[2023] KETAT 592 (KLR)

Kenya Breweries Limited v Commissioner of Customs & Border Control (Appeal 629 of 2022) [2023] KETAT 592 (KLR) (29 June 2023) (Judgment)

Neutral citation: [2023] KETAT 592 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 629 of 2022

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

June 29, 2023

Between

Kenya Breweries Limited

Appellant

and

Commissioner of Customs & Border Control

Respondent

(An Appeal against the Respondent’s letter dated 6th May 2022 reinstating and upholding the demand notice for the sum of Kshs. 182,985,050. 00 being duty and interest for the period of 2017 to February 2022 on the importation of the alcoholic fermented apple plus)

Judgment

1. The Appellant is a limited liability company incorporated under the Companies Act of Kenya licensed to manufacture and sell both alcoholic and non-alcoholic drinks.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and 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. This dispute arose after the Respondent vide a letter dated the 3rd February, 2022, issued a demand notice to the Appellant for the sum of Kshs. 182,985,050. 00 being duty and interest for the period of 2017 to February 2022 on the importation of the alcoholic fermented apple plus.

4. Being dissatisfied with the demand, the Appellant made an application for the review of the demand notice vide a letter dated 3rd March 2022.

5. On 29th March, 2022, the Respondent having considered the review application, made a decision and set aside the its demand notice.

6. Vide a letter dated 6th May, 2022, the Respondent served the Appellant with a letter reinstating and upholding its demand notice and therefore demanded payment of Kshs. 182,985,050. 00.

7. The Appellant being dissatisfied with the letter dated 6th May, 2022, lodged a Notice of Appeal dated and filed on 28th April, 2022.

The Appeal 8. The Appeal is premised on the following grounds as laid out in the Appellant’s Memorandum of Appeal dated 11th May, 2022 and filed on the same date:a.That the Respondent having made a Review decision dated 29th March, 2022, it was not open in law for the Respondent to further review the said review decision on the grounds that they exercised powers that were not available having exhausted powers granted by Statute pursuant to Section 229 of EACCMA, and therefore rendering the Respondent functus officio.b.That in issuing the purported vacating review decision dated 6th May 2022 and reinstating the demand notice, the Respondent acted arbitrarily and in bad faith by departing from the review decision which had allowed the Appellant’s application for review dated 3rd March 2022 and is an abuse of power.c.That the Respondent erred in law and in fact by purporting to exercise non-existent statutory power or procedural avenue allowing the Respondent to review the review decision based on judgmental and analysis error (an error based on fact and analysis of law) thus the Respondent acted ultra viresd.That it was not open in law for the Respondent to purport to issue the Vacating Review decision which decision was made beyond the Statutory stipulated period of Thirty (30) days under Section 229(4) EACCMA in response to the Application for Review having been determined by the Review decision dated 29th March, 2022, there by issuing an invalid, illegal, unlawful decision, unprocedural which action was ultra vires and without jurisdiction calculated to defeat Justice.e.That the Respondent erred in law and in fact by failing to consider and address the merits of the application for review dated 3rd March, 2022. f.That the Respondent erred in law and in fact by purporting to recall its review decision over thirty days after issuing the decision thereby prejudicing the Appellant’s right to challenge the decision by lodging an appeal thereon.g.That the Respondent erred in law and in fact by purporting to further make a determination by way of a vacating review decision after issuing its review decision thereby prejudicing the Appellant’s right to Appeal as provided for under Section 230 of EACCMA.h.That the Respondent’s vacating review decision breached the Appellant’s legitimate expectation that a review decision made under Section 229(4) of the EACCMA is final and cannot be reviewed, set aside, or varied by the Respondent once issued and therefore concluded.i.That the Respondent erred in law and in fact as the decision was made in bad faith and is an abuse of discretion by demanding for the sum of Kshs. 182,985,050. 00 and has been undertaken in excess of jurisdiction thus violating the Appellant’s legitimate expectation having rendered a review decision pursuant to Section 229(4) of EACCMA which had conclusively resolved the claim by the Respondent.j.That the Respondent erred in law and in fact by assessing additional taxes on the Appellant’s imported products and failed to consider additional taxes already paid under protest by the Appellant of Kshs. 42,717,172. 00 on two import entries (2021 MSA 7888171 and 2021 ICD 322410) in the vacated review decision which has reinstated the demand notice of 3rd February, 2022 in its entirety which will result in double taxation for the period under review.k.That the Respondent erred in law and in fact in demanding penalties and interest amounting to Kshs. 25,098,390. 00 which is premised on an erroneous assessment of alleged principle tax of Kshs. 157,886,660. 00 and the Appellant stands to suffer grave harm, prejudice, and loss, including being burdened and saddled with a liability it has not incurred, as the Respondent will continue with its unlawful, illegal, ultra vires, irrational, and capricious conduct.l.That the Respondent erred in law and in fact by applying an excise duty rate of Kshs. 121. 85 instead of Kshs.116. 08 that was applicable at the time of importation thereby inflating the tax demand by Kshs. 6,429,396. 00 and the Appellant stands to suffer grave harm, prejudice, and loss, including being burdened and saddled with a liability it has not incurred, as the Respondent will continue with its unlawful, illegal, ultra vires, irrational, and capricious conduct.

