[2024] KETAT 1257 (KLR)

Matsingberg Clearing & Forwarding Limited v Kenya Revenue Authority & another (Tax Appeal E630 of 2024) [2024] KETAT 1257 (KLR) (23 August 2024) (Ruling)

Neutral citation: [2024] KETAT 1257 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E630 of 2024

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, T Vikiru & AK Kiprotich, Members

August 23, 2024

Between

Matsingberg Clearing & Forwarding Limited

Appellant

and

Kenya Revenue Authority

1st Respondent

Kenya Wine Agencies Ltd

2nd Respondent

Ruling

1. The Appellant vide a Notice of Motion application dated the 3rd day of May, 2024 and filed under a Certificate of urgency on the 14th June, 2024 and which is supported by an Affidavit sworn by Emmanuel W. L. Mathai, on the 13th day of May, 2024, sought for the following Orders:-a.Spentb.Spentc.That pending the hearing and determination of the Appeal the Tribunal be pleased to issue an order directing the 1st Respondent to reinstate the Appellant’s password and access to KRA – Integrated Customs Management Systems (ICMS) and allow the Appellant to carry on its business as a customs agent.d.That this Honourable Court do issue such further orders as it may deem fair and just in the circumstances of this application.e.That costs of the application be provided for.

2. The application is premised on the following grounds:-a.That the Appellant was at all material times to this suit duly licenced being and issued with Licence Number CAL/000748/20 as a Customs agent under the East African Community Customs Management Act with responsibility of advising and collecting taxes on behalf of Kenya Revenue Authority – Commissioner of Customs and Border Control for all goods imported into or from Kenya.b.That the 2nd Respondent appointed the Appellant in 2006 as its Customs agent and subsequently renewed the Appellant’s appointment from time to time between 2006 to 2010. The Appellant was to prepare customs entry form Form – C63 under customs procedure for re-export of goods CPC-R300 for the 2nd Respondent’s clients to whom they were re-exporting goods (alcoholic beverages – Wines & spirits) stored in their bonded warehouse and for transfer of goods to their warehouse in Rwanda.c.That the Appellant received instruction for the 1st Respondent during the agency period relating to movement and re-export of goods from the 1st Respondent’s bonded warehouse located along Enterprise Road within Industrial area. That to enable the re-export of goods by the 1st Respondent it was mandatory required that the Appellant issue bonds to facilitate movement of the cargo from the 1st Respondent’s Bonded Warehouse to the boarder of exit.d.That the Appellant as required by law did issue various bonds to facilitate the re-export of goods during 2006 and 2008. The 1st Respondent had the duty and responsibility as the instructing exporter and a licenced Bonded Warehouse to ensure that the bonded goods/cargo was exported and all documents relating to the export thereof were properly maintained for purposes of accountability to the 2nd Respondent.e.That in 2009 the Appellant through the 2nd Respondent learnt that some cargo for which the Appellant had issued bonds and booked for re-export by the 1st Respondent could not be accounted for and that no entries could be traced from the 2nd Respondent’s system in regards to the re-exportation of the cargo for which the Appellant had issued bonds for.f.That the Appellant sought for classification from the 2nd Respondent, whereupon the 2nd Respondent promised to provide the Appellant with the relevant information regarding the relevant entries supported by the relevant bonds.g.That under the provisions Part IV of EACCMA 2004 the 2nd Respondent having a licence for a private bonded warehouse and the keeper thereof had the responsibility of maintaining proper records for all goods stored in the warehouse with clear specific entries for inwards and outwards movement of goods.h.That the 2nd Respondent was under duty as the exporter of the goods to be responsible and ensure that the goods in issue were duly processed and exported out of the Country as intended. The 2nd Respondent has failed, ignored and/or neglected to account and/or give information regarding the goods held in the private bonded warehouse and more specifically the transactions relating to goods entered for export between 2006 and 2008. i.That the 1st Respondent reviewed all the entries (R300) from the 2nd Respondent’s Bonded Warehouse Number BNB111 and 171 and made a finding that there were outstanding bonds in force amounts (BIF’s) for various re-exportation entries between 2006 and 2008 which were lacking proof of having exited the Country.j.That upon making its finding the 1st Respondent by dint of letter dated 3rd July, 2020 wrote to the 2nd Respondent demanding for evidence of exportation of the goods covered by the BIF’s and the 1st Respondent demand that the 2nd Respondent provides evidence of exportation of the goods in question within 14 days filing which enforcement measures were to be taken against the 2nd Respondent.k.That the 2nd Respondent has failed, ignored and/or neglected to provide evidence of the goods leaving the bonded warehouse numbers 111 and 171 and for the re-exportation of the goods and the relevant bonds for their export.l.That despite several meetings and correspondence between the Appellant and the 2nd Respondent, the 2nd Respondent is yet to account for the goods entered in 2006 and 2008 and has also failed to pay the taxes due for the goods in issue.m.That on the 11th January, 2021 the 1st Respondent by dint of letter Reference C&BC/BMU/TF/DEMAND/1164(b)/20 did make a final demand to the 2nd Respondent under Section 60(2) of EACCMA 2004 for the outstanding 41 CB4 Bonds transactions for a sum of Kshs 2,656,735. 00 plus interest of Kshs 2,685,735. 00 totaling Kshs 5,317,470. 00. n.That the Appellant in compliance with directions given by the 1st Respondent it was a condition for the renewal of the Appellant’s licence as a Customs Agent to attached, inter alia, a Certificate of Bond Clearance for all bonds issued by the Appellant for the years 2006 to 207. o.That the Appellant’s passwords and access to “Integrated Customs Management Systems (iCMS) were suspended without notice and upon inquiry the Appellant was orally informed that the Appellant’s access and password had been suspended because of the pending BIF’s for the years 2006 to 2007. p.That the 1st Respondent in recognition of the 2nd Respondent’s obligation to account and/or pay the duty accrued thereon, the 1st Respondent has continued to pursue the 2nd Respondent and as a consequence the Appellant’s application for renewal of customs agent’s licence was rejected and the access to the iCMS portal suspended.q.That at the time of suspension of the Appellant’s password and access to the iCMS the Appellant had on the 30th May, 2024 made entries for the clearing of goods at Lunga-Lunga Customs Station being Entry number 24LLAIM400087009 and upon assessment taxes were paid by the client on the same day. The 1st Respondent issued an acknowledgment of payment of the taxes issuing Payment Slip Reference No.102024000630342. r.That the suspension of password and access to iCMS are made despite the fact that the 1st Respondent has always known and held the 2nd Respondent liable to account for the goods in its bonded warehouse No. 111 and 171 and for the re-exportation of any goods held in therein across the borders of the bonded warehouse.s.That despite having full knowledge of the admission by the 2nd Respondent the 1st Respondent purported to unilaterally suspend the Appellant’s access and password to iCMS thereby illegally closing the Appellant’s operations as thereby denying the opportunity of making profits from his legal operation that may cause the Appellant’s clients seeking other alternative ways of earning an income from his trade and/or profession.t.That the impugned “action of suspending” the Appellant’s password and access is illegal and no notice was ever served upon the Appellant and its Directors as is required by law and the Appellant and its directors learnt of the same from the system on the 3rd June, 2024. u.That the Applicant has been subjected to an unfair and arbitrary process by the 1st Respondent with the suspension of its access to the “iCMS SYSTEM” which has effectively compelled the Appellant to stop conducting business two years now.v.That the Appellant on discovering of the suspension of password and denial of access to the iCMS wrote a letter on the 3rd June, 2024 seeking for the 1st Respondent to lift the suspension of password and access to iCMS to enable the Appellant complete pending transactions for which entries had been made and the 1st Respondent did oblige by temporarily lifting the suspension of password and access to the system for 2 days ended on the 6th June, 2024. w.That the Appellant is apprehensive that unless the 1st Respondent is restrained and/or compelled to grant and restore the Appellant’s password and access to iCMS the Appellant will be subjected to a loss of contracts and the right to operate his business at large.

