[2024] KETAT 53 (KLR)

Kariuki v Commissioner of Customs & Border Control (Tax Appeal 691 of 2022) [2024] KETAT 53 (KLR) (26 January 2024) (Judgment)

Neutral citation: [2024] KETAT 53 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 691 of 2022

Grace Mukuha, Chair, G Ogaga, Jephthah Njagi & T Vikiru, Members

January 26, 2024

Between

George Njenga Kariuki

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

Background 1. The Appellant is a citizen of Kenya resident in the United Kingdom.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and KRA 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. Sometime in April 2022, the Appellant imported a Mercedes CLS 400 V6 Engine Petrol WDD2183612A157869, from the United Kingdom into the Republic of Kenya for private use.

4. The duty paid was tabulated and taxes paid amounting at Kshs. 2,320,446. 00 based on the Current Retail Selling Price (hereinafter CRSP) list used by the Respondent which list took effect on 7th July 2020.

5. Thereafter on 25th April 2022, the customs entry was submitted for verification by the Respondent and on the 26th of April 2022 referred to valuation in Mombasa and subsequently to the Respondent’s Headquarters in Nairobi.

6. On the 27th of April 2022, the Appellant was advised to pay an uplift amount of Kshs. 1,592,698. 00 making the total tax due of Kshs. 3,891,726. 00 based on a CRSP value of Kshs. 22,641,678. 00.

7. That based on the demand made, the Appellant lodged an appeal with the Respondent for its decision on 4th May 2022.

8. On 17th May 2022, the Appellant being apprehensive of loss and damage to the Motor Vehicle plus the accrual of demurrage wrote to the Respondent requesting for the release of the Motor vehicle on the security of a bank guarantee in favour of the Respondent for the difference in tax demanded versus total tax paid being the sum of Kshs. 1,592,698. 00

9. On 30th May 2022, the Respondent issued a response to the Appellant's application for review upholding the customs value of Kshs. 3,843,680. 00 and demanded an uplift of Kshs. 1,592,698. 00.

10. On 2nd June 2022 the Appellant being dissatisfied with the decision of the Respondent again requested a response to its request for the conditional release of the Motor vehicle based on a bank guarantee for the disputed uplift amount pending lodging of its appeal before the Tribunal.

11. The Appellant also requested for the rationale and basis upon which the Respondent arrived at the CRSP given and on 3rd June 2022 the Commissioner addressed the Appellants query as to the release of the motor vehicle on a guarantee and which request was unilaterally rejected.

12. That on even date, the Appellant did a further letter to the Respondent seeking a response to his other queries and thereafter filed the Appeal as per his Notice of Appeal filed on 30th June 2022.

The Appeal 13. The Appeal is premised on the Memorandum of Appeal dated and filed on 30th June 2022 setting out the following grounds as hereunder:i.The impugned decision is illegal, null and void for determination of duty payable based on the application of a Current Retail Sale Price,( hereinafter referred to as CRSP) not contained in its published list of CRSPs effective 7th July 2020. ii.The Respondent acted illegally and/or erred in law by:a.Failing to assign the Motor vehicle model a CRSP Value when producing their CRSP list that took effect on 7th July 2020. b.Contrary to Section 122 and the Fourth Schedule of the EACCMA 2004 giving the Appellant’s Motor Vehicle an excessive and unrealistic customs value;c.In breach of Section 49 of the Tax Procedures Act and Section 122 (2) EACCMA 2004, failing to give a written explanation and/or a statement of reasons as to how the customs value was arrived at;d.Contrary to Sections 122 (3) and Section 229 (6) both as read with Sections 106 and 107 of EACCMA 2004, rejecting the Appellant’s request for delivery of the motor vehicle on a bank guarantee for the uplift amount.e.The impugned decision violated the Appellant’s rights under Article 10(2) (a) of the Constitution of Kenya 2010, failing to engage in public participation in coming up with the CRSP value for the Appellant’s Motor Vehicle:f.Contrary to Article 10(2) of the Constitution of Kenya 2010, failing to act in a transparent and accountable manner by refusing to give information to the Appellant thus breaching his right to access to information. enshrined in Article 35. iii.Without prejudice to the above, the impugned tax decision is unlawful and unconscionable as it gives the Appellant’s motor vehicle a higher customs value than the top range motor vehicle in the same class and even a higher value than the flagship superior models of the same manufacturer.iv.The impugned tax decision is illegal, null and void in totality for breaching the provisions of the EACCMA 2004 Act and the rules of the World Trade Organization and Customs Cooperation Council.a.The impugned decision violated the Appellants rights under Article 10(2) (a) of the Constitution of Kenya 2010, failing to engage in public participation in coming up with the CRSP value for the Appellants motor vehicle;b.Contrary to Article 10(2) (c) of the Constitution of Kenya 2010, failing to act in a transparent and accountable manner by refusing to give information to the Appellant, thus breaching his right to access to information. enshrined in Articlev.The impugned decision violated the Appellant’s rights under Articles 27, 35, 40 and 47 of the Constitution of Kenya.vi.The Respondent in so acting violated the Appellant’s legitimate expectation to proper administration of the tax law, to his detriment and chagrin.

