[2024] KETAT 1255 (KLR)

Monarch Insurance Company Limited v Commissioner of Customs & Border Control (Appeal E876 of 2023) [2024] KETAT 1255 (KLR) (9 September 2024) (Judgment)

Neutral citation: [2024] KETAT 1255 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E876 of 2023

E.N Wafula, Chair, Jephthah Njagi, E Ng'ang'a & G Ogaga, Members

September 9, 2024

Between

Monarch Insurance Company Limited

Appellant

and

The Commissioner of Customs & Border Control

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya under the Companies Act. Its principal activity is the provision of insurance services under the Insurance Act.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. For the performance of its function under Subsection (1), the Authority is mandated under Section 5(2) of the Act to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act to assess, collect, and account for all revenues under those laws.

3. The Respondent conducted an audit on its Simba System and during reconciliation process noted that a taxpayer/importer by the name Alicia Freighters Limited (Alicia) had an outstanding unaccounted security bond amounting to Kshs. 27,185,329. 00.

4. The Respondent consequently vide a letter dated 27th July 2023 issued a demand to the taxpayer to account for the outstanding unaccounted security bond amounting to Kshs. 27,185,329. 00 within 14 days.

5. The taxpayer failed to respond to the demand notice and the Respondent issued a reminder vide a letter dated 29th August 2023.

6. The taxpayer did not revert to the reminder and the Respondent invoked Section 109 (1) of the East African Community Customs and Management Act (EACCMA) 2004 to demand the duty from the Appellant who was the guarantor of Alicia vide a letter dated 18th September 2023.

7. The Appellant responded vide the letter dated 2nd October 2023 requesting additional information to enable it address the demand and the Respondent vide an email dated 3rd October 2023 provided the information.

8. The Appellant consequently vide a letter dated 4th October 2023 made an application for review on account that the amount of time (14 days) granted by the Respondent was not sufficient to address the demand.

9. The Respondent vide a letter dated 17th October 2023 granted the Appellant additional 7 days to revert and the Appellant being aggrieved by the Respondent's decision subsequently filed the Appeal on 15th December 2023.

The Appeal 10. The Appeal is premised on the Memorandum of Appeal dated 14th December 2023 and filed on 15th December 2023 which raised the following grounds:a.That the Respondent erred and misdirected itself in law by failing to state or communicate its reasons for the review decision contrary to Section 229(4) of the East African Community Customs Management Act.b.That the Respondent erred and misdirected itself by purporting to enforce expired custom security bonds.c.That the Respondent erred in law and fact, by failing first to demand and pursue the principal debtors for the outstanding import duties before purporting to require due performance for expired custom security bonds from the Appellant.d.That the Respondent erred in law and fact, in purporting to demand Kshs. 27,185,329. 00 from the Appellant without any reasonable basis.e.That the Respondent’s review decision is unreasonable, unfair, unjust and breaches the Appellant’s legitimate expectation and Article 47 of the Constitution overall.

Appellant’s Case 11. The Appellant’s case was set out in its:a.Statement of Facts dated 14th November 2023 and filed on 15th November 2023 together with the documents attached thereto.b.Written submissions dated and filed on 20th March 2024.

12. The Appellant submitted that in the review decision dated 17th October 2023, the Respondent failed to address any of the issues it had raised in its application for review. That the review decision did not state why the Appellant was not in the copy of demands issued against its principals and also failed to address the issues raised in the demand.

13. The Appellant argued that the duty to give reasons is a requirement embodied in EACCMA and a Constitutional mandate embedded in the right to a fair administrative action guaranteed by Article 47 of the Constitution of Kenya. That these provisions, together with those of the Fair Administrative Action Act, have been given judicial imprimatur, and the courts have held that failure to give reasons renders the entire decision null and void.

14. The Appellant averred that the Commissioner failed to pursue the principal debtor before calling upon the Appellant to discharge the due performance of the principal debtor. That this is against the provisions of Section 109 (1) of EACCMA.

15. The Appellant argued that the Commissioner failed to demonstrate the efforts it took to pursue the principal debtor thus allowing it to escape and consequently deflecting the duties of the principal onto the Appellant.

16. The Appellant also argued that the Commissioner being aware that the principal debtor had failed to account for the import duties after expiry of the customs security bonds, it took a whole decade to demand for the due performance of the bonds.

17. That had the Respondent acted diligently, and pursued the debtor upon expiry of the bonds’ lifetime, it would have been able to recover the outstanding import duties due and payable to the Government.

