[2023] KETAT 127 (KLR)

Parshva Limited v Commissioner of Customs & Border Control (Tribunal Appeal 199 of 2022) [2023] KETAT 127 (KLR) (17 March 2023) (Judgment)

Neutral citation: [2023] KETAT 127 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal 199 of 2022

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

March 17, 2023

Between

Parshva Limited

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya and a registered taxpayer.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 of the laws of Kenya. The Authority is an agency established for the purposes of assessing, collecting and accounting for tax revenues.

3. The Appellant was issued with a tax demand notice for Kshs. 7,930,445. 00 on 8th February 2022 for goods it imported under HS Code 4802. 56. 00

4. The Appellant lodged an application for review vide a letter dated 16th February, 2022.

5. The Appellant being dissatisfied with the Respondent’s demand notice filed a Memorandum of Appeal and Statement of Facts on 25th February 2022 and is hereby proceeding before this Honorable Tribunal with the Appeal.

The Appeal 6. The Appeal as presented in its Memorandum of Appeal was premised on the following grounds:i.That there is no law which imposed a duty rate of 25% on paper and paperboard products in the period between 2nd August 2018 and 17th January 2022 in view of the fact thata.The East African Community (EAC) Council of Ministers have never approved nor formally passed any law imposing a duty rate of 25% on paper and paperboard products imported under HS Code 4802. 56. 00 since 20th June 2014. b.No Gazette Notice has ever been published by the EAC imposing a rate of 25% on paper and paperboard products imported under HS Code 4802. 56. 00 since 20th June 2014. c.The mandate of the Respondent under Section 5 of the Kenya Revenue Authority Act is confined solely to administering and enforcing tax legislations set out in the First Schedule to the said Kenya Revenue Authority Act, and not any other law which is not set out therein.ii.That even if it were to be said arguendo that some law exist 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 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 on the following grounds:a.It is the Respondent (and not the Appellants nor their clearing agents) who actually applied the duty rate of 10% on all paper and paperboard products imported into the country under HS Code 4802. 56,00 between 2nd August 2018 and 27th January 2022 by feeding into their Tradex System (otherwise known as Simba system) the duty rate of 10% as the mandatory duty rate that all importers of paper and paperboards products under its code 4802. 56. 00 had to pay before they could get their goods cleared, as the system was configured by the Respondent to automatically pick the duty rate of 10% once the HS Code 4802. 56. 00 is keyed in. consequently, the Respondent cannot found a cause of action as against the Appellants from their own actions.b.It is the Respondent (and not the Appellant nor their clearing agents) who instructed their ICT officers to approve online Form C.17B Customs entries that had indicated 10% as the mandatory duty rate for paper and paperboard products imported under HS Code 4802. 56. 00. Consequently, the Respondent cannot find a cause of action as against the Appellants from their own actions.c.It is the Respondent (and not the Appellant nor their clearing agent) who instructed their Customs and valuation officers tasked with the responsibility of verifying and approving the correctness of import duty charged and paid with respect to paper and paperboard product imported under HS Code 4802. 56. 00 to assist on payment of duty at the rate of 10% before such goods could be allowed to leave the port of entry.d.The impugned decision as well as the impugned demand notice violates the Appellant’s right to fair administrative action, right to property, the right to access justice and the right to protection of law.e.The Appellant had a legitimate expectation that the Respondent would not labour to put in place such expensive and tamper-proof infrastructural, technological, administrative, surveillance, encouraging and coercing the Appellants into paying Customs duty at the mandatory rate of 10% for all paper and paperboard products imported under HS Code 4802. 56. 00 only to subsequently change their mind and punish the Appellants for having paid duty at the rate of 10% and not 25% (which the Appellants could not have done even if they wanted at the time because the Simba System would not permit them to do so).f.It is unconstitutional, illegal, irrational, capricious, in bad faith and abuse of office for the Respondent to encourage, induce and coerce the Appellants into paying duty at the rate of 10% for goods which the Respondent knew or ought to have known, were meant to be sold out to third parties, only for them to subsequently demand that the Appellants pay duty at 25% long after the goods have been sold and used up by the third party purchasers at which point in time the Appellants cannot recover the uplift duty from the third party purchasers.g.The Respondent is institutionally bound by and cannot retract from its previous interpretation of the effect of the purported deletion of paragraph 2 of Legal Notice No. EAC/69/2018, which interpretation informed its decision to configure the Simba System to “pick” import duty for paper and paperboard products imported under HS Code 4802. 56. 00 at the rate of 10%.h.The Appellants’ liability to tax cannot be made wholly dependent on the personal idiosyncrasies of an individual occupants of the office of the Commissioner of Customs and Border Control as the Respondent seems to opine. Consequently, the fact that the Respondent hold different views with regards to the effect of the purported deletion of paragraph 2 of Legal Notice No. EAC/69/2018 from a previous holder of the same office should have no effect whatsoever on the Appellant’s tax liabilities.i.Section 1135 of the EACCMA was intended to deal only with situations where the tax paid is less than what the Respondent honestly, sincerely and for good reasons, believed to be due and payable at the time, and not as is the case herein, where the tax paid is what the Respondent honestly, sincerely and for good reasons believed to be payable at the time, save for the fact that a different occupant of the same office subsequently hold the view that the previous occupant of the same office should have collected more tax, that he did.j.The Respondent has been guilty of inordinate delay in carrying out post clearance audit.k.The Respondent’s decision to initiate a post-clearance audit and to issue impugned notice was actuated by malice, bad faith and improper motive.l.By initiating a post clearance audit as aforesaid and issuing the impugned demand notice, the Respondent acted unreasonably and took into account improper considerations while at the same time failed to take into account proper considerations.m.The Respondent having issued tax compliance certificates to the Appellant are estopped from changing their position and now averring as against the Appellants that they have outstanding taxes.