Appellant’s Case 9. The Appellant’s case is also premised on the following documents: -a.The Appellant’s Statement of Facts dated and filed on 11th May, 2022, together with the documents attached thereto.b.The Appellant’s written submissions dated 30th November, 2022 and filed on the same date together with the authorities attached thereto.

10. The Appellant averred that vide a letter dated 3rd February, 2022, the Respondent informed it that pursuant to Sections 235 & 236 of EACCMA, it had carried out a desk review of the Appellant’s import of goods from the year 2017 to February 2022. That the audit revealed instances of application of wrong tariff information by using HS Code 2106. 90. 20 attracting 10% duty for alcoholic fermented apple plus instead of 2206. 00. 90 which attracts 25% import duty and Kshs.121. 85 excise duty as per the KRA ruling referenced CUS/V&T/TARI/RUL/023.

11. That the Respondent had as a result of the above review, assessed and demanded additional taxes and interest amounting to Kshs. 182,985,050. 00 as tabulated below;Payable Excise Duty 13,577,502. 00

Extra Import Duty 1,906,176. 00

Extra VAT 3,049,882. 00

Principle Amount 157,886,660. 00

Interest 16,384,816. 00

Penalty 8,713,574. 00

TOTAL 182,985,050. 00

12. That being dissatisfied with the said demand, the Appellant, in accordance with the provisions of Section 229(1) of EACCMA lodged an application for review by a letter dated 3rd March, 2022.

13. That the Appellant in its application for review set out the following grounds for consideration of its request for review of the demand for tax: -a.The Product imported is intended for use as a raw material as a preparation used in the manufacture of cider (beverage) and given that the product is not specified or included elsewhere in East Africa Community Common External Tariff (“CET), the Appellant asserted that the product is classifiable under HS code 2106. 90. 20. b.The Product is a preparation obtained from processing of alcoholic ferment of water, glucose syrup, apple juice concentrate, fermented apple juice, water, and natural flavoring with an alcoholic strength of 14-15% by volume.c.The Product then undergoes further processing to manufacture cider which requires dilution and addition of various chemical components, namely: carbonated water, sugar, acids, coloring and preservatives to manufacture cider with an alcoholic strength of 4. 5%.d.The Respondent erred in seeking to classify the Product as the intended final product, cider which is a beverage. The product cannot be construed to be a beverage as it is not manufactured or intended for direct consumption in its imported state. The Respondent’s action to classify the product disregards the nature of the product, level of manufacturing and its intended use. Accordingly, the Product being a preparation used in the manufacture of cider it should be classified as a raw material under HS code 2106. 90. 20 subject to import duty at 10%.e.As a result of the aforementioned, the Appellant states that the assessment lacks legal merit as it is based on an incorrect understanding of the nature of the imported Product and the therefore the demanded taxes for Kshs. 182,985,050/= are not due and payable.f.The Respondent relied on tariff ruling CUS/V&T/TARI/RUL/023 which relates to fermented apple compound and not the imported product the subject matter of this appeal. The Demand notice states:“HS code 2206. 00. 90 attracts 25% import duty and 121. 85 excise duty as per the KRA ruling referenced CUS/V&T/TARI/RUL/023. In view of the above, extra taxes and interests thereof amounting to Kshs. 182,985,050/= has been assessed and are due and payable to Commissioner of Customs and Border Control….”g.The aforesaid ruling refers to fermented apple compound which has additional components and the demand notice further states:“Fermented Apple Concentrate is specified to be alcoholic concentrate (with alcoholic strength by volume of 14-15%), made from water, glucose syrup, apple juice concentrate, fermented apple juice, acidifier malic acid (E296), color sulphite ammonia caramel natural flavoring, preservative sodium benzoate (E211), acidifier acetic and preservative sodium metabisulphite, intended for use in production of alcoholic beverages’whereas the Product that is the subject of this dispute is a preparation obtained from the processing of:‘alcoholic ferment of water, glucose syrup, apple juice concentrate, fermented apple juice, water and natural flavoring’.h.In any event, the ruling relied upon by the Respondent was set aside in TAT No. 282 of 2020 Kenya Breweries Ltd Vs. Commissioner of Domestic taxes wherein the Tribunal allowed the appeal and held that the fermented apple compound is classified under HS tariff code 2106. 90. 20. The Tribunal further in its decision set aside tariff ruling referenced CUS/V&T/TARI/RUL/023 and therefore it could not be lawfully relied upon as the basis of issuing the demand notice.i.The Respondent’s reliance on a ruling that had been set aside by the Tribunal amounted to an infringement of the Appellant’s right to fair administrative action under Article 47 of the Constitution and detailed in the Fair Administrative Action Act. On one hand, HS Code 2106. 90. 20 provides for “Preparations of a kind used in manufacturing of beverages”, 2206. 00. 90 covers “other fermented beverages (for example, cider, perry, mead); mixtures of fermented beverages and mixtures of fermented beverages and non-alcoholic beverages, not elsewhere specified or included”.j.Whereas HS code 2206. 00. 90 covers actual beverages, 2106. 90. 20 covers preparations used in the manufacture of beverages.k.Despite having an alcoholic strength of 14%, the apple plus, imported product, is not a beverage as it is not consumable in its imported state. Further, it needs to go through a manufacturing process to obtain cider; a beverage.l.Alcoholic strength by volume does not form part of the criteria used in classification of preparations used in the manufacture of beverages. The only instance in which alcoholic strength is relevant is in the CET’s differentiating between alcoholic and non-alcoholic beverages and in the classification of fruit juice.m.Note 3 to Chapter 22 of the CET which provides for guidance on the determination of what constitutes a beverage under that chapter, does not list or infer preparations as being beverages.n.The Respondent cannot rely on Note 6 to chapter 20 as it gives guidance on the classification of juices that would fall under heading 2009 in the following terms:“For the purposes of heading 20. 09, the expression “juices unfermented and not containing added spirit” means juices of an alcoholic strength by volume (see Note 2 to Chapter 22) not exceeding 0. 5% vol.”o.By classifying apple plus as a beverage under heading 22. 06, the Respondent disregarded:i.Its chemical composition;ii.The fact that it is a raw material; andiii.That it is imported for the sole purpose of manufacturing ciderp.Explanatory Note 7 to Heading 21. 06 provides A non-exhaustive list of products that fall under 21. 06“Non-alcoholic or alcoholic preparations (not based on odoriferous substances) of a kind used in the manufacture of various non-alcoholic or alcoholic beverages. These preparations can be obtained by compounding vegetable extracts of heading 13. 02 with lactic acid, tartaric acid, citric acid, phosphoric acid, preserving agents, foaming agents, fruit juices, etc. The preparations contain (in whole or in part) the flavoring ingredients which characterize the particular beverage. As a result, the beverage in question can usually be obtained simply by diluting the preparation with water, wine or alcohol, with or without the addition, for example, of sugar or carbon dioxide gas. Some of these products are specifically prepared for domestic use, they are also widely used in industry in order to avoid the unnecessary transport of large quantities of water, alcohol etc. As presented, these preparations are not intended for consumption as beverages and thus can be distinguished from the beverages of Chapter 22. ”q.According to explanatory note 7, alcoholic strength by volume is irrelevant in the /classification of goods under 2106. 90. 00. r.The product in question meets the description set out under explanatory note 7 thus is classifiable under 2106. 90. 00 as it is not provided for elsewhere in the CET.s.The explanatory notes to heading 22. 06 clearly state that this heading encompasses cider, which is “an alcoholic beverage obtained by fermenting the juice of apples” and this definition does not include raw materials used in the preparation of cider.t.Based on the foregoing, the alcoholic fermented apple plus is classifiable under HS code 2106. 90. 20 which attracts a duty rate of 10%.u.Without prejudice to the above, the Appellant had already paid additional duties amounting to Kshs. 42,717,172 under protest at 25% on two consignments (2021MSA7888171 and ICD322410) that were the subject of the demand.v.In lieu of the duties paid under protest, the demand for additional duty, interest and penalties amounting to Kshs. 47,520,153 relating to the two consignments ought to be vacated.w.Without prejudice to the above, during the period July 2021 to October 2021, the excise duty rate applicable to cider not exceeding 6% in alcoholic strength by volume was Kshs. 116. 08 per liter.x.The Respondent erroneously applied an excise duty rate of Kshs. 121. 85 instead of Kshs. 116. 08 that was applicable to at the time of importation resulting in the demand being inflated by Kshs. 6,429,396. 00y.The Respondent’s demand for interest and penalties amounting to Kshs. 25,098,390. 00 was based on an erroneous classification of the product in question and would not have arisen had the Respondent properly classified the product.