18. The Appellant also argued that in the alternative and without prejudice to the foregoing submissions, the security bonds executed with the various clearing and forwarding agents were valid for a maximum period of three years.

19. The Appellant added that the issued security bonds expired on the dates appearing on the face of the security bonds and that the Commissioner having accepted the custom bonds with a three-year validity clause, was bound by the terms thereof and is estopped from seeking the securities beyond the periods stipulated therein.

20. The Appellant asserted that the Commissioner is estopped from attempting to rewrite the terms of the security by purporting to enforce the bond after its expiry. That similarly the Appellant’s obligations arising from the various custom security bonds executed with different transporters between 2011 and 2013 ended by effluxion of time.

21. The Appellant averred that its contractual obligations for the due performance of the various customs security bonds automatically terminated when their validity lapsed and the Commissioner’s demand therefore is illegal as it tries to compel the Appellant to perform an expired and unenforceable customs security bond,

22. The Appellant submitted that the Constitution provides that every person has the right to administrative action that is expeditious, efficient, lawful, reasonable, and procedurally fair. That the Commissioner must exercise its statutory powers in a manner that does not violate the Appellant's right to fair administrative action. That the process of doing so should be in accordance with the law.

23. The Appellant argued that having believed that the custom bonds it jointly executed with various transporters were limited to a particular period of time, its legitimate expectation on the duration of validity of the custom bonds crystalized.

24. The Appellant added that the Respondent’s Custom Bonds Procedure Guidelines provided that a general security bond is valid for a period of three years and the Appellant had a legitimate expectation that the impugned security bonds would be valid for only three (3) years.

25. That also pursuant to Sections 234, 235 and 236 of EACCMA, the Respondent is limited for a period of five (5) years to carry out its post-clearance audit for the purposes of ascertaining compliance with customs laws. That the Appellant therefore had a legitimate expectation that all queries relating to the impugned custom securities bonds would be raised and addressed within five years from when the bonds were executed.

26. On the basis of the foregoing, the Appellant averred that the Commissioner violated its legitimate expectation by purporting to enforce an expired customs security bond.

27. The Appellant in support of its case relied on the holdings in PZ Cussons East Africa vs KRA [2023] eKLR, Carol Construction Engineers Ltd & Anor vs National Bank of Kenya [2020]eKLR and National Bank of Kenya Ltd vs Pipeplastic Samkolit (K) Ltd & Anor [2001] e KLR amongst Others.

Appellant’s prayers 28. The Appellant prayed for the Tribunal to consider its grounds of appeal and allow the Appeal as prayed.

Respondent’s Case 29. The Respondent’s case is premised on the following documents:a.Statement of Facts dated 18th January 2024 and filed on 19th January 2024. b.Written Submissions dated 5th April 2024 and filed on 9th April 2024.

30. The Respondent submitted that the Appellant’s Appeal before the Tribunal is not valid as the Respondent’s letter dated 17th October 2023, which is the basis of the Appellant’s Appeal does not amount to a decision as contemplated under Section 229 of EACCMA.

31. That the Appellant had made an application for review dated 4th October 2023 on the account that the amount of time granted by the Respondent was not sufficient to address a demand.

32. That the Respondent vide a letter dated 17th October 2023 granted the Appellant additional 7 days to revert and the Appellant instead of acting within the 7 days granted, wrote another letter dated 25th October 2023 informing the Respondent that it was proceeding to the Tribunal without granting the Respondent an opportunity to deal with their issues.

33. The Respondent further submitted that since the Appellant’s letter of 4th October 2023 was contesting the Commissioner’s decision to decline the request for a further 30 days to respond to the demand there was nothing to review save for the timelines.

34. The Respondent averred that there being no tax dispute and decision, the Tribunal lacks the jurisdiction to deal with the matter.

35. The Respondent averred that its hands were tied since it had already granted the 14 days provided for under the law.

36. The Respondent also submitted that further to the Appellant’s request for additional days, the Respondent agreed to grant an additional 7 days over and above the 14 days already granted and provided for under the law.

37. That contrary to the Appellant’s allegations that the Respondent did not give reasons for declining the request for additional 30 days, the Respondent submitted that in its letter dated 17th October 2023 it granted the Appellant additional 7 days to respond to the demand.

