[2023] KETAT 312 (KLR)

Mwangi v Commissioner of Customs & Border Control (Appeal 790 of 2022) [2023] KETAT 312 (KLR) (Civ) (26 May 2023) (Judgment)

Neutral citation: [2023] KETAT 312 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 790 of 2022

RM Mutuma, Chair, E.N Njeru, RO Oluoch, D.K Ngala & EK Cheluget, Members

May 26, 2023

Between

Patricia Wanjiru Mwangi

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

Background 1. The Appellant is an individual taxpayer whose principal business activity is importation and sale of printing paper.

2. The Respondent is a principle officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. 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), it is mandated to administer and enforce all provisions of the written law as set out in Part 1 & 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenue in accordance with those laws.

3. The Respondent conducted a desk audit on the Appellant’s importation covering the period 2nd August 2018 to February 2022. The Appellant had imported paper products and applied duty rate of 10% under HS Code 4802. 56. 00. However, the Respondent instead applied a duty rate of 25%.

4. Vide a letter dated 7th February 2022 the Respondent demanded for the short levied tax of Kshs 3,802,467. 00. The Respondent, again demanded short levied tax of Kshs 4,073,991. 00 vide a letter dated 13th May, 2022 alleging that this tax was due as the Appellant had not applied for review.

5. Vide a letter dated 30th May, 2022 which was received by the Respondent on 2nd June, 2022, the Appellant applied for a review of the Respondent’s decision.

6. The Respondent, vide a letter dated 8th June, 2022 rejected the Appellant’s objection for being lodged out of time without availing any reasons for the late objection.

7. Aggrieved by the Respondent’s decision the Appellant filed her Notice of Appeal on 29th July, 2022 and her Memorandum of Appeal and Statement of Facts on even date.

The Appeal 8. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal filed on 29th July, 2022. a.That there is no law which imposed a duty rate of 25% on paper and paperboard products in the period between 2nd August, and 27th January 2022. b.That even if it were to be said arguendo that some law existed which imposed a duty rate of 25% on paper and paperboard products imported under HS Code 4802. 56. 00 as aforesaid (which is denied) and even if it were to be said arguendo that the Respondent is lawfully entitled to administer and enforce such law (which is also denied) it would still be illegal and unconstitutional for the Respondent to make and/or enforce compliance with the impugned decision or to issue the impugned demand notice.

9. Reasons wherefore the Appellant prays that the Tribunal: -a.Allows the Appeal;b.Annuls the impugned demand notices; andc.Award the cost of this appeal to the Appellant.

The Appellant’s Case 10. The Appellant contended that by a Gazette Notice No. EAC/21/2014 dated 20th June, 2014 the East African Community Council of Ministers reduced the tariff rate for paper and paper products imported under HS Code 4802. 56. 00 from 25% to 10%.

11. It was the Appellant’s contention that on 30th June 2017, the Council of Ministers, vide Legal Notice No. EAC/85/2017 reviewed and modified the East African Community Common External Tariff (EAC CET) to model it along the lines of the 2017 version of the Harmonized Community Description and Coding System version 2012 of the World Customs Organization (WCO).The said review was merely to harmonize the commodity description and coding system of EACCET with that of the 2012 version of the World Customs Union CET. That no tariff rate was reviewed.

12. The Appellant asserted that at Page 221 of the Legal Notice No. EAC/85/2017, the EAC Secretariat mistakenly indicated a tariff rate of 25% for paper and paperboard products imported under HS Code 4802. 56. 00 without any approval by the Council and without any publication by the Council to the effect through the EAC Gazette Notice.

13. It was the Appellant’s averment that upon noticing the purported erroneous change in the tariff rate for HS Code 4802. 56. 00, the Respondent consulted the EAC Secretariat for clarification on the matter vide an email correspondence of 23rd February 2018 where the Secretariat clarified that the Council had not increased the duty rate for HS Code 4802. 56. 00 and that the mistake had occurred during the transposition process when it was changing the EAC CET to make it comply with the 2012 version of the WCO CET.