10. That on the basis of the above, the Appellant sought to have the demand set aside in its entirety.

11. That on 29th March, 2022, the Respondent having considered the review application, set aside its demand notice.

12. That the Appellant did not exercise the right to Appeal the review decision as the demand notice which was the subject matter of the review application having been considered and the determination being acceptable to the Appellant, did not require further action.

13. That as a result of having set aside the review decision and with the statutory timelines having been exhausted, the Respondent created legitimate expectation that the matter had been closed.

14. That the Respondent at a virtual meeting held on 6th May, 2022, informed the Appellant that it was considering reviewing the review decision having allegedly made an error in vacating its demand notice which the Appellant declined to accept and advised the Respondent to formally communicate its position.

15. That by a letter dated 6th May, 2022 the Respondent served the Appellant with a letter purporting to reinstate and uphold its demand notice on the basis that it made a mistake and therefore the tax demanded of Kshs. 182,985,050. 00 was therefore due and payable.

16. That the Respondent’s letter relied on the Judgment of this Tribunal in TAT 282 of 2020 wherein this Tribunal issued a judgment with regard to “fermented apple compound”, a product that is different from “alcoholic fermented apple plus” which is the subject of this dispute.

17. That further, the Tribunal’s judgment, in TAT 282 of 2020 did not issue a decision in respect to the imported product the subject matter of the Appeal.

18. That the Respondent’s action purporting to vacate the Review decision is premised on a non-existent procedure in law relating to Customs disputes which denied the Appellant an opportunity to seek review and or appeal against the reinstated Demand Letter which in the event was not available for further consideration or determination as the Respondent was functus officio.

19. That the Respondent has purported to issue the vacating review decision which was made beyond the statutory stipulated period of thirty (30) days as stipulated under Section 229(4) EACCMA which decision is invalid, illegal, unlawful, ultra vires and without jurisdiction thereby prejudicing the Appellant.

20. That the Respondent has not been accorded any powers under the EACCMA to issue vacating decisions and in any case, even the decision issued would have been time barred.

