respondent relied on the case of Kudheiha Vs Kenya Revenue Authority and Others (2014) eKLR where Court stated that:-“Article 209 of the constitution empowers the national government to impose taxes and charges. Such taxes include income tax, value added tax, customs duties and other duties on import and export of goods and excise tax the manner in which the tax is defined, administered and collected is a matter for parliament to define and it is not for the court to interfere merely because the legislative would have adopted a better or different definition of the tax or provided an alternative method of administration or collection. Under article 209 of the constitution, the legislative retains wide authority to define the scope of the tax.”

61. The Respondent relied on the TAT Appeal No.111 of 2017-Digital Box Limited vs Commissioner of Investigations and Enforcement which stated that the Tax Procedures Act in granting the Respondent’s powers to assess taxpayers does not specify the methods that may be used, instead the law provides that the best judgement must be exercised. It asserted that it is not restricted by law to accept documents of the Appellant or any taxpayer. It argued further that it is allowed to depart from the HS Code where there is doubt for which reason the EACCMA provides the HS Code to be applied for the particular goods.

62. The Respondent relied on the following other cases to buttress its case”a.Kenya Revenue Authority vs Man diesel & Turbo Se, Kenya (2021) eKLRb.Cape Brandy Syndicate vs Inland Revenue Commissioner (1921) IKB 64.

Issues For Determination 63. The Tribunal has reviewed the parties’ pleadings, documentation availed and submissions and is of the considered view that this Appeal crystalizes into two issues for its determination.i.Whether the Assessment covering the year 2017 is statute barred.ii.Whether the Respondent’s Demand for additional tax was justified.

Analysis And Findings 64. Having established the said issues for determination, the Tribunal will proceed to analyse them as hereinunder.

Whether the Assessment covering the year 2017 is statute barred 65. The Appellant had raised this issue in its Written Submissions. It had argued that the Respondent issued two assessments, one on 23th May 2022 and another on 29th July 2022 without withdrawing the first letter and that it was not able to avail some documents as the demand for the documents was beyond the five-year rule contrary to Section 235(1) of EACCMA. The Respondent on its part had defended its action by also relying on Sections 235 and 236 of EACCMA stating that it is empowered by law as stipulated in the above cited Sections of EACCMA. Further that the five-year period under review was 2017, 2018, 2019, 2020 and 2021.

66. Section 235(1) of EACCMA is instructive on the timelines within which to carry out an assessment and the production of relevant documentation. It provides as follows:-“The proper officer may, within five years of the date of importation, exportation or transfer or manufacture of any goods, require he owner of the goods or any person who is in possession of any documents relating to the goods –a.To produce all books, records and documents relating in any way to the goods and;b.To answer any question in relation to the goods; and;c.To make a declaration with respect to the weight, number, measure, strength, value, cost, selling price, origin, destination or place of transhipment of the goods as per the proper officer may deem fit.”

67. The Tribunal notes that contrary to the Appellant’s assertion the letter of 23rd May, 2022 was not an assessment as clarified in the Respondent’s letter dated 29th July 2022 and in fact, the Appellant’s objection of 11th October 2022 related to the assessment of 29th July 2022 which culminated to the review decision dated 8th November 2022. In the said assessment letter of 29th July 2022, the Respondent indicated the review period as covering January 2017 to March 2021 which is the period of importation of the said goods. It is the Tribunal’s considered view that the period under review ought to have commenced on 29th July 2017.

68. In view of the foregoing, the Tribunal finds that the period prior to 29th July 2017 is statute barred.

Whether the Respondent’s demand for additional tax was justified. 69. The Appellant faulted the Respondent for raising additional taxes which it averred were unlawful and illegal. One of the reasons it fronted was the fact that it had paid all taxes due referring to the Respondent’s “admission” at paragraph 28 of its Statement of Facts. The Tribunal notes the admission by the Respondent that “it is possible that some payments made in a given financial year could be for goods received in proceeding financial year.”

70. The Appellant had also submitted that the Respondent had not availed the laboratory tests analysis which results it had relied on to reclassify the Appellant’s goods.

71. The Tribunal observes that even without the laboratory analysis report, the Appellant was unable to controvert some of the audit findings that had been established by the Respondent. In particular under Entry 2018MSA7000439, the Appellant had incorrectly classified the plywood as block boards despite the invoices from the supplier highlighting the correct classification.The Tribunal also notes that the boron content from the Mill Test Certificates availed indicated a boron content of above 0. 0008%. Note 1(f) to Chapter 72 of the EACCET states in part;“In this Chapter and in the case of Notes (d), (e) and (f) throughout the Nomenclature, the following expressions have the meanings thereby assigned to them”(f)Other alloy steelSteels not complying with the definition of stainless steel and containing by weight one or more of the following elements in the proportion shown: -c.0. 3% or more of aluminiumd.0. 0008% or more of boron”

72. As indicated above the availed Mill Test Certificates indicated that the boron content for all the importation were above the specified minimum of 0. 0008% which places its classification at HS Code 7225. 99. 00.

73. The Respondent’s review had also established that the Appellant had 5 declarations for the period May 2017 to October 2019 out of which only one declaration had been assessed before clearance, a fact the Appellant did not deny hence the assessment of the remaining 4 declarations for extra taxes following the proper re-classification of the Appellant’s imports.

74. The Appellant had submitted that it paid Kshs 17,822,982. 00 for the 2018 tax assessment which the Respondent acknowledged. However, it is not clear to the Tribunal whether this amount was ever adjusted when issuing the review decision.

75. The Tribunal notes that the Appellant had alleged that it did not possess some of the documents to support its case claiming that the Respondent’s assessment and claim for documentation was beyond the five-year rule contrary to Section 135 of EACCMA. However, from the analysis of the first issue for determination, the Tribunal has found that the assessment and request for documentation was within the statutory timelines save for the period January 2017 to 29th July 2017. The Appellant therefore ought to have discharged its burden of proof by availing the relevant documentation to support its case.

76. The Tribunal will rely on its holding in Afya- X-Ray Centre Vs Commissioner of Domestic Taxes (TAT No 70 of 2017) where it held as thus:-“From the foregoing chain of events it is our understanding that the Appellant failed in its duty in providing documents in order that a comprehensive analysis of its affairs is done. Accordingly, the Respondent can hardly be faulted for raising the assessment in accordance with the availed documents...”

77. In view of the foregoing, the Tribunal finds that the Respondent’s demand for additional taxes was justified save for the assessment that was time barred and accounting for taxes paid.

Final Decision 78. The upshot of the foregoing analysis is that the Appeal partially succeeds and the Tribunal accordingly proceeds to make the following final Orders;a.The Appeal partially succeeds.b.The review decision dated 8th November 2022 be and is hereby varied as follows;i.The Respondent to exclude any assessment for the period prior to 29th July 2017ii.The Respondent to consider and appropriately provide in any outstanding tax liability, the amount for a sum of Kshs 17,822,982. 00 paid on the part of the Appellant for the year 2018 and any other amount received on account of the Appellant, if not already factored in the amount demanded by the Respondent.c.Each party to bear its own costs.d.It is so ordered

DATED AND DELIVERED AT NAIROBI THIS 20TH DAY OF DECEMBER, 2023. ERIC NYONGESA WAFULA - CHAIRMANDELILAH K. NGALA - MEMBERCHRISTINE A. MUGA - MEMBERGEORGE KASHINDI - MEMBERSPENCER S. OLOLCHIKE - MEMBERMOHAMED A. DIRIYE - MEMBER