[2024] KETAT 988 (KLR)

Monarch Insurance Company Limited v Commissioner of Customs & Border Control (Appeal E771 of 2023) [2024] KETAT 988 (KLR) (12 July 2024) (Judgment)

Neutral citation: [2024] KETAT 988 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E771 of 2023

CA Muga, Chair, BK Terer, D.K Ngala & SS Ololchike, Members

July 12, 2024

Between

Monarch Insurance Company Limited

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

Background 1. The Appellant is a private limited liability company duly incorporated in Kenya pursuant to the provisions of the Companies Act and carrying out general insurance business in Kenya and regulated by the Insurance Act, cap 487 of the laws of Kenya.

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

3. Upon failure to receive responses to various letters sent to the Appellant’s principals informing them of existence of outstanding transit security bonds for which the Appellant had guaranteed, the Respondent issued agency notices against Appellant’s bank accounts but lifted the same on 28th July 2022 upon consideration of Appellant’s request as contained in the letter dated 26th July 2022.

4. The transit security bonds were in relation to years 2011 to 2013 that the Appellant had jointly entered into with other clearing and forwarding agents to facilitate transit of goods through the port of Mombasa. The bonds were to guarantee that goods leave the country for export and were to expire within thirty (30) days upon which a notification was to be addressed to the Respondent for cancellation.

5. Vide letters dated 16th July 2022 and 2nd September 2022, the Appellant requested details of the bonds subject to dispute. This was followed by several meetings on 26th September, 2022, 3rd November ,2022, 1st December ,2022 with a follow-up letter dated 17th November 2022.

6. On 19th April 2023, the Respondent pursuant to Section 109(1) of East African Community Customs Management Act, 2004 (hereinafter “EACCMA”) demanded to be paid total amount of Ksh 21,165,536. 00 in uncancelled outstanding CB8 transit security bonds payable within 14 days. Consequently, on an even date, the Appellant requested a further six (6) months to resolve the dispute which was granted by the Respondent vide its letter dated 25th April 2023. Again, on 3rd May 2023, the Appellant requested for more time to account for the outstanding bonds.

7. On 15th May 2023, the Appellant objected to the demands castigating the Respondent for sleeping on its rights for 10 years and failing to demonstrate efforts made to recover the same from principals. On 17th May 2023 and 8th June 2023, the Respondent requested for further information and received the same for purposes of validating the Appellant’s application for review.

8. On 20th June 2023, the Respondent rendered its review decision through the Appellant’s tax agent’s electronic mail address pursuant to Section 229(4) of the EACCMA.

9. The Appellant in a letter dated 17th July 2023 and as a response to Respondent’s letter dated 25th April 2023, requested for additional extension of time by six (6) months to cancel outstanding bond transactions.

10. In an electronic mail of 18th September 2023, the Respondent demanded outstanding payments within 48 hours failure to which the Appellant would be suspended from guaranteeing any more customs security bonds. This was closely followed by the Appellant’s countering letter dated 20th September 2023 on the grounds that the Respondent had not replied to the Appellant’s notice of objection within thirty (30) days pursuant to Section 229(4) of EACCMA.

11. In an electronic mail of 21st September 2023, the Respondent attached the review decision 20th June 2023 responding to the Appellant’s objection stating the grounds upon which the demand was predicated upon which was a reiteration of the earlier demand. In the same letter, the Respondent reiterated its decision to suspend the Appellant from guaranteeing customs security bonds as held in the latter dated 20th June 2023.

12. A consultative meeting between the parties’ representatives was held at the Respondent’s premises on 26th September 2023 which was followed by Appellant’s letter dated 4th October 2023 reiterating its earlier position that neither the Appellant nor its tax agents received the Respondent’s alleged letter dated 20th June 2023 within the stipulated timeframe of 30 days.

13. Consequently, on 17th October 2023 the Respondent acknowledged receipt of Appellant’s letter dated 4th October 2023 and reiterated its earlier position of suspending the Appellant and granted 7 days within which the Appellant was to address demands as raised. In rebuttal, the Appellant in a letter dated 25th October 2023 notified the Respondent of its intention to appeal the review at the Tribunal.

14. Vide a letter dated 3rd November 2023, the Appellant lodged its Appeal.

15. On 10th November 2023, the Respondent issued the Appellant with a letter detailing the date, nature and amounts of CB8 transit bonds for ease of reference.

The Appeal 16. The Appeal was premised on the following grounds as laid-out in the Memorandum of Appeal dated 17thNovember, 2023 and filed on even date:a.That the Respondent erred and misdirected itself in law by failing to issue or communicate its review decision to the Appellant’s application for review within thirty (30) days contrary to the provisions of Section 229 of EACCMA.b.That the Respondent erred and misdirected itself by purporting to enforce expired customs security bonds.c.That the Respondent erred in law and in fact by failing to first demand and/ or pursue the Principal debtors for the outstanding import duties before purporting to demand due performance for expired custom security bonds from the Appellant.d.That the Respondent erred in law and in fact in purporting to demand Ksh 20,314,796. 00 from the Appellant without any reasonable basis.e.That the Respondent’s review decision was unreasonable, unfair, unjust and was in breach of Appellant’s legitimate expectation and Article 47 of the Constitution of Kenya ,2010 (hereinafter “Constitution”) overall.