21. That prior to the Respondent issuing the vacating review decision, it is not in dispute that the Respondent had in its possession the following information:a.A physical sample of the subject of this Appeal;b.A safety data sheet from the manufacturer of the product setting out all facts and information necessary on the product;c.The Respondent had the ability and power to subject the sample for laboratory analysis to determine the chemical component and fitness for human consumption;d.Finally, the Respondent had received the Appellant’s detailed grounds supporting the Review Application and none of the grounds stated therein made reference to the case allegedly relied on by the Respondent to arrive at its Review Decision.

22. That therefore, there is no justifiable reason for the Respondent to decide to ignore all the aforestated elements and seek to rely on what it deems to be a mistake.

23. That notwithstanding the fact that the Respondent lacked jurisdiction to issue the vacating review decision reinstating the demand notice, it failed to take into consideration additional taxes paid under protest by the Appellant of Kshs. 42,717,172. 00 on two import entries (2021 MSA 7888171 and 2021 ICD 322410) in the vacated review decision which had reinstated the demand notice of 3rd February, 2022, in its entirety. That this will result in double taxation for the period under review.

24. That the Respondent’s failure to take into account the taxes paid under protest has resulted in erroneous calculation of penalty and interest of Kshs. 25,098,390. 00 which is premised on erroneous principle tax of Kshs. 157,886,660. 00.

25. The Appellant identified the following as the issues for determination and submitted on them: -a.Whether the Respondent was functus officio after issuing its review decision.b.Whether the Respondent properly reinstated the demand.c.Whether the Tribunal’s jurisdiction is properly invoked in the current case.d.Whether the Respondent erred in its classification of the Appellant’s imported item.

Whether the Respondent was rendered functus officio after issuing its Review Decision 29. The Appellant submitted that the procedure for handling a dispute pertaining to a demand for import duties is outlined at Sections 229-231 of the East African Community Customs Management Act, 2004 (“EACCMA”). That EACCMA limits the actions regarding a customs dispute to a customs decision, An application for Review of the decision and a Decision on the Application for Review in that order.

30. That a party dissatisfied with the outcome of the above has no option but to seek judicial redress.

31. That the Respondent issued a demand notice. The Appellant being aggrieved by the same, lodged an Application for review wherein it provided all information relevant for the Respondent to arrive at a sound decision. That the Respondent allowed the Application for review by its review decision dated 29th March, 2022, made under Section 229(4) of the EACCMA.

32. That upon issuance of the Review Decision, the Respondent became functus officio.

33. That the purpose of the doctrine is to provide finality. That once proceedings are finally concluded, the Respondent cannot review or alter its decision. That any challenge to its decision must be taken to a court if that right is available. That in absence of this doctrine, public authorities would essentially have the power to endlessly drag on matters at their convenience.

34. That the Respondent, by purporting to recall its review decision, violated the doctrine of functus officio and attempted to drag the Appellant through an unlawful adjudication process whose end was known only to the Respondent.

Whether the Respondent properly reinstated the demand. 35. The Appellant, submitted that the Respondent was at all times aware of all the differences between apple plus and apple concentrate and cannot claim that it received new information having analyzed both products.

36. That the Respondent in its submissions, simultaneously pleaded fraud, error on the fact of the record and mistake as its reasons for altering its review decision. That the Respondent only cited mere error in its letter dated 6th May 2022 in the following terms: -“We wish to inform you that the vacation letter dated 29th March 2022 was erroneously based on a ruling for a different product and therefore our demand letter of 3rd February 2022 has been upheld.”

37. That the Respondent, in its letter dated 6th May 2022 did not attribute blame to the Appellant but merely alluded to the existence of a purported error.

38. That further, the Respondent did not make any reference to an error on the face of the record and mistake in its Statement of Facts or in any of its communication to the Appellant.

39. The Appellant submitted that the claims of mistake and error on the face of the record are improperly before this Tribunal and should not be considered.

40. That the Respondent has relied on Section 79 of the TPA as a basis for recalling its review decision. That Section 79 provides as follows;Rectification of mistakes“When a notice of an assessment or other document served by the Commissioner under a tax law contains a mistake that is apparent from the record and the mistake does not involve a dispute as to the interpretation of the law or facts of the case, the Commissioner may, for the purposes of rectifying the mistake, amend the assessment or document any time before the expiry of five years of the date of service of the notice of the assessment or other document.”

41. That the decision that is the subject matter of this Appeal arose from the application of review presented by the Appellant challenging both fact and law and is therefore not open to rectification as claimed by the Respondent.

42. That the purported mistakes referred to by the Respondent are different from those provided for under Section 79 of the TPA. That this provision of law is not concerned with quasi-judicial functions conferred by Section 229(1) of the East African Community Customs Management Act (“EACCMA”) but relates to notice of assessment or other documents served by the Respondent which do not involve a dispute.

43. The Appellant submitted that the alleged error in the distinction between apple plus and the product in TAT 282 of 2020 cannot be noted at a glance. That its veracity can only be determined by a scrutiny of the documents in this dispute and those in the Tribunal’s Judgment in TAT 282 of 2020.

Whether the Tribunal’s jurisdiction is properly invoked in the current case 44. The Appellant submitted the application for review dated 1st February, 2022, pursuant to Section 229(1) EACCMA raised numerous grounds of objection to the demand notice. That by a letter dated 29th March, 2022 the Respondent allowed the application for review on the grounds that the issue of classification had already been decided.

