[2023] KETAT 937 (KLR)

Royal Mabati Limited v Commissioner of Customs and Border Control Services (Appeal 1098 of 2022) [2023] KETAT 937 (KLR) (24 November 2023) (Judgment)

Neutral citation: [2023] KETAT 937 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 1098 of 2022

E.N Wafula, Chair, RO Oluoch, AK Kiprotich, Cynthia B. Mayaka, E Ng'ang'a & B Gitari, Members

November 24, 2023

Between

Royal Mabati Limited

Appellant

and

Commissioner of Customs and Border Control Services

Respondent

Judgment

Background 1. The Appellant is a limited liability company registered in Kenya under the Companies Act. Its principal business is the manufacture and sale of roofing sheets, other materials and accessories.

2. The Respondent is a principal 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 collecting and receiving all tax revenue. Further, under Section 5(2) of the Act, concerning 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 Parts 1 & 2 of the First Schedule to the Act to assess, collect and account for all revenues under those laws.

3. The issues in dispute herein arose when the Respondent carried out a post-clearance audit on the Appellant’s consignment of galvanized steel sheets and flat rolled coloured coated steel for the period January 2021 to December 2022.

4. Upon conclusion of the audit, the Respondent issued the Appellant with preliminary audit findings on the 18th January 2022 of Kshs. 5,096,718 and a subsequent demand notice dated 12th May 2022.

5. Upon the receipt of the said demand letter, the Appellant objected and lodged its objection on 8th June 2022 whereupon the Respondent issued its Objection decision vide a letter dated 19th August 2022.

6. The Appellant being aggrieved by the Respondent’s decision filed its Appeal on 16th September 2022.

The Appeal 7. The Appellant’s Memorandum of Appeal which was filed on the dated 30th September 2022 and filed on 7th October 2022 was premised on the following grounds:-a.That the Respondent erred in law and fact in issuing a review decision outside the statutorily prescribed timeline under Section 229 (5) of the East Africa Community Customs Management Actb.That the Respondent erred in law and fact in purporting to disallow the application for review lodged on 8th June 2022 and sent to the Respondent's official email on 10th June 2022 and on 19th August 2022 long after the same had been allowed by operation of the law.c.That the Respondent erred in law and fact in failing to appreciate that the email of 14th July 2022 resending the application for review was because the Respondent purported to enforce the taxes when it had not given a response to the application for review.d.That the Respondent still erred even if one was to take of the second email forwarding the application of 14th July 2022 the review decision was still outside the timeline on 19th August 2022 when the review decision was made.e.That the Respondent erred in law and fact in purporting to disallow the use of the transaction value method on the imported goods when all the necessary documentation, including evidence of payment, was availed to demonstrate the accuracy of the Values declared.f.That the Respondent erred in law and fact without appreciating that the declared values were transaction value which was the price paid for the goods when sold for export to the Country of importation contrary to the WTO ACV and the Fourth Schedule to the East Africa Community Customs Management Act, 2004. g.That the Respondent erred in law and fact in purporting to apply the transactional value of identical goods, without appreciating the commercial levels, quantities and time of importation of the goods which were supported by the sale contract, the bank remittance slip and the corresponding commercial invoices.h.That the Respondent erred in law and fact in failing to appreciate that to apply the transactional value of identical gods, such as goods must be of the same chemical components such as percentage levels and weights of zinc, aluminium, and paint coating classes, being one of the main factors that influence costing and value of steel.i.That the Respondent erred in law and fact in not appreciating that for galvanized steel to be considered identical goods, the critical elements of the chemical components have to be taken into account as that is what differentiates one consignment from the other.j.That the Respondent erred in not appreciating that when it comes to dealing with galvanized steel merely the quantity does not merit the steel being considered to be of the same value and the chemical component is what determines the quality.k.That the Respondent erred in not appreciating the Mill Test Certificate, which shows the exact type of galvanized steel imported and that the same cannot be said to be identical with just any other consignment of steel with incomparable chemical composition.l.That the Respondent erred in not availing any identical good of the exact chemical component as the Appellant’s consignment but rather relying on historic data for which it cannot verify the chemical component to be similar to that of the consignment it purports to upliftm.That the Respondent erred in law and fact in failing to consider the explanations by the Appellant that the prices declared and supported by actual trade documentation for the specific consignment and cannot be uplifted based on values of the consignment whose quality and chemical composition cannot be analysed by an independent body found to be the same.n.That the Respondent erred in failing to consider the quality level of the materials and the intended use for which it is to be employed since galvanized steel is for different purposes based on strength, gauge, hight, chemical composition, and paint coating which are what determine the value and not a mere description of galvanized steel.o.That the Respondent erred in law and fact by breaching the Appellant's Constitutional rights as envisaged under Section 47 for Fair Administrative Action Act by applying the transaction values of identical goods without providing legal justification as to why the transaction method was not sufficient.p.That the Respondent erred in law and fact in demanding that the payments be made within seven (7) days contrary to the provisions of the East Africa Community Customs Management Act which provides for thirty days, which is also a breach of the Constitutional right to fair administration action.q.That the Respondent erred in law and fact in failing to avail any import from the same suppliers with the same material sourcing, cost structure, production capacity and technology, which are what influence the costing and valuation, for the goods to be considered identical.