Appellant’s Case 17. The Appellant’s Chief Executive Officer, Ms. Mercy Ndegwa stated as follows in the Statement of Facts dated and filed on 17th November, 2023 wherein the Appellant presented five (5) grounds of Appeal as follows:

Failure to issue a review decision within thirty (30) days. 18. That between the year 2011 to 2013, it jointly executed transit bonds with clearing and forwarding agents for products on transit from various countries through the port of Mombasa amounting to Ksh 21,165,536. 07. Further, that unlike typical insurance policies of indemnity, custom bonds are guarantees against specific conditions attached to them which if not met then the guarantor makes good the claims.

19. The Appellant stated that Section 229(1) of EACCMAaffords any person directly affected by Respondent’s decision to lodge a review of application within 30 days which the Appellant did on 19th April 2023 [sic] through its tax advisors. Further, that Section 229(4) of EACCMAprovides the Respondent 30 days upon receipt of the application to communicate its decision providing grounds for the same; that however, the Respondent was derelict as it failed to communicate its decision as stipulated by the law. Thus, the Appellant’s application was deemed to have been allowed by operation of the law as couched under Section 229(5) of EACCMA.

20. The Appellant asserted that it became aware of the review decision when the Respondent referred to a letter dated 20th June 2023 in their electronic mail correspondence of 18th September 2023 which was 129 days late. Moreover, that the Appellant upon scrutiny noted that the Respondent had sent the review decision dated 20th June 2023 to the electronic mail address focustaxadvisory@gmail.com instead of tax advisors electronic mail address focustaxadvisiory@gmail.com, a negligence that did not immunize the Respondent from express provisions of statute rendering the Respondent’s demand contra-statute and lacking in merit.

Enforcement of expired custom security bonds. 21. That contrary to the Respondent’s purported review decision which was issued pursuant to Section 109(1) of EACCMA, and the Respondent’s assertion that nothing in EACCMA or any other written law could discharge a surety from obligations given under a security, the Appellant’s issued security bonds were valid for a maximum period of three (3) years. Moreover, that Section 85 of the EACCMA set one of the conditions that the Respondent may prescribe was to require the owner of imported goods to furnish security in the prescribed form and in such amounts as the Commissioner may deem necessary.

22. The Appellant controverted the Respondent’s assertion that outstanding bonds in the Simba System implied an unfulfilled condition or uncancelled surety stating that the Simba System was not the law that instead the system ought to be configured to conform with the law. The Appellant declared that the bonds were issued and expired on the dates appearing on their face and carried a maximum period of three years which had been accepted by the Respondent who could not renege and seek to enforce them beyond the periods stipulated therein and was precluded from arguing that the bonds still subsist after their expiry. The Appellant sought reliance on Section 120 of the Evidence Act, CAP 80 of Kenya’s Laws (hereinafter “Evidence Act”) which provides as follows:“When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representative to deny the truth of that thing.”

23. The Appellant stated that by freely negotiating and reducing the terms of the customs security bond into writing, the parties thereto expressly agreed to be legally bound by those terms and that the executed contract was a guarantee to pay a sum of money to the Respondent if any of the conditions of the bonds was not satisfied. Thus, when the Respondent accepted the terms stipulated in the transit bonds, it was deemed to have been satisfied by them and was therefore estopped from attempting to rewrite and /or recast the terms of the bonds by purporting to enforce the same after expiry. Likewise, that parties were bound by their contract terms unless coercion, fraud or undue influence was pleaded and proved which the Respondent failed to demonstrate what would warrant it to deviate from express contractual terms.

24. The Appellant averred that the transit bonds executed between years 2011 and 2013 came to an end by effluxion of time and so did the rights, obligations or expectations upon expiry of the bond terms and the Respondent was equally precluded from converting them onto continuous bonds.Failure to pursue the principal debtors.

25. The Appellant asserted that the Respondent absconded its duty when it permitted the escape of the principals from paying their outstanding import duty or deflecting their obligations onto the Appellant yet Section 109(1) of the EACCMA provides that where conditions of the bonds have not been complied with, the Respondent may by notice given in writing to the person to pay the amount of security within fourteen (14) days failure to which the Respondent may proceed to enforce the payment of the security as though it was due and payable.

