[2023] KETAT 329 (KLR)

Rapid Papers Limited v Commissioner, Customs & Border Control (Appeal 392 of 2022) [2023] KETAT 329 (KLR) (2 June 2023) (Judgment)

Neutral citation: [2023] KETAT 329 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 392 of 2022

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

June 2, 2023

Between

Rapid Papers Limited

Appellant

and

Commissioner, Customs & Border Control

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya whose main activity is the importation and sale of printing papers.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the said Act, the Kenya Revenue Authority (the 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 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 & 2 of the First Schedule to the Act for purposes of assessing, collecting and accounting for all tax revenues in accordance with those laws..

3. The dispute arose from a desk review of imports under tariff 4802. 56. 00 for the period between 2nd August 2018 and 27th January 2022.

4. The Respondent demanded for short levied taxes of Kshs 26,507,376. 00 as a result of application of a duty rate of 25% instead of 10%. The notice of demand was dated 2nd February, 2022.

5. The Appellant objected to the demand vide its notice of objection dated 16th February, 2022.

6. The Respondent thereafter issued a review decision vide its letter dated 11th March, 2022 confirming the demanded tax amounting to Kshs 26,507,376. 00.

7. Aggrieved by the Respondent’s review decision the Appellant instituted this Appeal by filing its Memorandum of Appeal and Statements of Fact dated 13th April, 2022, on 20th April, 2022.

The Appeal 8. The Appeal is premised on the following grounds:-a.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 27th January 2022 in view of the fact that:i.The East African Community Council of Ministers have never approved nor formally passed any law imposing a duty rate of 25% on paper and paperboard products imported under H.S Code 4802. 56. 00 since 20th June 2014. ii.No Gazette Notice has ever been published by the East African Community imposing a rate of 25% on paper and paperboard products imported under H.S Code 4802. 56. 00 since 20th June 2014. iii.The mandate of the Respondent under Section 5 of the Kenya Revenue Authority Act is confined solely to administering and enforcing tax legislators set out in the First Schedule to the said Kenya Revenue Authority Act, and not any other law which is not set out therein.b.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 H.S Code 4802. 56. 00 as aforesaid (which is denied); it would still be illegal and unconstitutional for 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 on the following grounds:I.It is the Respondent (and NOT the Appellant nor their clearing agent) who actually applied the duty rate of 10% on all paper and paperboard products imported into the country under the H.S 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 paperboard 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 H.S Code 4802. 56. 00 is keyed in. Consequently, the Respondent cannot find a cause of action as against the Appellant from their own actions.II.It is the Respondent (and NOT the Appellant nor their clearing agent) 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 H.S code 4802. 56. 00. Consequently, the Respondent cannot find a cause of action as against the Appellant from their own actions.III.It is the Respondent (and NOT the Appellant nor their clearing agents) 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 H.S Code 4802. 56. 00 to insist on payment of duty at the rate of 10% before such goods could be allowed to leave the port of entry.IV.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.V.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 and monitoring systems as were necessary for purposes of inducing, encouraging and coercing the Appellants into paying customs duty at the mandatory rate of 10% for all paper and paperboard products imported under H.S 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 Appellant could not have done even if they wanted at the time because the Simba System would not permit them so to do).VI.It is unconstitutional illegal, unfair, 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 uplifted duty from the third party purchasers.VII.The Respondent is institutionally bound by and cannot resile from its previous interpretation of the effect of the purported deletion of Paragraph 2 of the 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 H.S Code 4802. 56. 00 at the rate of 10%.VIII.The Appellant’s liability to tax cannot be made wholly dependent on the personal idiosyncrasies of the 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.IX.Section 135 of the East African Customs Management Act (EACMA) 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, than he did.X.The Respondent has been guilty of inordinate delaying carrying out the post clearance audit.XI.The Respondent’s decision to initiate a post-clearance audit and to issue the impugned notice was actuated by malice, bad faith and improper motive.XII.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.XIII.The Respondent having issued tax compliance certificate to the Appellant is estopped from changing their position and now averring as against the Appellant that they have outstanding taxes.