The Appellant’s Case 14. The Appellant’s case is also premised on the documents here below set out:a.Appellant’s Statement of Facts dated and filed on 30th June 2022b.The written submissions dated 3rd February 2023 and filed on 7th February 2023

15. The Appellant's case is that the Respondent has acted in bad faith and in breach of all expected norms by discriminating against the Appellant through issuance of an unjustified, unrealistic customs value without logic.

16. That the Respondent has also acted in breach of the right to fair administration by failing to act in a fair, transparent and accountable manner to the Appellant by selectively furnishing information and refraining to offer guidance and provide information as needed.

17. That the Respondent failed in appreciating that the CLS 350 is identical to the CLS 400 noting that the manufacturer classifies the CLS400 as the new CLS350 effective the year 2015. That in so doing the Respondent failed to appreciate the definitions and provisions of the Fourth Schedule of the EACCMA 2004 as to what is identical and what is similar.

18. The Respondent in applying the CRSP rate of Kshs. 22,641,678. 00 failed to consider that the rate was discriminative and excessive as it gave the Appellant's Motor vehicle a higher value than the similar but superior CLS 63 AMG auto of the same class and which vehicle has a CRSP value of Kshs. 18,317,36. 00 and the flagship Motor Vehicle of the manufacturer, a S 400 Hybrid V6 which has a CRSP value of Kshs. 17,022,479 based on the latest CRSP list of the Respondent.

19. The Respondent also breached the provisions of the law by issuing a CRSP value specific to the Appellant without engaging in public participation necessary for raising any new CRSP list and also failed to issue and publish a tariff ruling communicating to the public its intention to change and/or alter the CRSP list.

20. The Appellant also argued that he should not be compelled to absorb or set off all the demurrage costs incurred by him because of the unlawful and unsupported refusal and or rejection by the Respondent to have the motor vehicle released on a bank guarantee for the disputed amount in his favour to prevent the accrual of demurrage charges.

21. The Appellant in support of his matter relied on the cases of Mombasa High Court Petition No. 190 of 2018: Nairobi JR Misc. Civil Appeal No.478 of 2014 and Petition No.190 of 2018 Car Importers Association of Kenya v KRA & 3 Others [2019] eKLR amongst others.

Appellant’s prayers 22. The Appellant prayed for:a.The Appeal to be allowed;b.A finding that the decision of the Commissioner made on 30th May 2022 is unlawful and be annulled;c.Direction that duty be computed from the Respondent’s latest CRSP list being the Current Retail Selling Price list that took effect on 7th July 2020;d.A finding that the CLS 350 is identical to the CLS 400 and therefore the value for the CLS 350 as contained in the Respondent’s CRSP list effective 7th July 2020 is the applicable CRSP rate for the CLS 400;e.Orders for the processing and release of the motor vehicle chassis number WDD2183612A157869 to the Appellant;f.The Respondent to be compelled to absorb and/or setoff all demurrage costs incurred by the Appellant:g.General damages for unfair administrative action, and failure to provide information as requested:h.Such further orders and awards as benefits the ends of justice in this case;i.Costs of this Appeal;

Respondent’s Case 23. The Respondent’s case is premised on the hereunder filed documents: -a.The Respondent’s Statement of Facts dated and filed on 29th July 2022b.The Respondent’s Written Submissions dated and filed on 17th February 2023.