Commissioner was guilty of laches. 26. The Appellant averred that the Respondent was guilty of laches, acquiescence and had waived its contractual claim over the expired bonds as it had failed to act diligently by pursuing principal debtors upon of the transit custom bonds 9 years after they expired. The Appellant reiterated that Section 73 and 85 of the EACCMAprovides that goods in transit shall within thirty (30) days from the date of entry be exported. Thus, it was the Respondent who failed to raise demand for due performance of the bonds if it was not satisfied that indeed goods had not been exported within thirty days after the bonds were issued.

reach of Appellant’s legitimate expectation. 27. The Appellant declared that the Respondent arbitrarily exercised its statutory mandate by purporting to enforce expired custom security bonds contrary to the tenets of Article 47 of Constitution. That even if the law empowers it to collect and administer taxes in Kenya, the process should be anchored in law. Additionally, that legitimate expectation as created when the Respondent by its conduct executed custom bonds whose lifespan was limited to 3 years implying that the Appellant would not be called upon to meet any liabilities thereunder upon expiration of the bond terms. That the Respondent was estopped from purporting to enforce the expired bonds.

28. The Appellant buttressed this position citing the Court’s decision in Kenya Revenue Authority vs Export Trading Company Limited (Petition 20 of 2020) [2022] KESC 31(KLR)Civ) (17June 2022) where it was held as follows:“there must be an express, clear and unambiguous promise given by a public authority; the expectation itself must be reasonable and the representation must be one which it was competent and lawful for the decision-maker to make.”

29. The Appellant was obstinate that the Respondent violated its legitimate expectation by purporting to enforce expired custom security bonds.

Appellant’s Prayer 30. The Appellant prayed that;a.The Tribunal allows the Appeal with costs.b.The Tribunal sets aside the Respondent’s review decision dated 20th June 2023 in its entirety.c.The Tribunal restrains the Respondent, its agents, employees, officers or any other person from claiming under its authority from demanding or taking any further steps towards enforcing the demands contained in its letters of 19th April 2023, 20th June 2023 and 17th October 2023 ostensibly issued under the provisions of Section 109 of EACCMA.

The Respondent’s Case 31. The Respondent replied to the Appeal through its Statement of Facts dated and filed on 15th December 2023.

32. The Respondent stated that between the year 2011 and 2013 the Appellant executed transit bonds amounting to Ksh 21,165,536. 00 for which it failed to apply for cancellation within 30 days as couched under Section 15 and Section 16 of Regulation 104 of EACCMA 2010 as read with Section 85 of the EACCMA thus the Appellant was deemed to have imported for home use and was liable for import duty. Moreover, that the Appellant neither responded to the demand nor accounted for the bonds and therefore the responsibility for the bonds lay with the guarantor.

33. The Respondent reiterated its position as stated in the review decision and asserted that it was acting within its powers as enshrined in law when enforcing the expired customs bonds. Moreover, that it rendered its decision within the legal timelines of 30 days and that it was the Appellant who was failed to lodge an appeal within the stipulated timelines. In buffering this position, the Respondent relied on Section 106 of EACCMA which provides as follows:“The Commissioner may require any person to give security for the due compliance by that person with this Act and generally for the protection of the Customs revenue; and, pending the giving of such security in relation to any goods subject to Customs control, the Commissioner may refuse to permit delivery or exportation of such goods or to pass any entry in relation thereto.”

34. The Respondent asserted that since it was on the basis of Section 106 of EACCMA that the Appellant entered into a security agreement, then the bonds were a way of securing duty payable by transporters. The Respondent further cited Section 107(1) as read with Section 107(3) which provide as follows;“(1).Where any security is required to be given under this Act, then that security may be given to the satisfaction of the Commissioner either-a.By bond, in such sum and subject to such conditions and with such sureties as the Commissioner may reasonable require; or…”(3).All bonds required to be given under this Act shall be so framed that the person giving the bond, and any surety thereto, is bound to the Commissioner for the due performance of the conditions of that bond; and any such bond may, unless sooner discharged by the due performance of the conditions thereof, be discharged by the Commissioner on the expiration of three years from the date thereof, but without prejudice to the right of the Commissioner to require fresh security”

35. The Respondent further stated that where bonds have not been cancelled, Section 15 and 16 to Regulation 104 of the EACCMA deemed such goods as having been imported for home use and thus liable to import duty as provided for under Section 130(1) of EACCMA. That a bond could only be cancelled as provided for under Section 107(4) of EACMMA which provides as follows:“(4). Where any bond given under this Act is discharged, then the Commissioner shall cause such bond to be cancelled and endorsement to that effect made thereon.”

36. The Respondent asserted that the uncancelled bonds became debts that were due and payable on demand as couched under Section 109(1) as read with Section 109(2) of EACCMA as follows:“109(1).Where the conditions of any bond are 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 duty payable and unpaid.(2).Nothing in this section shall, unless the Commissioner otherwise allows, discharge the person who has given security under section 108 from the obligations entered into by him or her under this Act or under any other law.”

37. The Respondent was adamant that there is no law that discharges a surety from its obligations with respect to expired bonds and the taxes due were payable.