Appellant’s Case 8. The Appellant premised its case on its:a.Memorandum of Appeal dated 30th September 2022 and filed on 7th October 2022. b.Statement of Facts dated 30th September 2022 and filed on 7th October 2022.

9. The Appellant stated that the Respondent conducted a post-clearance audit of its consignment and thereafter issued a duty demand of Kshs 5,096,718. 00.

10. The Appellant provided the following as the chronology that led to this dispute:a.Demand for duty issued on 12th May 2022. b.The Appellant made an application for review on 8th June 2022. c.The Appellant received notice of enforcement on 14th July 2022d.The Appellant re-forwarded the application of review dated 8th June 2022 upon receipt of the notice of enforcement. The email was forwarded to diana.muriira@kra.go.ke and copied to phanice.munadi@kra.go.ke, Wycliffe.musili@kra.go.ke and diana.muriira@kra.go.ke who had been in communication with it in this matter.e.Respondent issued a review decision on the 19th August 2022 which was 71 days from the date of the application and 35 days from the date when the reminder was sent.

11. Based on the above chronology of events the Appellant was of the view that the Respondent’s review decision was time-barred contrary to Section 229(5) of the East African Community Customs Management Act (EACCMA) which dictates that a review decision should be issued within 30 days of receipt of a taxpayers review application.

12. It supported its assertion with the cases of Republic v Commissioner of Customs Services Exparte Tetra Pal Limited (2012) eKLR and Republic v Commissioner of Customs Services Exparte Unilever Limited (2012) eKLR (Misc Civil Application No. 181 of 2011).

13. The Appellant also supported its decision to apply the transactional method regarding its consignment by stating that:a.Article VII of the General Agreement on Tariffs and Trade supported the use of the actual price of the merchandise purchased as is shown on the invoice.b.The merchandise value adopted in its transaction met all the requirements for the use of the transaction value method as laid down in WTO agreements.c.It provided the sale contract between it and its major suppliers regarding this transaction.d.It availed the Mill Test Certificates to confirm the quality of the products imported.

14. That based on this justification, it was the Appellant’s view that the Respondent had no justification to decline its application of the transaction value method.

15. The Appellant stated that the Respondent applied the second method:a.Without any consultation with it, and or any verifiable justification contrary to the EAC customs valuation manual.b.Before establishing if its steel is of the same physical character and quality with the ones to which it was compared.c.Without considering its mill test certificates or the fact that not all imports from China are similar in character and quality.d.Without analysing the chemical component of its steel against the ones to which it was compared.e.Without factoring that different producers from China have different types of steel.

16. The Appellant submitted that the transaction value of identical goods method is only applied if there is reasonable doubt as to the availability of documents to support the actual price paid, and that in the current case, the contracts used and invoices relied on for the purchase were the same ones used to make payment from the bank.

17. The Appellant posited that the prices it had declared for customs were the “True Price” or the “Actual Price” as such there was no reason for the Respondent to use any other method of Custom valuation when the conditions for the transaction value method had been met.