45. That vide letter dated 6th May, 2022, the Respondent purported to review its decision and dismiss the application for review on the ground that it relied on the wrong tariff ruling.

46. The Respondent submitted that the only available recourse for the Appellant was to seek a Judicial review of the decision dated 6th May, 2022. That EACCMA provides that where a person is dissatisfied with the decision of the Commissioner under Section 229, they may appeal to a Tax Appeals Tribunal established in accordance with Section 231 thereof.

47. That Section 230 of EACCMA provides that;“A person dissatisfied with the decision of the commissioner under Section 229 may appeal to a Tax Appeals Tribunal established in accordance with Section 231. ”

48. That the above provision expressly confers this Tribunal with Jurisdiction to hear all appeals stemming from any review decision issued under Section 229 of EACCMA. That the decision appealed against herein challenges the right to dismiss an application for review.

49. That the fact that the Appellant has made reference to the doctrine of functus officio does not exclude the Tribunal which is granted jurisdiction by virtue of Section 230 of EACCMA to deal with appeals arising from review decisions.

50. That the communication of 6th May 2022 is a decision where the Commissioner purported to decide on the application for review by upholding its initial demand. That the Appellant, therefore, had no alternative but to proceed to the Tribunal to challenge the decision reinstating the demand for tax as the application for Review had been disallowed.

Whether the Respondent erred in its classification of the Appellant’s imported item 51. The Appellant submitted that the substantive issue of classification of apple plus is not the subject of this dispute and should not be available for consideration in this Appeal. That the issue of classification of alcoholic fermented apple plus is the subject of another appeal before the Tribunal in TAT 481 of 2022 Kenya Breweries Limited Vs. Commissioner of Customs & Border Control wherein it is pending Judgement.

52. The Respondent in its review decision did not challenge any of the grounds for review raised by the Appellant in its application for review. It is now using its submissions as an avenue to substantively respond to those grounds that it had not addressed in its review decision or letter recalling its review decision.

53. The Appellant relied on the following authorities: -a).Telkom Kenya Limited vs. John Ochanda Civil Appeal No.60 of 2013b).Republic v Advocates Disciplinary Tribunal Ex parte Apollo Mboya [2019] eKLRc).Owira & 23 others v Attorney-General & another; Kenya National Commission on Human Rights & 4 others (Interested Parties) [2020] eKLR,

Appellant’s prayers 54. The Appellant prayed that the Tribunal to make the following orders:a.That the Respondent’s letter dated 6th May 2022 purporting to reinstate its vacated Demand notice is null and void and set it aside.b.That the Respondents Review decision dated 29th March 2022 be upheld.c.That it is not open in law for the Respondent to alter and vacate a decision issued under Section 229(4) of the EACCMA.d.That costs be provided for.

The Respondent’s Case 55. The Respondent’s case is premised on the following documents: -a.The Respondent’s Statement of Facts dated 14th July 2022 and filed on 21st July 2022 together with the documents attached thereto.b.The Respondent’s written submissions dated 22nd November 2022 and filed on 23rd November 2022. c.The Respondents list of authorities filed on 1st December 2022.

56. In response to the Appeal, the Respondent replied to the two issues raised by the Appellant as follows: -

Whether the Respondent could reinstate the vacated tax demand notice. 57. The Respondent averred that under Sections 235 and 236 of the East African Community Customs Management Act, 2004, it is allowed to carry out post clearance audit based on the information in its possession at any material time. That in case any new information is received, then the Respondent is allowed in law to issue a demand for short levied tax.

58. That Section 235 (1) provides as follows“The proper officer may, within five years of the date of importation, exportation or transfer or manufacture of any goods, require the owner of the goods or any person who is in possession of any documents relating to the goods–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 declaration with respect to the weight, number, measure, strength, value, cost, selling price, origin, destination or place of transhipment”

59. That the Act goes on further to provide that;“The Commissioner shall have the powers to— examine the goods where possible for the goods to be produced”

60. That the Respondent as such collected samples of the Appellant’s imported product for investigation and informed the Appellant that the product known as alcoholic fermented apple plus had been subjected to testing at the Kenya Revenue Authority’s Inspection and Testing Centre and was found to be of alcoholic percentage of 14%.

61. That the Respondent having established that the product was supposed to be classified under HS code 2206. 00. 90 which attracted 25% import duty and not HS 2106. 90. 20 declared by the importer.

62. That the same was subject to 25% on import duty to which the Respondent rightly proceeded to issue the demand notice.

63. That the Appellant applied for a review of the demand and subsequently held meetings with the Officers of the Respondent and made the Officers believe that the same product had been a subject of the dispute at the Tribunal and that the Tribunal had ruled in its favour.

64. That the Respondent’s officers proceeding on this misguided footing, proceed to vacate the demand.

65. That the Respondent having been made to believe that the product in question was similar to what was under consideration in the ruling of the Tax Appeals Tribunal and in compliance with the requirements of the Fair Administrative Actions Act via a letter dated 29th March, 2022, vacated the demand notice.

66. That the Respondent continued to review and investigate the classification presented by the Appellant to the Tax Appeals Tribunal and came to the realization that the Appellant had misled them and the product: fermented apple concentrate which was the subject of the Tax Appeals Tribunal was different from what was the subject of the review: alcoholic fermented apple plus.

67. That the Respondent further upon inquiry realized that indeed the matter at the Tax Appeals Tribunal was also under Appeal at the High Court as the same was also not properly premised in law in the first instance and should not have been a basis for vacating the assessment.