Respondent’s Prayer 38. The Respondent made the following prayers to the Tribunal:a.That the Tribunal dismiss the Appeal with costs.b.That the Tribunal deems the Respondent’s decision dated 20th June 2023 as proper in law.

Parties’ Submissions 39. The Appellant’s written submissions were dated and filed on 6th March 2024 wherein the Appellant submitted on three issues for determination as expounded hereunder;

Did the Respondent fail to issue a Review Decision within 30 days? If so, what were the consequences of such failure. 40. The Appellant submitted that pursuant to Section 229(1) of EACCMAit applied for review decision within thirty (30) days on 15th May 2023 upon receipt of Respondent’s demand of 19th April 2023 citing its grounds. Additionally, the Respondent had thirty (30) days up to 16th June 2023 to communicate its decision with attendant reasons but failed to do so.

41. The Appellant further submitted that it became aware of the Respondent’s decision in an email correspondence of 18th September 2023 when the Respondent referred to an alleged decision rendered on 20th June 2023 and the consequent surreptitious attachment of the decision copy in the letter dated 21st September 2023 which was 129 days late contrary to Section 229(5) of EACCMA which deemed the Appellant’s application as having been allowed by law due to Respondent’s failure to communicate its decision in time. The Appellant went on to reiterate the Tribunal’s holding in BIC East AfricaBIC East Africa Limited vs Commissioner of Customs and Border Control [TAT No. 127 of 2020] that “by operation of the law, the Appellant’s application for review was deemed accepted on expiry of the 30 days within which the Respondent was legally obliged to issue a review decision.”

42. It was the Appellants avowal that a scrutiny of the electronic mail allegedly used by the Respondent to communicate the impugned decision revealed that it was the wrong one i.e. focustaxadvisory@gmail.com instead of focustaxadvisiory@gmail.com.

43. The Appellant asserted that it was arbitrary and feeble for the Respondent to purport to issue notice of intention to suspend custom security bonds guarantee but also a desperate attempt by the Respondent to cover up its indolence in rendering a review decision within the prescribed timelines as the demands were without merit. The Appellant relied on the case of Republic vs Commissioner Customs Services ex parte Unilever Limited (2012)eKLR that;“If the Respondent does not communicate a decision within 30 days, then the Respondent “shall be deemed to have made a decision to allow the application.” The law is so clear that it can only be interpreted on one way.”

Did the Respondent err by purporting to enforce expired custom security bonds? 44. The Appellant submitted that the security bonds were valid for a maximum of 3 years and had been entered into with various clearing and forwarding agents pursuant to Section 85 of the EACCMA as read with Section 107(3) of the EACCMA which provides as follows: “all bonds required to be given under this Act shall be so framed that the person giving the bond, or any surety thereto, is bound to the Commissioner for the due performance of the conditions of that bond to the satisfaction of the Commissioner”.

45. That contrary to the Respondent’s assertion that there were outstanding bonds in its “Simba system,” the Appellant was obstinate that the issued security bonds expired on the dates appearing on their face and since the Respondent accepted them with a three (3) year validity clause, the Respondent was estopped from seeking to enforce them beyond the periods stipulated therein and was precluded from arguing that the bonds still subsisted after expiry as couched under Section 120 of the Evidence Act. The Appellant cited the case of Carol Construction Engineers Limited & another v National Bank of Kenya[2020]eKLR where the High Court quoted with approval the case of Serah Njeri Mwobi v John Kimani Njoroge(2013)eKLR as follows:“The doctrine of estoppel operates as a principle of law which precludes a person from asserting something contrary to what is implied by a previous action of statement of that person.”

46. The Appellant submitted that the security bond was a freely negotiated binding contract which clarified the parties mutual understanding of their obligations and conditions requiring the parties to pay a sum of money if any of the conditions of the bonds were not satisfied. The Appellant relied on the case of National Bank of Kenya Limited v Pipeplastic Samkolit (k) Limited & Another [2001]eKLR where it was held as follows:“A court cannot re-write a contract between the parties. The Parties are bound by the terms of their contract, unless coercion, fraud, or undue influence are pleaded and proved.”

47. The Appellant submitted that the custom security bonds did not carry any rights, obligations or expectations beyond expiry date and had been ended by effluxion of time. Moreover, that the Respondent was estopped from attempting to enforce, re-write or recast terms of the bonds after expiry as even the Appellant’s obligations ended upon termination of the bond terms as was held in the Court of Appeal decision in Transparency International-Kenya vs Teresa Carlo Omondi [2023] eKLR provided as follows:“a fixed term contract will automatically lapse at the expiration of the contractual time. We note in the absence of evidence of the renewal of the custom security bonds, the terms contained therein lapsed at the expiration date.”

48. It was the Appellant’s submission that the Respondent’s demand was tainted with illegality by trying to compel the Appellant to perform an expired and unenforceable custom security bond yet the Respondent had accepted the time-limited customs bond that could not be converted into a continuous bond.