14. The Appellant asserted that it is the Respondent who instructed its officers to configure its Tradex system to effect duty rate of 10%. Further that the Respondent instructed its ICT officers to approve online Form C.17B customs entries that indicated 10% as the mandatory duty rate for paper and paperboard products imported under HS Code 4802. 56. 00. That consequently, the Respondent cannot found a cause of action against the Appellant from its own actions.

15. The Appellant averred that it had a legitimate expectation that the Respondent would not labour to put in place such expense and tamper-proof infrastructural, technological, administrative, surveillance and monitoring systems as were necessary for purposes of inducing the Appellant into paying a duty at the mandatory rate of 10% only to subsequently change its mind and punish the Appellant.

16. The Appellant asserted that having been issued with tax compliance certificates by the Respondent, it is estopped from changing its position and now averring as against the Appellant’s that it has outstanding taxes.

The Respondent’s Case 17. In response to the Appellant’s Appeal, the Respondent, through its Statement of Facts dated 25th August, 2022 and filed on even date, has addressed the Appellant’s grounds of Appeal and stated as follows:-a.That for purposes of verification of the applicable HS Code in the instant case, the East African Community Common External Tariff (EACCET) 2017 version is applicable.b.That the Appellant herein imported paper and paperboard products for the tax period 2nd August, 2018 to February 2022 classifiable under Tariff Code 4802. 56. 00 and applied duty rate of 10% instead of the duty rate of 25% as provided under East Africa Gazette Notice No. EAC/112/2018 dated 2nd August, 2018. c.That the applicable duty rate for the Appellant’s imported paper and paperboard products for the tax period 2nd August, 2018 to February, 2022 is in accordance with East African Gazette Notice No EAC/112/2018 dated 2nd August, 2018. d.That the EAC Gazette Notice No. EAC/112/2018 dated 2nd August 2018 revoked the changes made in the EAC Gazette Notice No EAC69/2018 dated 30th June, 2018 which had changed the duty rate of paper and paperboard products from 25% to 10% thus reverted the duty rate back to 25%.e.That it is empowered under Sections 135 and 249 of the East African Community Customs Management Act (EACCMA), 2004 to demand for short levied taxes where the audit reveals that less taxes were paid.f.That the Appellant cannot contend that there was no law allowing the Respondent to charge the 25% duty rate for the imported paper and paperboard products yet the EAC Secretariat publishes gazette notices on the EAC website thus it is a notice to the whole world and the Appellant was thus duly notified.g.That the EAC Gazette notices highlight changes effected by the Council of Ministers to the EACCMA, 2004 and EACCET and it indicates the date the legal notices are to take effect.h.That the fact that the simba system was not adjusted is not a bar for demand of the short levied taxes as the law provides for payment of the duty rate at 25% vide the EAC Gazette Notice EAC/112/2018 dated 2nd August, 2018. i.That Sections 235 and 236 of the EACCMA, 2004 empowers the Respondent to conduct an audit within 5 years of importation and to call for documents to ascertain whether the proper taxes were paid.j.That the demand notice dated 7th February, 2022 demanding for the short levied taxes is due to application of the 10% duty rate instead of 25%

18. The Respondent prays that this Tribunal finds that: -a.The Respondent’s demand letter dated 7th February, 2022 is proper in law and the same be affirmed.b.The short-levied principal taxes of Kshs 3,807, 467. 00 are due and payable by the Appellant.

Submissions of the Parties 19. The Appellant’s Written Submissions dated 5th January, 2023 raised one main issue for determination.

Whether there is any law that fixed the duty rate for paper and paperboard products classified under tariff code to 4806. 56. 00 at 25% 20. The Appellant submitted that no law was ever enacted and promulgated by the Council, increasing the duty rate for paper products from 10% to 25% since 20th June, 2014 when the duty for paper products was last set by the Council of Ministers. Further that every law must be formally enacted and formally promulgated through publication in an official gazette which must indicate the date of its commencement and that both the enactment and promulgation of the law can only be done by the body that has the requisite legal mandate to enact the law.