Response to the application ____ 3. The 1st Respondent upon being served with the application signaled its opposition to the application by filing a Replying Affidavit sworn by Serah Oguda, a trained Customs Officer of the 1st Respondent, on the 26th day of June, 2024 and filed on the even date in which it stated as follows:-a.That the 1st Respondent published a notice for vetting of all Customs agents in the year 2021. b.That the Appellant submitted an application for vetting and was invited for an interview on 1st March, 2023 vide the 1st Respondent’s letter dated 16th February, 2022. c.That due to delayed interview results, the Appellant was issued with a Customs Agent licence for the year 2022 upon payment of the licence renewal fees.d.That upon conclusion of the vetting exercise, the Appellant was not successful and the 1st Respondent informed the Appellant of the outcome of the process vide a letter dated 27th July, 2023. e.That the Appellant preferred an appeal vide a letter dated 21st August, 2023. f.That pending hearing and determination of the appeal, the 1st Respondent granted the Appellant among other companies access to the customs systems for the year 2023 upon payment of the requisite licence renewal fees.g.That further, the 1st Respondent allowed the Appellant access to the customs system in the year 2024 until 31st May, 2024 pending hearing and determination of its appeal and allow for compliance with the licensing requirements once the appeal is determined.h.That vide a letter and email dated 9th April, 2024, the 1st Respondent informed the Appellant that its appeal was successful and requested the Appellant to comply with the requirements set out therein for the customs licence to be processed.i.That in the letter and email dated 9th April, 2024, the 1st Respondent informed the Appellant to comply with the requirements which would then be reviewed by the Licensing office of the 1st Respondent on or before 13th May, 2024. j.That the Appellant did not respond to the 1st Respondent’s letter of 9th April, 2024 or comply with the requirements for licensing thus the Appellant’s 2024 customs licence was not renewed and the Appellant could not access the customs system.k.That vide a letter dated 3rd June, 2024, the Appellant made a request to the 1st Respondent to access the customs system to clear a perishable consignment to which the 1st Respondent granted two (2) days.l.That a certificate of Bond clearance among the documents listed as a requirement to facilitate renewal of the 2024 customs licence. The Appellant submitted the request to the 1st Respondent’s Bonds Management Unit in October 2023 and is yet to be cleared.m.That pursuant to Section 145(1) of the East African Community Customs Management Act 2004 (EACCMA 2004) mandates the 1st Respondent to licence persons to act as Customs agents.n.That under Section 145(2) of the EACCMA 2004, the 1st Respondent shall not licence any person to act as a customs agent unless satisfied that, that person has the capability, office equipment, a registered office and documents to effectively transact business in accordance with the provisions of the EACCMA and any other conditions as may be prescribed by Regulations.o.That Section 145(3) of the EACCMA 2004 provides that the 1st Respondent may refuse to issue, suspend, revoke or refuse to renew a licence if the applicant or holder is found guilty of a customs offence; or has been convicted of an offence involving dishonesty or fraud, or for any other reason the 1st Respondent may deem fit.p.That the definition of owner under Section 2(1) of the EACCMA 2004 includes agent in this case the Appellant.q.That under Section 147 of the EACCMA, a duly authorized agent who acts on behalf of the owner of any goods; is deemed to be the owner of such goods, and is personally liable for the payment of any duties due and for the performance of all acts in respect of the goods which the owner is required to perform.r.That the Appellant being the 2nd Respondent’s authorized Customs agent was under an obligation to account for the goods in the 2nd Respondent’s Bonded warehouse.s.That the decision to suspend the Appellant’s customs licence is not illegal as alleged by the Appellant. The Appellant has not met the conditions for renewal of its Customs licence as per the provisions of the EACCMA 2004. t.That the action by the 1st Respondent to suspend the Appellant’s custom licence is consistent with the powers bestowed upon the 1st Respondent under Part XI EACCMA and Regulations 149 and 150 of the EACCMR.u.That condition four(4) in the Customs Agent’s Licence on liability of payment of taxes is for the holder of the Licence to conduct due diligence in ensuring that duties are paid with respect to goods that the holder undertakes to clear.v.That the 1st Respondent further acted within its powers as per Section 190 of the EACCMA. The provision grants power to the Commissioner to cancel the registration of a registered user of a customs computerized system; where a person who is a user has failed to comply with, or has acted in contravention of any conditions of registration or any condition under the Regulations.w.That the application discloses no reasonable cause of action and is totally unfounded and ought to be dismissed with costs to the 1st Respondent.x.That in any event, the instant application is premature, as the Appellant has failed to comply with the mandatory provisions of the law. The Appellant has not demonstrated why it has filed an appeal before this Honourable Tribunal before exhausting the appropriate administrative review mechanism under Part XX of the EACCMA 2004.