Did the Respondent breach the Appellant’s legitimate expectation? 49. The Appellant submitted that although the Respondent is empowered to collect and administer taxes in Kenya, Article 47 of Constitution requires that every person has the right to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair thus the Respondent as a public body must exercise statutory powers in a manner that does not violate the Appellant’s right to fair administrative action.

50. The Appellant further stated that legitimate expectation arose when the Respondent by its conduct in executing customs bonds, whose lifespan was limited; the Appellant believed that after the expiry of the bonds, it would not be called upon to meet liabilities thereunder. In buffering this position, the Appellant relied on the case of APA Insurance Limited v Commissioner of Customs and Border Control (Tax Appeal 1353 of 2022) [2023] eKLR where the Tribunal allowed the Appeal where the Respondent sought to enforce expired customs bonds having found out that the Appellant had not replenished or extended the expiry of the custom beyond the timeliness prescribed in its Guidelines for bonds.

51. That the Appellant’s legitimate expectation crystalized on the duration of validity of the customs bonds which was 3 years. That furthermore, Section 234, 235 and 236 of the EACCMA limited the post-clearance audit to five (5) years for purposes of ascertaining compliance with customs laws; a period within which the Appellant had legitimate expectation that all queries relating to the impugned custom securities bonds would be raised and addressed. The Appellant sought reliance in the Court’s decision in Republic v Kenya Revenue Authority Ex parte M-Kopa Kenya Limited [2018] eKLR where the principle of legitimate expectation was expounded as it was appreciated in Keroche Breweries Limited vs Kenya Revenue Authority & 5 Others Nairobi HCMA No. 743 of 2006 (2007) KLR 240 where it was held as follows:“…Legitimate expectation is based not only on ensuring that legitimate expectations by parties are not thwarted but on a higher public interest beneficial to all, including the Respondents, which is the value or the need of holding authorities to promises and practices they have made and acted on and by so doing upholding responsible public administration. This enables people affected to plan their lives with a sense of certainty, trust, reasonableness, and reasonable expectation. An abrupt change, as was intended in this case, targeted at a particular company or industry is certainly an abuse of power. Stated simply, legitimate expectation arises, for example, when a member of the public, as a result of a promise or other conduct, expects that he will be treated in one way and the public body wishes to treat him or her in a different way…Public authorities must be held to their practices and promises by the courts, and the only exception is where a public authority has a sufficient overriding interest to justify a departure from what has been previously promised…To ascertain whether or not the respondent’s decision and the intended action is an abuse of power, the court has taken a fairly broad view of the major factors such as abruptness, arbitrariness, oppressiveness, and the quantum of the amount of tax imposed retrospectively and its potential to irretrievably ruin the applicant. All these are traits of abuse of power. Thus, I hold that the frustration of the applicant’s legitimate expectation based on the application of tariff amounts to abuse of power.”

52. That the sudden arbitrary and unexplained about-turn by the Respondent in demanding performance of expired custom security bonds would amount to thwarting the Appellant’s legitimate expectation having slept on its responsibility for over a decade only to awake and pursue the Appellant out of its convenience and to the extreme prejudice and detriment of the Appellant.

53. The Respondent’s written submissions were dated and filed on 19th March 2024 wherein the Respondent submitted on two issues for determination as hereunder;

Whether the Respondent’s preliminary objection had merit. 54. The Respondent asserted that despite the Appellant’s allegation that it became aware of the review decision on 20th September 2023, there was no doubt that it was the review decision dated 20th June 2023 that was subject to the instant Appeal. Further, that since the Appellant failed to lodge an Appeal within the stipulated timelines, the Respondent was in doubt whether there was a proper Appeal before the Tribunal. The Respondent cited Section 230 of EACCMA which provides as follows:“(2).A person intending to lodge an appeal under this section shall lodge the appeal within forty-five days after being served with the decision, and shall serve a copy of the appeal on the Commissioner.”

55. That in spite of the Appellant’s denial of receipt of the review decision, the Respondent asserted that it disputed and demonstrated the incorrectness of this averment since it first rendered its decision on 20th June 2023 and forwarded the same a second time on 20th September 2023. Consequently, it was the Appellant who opted to forego their right to appeal within stipulated timelines as couched under Section 13(1)(a)(b) and (2) of the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”) the implication of which was that the notice of appeal filed on 3rd November 2023 was outside timelines thus non-existent the only recourse for the Appellant being Section 13(3) of the TATAwhich provides as follows:“(3).The Tribunal may, upon application in writing, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection(2).”

56. The Respondent was adamant that since the Appellant failed to lodge a late appeal as espoused under Section 13(4) of the TATA, there was no valid appeal that the Tribunal could assume jurisdiction over.