21. The Appellant submitted that it was the Legal Notice No. EAC/21/2014 that fixed the duty rate for paper and paperboard products and that no other legal notice was issued by EAC Council of Ministers and duly gazetted in the EAC Gazette that increased the rate to 25%. Further that since there has never been any increment of the rate, any legal notice purporting to lower the rate from 25% to 10% or to delete any such previously mentioned legal notice would be of no legal effect.

22. The Appellant argued that any statements, proposals, suggestions or other communications posted on EAC website by EAC Secretariat which have not been passed by the EAC Council of Ministers and which purports to indicate a different duty rate for paper and paperboard products have no legal force and cannot be implemented or enforced by the Respondent.

23. The Appellant submitted that the Legal Notice No EAC/85/2017 merely authorized the harmonization of the EACCET with the WCOCET and did not review or change the tariff rate for paper and paperboard products.

24. On its part, the Respondent, through its Written Submissions dated and filed on 23rd December, 2022, has submitted on two issues.

a) Whether the East African Community Gazette Notice dated 2nd August 2018 applied to the Appellant’s imported paper and paperboard products 25. The Respondent submitted that the Appellant’s imported paper and paperboard products for the tax period 2nd August, 2018 to February 2022 is 25% in accordance with the East African Gazette Notice No. EAC/112/2018 dated 2nd August 2018 and that this Gazette Notice amended the East African Gazette Notice No. EAC/69/2018 dated 30th June, 2018 by deleting item number 2 which had changed the duty rate for HS Code 4802. 56. 00 from 25% to 10%.That the implication of the said deletion meant that the duty rate for HS Code 4802. 56. 00 reverted back to 25%.

26. The Respondent averred that the Appellant cannot contend that there was no law allowing the Respondent to charge the 25% duty rate for the imported paper and paperboard products yet the EAC Secretariat publishes gazette notices on the EAC website thus it is a notice to the whole world and the Appellant was thus duly notified.

27. The Respondent submitted that the applicable duty rate to the Appellant’s imported paper and paperboard products for the tax period 2nd August 2018 to February 2022 is 25% as provided for under the East African Gazette Notice No EAC/112/2018 dated 2nd August 2018 therefore the Appellant’s allegation that there was no law allowing the Respondent to charge the 25% duty rate is wrong and misleading as the East African Gazette Notice No. EAC/112/2018 dated 2nd August 2018 reverted the applicable duty rate to 25%.

28. To buttress its case, the Respondent relied in the holding of the following cases:a.M’nkiria Petkay Shen Miriti vs Ragwa Samuel Mbare & 2 others(2013) eKLR.b.Republic vs Commissioner of Customs Services & 2 others Ex-perte Candy Kenya limited (2016) eKLR.c.Republic vs Commissioner of Domestic Taxes Large Taxpayer office Ex-parte Barclays Bank of Kenya Ltd (2012) eKLR.d.Communications Commission of Kenya & 5 other vs Royal Media Services Ltd & 5 others (2014) eKLR.b)Whether the Respondent’s decision to demand for short levied taxes was proper in law.

29. The Respondent submitted the Kenya tax system is a self-assessment regime where a taxpayer is required to self-assess and submit the correct and applicable taxes to the Respondent. It therefore averred that it acted within its powers under Section 235(10) and 236 of EACMMA, 2004 which empowers it to conduct post clearance audit within 5 years and seek documents to verify the correctness of the taxes declared and paid. Further that Section 135 of EACMMA empowers it to demand for short levied taxes.

30. The Respondent therefore averred that the decision to demand for the short levied taxes was proper in law as the Appellant applied the duty rate of 10% for the consignment of paper under tariff 4802. 56. 00 instead of the duty rate of 25% as provided for under the East African Community Gazette Notice No. EAC/112/2018.

31. The Respondent submitted that the Appellant failed to prove that the East Africa Gazette Notice No. EAC/112/2018 dated 2nd August, 2018 was not in force as at the time the Appellant imported the consignment in dispute.

32. The Respondent contended that the Appellant lodged a late review application and failed to give reasons for the late application. Further that Section 229(3) of EACMMA 2004 allows for late application for review. That however, the Appellant herein failed to give reasons for the late application. That having failed to seek remedy as provided for under Section 229(3) of EACCMA, the Appellant cannot now bring new grounds before this Tribunal.