Appellant’s Prayer 18. Based on the foregoing, the Appellant prayed for orders that::a.The review decision dated 19th August 2022 which was made contrary to the provisions of Section 229(5) of the East Africa Community Customs Management Act, 2004 be set aside;b.The Respondent had misapplied the transaction value method of identical goods as the transaction value was the appropriate method in the circumstances of the case;c.The review decision be set aside as the consignments were correctly valued using the transaction value method;d.The Respondent’s actions were a breach of the Appellant’s Constitutional rights;e.The Appeal is merited and the review decision be set aside with cost to the Appellant.

The Respondents Case 19. The Respondent relied on its Statement of Facts dated 7th November 2022 and filed on the same day to oppose this application.

20. The Respondent provided the following as the chronology of this dispute, that;a.It carried out a post clearance audit on the Appellant’s consignment of galvanized steel sheets and flat rolled coloured coated steel for the period January 2021 to December 2022. b.It noted that the declared unit values of FOB at was 0. 6 per kg lower compared to the other importers, importing similar products, cleared over the same period from the same Country who had declared the same at 0. 82 per kg.c.It noted instances of undervaluation of galvanized steel sheet and flat rolled coloured coated steel coils that resulted in a short-levy of taxes amounting to Kshs. 5,096. 718. 00 was established.d.It issued the Appellant with preliminary audit fFindings on the 18th January 2022 of Kshs. 5,096,718. 00. e.It held a working meeting with the Appellant on 21st March 2023 where the Appellant committed to provide evidential documents to support its valuation argument.f.It did not receive any response from the Appellant and subsequently issued a demand notice dated 12th May 2022. g.The Appellant objected to the demand notice on the 8th June 2022. h.It issued a notice of enforcement on the 7th July 2022. i.It issued its review decision on 19th August 2022. j.Aggrieved by the Respondent’s decision the Appellant opted to file a Notice of Appeal to the Tribunal on 30th September 2022.

21. Based on the foregoing itemised chronology of events the Respondent argued that:-a.Its review decision was justified and was in confirmation with the law under Sections 135, 229, 235, 236, 249 and the Fifth Schedule of the EACCMA 2004. b.Sections 235 and 236 of the EACCMA 2004 gives the Commissioner powers to call for documents and conduct a Post Clearance Audit on the import and export operations of a taxpayer within five years from the date of importation or exportation. It supported this position with the case of Republic v Kenya Revenue Authority Ex-parte Cooper K-Brands Limited (2016) eKLR.c.Sections 135 and 249(1) of EACCMA on the other hand empowers the Commissioner to recover any such amount short levied or erroneously refunded with interest at a rate of two percent per month from the period the taxes remain unpaid.

22. The Respondent averred that:-a.Section 122(1) of EACCMA is very clear on the determination of customs value.b.Paragraph 3 of the Fourth Schedule of the EACCMA, 2004 allows the Respondent to use the transaction value of identical goods method if the customs value of the imported goods cannot be determined under the provisions of Paragraph 2. That it considered the commercial levels, quantities and time of importation of the steel.

23. The Respondent stated that it revalued several importations with the lowest declared FOB value where the evidence demonstrated that preceding and subsequent consignments were imported at the same time from the same Country of origin. That it consequently uplifted the consignment to match those identical goods of the same description.

24. The Respondent stated that the Appellant’s declared unit values of FOB at 0. 6 per kg was lower as compared to other importers, importing similar products cleared over the same period from the same Country which declared the same at 0. 82 per kg.

25. The Respondent stated that it held a meeting with the Appellant on the 26th July 2022, where it guided it on the documents including bank statements and ledger reports which it was required to avail to support its allegation. That it also noted that the amount paid on the swift transfers could not be linked to the bank statements at Equity Bank.

26. The Respondent averred that the Appellant’s supplier Shandong Julong Steel Plate Co. Ltd could not be linked to the transactions in its bank statement. That this casts doubt on the transaction's value method.

27. The Respondent maintained that its demand for additional assessments was based on the outstanding tax liabilities as per the Appellant’s Post Clearance Audit which cannot be described as unfair or arbitrary as the whole process was done according to the law.