68. That the investigation having reviled that the product that was the subject of the demand was an alcoholic product of 14% alcohol and the tax had been indeed short levied in the first instance.

69. The Respondent contended that the Appellant therefore misdirected the Respondent officers who were not familiar with the dispute at the Tax Appeals Tribunal to believe that the issues were the same and the product which had been the subject of the determination for which the Appeal had been causing it to hold that the components of the item were non- alcoholic yet in real sense they contained components used in the manufacture of alcoholic beverages, which enabled it to avoid paying the required percentage on taxes.

70. The Respondent averred that the law does not prohibit the Respondent from reissuing a demand which had been vacated based on the misleading information provided by the Appellant. That the Appellant therefore ought to have proceeded to apply for a review if it believed that the reinstatement was erroneous and not proceed to appeal.

71. That the matter herein is therefore improperly before the Tax Appeals Tribunal in the first instance.

72. That the Respondent therefore in realizing that it had been misled proceeded to reinstate the demand notice vide a letter dated 6th May 2022.

73. That the Appeal on this ground must fail as the suit is improperly before the Tribunal and the Respondent is not restricted on the times it can undertake Post Clearance Audit as long as it is shown that new information has been received which clearly demonstrates that taxes had been short levied in the first instance.

Whether the Respondent properly demanded for short levied taxes. 74. The Respondent averred that the provisions of Section 135 of the East African Community Customs and Management Act provide that;“Where any duty has been short levied or erroneously refunded, then the person who should have paid the amount short levied or to whom the refund has erroneously been made shall, on demand by the proper officer, pay the amount short levied or repay the amount erroneously refunded, as the case may be; and any such amount may be recovered as if it were duty to which the goods in relation to which the amount was short levied or erroneously refunded, as the case may be, were liable.”

75. That the provisions of the law on this Section require the Commissioner in places where there has been short levy, to require a taxpayer to pay the specified amount. It does not however require the taxpayer to pay any other amount besides that which has been short levied.

76. That the Respondent in arriving at short levied tax took into account any amounts relating to the same subject matter which had previously been paid. That the amount previously paid was based on HS 2106. 90. 20 which attracted 10% duty as opposed to the correct HS code relating to alcoholic fermented apple plus which attracted 25% import duty and 121. 085 excise duty.

77. That the averments by the Appellant that any amounts which it paid was not considered was misleading.

78. That the decision to issue a demand for short levied tax based on misdeclaration by the Appellant cannot be in any way said to be unlawful as in the first instance intended to defraud the Government of taxes which it knew ought to have been paid being well aware of the true character of its import and knowing very well it was alcoholic fermented apple plus.

79. That the Respondent was therefore within the law to review the vacate notice and reinstate the demand as the Appellant had initially misled it to believe that the substance under consideration was the same as the one subject of the matter at the Tribunal.

80. The Respondent submitted that there are four issues for determination in this matter as follows: -a.Whether the Respondent properly reinstated the demandb.Whether the Tribunal’s jurisdiction is properly invoked in the current casec.Whether the Respondent erred in his classification of the Appellant’s imported itemd.Whether the Respondent correctly demanded for the taxes

Whether the Respondent properly reinstated the demand 81. The Respondent submitted that it has a mandate at all times, even after the importation, to verify the documents presented and establish that indeed the correct tax has been paid.

82. That while the Appellant stated that the Respondent cannot correct the error that was made leading to the assessment being vacated, it has not stated any law that prohibits the action of correcting a decision made in error by an administrative body.

83. That Respondent later on realizing that the products are distinct and in fact the product under consideration was alcoholic fermented apple plus and not fermented apple concentrate which was the subject of the TAT Appeal, re-instated the demand.

84. That the Tribunal cannot uphold a decision which is openly erroneous. That there is no law that prevents the Respondent from correcting its own decision. The only law that exists is Sections 135 and 236 OF EACCMA which require and empower the Respondent to collect all taxes which ought to have been collected.

85. That the Respondent having reinstated the demand, it meant that that the Appellant was required to now re-apply for review of its application to be considered on merit as provided under Section 229 of the EACCMA.

86. That the Tribunal should direct the Appellant to properly proceed to make an application for review on the reinstated demand under section 229 and not Appeal under Section 230 as the reinstatement of a demand is not a review decision to be appealed.

Whether the tribunal’s jurisdiction is properly invoked in the current case. 81. The Respondent submitted that having established that by the Respondent reinstating its demand meant that the Appellant was required to now proceed to lodge a review application under Section 229 OF EACCMA for consideration before a review decision can be made. That the Tribunal’s jurisdiction has been prematurely invoked.

82. That the effect of reinstating the demand meant that the Appellant ought to apply for a review of the decision for the same to be considered on merit and not lodge an appeal. That if the Appellant had had an issue with the procedure, then the forum to raise such an issue would have been the judicial review court not the Tribunal.

83. That further even the question of functus officio itself is a question on Constitutionality and Fair Administrative Action which falls outside the jurisdiction of the Tribunal. That the Tribunal must down its tools for reasons of lack of jurisdiction.

84. That the Tribunal in the current case is not properly clothed with jurisdiction to answer the issue of functus officio, the basic corrective principle. Further, the Tribunal cannot address a matter for which a review decision has not been issued rather the demand has been reinstated.