Issues for Determination 33. Having considered the pleadings, submissions and documentation provided before it, the Tribunal is of the view that this Appeal distils into three issues for determination.a.Whether the Appeal is properly before the Tribunal;b.Whether there is any law that fixed duty rate for paper and paperboard product of Tariff Code 4802. 56. 00 at 25% between 2014 and 2018; andc.Whether a tax demand vide the Respondent’s Demand Notice dated 13th May, 2022 is due and payable.

Analysis and Findings The Tribunal will now proceed to analyse the said issues as herein under: -a.Whether the Appeal is properly before the Tribunal

34. The Respondent vide a letter dated 7th February, 2022 informed the Appellant of the desk audit findings and called for the Appellant to pay short levied tax of Kshs 3,802,467. 00 as a result of applying a duty rate of 25% instead of the 10% duty applied by the Appellant. The Respondent gave the Appellant 30 days from the date of the letter to pay.

35. The Respondent then demanded the tax vide its letter dated 13th May, 2022 giving the Appellant seven (7) days from the date of this letter to pay the demanded tax. The Appellant subsequently applied for a review of the Respondent’s demand vide her letter dated 30th May, 2022. The Respondent rejected the Appellant’s application vide its letter dated 8th June 2022.

36. A reading of the Respondent’s letter dated 7th February, 2022 informed the Appellant of the desk audit report findings and as per Section 135 (2) which the Respondent cited, the Section provides that if the amount is not paid within thirty days, a further duty of a sum equal to five percent of the amount demanded shall be due and payable by that person by way of a penalty and a subsequent penalty of two percent for each month in which he or she defaults.

37. The Tribunal notes that the Respondent’s letter dated 13th May, 2022 also advised the Appellant that failure to pay the said tax will continue to accrue interest as provided for under Section 135 (2) of EACCMA.

38. The Appellant subsequently applied for a review of the Respondent’s demand vide its letter dated 30th May, 2022 which the Respondent rejected vide its letter dated 8th June, 2022. In the said letter it referred to Section 229 of EACCMA that allows for thirty (30) days within which the taxpayer can object to a Respondent’s demand.

39. Having failed to inform the Appellant of her rights under Section 229 of EACCMA in the correspondence of 7th February 2022, the same did not amount to an assessment to which the Appellant would have sought a review as envisaged under Section 229 of EACCMA. The Tribunal therefore is of the view that the Respondent erred in rejecting the Appellant’s review application.

40. In view of the foregoing the Tribunal finds that this Appeal is justified and hence properly before it.

b) Whether there is any law that fixed duty rate for paper and paperboard products of Tariff Code 4802. 56. 00 between 2014 and 2018. 41. The dispute between the parties in this Appeal is whether the Respondent was justified to uplift the duty on the Appellant’s goods from 10% to 25% and if indeed there was a backing of law to justify the Respondent’s action.

42. It is important to note that the East African Council of Ministers as established under Chapter 5 of the EAC Treaty is recognized as the policy organ of the EA Community and that under Article 14(5) of the Treaty the Council of Ministers decisions must be published through EAC Gazette before it can come into force and the gazette notice must indicate the date when such directive came into force. The said subsection provides: -“The Council shall cause all regulations and directives made or given by it under this Treaty to be published in the Gazette; and such regulations or directions shall come into force on the date of publication unless otherwise provided therein”

43. Noteworthy is that the Council of Ministers is mandated to review the Common External tariff structure from time to time where new tariff rates are published in the East African Community Gazette. Therefore, any such review done by the Council of Ministers must be gazetted first then published for it to take effect.

44. The Respondent had submitted that its legitimacy to apply the 25% duty rate was donated to it vide EAC Legal Notice EAC/112/2018 whereas the Appellant contended that the said Gazette Notice did not review the duty rate for paper and paperboard products under Tariff Code 4802. 56. 00. By a Gazette Notice No. EAC/21/2014 dated 20th June, 2014 the Council of Ministers reduced the tariff rate for paper and paperboard products imported under HS Code 4802. 56. 00 from 25% to 10%.