24. The Respondent reiterated its position as stated in its ruling communicated to the Appellant and responded to the Memorandum of Appeal and Statement of Facts firstly by stating that it contacted a motor vehicle dealer and was guided that the Current Retail Selling Price (CRSP) of the motor vehicle was EURO 180,000, which equates to Kshs. 22,641,678. 00.

25. The Respondent stated that the value of imported goods is determined in accordance with the provisions of Section 122(1-6) and the Fourth Schedule to EACCMA which outlines the various methods of valuation to be applied in sequential order.

26. That Section 122(1) of the EACCMA states that: -“Where imported goods are liable to import duty ad valorem, then the value of such goods shall be determined in accordance with the Fourth Schedule and import duty shall be paid on that value”.

27. It was the Respondent's position that the Current Retail Selling Price used by the Appellant of Kshs.13,383,141. 00 is for a different motor vehicle CLS350 and not for the motor vehicle in dispute.

28. The Respondent also averred that it was not in breach of Section 49 of the Tax Procedure Act and Section 122(2) of EACCMA as the Appellant never requested for the decision made through writing as provided under Section 122(2) which provides as follows:“Upon written request, the importer shall be entitled to an explanation in writing from the proper officer as to how the customs value of the importer’s goods was determined.”

29. That the Current Retail Selling Price for 2020 could not be used in determination of the value of the Appellant's motor vehicle since the ruling is still pending in court.

30. That the Appellant provided additional documents including Mercedes Benz pricing list and a remittance of GBP 10,000. 00. In the documents, the Market retail Selling Price of a similar model was GBP 74,135. 00 that translated to Current Retail selling price of Kshs. 26,000,000. 00. That in view of this, the Respondent sustained the earlier recommended Current Retail Selling Price of Kshs. 22, 641,678. 00.

31. That the transaction documents availed by the Appellant to support the transaction value method were inconsistent. The invoice value was 12,900. 00 GBP, remittance provided is for 12,000. 00 GBP and other online quotation invoices with values of 74,135. 00 GBP and 85,235. 00 GBP.

32. That the two bank remittances dated 24th December that were presented were not ascertaining the motor vehicle details in question.

33. That Section 122 (4) of EACCMA states that:“Nothing in the Fourth Schedule shall be construed as restricting or calling into question the rights of the proper officer to satisfy himself or herself as to the truth or accuracy of any statement, document or declaration presented for customs valuation purposes.”

34. It was the Respondent's position that following the inconsistency from the documents provided by the Appellant, the transaction value method could not be used. That guided by Section 122 as read with the Fourth Schedule to EACCMA the Respondent applied CRSP value as was guided by an authorized motor vehicle dealer.

35. The Respondent averred that the earlier request of release of motor vehicle by undertaking bank guarantee was declined because there was a system failure on customs declaration migration to NTSA system which has been resolved.

36. The Respondent relied on the case of Constitutional Petition No. 45 of 2020 Car Importers Association of Kenya vs KRA & Others to submit that Current Retail Selling Price (CRSP) for 2020 could not be used in determining the value of the Appellant's vehicle since the High Court had issued a ruling suspending the implementation of CRSP 2020 wherein the court issued conservatory orders restraining the Respondent from implementing the new CRSP values from 7th July 2020.

Respondent’s Prayers 37. The Respondent prayed for: -a.The assessed extra tax of ksh.1,592,698. 00 be confirmed and be found due and payable.b.The Appeal be dismissed with costs.

Issue for Determination 38. After perusing the pleadings, evidence and documentation produced before it, the Tribunal is of the view that the issue for determination is one as set out hereunder.Whether the Respondent erred in the assessment of the Appellant’s motor vehicle

Analysis and Findings 39. Having identified the issue that calls for its determination, the Tribunal proceeded to analyses it as hereunder.

40. The gist of the matter between the parties is the value of the motor vehicle imported by the Appellant in April 2022 and the same being a Mercedes CLS 400 V6 engine chassis WDD2183612A157869.

41. The Appellant paid the tax of Kshs. 2,320,446. 00 for the motor vehicle having given it the value of Kshs. 13,383,141. 00. The Appellant argued that his imported motor vehicle lacked an actual provision in the Current Resale Price List (CRSP) used by the Respondent and which took effect on 7th July 2020. That the Appellant based its tabulation on the valuation given to CLS 350 Mercedes in the list as the description of the CLS 350 is identical to the import.