Whether the Respondent erred in his classification of the appellant’s imported item 81. The Respondent submitted that the Appellant avoided to discuss the issue of the correct classification of the subject matter in dispute which is fermented alcoholic apple plus. That the Appellant would prefer that the item is classifiable under Heading 2106 whereas the Respondent maintains that the correct classification is HS Code 2206. That this discussion is however the basis of the short levied tax as demanded.

82. That based on the description of the “alcoholic fermented apple plus and its chemical composition, the product was specifically provided for under Chapter 22, and specifically subheading 2206. 00. 90.

83. That it is evident that alcoholic fermented apple plus is properly classifiable under HS 2206. 00. 90 and not HS 2106. 00. 90. The Appellant cannot therefore contest the same while it is well aware that it had mis-declared the alcoholic fermented apple plus in order to attract low duty contrary to the law and further misled the Respondent into accepting that position.

Whether the Respondent correctly demanded for the taxes. 81. The Respondent submitted that the Appellant faulted the Respondent for considering the alcoholic fermented apple plus as other fermented beverages (for example, cider, perry, mead, sake).

82. That having demonstrated that the alcoholic fermented apple plus was properly classifiable under HS 2206. 00. 90 and not HS 2106. 00. 90, the Appellant cannot therefore contest the same while it is well aware that it had mis-declared the alcoholic fermented apple plus in order to attract low duty contrary to the law and further misled the Respondent into accepting that position.

83. That the demand having been based on the difference on the 10% duty under HS 2106. 90. 20 and HS 2106. 00. 90, no double taxation was occasioned.

84. That it has not been shown that the Respondent applied a wrong rate on any of the consignments. That the Appellant in the current case has not pointed out with evidence of when the consignments were cleared for the Tribunal to make a determination whether there was any rate improperly applied.

85. That the Appellant merely relied on the Respondent’s Statement of Fact at paragraph 42 to state that a wrong rate was applied. That the same is merely a pleading, pleadings are themselves not evidence.

86. The Respondent relied on the following authorities: -a.Anup Chaudhuri -v- General Medical Council, [2015] EWHC 6621 (Admin).b.Bharat General Agency v Kenya Revenue Authority [2020] eKLRc.Commissioner of Customs & 2 others v Amit Ashok Doshi & 2 others & 2 others [2007] eKLR.d.Mistry Amar Sinqh Vs Kulubya 1963 EA 408. e.Kenya Airways Limited v Satwant Singh Flora [2013] eKLR.f.Macharia Mwangi Maina & 87 Others v Davidson Mwangi Kagiri [2014 ]eKLR.g.Porteous v West Dorset District Council [2004] EWCA Civ 244 (04 March 2004).h.Election Petitions Nos. 3, 4 & 5 Raila Odinga & Others vs. IEBC & Others [2013] eKLR.i.Benjoh Amalgamated Limited & Muiri Coffee Estate Limited v Kenya Commercial Bank Limited, [2014] eKLR (Benjoh case).j.The Owners of the Motor Vessel "Lillian S" Vs Caltex Oil (Kenya) Ltd (1989) KLR 1. k.Commissioner of Customs and Border Control v Kenya Breweries Limited (Tax Appeal E157 of 2021) [2022] KEHC 14570 (KLR) (Commercial and Tax) (31 October 2022).

Respondent’s prayers 81. The Respondent prayed that the Tribunal finds that; -a.The Respondent’s decision of 6th May, 2022, and tax demand was properly issued as provided under law.b.This appeal be dismissed with costs to the Appellant as the same is without merit.

Issues For Determination 81. The Tribunal upon due consideration of the pleadings of the parties was of the considered view that the Appeal raises two issues for its determination as hereunder:a.Whether the Tribunal’s jurisdiction is properly invoked in this matter.b.Whether the Respondent erred in vacating its review decision dated 29th March, 2022.

Analysis And Determination 82. The Tribunal having ascertained the issues for determination as set out above proceeded to deal with them as hereunder.

Whether the Tribunal’s jurisdiction is properly invoked in this matter. 83. The Tribunal has established that the Appellant submitted an application for review on 1st February, 2022, pursuant to Section 229 (1) EACCMA.

84. Vide a letter dated 29th March, 2022, the Respondent allowed the application for review on the grounds that the issue of classification had already been decided.

85. Further, vide letter dated 6th May, 2022, the Respondent purported to review its decision of 29th March, 2022, and dismissed the application for review on the ground that it relied on the wrong tariff ruling.

86. The EACCMA provides that where a person is dissatisfied with the decision of the Commissioner under Section 229, they may appeal to a Tax Appeals Tribunal established in accordance with Section 231 thereof. Section 230 of EACCMA provides that;“A person dissatisfied with the decision of the commissioner under Section 229 may appeal to a Tax Appeals Tribunal established in accordance with Section 231. ”

87. The above provision expressly confers the Tribunal with jurisdiction to hear all appeals stemming from any review decision issued under Section 229 of EACCMA.

88. On the other hand, the Respondent submitted that the effect of reinstating the demand meant that the Appellant ought to apply for a review of the decision for the same to be considered on merit and not lodge an appeal. That if the Appellant had an issue with the procedure, then the forum to raise such an issue would have been the Judicial Review Court and not the Tribunal.

89. That further even the question of functus officio itself is a question on Constitutionality and fair administrative action which falls outside the jurisdiction of the Tribunal. That the Tribunal must down its tools for reasons of lack of jurisdiction.