Appelant’s Case 9. The Appellant filed its Statement of Facts on the 20th April 2022 and Written Submissions on 15th of December 2022 wherein it stated that by a Gazette Notice No: EAC/21/2014 dated 20th June, 2014, the Council reduced the tariff rate for paper and paperboard products imported under H.S Code.4802. 56. 00 (which was previously set on the maximum rate of 25% the middle rate of 10%

10. The Appellant further stated that on 30th June 2017 the Council, vide Legal Notice No: EAC/85/2017 renewed and modified the East African Community Common External Tariff (Hereinafter called “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. The purposes of that review was merely to harmonize the commodity description and coding system of the EAC CET with that of the 2012 version of the World Customs Union CET. No tariff rate was reviewed. The revised EAC CET was christened the 2017 version of the EAC CET.

11. In line with the Legal Notice No: EAC/85/2017 aforesaid, the Appellant stated that the EAC Secretariat subsequently 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. 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 paperboard products imported under IAS Code 4802. 56. 00 without any approval by the Council to that effect through the EAC Gazette Notice.

12. The Appellant posited that following the publication of the 2017 version of the EAC CET and upon noticing the purported erroneous change in the tariff rate for H.S Code 4802. 56. 00, the Respondent deliberated on the question whether the tariff rate for H.S Code 4802. 56. 00 had been increased from 10% to 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 H.S Code 4802. 56. 00 and that the tariff rate of 25% appearing as against the H.S Code 4802. 56. 00 was caused by a mistake which occurred during the transposition process when they were changing the EAC CET 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 for post- Clearance Audit, Joab Omole, to Senior Customs officers in the same organization at 11. 59a.m. on 23rd February 2018.

13. The Appellant took the position that when it later dawned on the EAC Secretariat, as well as the Council that Paragraph 2 of the Legal No: EAC/69/2018 aforesaid was itself published in error since it was purporting to reduce the tariff rate for H.S 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 EAC CET). The Council responded by publishing a Legal Notice No: EAC/112/2018 by deleting Paragraph 2 of the Legal Notice No: EAC/69/2018. Its position was that this exercise did not have any impact at all on the tariff rate for H.S Code 4802. 56. 00 because the tariff rate for H.S Code 4802. 56. 00 had never been formally reviewed since 2014.

14. It was its argument that in an effort to get out of this confusion the Respondent opted to configure its Tradex system (otherwise known as Simba System) to collect duty under H.S Code 4802. 56. 00.

15. Based on the above chronology, the Appellant affirmed that the Respondent was acting in bad faith because the rate of 10% was the correct rate of H.S Code 4802. 56. 00.

16. The Appellant took the position that duty rates shall be as prescribed by the protocol under Section 110 of the EACCMA. In compliance with this edict the EAC Council of Ministers and the EAC Council fixed the duty rates for paper and paperboard products at 10% and the same was gazetted and published on 20th June 2014. And that no other decision, directive or regulation has been issued by the EAC Council of ministers increasing the duty rate for paper and paperboard products from 10%.

17. Based on the above, it argued further that it is only a document that has been issued by the Council of Ministers which has legal effect in regard to taxation of this product.

18. In its view, the deletion of Legal Notice No EAC/69/2018 which increased duty for H.S Code 4802. 56. 00 was erroneous and unlawful because it was not authored and issued by Council of Ministers as is provided in Article 9 of the Treaty for the Establishment of the EAC as read together with Article 14 on the Functions of the Council which has the power to fix the rate of custom duties payable under the EACCMA. This is more because the said Legal Notice did not indicate when the decision, directive or regulation was made by the Council contrary to Article 14(5) of the Treaty.

19. It affirmed that since the EAC Council of Ministers fixed the duty for paper and paperboard products (under H.S Code No 4802. 36. 00) at 10% on 20th June 2014 vide Legal Notice No EAC/21/2014 no directive, regulation or decision has been taken by the EAC Council of Ministers and duly gazetted as required by law increasing the duty for paper and paperboard products from 10% to 2%.50. It relied on the following cases to support its position:a.Krish Commodities Ltd v Kenya Revenue Authority [2018] eKLRb.Kenya Revenue Authority v Export Trading Company Limited [2020] eKLRc.Republic vs Kenya revenue authority ex parte Cooper k-Brains Limited [2016]d.Export Trading Company v Kenya Revenue Authority 2018 eKLRe.Keroche Industries v Kenya Revenue Authority & 5 Others Nairobi [2007]f.Kenya Revenue Authority v Universal Corporation Ltd [2020] eKLR Fleur Investments Limited Vs Commissioner of Domestic taxes & Another [2018] eKLR

20. It is the Appellant’s contention that having issued tax compliance certificates to the Appellant, the Respondent is estopped from changing its position by re-stating that the Appellant has outstanding taxes.