38. The Respondent submitted and maintained that its letter of 17th October 2023 was not a decision contemplated under Section 229 of EACCMA since the Appellant's letter of 4th October 2023 was simply contesting the amount of time granted by the Respondent to the demand. The Respondent submitted that the Appellant could only file its Appeal to the Tribunal after the Commissioner had made a tax decision arising from its review application and which had not crystallised.

39. That the outcome of this breach is that the Appellant filed its Appeal to the Tribunal without exhausting the dispute resolution mechanism set out in Section 229 EACCMA. That the Appellant invoked the jurisdiction of the Tribunal prematurely and there is no appealable decision before the Tribunal for determination.

40. The Respondent averred that there was nothing unreasonable, unfair and unjust in demanding accountability of outstanding bond within 14 days since the number of days a person is required to respond were statutory requirements and the same was stated in the demand letter. That the Respondent was enforcing payment of duty in accordance with Section 109 of EACCMA.

41. The Respondent also submitted that before it pursued the Appellant it had made efforts to have the principal debtor pay the taxes in issue but upon failing to realise the same it had no option than to pursue the Appellant.

42. The Respondent averred that the guarantor of the importer had the duty to ensure the goods exited the Country within 30 days as required in the approval.

43. The Respondent also stated that the Appellant alluded to the fact that the Respondent was enforcing an expired bond, but the same was not presented to the Tribunal for interrogation to establish whether the same were enforceable or not.

44. The Respondent also averred that the Appellant had not disputed whether the taxes are due or not but simply sought more time to check its records and do a follow up with the importer. That since there was no dispute on the taxes owed the Tribunal had nothing to determine.

45. In response to the issue of legitimate expectation, the Respondent averred that at no point was there an express, clear and unambiguous promise which was relied upon by the Appellant.

46. The Respondent also averred that it cannot be estopped from performing its statutory duty of collecting taxes on the basis of legitimate expectation.

47. The Respondent in support of its case relied on the holdings in the Speaker of the National Assembly vs Karume 1992 eKLR, Geoffrey Muthinja Kabiru &2 Others vs Samuel Munga Henry & Others and The Owners of Motor Vessel Lillian “S” vs Caltex Oil Kenya Ltd [1989] KLR.

Respondents prayers 48. The Respondent prayed that the Tribunal:-a.Dismisses the Appeal.b.Upholds the Respondent’s demands dated 18th September 2023. c.Awards the Respondent the costs of the Appeal.

Issues for Determination 49. The Tribunal has considered the facts of the matter and the submissions made by the parties, and considers the issues for determination as follows:a.Whether the Tribunal has jurisdiction to deal with the matterb.Whether the Respondent was justified to make the review decision dated 17th October 2023

Analysis and Findings 50. The Tribunal having identified the issues falling for its determination proceeds to analyze the same as hereunder.

a. Whether the Tribunal has jurisdiction to deal with the matter 51. The Respondent argued in its submissions that the Tribunal did not have the jurisdiction to deal with the matter as there was no tax dispute and decision. That the Appellant had not disputed whether the taxes are due or not but simply sought more time to check its records and do a follow up with the importer. That the duty demanded was not in dispute and therefore there was nothing for the Tribunal to determine.

52. The Respondent did not supply any evidence to support its averments to the effect that there is no dispute to determine or that the Appellant has not disputed the tax in issue. The Respondent’s averments therefore remain just that and do not amount to evidence.

53. The above notwithstanding the law is very clear on what the jurisdiction of the Tribunal covers and the same is well laid out in Section 3 of the Tax Appeal Tribunal (TAT) Act which provides as follows:-“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”.

54. Further Section 12 of the TAT Act provides as follows:“A person who disputes the decision of the Commissioner on any matter arising under the provisions of any tax law may, subject to the provisions of the relevant tax law, upon giving notice in writing to the Commissioner appeal to the Tribunal”.

55. The Respondent vide a letter dated 18th September 2023 addressed to the Appellant demanded liquidation of outstanding Security bonds within 14 days. The Appellant replied to the demand vide its letter dated 2nd October 2023, requesting for several things including thirty (30) days, after the receipt of the aforesaid letter, to respond to the same.

56. The Respondent via an email dated 3rd October 2023 addressed to the Appellant declined to give the Appellant the sought 30 days period and the Appellant made an application for review on 4th October 2023 seeking to review the decision disallowing it a further thirty days as sought.

57. The Respondent made a review decision on 17th October 2023 stating that the Appellant’s request had been reviewed and a decision made to grant it a further seven (7) days. It is this decision that the Appellant appealed against.