90. That the Tribunal in the current case is not properly clothed with jurisdiction to answer the issue of functus officio, the basic corrective principle. That further, the Tribunal cannot address a matter for which a review decision has not been issued.

91. The Tribunal notes that Section 230 of EACCMA confers to it the express mandate to entertain matters relating to decisions made by the Commissioner under Section 229 of the act.

92. The jurisdiction of the Tribunal is also invoked by Section 3 of the Tax Appeals Tribunal Act (TATA). which provides that; -“There is established a Tribunal to be known as the Tax Appeals Tribunal to hear appeals filed against any tax decision made by the Commissioner.”

93. Additionally, Section 2 of TATA defines an Appeal to be “an appeal to the Tribunal against a decision of the Commissioner under any of the tax laws.”

94. The Tribunal notes that the decision appealed against relates to a review decision dated 29th March, 2022, which vacated the Commissioner’s demand notice of 3rd February, 2022. This letter is a tax decision made by the Commissioner and therefore the Tribunal has jurisdiction in the matter. The Tribunal therefore finds that its jurisdiction was properly invoked in this matter.

Whether the Respondent erred in vacating its review decision dated 29th March 2022. 95. The Appellant submitted that the Respondent was at all times aware of all the differences between apple plus and apple concentrate and cannot claim that it received new information having analyzed both products.

96. That the Respondent in its submissions, simultaneously pleaded fraud, error on the face of the record and mistake as its reasons for altering its review decision. That the Respondent only cited mere error in its letter dated 6th May 2022.

97. That the Respondent, in its letter dated 6th May 2022 did not attribute blame to the Appellant but merely alluded to the existence of a purported error.

98. The Appellant submitted that the claims of mistake and error on the face of the record are improperly before this Tribunal and thus should not be considered.

99. On the other hand, the Respondent submitted that the Appellant applied for a review of the demand notice and subsequently held meetings with the officers of the Respondent.

100. That the Respondent’s officers proceeding on this misguided footing, proceeded to vacate the demand.

101. That the Respondent having been made to believe that the product in question was similar to what was under consideration in the ruling of the Tax Appeals Tribunal and in compliance with the requirements of the Fair Administrative Actions Act via a letter dated 29th March 2022 vacated the demand notice.

102. That the Respondent continued to review and investigate the classification presented by the Appellant to the Tribunal and came to the realization that the Appellant had misled it on the product.

103. The Tribunal notes that in its letter dated 29th March, 2022, entitled “Commissioner’s Review of Demand notice Kshs. 182,985. 056,” the Respondent replied to the application for review as follows: -“Your letter dated 03/03/2022 refers: -We noted that the Tax Appeals Tribunal, appeal number 282 of 2020, on 5th June, 2020, set aside KRA ruling referenced V&T/TAR1/RUL/023. We wish to notify you that our demand letter of 3rd February, 2022, has been reviewed and hereby vacated based on the ruling above.”

104. In its letter dated 6th May, 2022, titled “Review of Vacated demand notice, Kshs, 182,985. 050” the Respondent wrote to the Appellant as follows: -“We wish to inform you that the vacation letter dated 29th March, 2022, was erroneously based on a ruling for a different product and therefore our demand letter of 3rd February has been upheld.”

105. In the letter of 6th May, 2022, the Respondent did not state that the Appellant misled it in any way in making its review decision of 29th March, 2022.

106. The Tribunal finds that even if the Respondent was to disown its own review decision dated 29th March, 2022, and replace it with the decision made on 6th May, 2022, the Appellant’s application for review dated 3rd March, 2022, would have, in the circumstances, been deemed allowed by the operation of the law as the Respondent is required to make a review decision within 30 days of receiving the application failure to which the application would be deemed allowed by operation of the law.

107. The Tribunal finds that the Respondent erred in purporting to vacate its review decision of 29th March, 2022. The Tribunal reiterates its holding in TAT 839 of 2022 Gulf Energy Limited vs. Commissioner of Domestic Taxes where at paragraphs 108 and 109 the Tribunal stated as thus; -“108. Looking at the language used in Section 51 and 52 of the TPA, the Tribunal sees nothing that can suggest that the law confers upon the Respondent any powers to review and/or amend its own objection decision.

109. The legislature in its wisdom made the process leading to objections and appeals under Section 51 and 52 of the TPA to be governed by strict timelines. If its intention was to allow such leeway including a provision for amended objection decision at any time subsequent to issuing an objection decision as purported by the Respondent, nothing would have been easier than including the same in the law.”

108. Having established that the Respondent did not have powers to review, amend or vacate its own objection decision or review decision, the Tribunal finds that the Respondent erred in vacating its review decision dated 29th March, 2022.

Final Decision 109. The Upshot of the foregoing analysis is that the Appeal is merited and succeeds. The Tribunal accordingly proceeds to make the following final Orders: -a.The Appeal be and is hereby allowed.b.The Respondent’s letter dated 6th May 2022 reinstating and upholding the demand notice is hereby set aside.c.Each party to bear its own costs.

110. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 29TH DAY OF JUNE 2023. ERIC N. WAFULACHAIRMANCYNTHIA B. MAYAKAMEMBERGRACE MUKUHAMEMBERJEPHTHAH NJAGIMEMBERABRAHAM K. KIPROTICHMEMBER