45. The Tribunal observes that the Gazette Notice No EAC/69/2018 dated 30th June 2018 indicated under item 2 that the rate for HS Code 4802. 56. 00 was reviewed from 25% to 10%. However, under Gazette Notice No. EAC/112/2018 dated 2nd August, 2018 a correction was made by deleting item 2. It did not however expressly advise on any applicable rate.

46. The Tribunal has taken note of the Respondent’s attempt to insinuate that the Legal Notice EAC/85/2017 dated 30th June, 2017 which it has availed in its bundles also supported its case. However, the said notice was merely to harmonize the EACCET with classification systems of the 2012 version of the World Customs Organization. The Legal Notice stated as follows:-“...the Council of Ministers has reviewed and modified the EAC Common External Tariff into a 2017 version in conformity with the Harmonized Commodity Description and Coding System Version 2012 of the World Customs Organization. The EAC CET 2017 version comes into force on 1st July 2017. ”

47. It is evident that the Respondent chose to interpret the Gazette Notices EAC/69/2018 of 30th June, 2018 and EAC/112/2018 dated 2nd August 2018 to justify collection of the short-levied tax yet there is no documentary evidence of any legal authority that reviewed the duty rate for HS Code 4802. 56. 00 from 10% to 25% between the years 2014 and 2018.

48. The Tribunal relies on the case of Sales Tax Commissioners vs Modi Sugar Mills – 1960(10) TM165- Supreme Court of India where the Court held that:-“In interpreting a tax statute, equitable considerations are entirely out of place. Nor can tax statutes be interpreted on any presumptions or assumptions. The Court must look squarely at the words of the statute in light of what is clearly expressed. It cannot imply anything which is not expressed. It cannot import provisions in the statute so as to supply and assume deficiency”

49. The position above has been confirmed by an email correspondence of 23rd February 2018 between two officers of the Respondent where a clarification was made on the applicable rate for Tariff Code 4802. 56. 00. The said email read in part as follows: -“Following consultation with EAC Secretariat, I wish to confirm that the indication of the rate 25% on Tariff 4802. 56. 00 is an error made during transposition process. The rate was changed in 2014 from 25% to 10% and has not been amended by any subsequent Gazette Notice and therefore the rate of 10% is still applicable…”

50. Although the Respondent has argued that the said email should not have been in the position of the Appellant, it has not denied its existence. Further the Appellant has stated that the said email is a public document from a public body.

51. Section 79 (1) (a) of the Evidence Act describes what a public document is. It provides as follows”“The following documents are public documents:a.Documents forming the acts or records of the actsi.of the sovereign authority; orii.of official bodies and tribunals; oriii.of public officers, legislation, judicial or executive, whether of Kenya or of any other country”

52. By dint of the said Section and the fact that the Respondent has not denied ownership of the said email correspondence, the Tribunal will thus treat the contents thereof as the Respondent’s acknowledgement that the duty rate for Tariff Code 4802. 56. 00 is indeed 10%.

53. Consequently, the Tribunal finds that there was no Gazette Notice between 2014 and 2018 that adjusted the duty rate of paper and paperboard products from 10% to 25% and that the rate of 10% was still applicable during the period under review.

c. Whether a tax demand vide the Respondents demand notice dated 13th May, 2022 is due and payable 54. Having established that there was no Legal Notice adjusting the duty rate from 10% to 25%, it follows therefore that the Respondent’s actions to short-levy the Appellant for its imports during that period has no basis in law. Consequently, the said demanded tax is not due and payable.

Final Decision 55. The upshot of the above is that the Appeal is meritorious and therefore succeeds. The Tribunal accordingly proceeds to make the following final Orders:-a.The Appeal be and is hereby allowed;b.The Respondent’s demand dated 13th May, 2022 be and is hereby set aside; andc.Each party to bear its own costs

56. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 26TH DAY OF MAY, 2023………………………….ROBERT M. MUTUMACHAIRPERSON…………………………..ELISHAH N. NJERUMEMBER.....................................RODNEY O. OLUOCHMEMBER…………………………DELILAH K. NGALAMEMBER..................................EDWIN K. CHELUGETMEMBER MEMBER