Appellants Case 7. The Appellant’s case is premised on its Statement of Facts filed on 25th February, 2022 together with the documents attached thereto.

8. The Appellant submitted that by Gazette Notice No: EAC/21/2014 dated 20th June, 2014 the Council reduced the tariff rate for paper and paper board products imported under HS Code 4802. 56. 00 (which was previously set on the maximum rate of 25% the middle rate of 10%)

9. That on 30th June, 2017 the Council, vide Legal Notice No: EAC/85/2017 renewed and modified the East African Community Common External Tariff (EACCET) to model it along the liens of the 2017 version of the Harmonized Community Description and Coding System version 2012 of the World Customs Organization. The purpose of that review was merely to harmonize the commodity description and coding system of the EACCET was christened the 2017 version of the EACCET.

10. The Appellant added that in line with the Legal Notice No: EAC/85/2017 aforesaid the EAC Secretariat developed and published the 2017 version of the Harmonized Commodity Description and Coding System which was modelled upon the 2012 version of the World Customs Organization. That at page 221 of the 2017 version of the EAC CET aforesaid the EAC Secretariat mistakenly indicated a tariff rate of 25% for paper and paper board products imported under HS Code 4802. 56. 00 without any approval by the council and without any publication by the council to that effect through the EAC Gazette Notice.

11. That following the publication of the 2017 version of the EACCET and upon noticing the purported erroneous change in the tariff rate for the HS Code 4802. 56. 00, the Respondent deliberated on the question whether the tariff rate for HS Code 4802. 56. 00 had been increased from 10% to, for 25% and resolved to consult the EAC Secretariat for clarification on the matter whereupon the EAC Secretariat clarified to them that the council had not increased the duty rate for HS Code 4802. 56. 00 and that the tariff rate of 25% appearing as against the HS Code 4802. 56. 00 was caused by a mistake which occurred during the transportation process when they were changing the EACCET to make it comply with the 2012 version of the WCO CET. The clarification by the EAC Secretariat was contained in email which was circulated by Kenya Revenue Authority Manager of the Post-Clearance Audit from Joab Omole to Senior Customs officers in the same organization at 11. 59 a.m. on 23rd February 2018.

12. The Appellant contended that the EAC Secretariat subsequently- albeit erroneously attempted to correct the mistake in 2017 version of the EACCET in connection with its code 4802. 56. 00 by causing the Council to reduce the rate from 25% to 10% consequently, vide paragraph 2 of the Legal Notice No: EAC/69/2018 dated 30th June 2018, the council purported to reduce the tariff rate for HS Code 4802. 56. 00.

13. That when it later dawned on the EAC Secretariat, as well as the Council that paragraph 2 of the Legal Notice No. EAC/69/2018 aforesaid was itself published in error since it was purporting to reduce the tariff rate for HS Code 4802. 56. 00 from 25% to 10% yet the said tariff rate had never been formally increased from 10% to 25% (as erroneously indicated in the 2017 version of EACCET the Council responded by publishing a Legal Notice No: EAC/112/2018 deleting paragraph 2 of the Legal Notice No: EAC/69/2018. The deletion of Paragraph 2 of the Legal Notice No: EAC/69/2018 vide the Legal Notice No: EAC/112/2018 did not have any impact at all on the tariff rate for HS Code 4802. 56. 00 because the tariff rate for HS Code 4802. 56. 00 had never been formally reviewed since 2014.