Without prejudice to issue (i), whether the Respondent could enforce outstanding bonds on the Appellant. 57. The Respondent submitted that it was not in dispute that the Appellant had executed transit bonds to guarantee that goods leave the country for export jointly with other clearing and forwarding agents through the Port of Mombasa which brought into operation the provisions of Section 106, 107 (1. a), 107(3), 107(4) and 109(2) of the EACCMA which when read together with Section 15 and 16 of Regulation 104 of the East African Community Customs Management Regulations,2010(hereinafter “EACCMR”)provided that the Appellant’s failure to comply converted the sureties to debts that were due on the state hence payable upon demand.

58. The Respondent further buttressed these assertions by relying on the provisions of Section 109(1) and Section 130(1) of the EACCMA and emphasized that there was no law that discharged the Appellant from its obligations with respect to expired bonds and the taxes due were payable.

59. The Respondent’s supplementary written submissions were dated and filed on 22nd April 2022 and were restricted to a singular issue i.e. whether the Respondent could enforce outstanding bonds on the Appellant.

60. The Respondent asserted that Section 107(3) of the EACCMA was clear that it could enforce the expired bonds since it retained the discretion to discharge the bonds since at the lapse of the three years and no fresh security had been demanded and the Respondent had not exercised this discretion, the existing bond remained due as long as they have not been discharged. Thus, the Appellant’s claims that the Respondent lacked power to enforce the same were unmeritorious since Section 107(3), 109(1)(2) and 130(1) of the EACCMA provide that the bonds were recoverable from the Appellant and nothing estops the Respondent from enforcing the expired bonds.

Issues For Determination 61. The Tribunal having carefully considered the parties’ pleadings, documentation and submissions notes that three (3) issues call for its determination as follows:a.Whether the Respondent was entitled to demand outstanding CB8 security bonds.b.Whether the Appellant discharged its burden of proof.c.Whether the Respondent’s demand dated 20th June 2023 was merited.

Analysis And Determination 62. The Tribunal having established three issues for its analysis and determination proceeds to evaluate them as hereinunder;

Whether The Respondent Was Entitled To Demand Outstanding Cb8 Security Bonds. 63. The dispute at hand emanated from non-response by Appellant’s principals to Respondent’s letters of inquisition concerning the existence of outstanding transit CB8 security bonds for which the Appellant had guaranteed various exporters plying their export trade through the Port of Mombasa in relation to 2011 to 2013 years of income. As a result, the Respondent placed agency notices against the Appellant’s bank accounts which the Appellant protested in a letter dated 26th July 2022 and upon consideration, the Respondent agreed to lift the agency notices on 28th July 2022. The Tribunal notes that Section 106 of EACCMA provides as follows:“The Commissioner may require any person to give security for the due compliance by that person with this Act and generally for the protection of the Customs revenue; and, pending the giving of such security in relation to any goods subject to Customs control, the Commissioner may refuse to permit delivery or exportation of such goods to pass any entry in relation thereto.”

64. The Tribunal notes that whereas the Appellant’s contention was that the CB8 transit bonds were valid for a maximum period of three (3) years, the Respondent asserted that the Appellant failed to apply for cancellation within 30 days as couched under Section 15 and Section 16 of Regulation 104 of EACCMR which provide as follows:“(15)Where an owner submits an application for refund of deposit or cancellation of the bond using Form C. 26 and any other documents that may be required by a proper officer and upon satisfaction that the goods described in Form C. 26 have been exported, the amount of security furnished shall be refunded to the owner or the bond shall be cancelled.,,,,,,(16)Where no application is submitted under sub regulation (15) within thirty days from the date of exportation, the goods shall be deemed to have been imported for home consumption and shall be liable to any import duty chargeable on similar goods imported for home consumption at the rate in force at the time the goods are entered for home consumption, and the duty shall be paid immediately by the owner of the goods.”

65. The Tribunal notes that the cited regulations are to be read in tandem with the following provisions of Section 85 of the EACCMA 2004 which means that the Appellant was deemed to have imported for home use and was liable for import duty:“85. (1)The Commissioner may allow imported goods that are entered for transit or transhipment, to be removed under Customs control without payment of import duties, subject to such conditions as the Commissioner may prescribe.(2)Where goods are entered under subsection (1) the Commissioner may require the owner of such goods to furnish security in the prescribed form and in such amount as the Commissioner may deem fit.”………..

66. The Tribunal is further guided in the instant appeal by the following provisions of Section 107(3) of EACCMA:“All bonds required to be given under this Act shall be so framed that the person giving the bond, and any surety thereto, is bound to the Commissioner for the due performance of the conditions of that bond; and any such bond may, unless sooner discharged by the due performance of the conditions thereof, be discharged by the Commissioner on the expiration of three years from the date thereof, but without prejudice to the right of the Commissioner to require fresh security”

67. The Tribunal notes that on one hand, the Appellant stated that the Respondent was seeking to enforce expired CB8 transit bonds having disregarded its rights for 10 years and failed to demonstrate efforts made to recover the same from Appellant’s Principals. This was challenged by the Respondent who insisted that since it was on the basis of Section 106 of EACCMA that the Appellant entered into a security agreement, then the bonds were a way of securing duty payable by transporters. The Tribunal cited the following provisions of Section 108 (1) of the EACCMA which provides as follows:“Without prejudice to any rights of a surety to any bond given under this Act against the person for whom he or she is surety, a surety shall, for all the purposes of any bond, be deemed to be the principal debtor and accordingly the surety shall not be discharged, nor his or her liability affected, by the giving of time for payment, or by the omission to enforce the bond for any breach of any conditions thereof, or by any act or omission which would not have discharged the bond if he or she had been the principal debtor.”