Analysis and Findings 4. The Tribunal when the matter came up for hearing on the 27th June, 2024 directed that the application be canvassed by way of written submissions. The 1st Respondent duly complied with the directions by filing its written submissions dated 3rd July, 2024 and filed on the even date that have been considered by the Tribunal alongside the facts as disclosed in the Affidavits, both in support and in reply to the application, in arriving at the findings hereinafter. The 2nd Respondent did not file any response to the application.

5. The Tribunal notes that the 1st Respondent maintained, a fact not disputed by the Appellant, that the Appellant’s application for its renewal of the 2024 customs licence is still pending under processing by the 1st Respondent.

6. The 1st Respondent indicated that vide a letter dated 9th April, 2024 the Appellant was informed of its appeal against the refusal for the renewal of the licence having been successful and was such requested to satisfy the conditions for the renewal of the licence for the year 2024.

7. It is not in dispute that one of the conditions for the renewal of the licence for 2024 on the part of the Appellant was provision of a Certificate of Bond Clearance, which is to attest to the fact that the Appellant has no outstanding tax liability in relation to transactions processed on its part as a Customs agent.

8. It is an admitted fact that the Appellant has uncleared Customs bonds arising out of export transactions processed on its part on behalf of the 2nd Respondent. There are unaccounted taxes due and payable by the 2nd Respondent from the export transactions and which fact is not denied.

9. The Tribunal notes that the Appellant having been the Customs agent for the 2nd Respondent in respect of the export transactions in issue it is liable for the discharge of the taxes to the same extent as its client in pursuant to the provisions of Section 2(1) and 147 of the EACCMA.

10. Section 2(1) of the EACCMA provides as follows regarding the definition of an agent:““agent” in relation to an aircraft, vehicle or vessel, Amended by EACCM(A) A 2011 includes any person who acts on behalf of the owner and who, or on whose behalf any person authorised by him or her, does anything required of authorised by this Act to be done by an agent.”

11. Section 147 of EACCMA states as follows regarding liability of duly authorised agent:“A duly authorised agent who performs any act on behalf of the owner of any goods shall, for the purposes of this Act, be deemed to be the owner of such goods, and shall, accordingly, be personally liable for the payment of any duties to which the goods are liable and for the performance of all acts in respect of the goods which the owner is required to perform under this Act:Provided that nothing herein contained shall relieve the owner of such goods from such liability.”

12. With the application for the renewal of the 2024 customs licence pending under process, awaiting the Appellant’s satisfaction of the requirements for such renewal, the Appellant ought to fully exhaust the available legal mechanisms under EACCMA prior to seeking any judicial remedy and to that extent the Appeal and the application before the Tribunal are premature.

13. With regard to adherence to statutory edict and exhaustion of existing statutory mechanisms the Tribunal is guided by the case of W.E.C Lines Limited Vs. Commissioner of Domestic Taxes [TAT Case No.247 of 2020] where it was held at Paragraph 70 while reiterating the holding in Krystalline Salt Ltd vs KRA [2019] eKLR that: -“Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures. The relevant procedure here is the process of opposing an assessment by the Commissioner.”

14. The Tribunal in the circumstances finds that the application is premature and unsustainable in law.

Disposition 33. On the basis of the foregoing analysis the Tribunal finds that the application lacks merit and the Orders that commend themselves to the Tribunal are as follows:-a.The application be and is hereby dismissed.b.No orders as to costs.

DATED AND DELIVERED AT NAIROBI THIS 23RD DAY OF AUGUST, 2024ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERDR. RODNEY O. OLUOCH - MEMBERDR. TIMOTHY B. VIKIRU - MEMBERABRAHAM K. KIPROTICH - MEMBER