14. The Appellant stated that being conversant with the foregoing, and influenced thereby, the Respondent configured its Simba System to collect duty under HS Code 4802. 56. 00 fed by the Respondent into the Simba System with the result that any person wishing to import any goods under HS Code 4802. 56. 00 would simply enter the HS Code into the system whereupon both the duty rate as well as the total tax payable would be given by the Simba System itself in the form of Form C17B Customs entry.

15. That in these circumstances it would be dishonest, callous, malicious and in extreme bad faith for the Respondent to allege that the rate of 10% was not the correct rate for HS Code 4802. 56. 00; nor to accuse any clearing agent or importer of applying wrong rate since the rate of 10% was actually applied by the Respondent who fed it into its Simba System rather than by clearing agents who merely keyed in other details of the goods being cleared, leaving it entirely to the Simba System to give the applicable duty rate as well as the total duty payable.

16. That on 27th January 2022, the Respondent, through a Memo prepared on its behalf by one John Gathatwa instructed Customs officers to immediately conduct a Post Clearance Audit on all goods that were cleared under HS Code 4802. 56. 00 between 2nd August 2018 and 27th January 2022 purportedly because the Respondent had just discovered first that Legal Notice No; EAC/69/2018; Second, that the effect of the deletion was to import the duty rate of 25% for HS Code 4802. 56. 00.

Appellant’s Prayers 17. The Appellant prayed that the Tribunali.Allows the Appeal.ii.Annuls the impugned decision as well as the impugned demand notices.iii.Award the cost of this Appeal to the Appellants.

Respondent’s Case 18. The Respondent’s case is premised on the Respondent’s Statement of Facts dated 25th March, 2022 and filed on the same date together with the documents attached thereto and proceedings before the Tribunal:

19. The Respondent submitted that EAC Notice No. EAC/112/2018 dated 2nd August, 2018 deleted item number 2 in the Legal Notice EAC/69/2018 dated 30th June 2018. That this effectively reverted the duty rate of items imported under tariff 4802. 56. 00 from 10% to 25%. This change was not effected in the Customs systems, leading to goods being released at a lower duty rate.

20. The Respondent contended that Tariff Code 4802. 56. 00 covers; Uncoated paper and paperboard, of a kind used for writing, printing or other graphic purposes, and non-perforated punch cards and punch tape paper, in rolls or rectangular (including square) sheets, of any size, other than paper of heading 48. 01 or 48. 03; hand-made paper and paperboard. –Weighing 40 g/m2 or more but not more than 150 g/m2, in sheets with one side not exceeding 435 mm and the other side not exceeding 297 mm in the unfolded state.

21. That the Respondent’s post clearance audit (PCA) team conducted a desk review of Customs entries of the importers of items under the tariff code for the period 2nd August 2018 to 8th February 2022 pursuant to Sections 235 and 236 of the East African Community Customs Management Act 2014. That among the importers profiled was the Appellant.

22. The Respondent stated that pursuant to Section 135 of the EACCMA, the Respondent issued a demand notice to the Appellant under Ref. HQ/PCA/RRI153/22 dated 8th February 2022, requiring the Appellant to pay the short levied taxes of Kshs 7,930,445.

23. That vide letter dated 16th February, 2022, the Appellant sought for review of the taxes demanded under Section 229 of EACCMA. This letter was received at Post Clearance Audit on 4th March 2022.

24. The Respondent averred that the Appellant subsequently filed this Appeal at the Tribunal before the Respondent made a decision on 15th March, 2022 staying the demand of the short-levied taxes.

25. That Section 235 and 236 gives the Respondent powers to call for documents and conduct a post clearance audit (PCA) on the import and export operations of a taxpayer within a period of five years from the date of importation or exportation.

26. That where the PCA reveals that taxes were short levied, or erroneously refunded, Section 135 and 249(1) empowers the Respondent to recover any such amount short levied or erroneously refunded with interest at a rate of two percent per month for the period the taxes remain unpaid.

27. The Respondent contended that Section 229 provides for application for review by any person affected by the decision or omission of the Respondent on matters relating to Customs and provides the legal timelines to be observed.

28. That Section 230(1) of the EACCMA provides that a person dissatisfied with the Commissioner’s decision after application for review under Section 229 may appeal to a tax appeals tribunal established in accordance with Section 231 of the Act.

29. The Respondent stated that it operates a self-declaration regime whereby, the taxpayers make declarations and pay taxes on the items that they import themselves or through their agents. That this creates a legitimate expectation that a taxpayer including the Appellant will pay the correct taxes.

30. That the assessment herein was made within the five-year window provided for by the law and therefore no legitimate expectation on the Appellant was breached.