68. The Tribunal associates with the holding in the case of Andrew Mukite Musangi V Commissioner of Domestic Taxes E163 (2021) where it was held that ‘statutory timelines which give rise to substantive rights cannot be extended by the Tribunal suo moto’. Additionally, the Tribunal reiterates the decision of the High Court in the case of Equity Group Holdings Limited-vs-Commissioner for Domestic Taxes [Civil Appeal No. ITA E069 of 2020 and Republic v Commissioner of Domestic Taxes Ex-Parle Fleur Investments Limited [2020] eKLR where it was held as follows:“…where the Respondent is statutorily obligated to provide a decision within a specific timeframe, and where the applicable legislation expressly provides a consequence for the failure to do so, the same must be strictly adhered to.”

69. Accordingly, the Tribunal observes that transit security bonds, as rightly stated by the Appellant, unlike typical insurance policies of indemnity, custom bonds are guarantees against specific conditions attached to them which if not met require the guarantor to make good the claims. The Tribunal has reviewed the contract clause on the face of the CB8 security bonds which stipulates follows:“I/We understand that a condition of this obligation is that within the period allowed by the law, the goods and every part thereof shall be exported and proof of exportation satisfactorily given to the Commissioner shall be produced within that period and, further, in any case in which the Commissioner requires it, prove satisfactorily to the Commissioner as to the landing of goods at the port of destination as may be required within the period allowed by the law...That I/we further understand that the fulfilment of this condition shall discharge this obligation but that this obligation shall be and remain in force in the event of non-fulfilment of this condition.”

70. The Appellant failed to show how it discharged the conditions bestowed upon it when it entered into the contracts with its various principals as couched under Section 107(3) of EACCMA. Accordingly, the Tribunal is of the view that the Appellant automatically became a debtor as stipulated under Section 108(1) of EACCMA and therefore the finding of the Tribunal is that the Respondent was entitled to demand outstanding CB8 security bonds.

Whether the Appellant discharged its burden of proof. 71. The Tribunal notes that on 19th April 2023 pursuant to Section 109(1) of EACCMA, the Respondent demanded to be paid Ksh 21,165,536. 00 within 14 days as total amount uncancelled outstanding CB8 transit security bonds. The Appellant on the other hand requested and was granted six (6) months to account for outstanding bonds on 25th April 2023. The Tribunal also notes that instead, the Appellant objected to Respondent’s demand on 15th May 2023.

72. The Tribunal also observes that the Appellant sought another six (6) months to cancel outstanding bond transactions on 17th July 2023. In an electronic mail communication dated 21st September 2023, the Respondent attached its review decision that was rendered on 20th June 2023. The Appellant opposed the review decision stating that it was sent to a wrong electronic mail address and that it had been rendered well outside the 30 days limit as couched under Section 229(4) of EACCMA.

73. The Tribunal further observes that whereas the Appellant claimed that the electronic mail address used for purposes of service of the review decision to its tax advisors was wrong, the Respondent neither contested nor offered explanations regarding the erroneous electronic mail address it used to communicate its review decision with the Appellant’s tax advisors i.e. focustaxadvisory@gmail.com instead of tax advisors electronic mail address of focustaxadvisiory@gmail.com.

74. The Tribunal notes that the Appellant did not substantiate its assertion of the use of the wrong electronic mail address by the Respondent with evidence and it did not also show how it was able to request and receive an extension of time or even how it received the electronic mail of 21st September 2023 communicating the review decision rendered on 20th June 2023. The Tribunal is guided by the holding in the case of Alfred Kioko Muteti vs. Timothy Miheso & Another [2015] eKLR where the court held as follows:“…a party can only discharge its burden of proof upon adducing evidence. Merely making pleadings is not enough.”

75. The Tribunal notes that the Appellant’s honored request for extension of time was to facilitate the Appellant the opportunity to extinguish the Respondent’s claim to outstanding transit bonds. The Appellant ought to have produced unchallenged evidence of cancellation of the bonds or any other evidence that would have controverted the Respondent’s claim having been granted six (6) months to do so but the Appellant instead chose to castigate the Respondent for ignoring its rights for 10 years and failing to demonstrate efforts made to recover the same from the Appellant’s Principals. The Tribunal reiterates the holding in Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR) which was as follows:“From the above, it is clear that the evidential burden of proof rests with the taxpayer to disprove the Commissioner and that once competent and relevant evidence is produced, then this burden now shifts to the Commissioner. I have emphasized and underlined ‘competence’ and ‘relevance’ because it is only evidence that meets these two tests that demolishes presumption of correctness and swings the burden to the Commissioner. This means that even if one avails evidence but then it is found that the same is incompetent or irrelevant, then the burden continues to remain with the tax payer.”