58. The tax law in issue here is the EACCMA and the dispute was on whether the Appellant was liable for the liquidation of the security bonds in issue as demanded by the Respondent.

59. The Tribunal notes that the law does not define what a “decision” is but the same provides very clearly that a taxpayer dissatisfied with the Commissioner’s decision can appeal to the Tribunal. The decision appealed against is a proper decision as per the law and consequently the Tribunal has jurisdiction to deal with the same.

b) Whether the Respondent was justified to make the review decision dated 17th October 2023. 60. The Respondent made the review decision appealed against by the Appellant on 17th October 2023. This was in response to the application for review made by the Appellant on 4th October 2023.

61. The Respondent had prior to the foregoing made a demand to the Appellant on 18th September 2023 for liquidation of the outstanding security bonds within 14 days.

62. The Tribunal notes that the security bonds in issue are given under the provisions of Section 106 of EACCMA and the enforcement of the same is covered in Section 109 (1) of EACCMA which provides as follows:“Where the conditions of any bond have not been complied with the Commissioner may by notice in writing require the person who has given security under it to pay to him or her the amount of the security within fourteen days of the notice; and on failure to comply with the notice, the Commissioner may enforce payment of the security as though it were a duty due and unpaid.”

63. The Tribunal notes that Section 109(1) of EACCMA was the applicable law once the taxpayer failed to honour the terms of the security bonds. It was on the basis of the same that the Respondent demanded the liquidation of the security bonds within fourteen days.

64. The Respondent’s provision for a further seven days to the Appellant to comply with the enforcement provisions were given by the Commissioner at his discretion. This was a fair consideration by the Commissioner and the Appellant ought to have taken it up. The Appellant was therefore not entitled to the thirty days it had requested for and the Commissioner was within the law to refuse the same.

65. The Appellant also argued that it had legitimate expectation based on earlier engagements with the Respondent in similar circumstances to the effect that a copy of the demand would first be made to the principal debtor and thereafter it would be accorded between 30 to 60 days before a demand is raised against it.

66. The Respondent on the issue of the Appellant’s legitimate expectation, argued that it had not expressly or otherwise made a promise to the Appellant that the latter relied on.

67. The Appellant other than making the averments did not annex to its documents any evidence to support the argument on its allegations of its earlier engagements with the Respondent in handling security bonds.

68. Its trite law that in all circumstances in tax matters, the taxpayer has the burden to prove the Respondent’s demand(s) incorrect and which burden it did not discharge.

69. The Tribunal on the issue of the burden of proof took into consideration the provisions of Section 30 of the TAT Act which provides as follows:“In a proceeding before the Tribunal, the Appellant has the burden of proving:a.Where an appeal relates to an assessment, that the assessment is excessive; orb.In any other case, that the tax decision should not have been made or should have been made differently.”

70. The Appellant had also argued that the bond in issue was issued around nine years ago. However, the Appellant failed to bring forth any evidence to support the argument. The Tribunal is therefore not able to ascertain the efficacy of the Appellant’s arguments.

71. The Appellant submitted that the letter of 18th September 2023 did not indicate the specific bond number against which the Respondent was raising the demand. The correspondence between the parties between the period 18th September 2023 to 4th October when the Appellant made the application for review are annexed to the Respondent’s Statement of Facts. Nowhere in the correspondence in issue has the Appellant applied to be supplied with the bond number. Even in the letter dated 2nd October 2023 where the Appellant was seeking for a further 30 days to deal with the demand the Appellant did not mention the bond number in issue.

72. The Tribunal upon taking into consideration all the issues and arguments raised by the Appellant in its application for review is of the considered view that the Appellant’s application for review was not supported by the law or facts. Consequently, it makes a finding that the decision of the Commissioner to disallow that application for review was proper.

73. The Tribunal in the circumstances determines that the Appeal has no merit and the same has to fail.

Final Decision 74. The upshot of the foregoing analysis is that the Appeal is unmeritorious and the Tribunal consequently makes the following Orders:-a.The Appeal be and is hereby dismissed.b.The Respondent’s demand dated 18th September 2023 be and is hereby upheld.c.Each party to bear its own costs.

75. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF AUGUST, 2024. ERIC NYONGESA WAFULA - CHAIRMANJEPHTHAH NJAGI - MEMBEREUNICE N. NGA’NG’A - MEMBERGLORIA A. OGAGA - MEMBER