The Respondent’s Case 21. In response to the Appellant’s Memorandum, the Respondent, through its Statement of Fact filed on 19th May, 2022 and Written Submissions filed on the 21st December 2022 averred that:a.It conducted a desk audit on the Appellant’s importations covering the period 2nd August, 2018 to February 2022 in accordance with Section 235 and 236 of the East African Customs Management Act, 2004 (hereinafter referred to as EACCMA, 2004).b.The Appellant had applied the duty rate of 10% for the consignment of paper under tariff 4802. 56 instead of the duty rate of 25% as provided for under the East African Gazette Notice No. EAC/112/2018 dated 2nd August 2018. c.Subsequently, and vide a letter dated 2nd February, 2022 it demanded for the short-levied taxes of Kshs 26,507,376 in accordance with Section 135 of the EACCMA, 2004. 1.The Respondent posited that East African Community Common External Tariff (CET) 2017 version is the one that is applicable to this Appeal.2. The Respondent affirmed 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 the duty rate of 10% instead of the duty rate of 25% as provided for under the East African Gazette Notice No. EAC/112/2018 dated 2nd August 2018. 3.It was its view 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 25% in accordance with the East African Gazette Notice No. EAC/112/2018 dated 2nd August 2018. 4.It averred 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 in the EAC Gazette Notice EAC/112/2018 dated 2nd August 2018 for payment of the duty at the rate at 25%. Moreover, Section 235 and 236 of EACCMA, 2004 empowers it to conduct an audit within 5 years of importation and to call for documents to ascertain whether proper taxes were paid.5. The Respondent argued that the law supporting its position for tax adjustment from 10% to 25% for the imported paper and paperboard products was published on the EAC website. This amounted to a notice to the whole world and the Appellant was thus duly notified. It supported this position with the case of Re Antow Trading Company Limited [2017] EKLR and in Republic v Commissioner of customs services & 2 others Ex-parte Candy Kenya Limited [2016] eKLR.6. The Respondent further submitted that legitimate expectation does not arise where there are clear provisions of law. It buttressed this position with the case of Communications Commission of Kenya & 5 others v Royal Media Services Ltd & 5 others [2014] eKLR.7. It was also its position that the Appellant had not discharged its burden of proof to disapprove the Respondent’s decision to demand for short levied taxes. It had also failed to prove that the East African 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.

22. It concluded by submitting that its uplift 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 instead of the duty rate of 25% as provided for under the East Africa Community Gazette Notice No. EAC/112/2018.

Issues For Determination 23. Having considered the pleadings, documentation availed and the submissions made, the Tribunal is of the considered view that this Appeal raises two issues for determination.a.Whether there is any law that fixed duty rate for paper and paperboard products of tariff code 4802. 56. 00 at 25% between 2014 and 2018; andb.Whether the tax demanded vide the Respondent’s demand notice dated 2nd February 2022 is due and payable.

Analysis And DeterminationThe Tribunal shall now proceed to analyse these two issues sequentially: a. Whether there is any law that fixed duty rate for paper and paperboard products of tariff code 4802. 56. 00 at 25% between 2014 and 2018. 24. The Tribunal observed that the main bone of contention in this Appeal is the applicable duty rate for paper and paperboard products during the period of the Appellant’s importation. Whereas the Appellant maintains that the applicable rate is 10%, the Respondent on the other hand maintains that the applicable duty rate ought to be 25%.

25. It is crucial to appreciate that the review of the common external tariff structure is done by the East African Community Council of Ministers from time to time where renewed tariff rates are published in the East African Community Gazette. 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 H.S. Code 4802. 56. 00 from 25% to 10%.