76. The Tribunal also notes the Appellant’s contention that the Respondent ought to have first demanded or pursued the Principal debtors before purporting to demand performance from the Appellant which the Respondent countered claiming it was the Appellant’s principals who failed to respond to its letters thereby leaving the Respondent with no option but to demand the same from the Appellant who was the guarantor.

77. The Tribunal observes that it would have been easier for the Appellant to contact its Principals and produce or offer an unchallenged explanation on how it dispensed with the transit security bonds bearing in mind that the Appellant is the taxpayer and Section 108(1) of the EACCMA designates it to be a “principal debtor”. It is worth noting that the Appellant’s claims that the Respondent ought to have followed up with the principals before purporting to demand performance from the Appellant fails since the Appellant’s tax burden is not shared. The Tribunal notes that the Appellant’s bonds security agreement was a way of securing duty payable by transporters pursuant to the provisions of Section 107(3) of the EACCMAas outlined in paragraph 66 of above.

78. The Tribunal’s view is that it was incumbent upon the Appellant who having been granted 6 months to address the Respondent’s claims, ought to have disproved those claims by adducing positive, relevant and unchallenged evidence of bonds performance thereby discharging its burden of proof as a diligent taxpayer.

79. Accordingly, it is the Tribunal’s finding that the Appellant failed in its duty of discharging its burden of proof.

Whether the Respondent’s demand dated 20th June 2023 was merited. 80. The Tribunal notes that whereas the Respondent asserted that uncancelled bonds were akin to debt owed to it, the Appellant’s contention in the instant Appeal was that the review decision of 20th June 2023 was rendered outside the timeframe as enshrined under Section 229(4) of the EACCMA which provides as follows:“The Commissioner shall, within a period of not exceeding thirty days of the receipt of the application under subsection (2) and any further information the Commissioner may require from the person lodging the application, communicate his or her decision in writing to the person lodging the application stating reasons for the decision.”

81. The Tribunal finds no nexus between the Appellant’s claim that a decision was rendered outside the timeline and its duty as a taxpayer to avail documentation disputing the Respondent’s claim to enforce bond performance. The Tribunal associates with the decision in Kilburn v Bedford (H.M. Inspector of Taxes) 1955 Chancery Division,36, p262 which was as follows:“As regards the extra tax imposed upon those figures it was for the appellant to show that there was some reason why on the agreed figures tax should not be paid.”

82. Additionally, the Tribunal observes that the Appellant having been extended time to disprove the Respondent’s position chose not to address the matter at hand which was whether the goods/cargo left Kenya’s territory or whether it cancelled the transit security bonds. Instead the Appellant digressed into analysing the technicalities of the Respondent’s review decision having been rendered out of time.

83. The Tribunal notes that the Respondent attached copies of security bonds that had been entered into by the Appellant with various suppliers and it is also notable to the Tribunal that the Appellant neither addressed nor offered an explanation on the evidence adduced by the Respondent in their pleadings. The Tribunal observes that the pendulum of discharging the burden of proof shifted to the Appellant who failed in its duty by not proving that the demanded taxes were incorrect, erroneous or excessive. The Tribunal reiterates the holding in Republic v Kenya Revenue Authority Ex-Parte Bata Shoe Company (Kenya) Limited [2014] eKLR where it was held as follows:“…payment of tax is an obligation imposed by the law. It is not a voluntary activity. That being the case, a taxpayer is not obligated to pay a single coin more than is due to the taxman. The taxman on the other hand is entitled to collect up to the last coin that is due from a taxpayer.”

84. The Tribunal notes that the Respondent asserted that where bonds had not been cancelled, Section 15 and 16 to Regulation 104 of the EACCMR deemed such goods as having been imported for home use as provided for under Section 130(1) of EACCMA, the Appellant did not adduce evidence that it indeed cancelled the bonds or that the secured cargo had left Kenya’s territory. The Tribunal notes that Section 109 (1) and (2) of the EACCMA provide as follows:“109(1). 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 duty payable and unpaid.(2). Nothing in this section shall, unless the Commissioner otherwise allows, discharge the person who has given security under section 108 from the obligations entered into by him or her under this Act or under any other law.”

85. The Tribunal’s finding is that the Respondent’s review decision dated 20th June 2023 was merited.

Final Decision 86. The upshot of the foregoing is that the Appeal herein lacks merit and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s review decision dated 20th June 2023 be and is hereby upheld.c.Each party to bear its own costs.

87. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 12TH DAY OF JULY, 2024. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERDELILAH K. NGALA -MEMBEROLOLCHIKE S. SPENCER - MEMBER