42. The Respondent on the other hand relied on a motor vehicle dealer who guided it on the Current Retail Selling Price (CRSP) to be Kshs. 22,641,678. 00. This is in paragraph 15 of the Respondent’s Statement of Facts.

43. The Appellant had also argued that the Respondent was in breach of Section 122(2) of EACCMA 2004 and Section 49 of the TPA as the latter failed to give a written explanation as to how the customs value of Kshs. 22,641. 678. 00 was reached. The Respondent in response to the argument stated that the Appellant never requested for the decision to be made through writing.

44. A perusal of the correspondence between the parties shows, in contravention to the Respondent’s statement in paragraph 43 above, the Appellant in his letters dated 2nd June 2022 and 3rd June 2022 requested for a breakdown on how the Respondent’s value of the import was realized. The Respondent failed to address the issue.

45. Pursuant to Section 120 of EACCMA 2004 read together with and KRA Act, Cap 469, Laws of Kenya the Respondent publishes the Current Retail Selling Price (CRSP) which is used to calculate the import duty payable to the Respondent.

46. The parties are in agreement that the applicable CRSP as at the time of the Appellant’s import was the 2020 CRSP that became effective on 7th July 2020. They are also in agreement that the CRSP did not provide for the Appellant’s imported motor vehicle.

47. The Tribunal noted that the Appellant based his tabulation on the valuation of the motor vehicle, CLS 350, which was on the CRSP list and according to the Appellant, the description was identical to his vehicle. The Respondent has not argued that the two vehicles compared by the Appellant in determining his vehicle’s valuation are not identical as per the applicable CRSP description.

48. On the other hand the basis of the Respondent’s valuation is not clear as the name of the motor vehicle dealer whose valuation was used by the Respondent was not disclosed and the breakdown of the valuation details were also not disclosed. It is noted that the Appellant had requested for the same but the Respondent failed to provide the sought details.

49. It follows that the decision of the Respondent is not lawful as the same is based on unclear sources and circumstances. On this determination the Tribunal is further guided by the holding in Petition No. 190 of 2018 Car Importers Association of Kenya vs KRA and 2 Others where the Court on the valuation of the motor vehicle in dispute held that:-“This Court is satisfied that the Respondents have no legal mandate to extract more taxes from Al-Husnain Motors on the basis of Facebook website data, or data offered in unclear circumstances by Toyota Kenya who are the Petitioner’s competitors. Clearly, the basis of such taxation is guesswork whose result is ambiguity which has led to some importers being left off the hook while others being forced to pay. This practice if allowed to continue will promote bias, unfairness and discrimination in assessment of tax due.”

50. The Court in the same matter further held that:“It is trite law that any taxation regime must be clear and unambiguous. Where there are any inconsistencies or grey areas, the interpretation which the court must adopt is that one which favours the tax payer. This is what is called “strict interpretation” of tax statute. The intention is to shield a tax payer from unclear demands for tax”.

51. A similar holding was made in the case of Stanbic Bank Kenya Limited vs. Kenya revenue Authority Civil Appeal No. 77 of 2008, the Court of Appeal affirmed this legal principle in interpretation of tax statutes and said:-“I would wish to repeat again what I said in the case of Commissioner of Income Tax vs. Westmont Power (K) Limited 2006 1EA 54, that taxation laws that have the effect of depriving citizens of their property…must be interpreted with great caution. It is paramount that their provisions must be express and clear so as to leave no room for ambiguity. Any ambiguity in such a law must be resolved in favour of the tax payer and not the public revenue authority which are responsible for their implementation.”

52. The Tribunal in the circumstances found that the Respondent erred in uplifting a further tax against the Appellant without a proper and clear basis on the same.

Final Decision 53. The upshot of the foregoing is that the Appeal is meritorious and the Tribunal consequently makes the following orders: -a.The Appeal be and is hereby allowedb.The Respondent’s review decision dated 30th May 2022 be and is hereby set aside.c.Each party to bear its own costs.

54. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF JANUARY, 2024GRACE MUKUHA - CHAIRPERSONGLORIA OGAGA - MEMBERJEPHTHAH NJAGI - MEMBERTIMOTHY VIKIRU -MEMBER