31. The Respondent averred that the East African Community Secretariat publishes the EAC Gazette Notices on the EAC website and are available to the public. These notices usually highlight changes effected by the Council of Ministers to the ESCCMA, 2014 and the East African Community Common External Tariff (CET). That the EAC Gazette usually indicate the date the legal notices come into effect hence the Appellant’s claim that there was no law that imposed a rate of 25% on paper and paperboard products hold no water.

32. The Respondent submitted that the Customs Systems were not adjusted as per the provisions of Gazette EAC Notice no. EAC/112/2018 dated 2nd August 2018, resulting in short levied taxes of Kshs. 7,930,445. The taxes were due and payable to the Respondent at the time of importation.

33. The Respondent averred that it relied on Sections 135, 235, 236, 229, 230, & 249 of the EACCMA, 2004 among other enabling provisions of the law.

Respondent’s Prayers 34. The Respondent prayed that:i.That this Appeal be dismissed with costs.ii.The review decision dated 15th March, 2022 be upheld.

Issues For Determination 35. After studying the pleadings and documents tendered by both parties, the Tribunal determined that the issues that crystalized for its determination were;a.Whether there was a valid Appeal before the Tribunal.b.Whether the Respondent erred in demanding additional Import Duty and VAT on goods imported by the Appellant.

Analysis And Determination 36. The Tribunal upon identifying the issues falling for its determination proceeded to analyse the issues separately as hereunder:

Whether there was a valid Appeal before the Tribunal. 37. It was the Respondent’s contention that pursuant to Section 135 of the EACCMA, it issued a demand notice to the Appellant under Ref. HQ/PCA/RRI153/22 dated 8th February 2022, requiring the Appellant to pay the short levied taxes of Kshs. 7,930,445.

38. That vide the letter dated 16th February, 2022, the Appellant sought for review of the taxes demanded under Section 229 of EACCMA. This letter was received at Post Clearance Audit on 4th March 2022.

39. The Respondent averred that the Appellant subsequently filed this Appeal at the Tribunal before the Respondent made a decision on 15th March, 2022 staying the demand of the short-levied taxes.

40. The Tribunal noted that none of the parties attached a copy of the Appellant’s application for review letter dated 16th February, 2022 in their pleadings. However, it was not disputed that the Appellant indeed wrote to the Respondent on 16th February, 2022 seeking for review of the Respondent’s tax demand.

41. Section 224(4) of the EACCMA provides as follows regarding timelines for the review decision by the Respondent;“The Commissioner shall, within a period 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.”

42. It therefore follows that as per the provisions of Section 229(4) of the Act, the Respondent had until 18th March 2022 to issue a review decision to the Appellant. The Appellant filed its Appeal at the Tribunal on 25th February, 2022. Accordingly, the Respondent was still within the legally allowed period of 30 days to issue the review decision.

43. Section 12 of the Tax Appeal Tribunal provides as follows regarding Appeals to the Tribunal;“ 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, Provided that such person shall before appealing, pay a non-refundable fee of twenty thousand shillings.”

44. Additionally, Section 230(1) of the EACCMA provides the situations where a taxpayer may appeal to the Tribunal. The Section provides as follows;“A person dissatisfied with the decision of the Commissioner under Section 229 may appeal to a tax appeals tribunal established in accordance with Section 231. ”

45. It follows therefore that the Appellant had the option of filing an appeal to the Tribunal only upon receiving the Respondents Review Decision. The Appellant filed this Appeal on 25th February, 2022 before the Respondent issued its review decision.

46. In this case, there is no review decision that can enable the Appellant to approach the Tribunal with an Appeal. Upon lodging an application for review with the Respondent on 16th February, 2022, the Appellant ought to have allowed the Respondent the 30 days it is allowed under law to respond. Accordingly, the Tribunal is of the view that the Appeal is premature. The Tribunal’s decision is informed by the findings of the court in Krystalline Salt Limited vs Kenya Revenue Authority [2019] eKLR where it stated that:“Where there is a clear procedure for redress of any particular grievance prescribed by the Constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures."

47. The Tribunal, in the circumstances, finds that the Appeal is invalid due to lack of an appealable decision. Having found that the Appeal is invalid, the Tribunal could not delve into the substantive issues in the Appeal.

Final Decision 48. The upshot of the foregoing analysis is that the Appeal is incompetent and unsustainable in law. The orders that accordingly recommend themselves to the Tribunal are as follows:a.Appeal be and is hereby struck out.b.Each party to pay its own costs.

DATED AND DELIVERED AT NAIROBI THIS 17TH DAY OF MARCH 2023ERIC N. WAFULA CHAIRMANCYNTHIA B. MAYAKA GRACE MUKUHA MEMBER MEMBERJEPHTHAH NJAGI ABRAHAM K. KIPROTICH MEMBER MEMBER