Respondent’s Prayers 28. Based on the above grounds Respondent prayed that the Tribunal:a.Dismisses the Appeal.b.Upholds the Respondent’s assessment and decision dated 19th August 2022. c.Awards the Respondent the cost of the Appeal

Issues For Determination 29. The Tribunal having carefully considered the pleadings filed and the evidence tendered is of the view that the Appeal herein crystallizes into the following issues for determination:a.Whether the Respondent's Review Decision dated 19th August 2022 was valid.b.Whether the Respondent erred in confirming the Appellant’s Additional Assessment vide its Review Decision dated 19th August 2022.

Analysis And Determination a. Whether the Respondent's Review Decision dated 19th August 2022 was valid. 30. The Appellant in this Appeal has argued that the review decision dated 19th August 2022 was invalid for offending the mandatory provision of Sections 229(5) of EACCMA. The Respondent on the other hand stated that its review decision had complied with all relevant provisions of EACCMA and was thus valid.

31. Sections 229(4) and (5) of EACCMA provide as follows regarding timelines for issuance of a review decision:“(4)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.(5)Where the Commissioner has not communicated his or her decision review within to the person lodging the application for the time specified in subsection (4) the Commissioner shall be deemed to have made a decision to allow the application.”

32. A plain reading of Sections 229(4) and (5) of EACCMA shows that the Commissioner is required to communicate its review decision within 30 days from the date of receipt of the review application. That time would however restart if the Commissioner requests further information which it requires to help it issue the review decision.

33. A determination of this issue requires the Tribunal to analyse and determine the chronology of events leading to this dispute, which is now itemised as hereunder:a.Audit findings were issued on 18th January 2022. b.The Respondent sent the Appellant a reminder for request of documents through an email of 1st April 2022. c.Demand notice was issued on 12th May 2022. d.Review application dated 8th June 2022. e.Email re-attaching and forwarding the review application and other documents was sent to the Respondent on 14th July 2023. f.Review decision was issued on 19th August 2022.

34. From the foregoing, it is clear that the review decision was issued about 72 days from the date of the initial review application, and about 35 days after the reminder of the review application was lodged.

35. Whichever way one looks at it, the said review decision was issued outside the mandatory 30 days that is prescribed in Section 229(4) and (5) of the EACCMA, 2004.

36. The Respondent argued that a meeting was held on 26th July 2022 wherein the Appellant was requested to provide documents to support its review application. Nothing was however tabled before the Tribunal to prove the existence of this alleged meeting and or any communication arising from that meeting.

37. The minimum duty to provide evidence in the form of minutes, email or a letter confirming the existence of this meeting lay with the Respondent in this Appeal. The Respondent cannot merely allege the existence of an event without laying a basis for its allegations. It was thus required at the bare minimum to prove that the said meeting took place. This was not done.

38. Based on the foregoing analysis, the Tribunal finds and holds that the Respondent’s review decision was issued outside the statutory 30-day limit period contrary to Section 229(4) and (5) of EACCMA. The Respondent was thus in law presumed to have accepted the Appellant’s application for review.

39. The Tribunal’s conclusion in this Appeal was upheld in the case of Republic Versus The Commissioner of Customs Services Exparte Unilever Limited [2012] eKLR (Misc Civil Application No 181 of 2011) where while dealing with a similar matter, Korir J held that:“non-communication of the Respondent’s decision within the statutory period of 30 days meant that the Applicant’s application for review had been allowed by operation of the law (S229(5)) and that the taxpayer did not thereafter owe the taxes that had been demanded by the Respondent.”

40. The invalidation of the Respondent’s review decision has rendered the second issue that fell for determination moot and it shall thus not be considered by the Tribunal.

Final Decision 41. For the reasons set out above, the Tribunal finds that this Appeal has merit and proceeds to issue the following orders;a.The Appeal be and is hereby upheld.b.The Respondent‘s review decision dated 19th August 2022 be and is hereby set aside.c.Each party is to bear its own costs.

42. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 24TH DAY OF NOVEMBER, 2023. ERIC NYONGESA WAFULACHAIRMANDR. RODNEY O. OLUOCHMEMBERABRAHAM KIPROTICHMEMBERCYNTHIA MAYAKAMEMBEREUNICE NG’ANG’AMEMBERBERNEDETTE GITARIMEMBER