26. The Tribunal is well versed with the procedures of enacting the laws and appreciates that duty rates are only changed by Gazette Notices approved by the Council of Ministers following the EAC budget process. The Respondent has relied on Gazette Notice No. EAC/69/2018 dated 30th June 2018 where item 2 thereon indicated a change in applicable duty rate for paper and paper products under HS Code 4802. 56. 00 from 25% to 10%. However, under Gazette Notice No. EAC/112/2018 dated 2nd August, 2018 a correction was made by deleting item 2.

27. The effect of the latter deletions is that the Item 2 which covered paper and paperboard products ceased to exist. However, the said deletion did not expressly provide that henceforth the applicable tariff rate for paper and paperboard products shall be at 25%. It instead remained silent on the applicable rates.

28. Though often overstated, the Tribunal is alive to the edict in Cape Brandy Syndicate v Inland Revenue Commissioner [1921] K.B 64 where it was stated that a taxpayer should only be taxed if the express words of the law provide as much. This was apparent when the Court stated as thus:-“…in a taxing Act, one has to look merely at what is clearly said. There is no reason for any intendment. There is no equity about law. There is no presumption as to law. Nothing is to be read in, nothing to be implied. One can only look fairly on the language used”.

29. Similar statements have been made in a catena judgment on tax cases. For example, In Scott v Russell (Inspector of Taxes), [1948] 2 All ER Lord Simonds expressed;-“… there is a maxim in Income tax law which, though it may sometimes be over-stressed, yet ought not to be forgotten. It is that the subject is not to be taxed unless the words of the taxing statute unambiguously impose the tax upon him.”

30. The Tribunal has perused through the Parties’ bundles of documents and it has not come across any subsequent Gazette Notice specifically amending the duty rate from 10% to 25%. The Gazette Notice EAC/112/2018 dated 2nd August, 2018 only corrected the Legal Notice EAC/69/2018 dated 30th June, 2018 by deleting item 2. The deletion was however not followed with a prescription of applicable duty rates. The Tribunal is therefore, of the view that this deletion was not an amendment that was intended to have a change in the taxation rate of the affected products otherwise it would have stated as much.

31. A tax statute that intends to bring a taxpayer within any taxation bracket would and must expressly state so. It would thus be unlawful to impute a tax or duty rate on a product when the Statute has not stated as much. This position was buttressed by the Court of Appeal in Mount Kenya Bottlers Ltd & 3 others v Attorney General & 3 others [2019] eKLR, where the Court stated as follows in a case which was similar to the present Appeal before the Tribunal:“There should be no room for presumption or assumption in this case. The difference between the case before us and some of the cited cases is that in this case, there are no words or text in Section 127C that is ambiguous. The ambiguity here is in the silence and exclusion. The amendment deleted the entire subsection that dealt with the returnable containers. Do we therefore assume that Parliament meant to include the returnable crates and bottles into the excise tax regime? If that was the intention, why didn’t the statute specifically state so? Can we read in or assume that the returnable crates and bottles are included by implication? As stated earlier, nothing is to be read in or implied in tax law and a strict constructionist interpretation must be adopted.”

32. The Tribunal hold that there was no law that changed the duty rate for paper and paperboard products under H.S Code 4802. 56. 02 from 10% to 25% between the period June 2014 to August 2018.

b. Whether the tax demanded vide the Respondent’s demand notice dated 11th March 2022 is due and payable. 33. Having established that there was no legal basis for the issuance of Tariff Notice uplift adjusting the duty rate for paper and paper products from 10% to 25%, it follows, therefore that the Respondent’s actions vide its letter dated 11th March 2022, wherein it demanded for the short-levied taxes of Kshs 26,507,376. 00 has no basis in law and is thus invalid.

Final Decision 34. The upshot of the above is that the Appeal is meritorious and the Tribunal accordingly proceeds to make the following Orders:-a.The Appeal be and is hereby allowed.b.The Respondent’s review decision dated 11th March, 2022 be and is hereby set aside.c.Each party to bear its own costs.

35. It is so ordered

DATED AND DELIVERED AT NAIROBI THIS 02TH DAY OF JUNE, 2023. ROBERT M. MUTUMACHAIRPERSONDELILAH K. NGALA ELISHAH N. NJERUMEMBER MEMBEREDWIN K. CHELUGET RODNEY O. OLUOCHMEMBER MEMBER