[2024] KETAT 416 (KLR)

Safepak Limited v Commissioner for Legal Services & Board Coordination (Appeal E377 of 2023) [2024] KETAT 416 (KLR) (22 March 2024) (Judgment)

Neutral citation: [2024] KETAT 416 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E377 of 2023

RM Mutuma, Chair, AM Diriye, M Makau, EN Njeru & B Gitari, Members

March 22, 2024

Between

Safepak Limited

Appellant

and

The Commissioner for Legal Services & Board Coordination

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya whose principal business activity is the manufacture and sale of plastic products.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) Act, the Kenya Revenue Authority (the Authority) is an agency of the Government for the collection and receipt of all revenue. Further, under Section 5 (2) of the Act with respect to the performance of its function under subsection (1), the Authority is mandated with the responsibility for the administration and enforcement of the various statutes set out in Parts 1 & 2 of the First Schedule to the said Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. Following the amendment of the Finance Act 2022, the Appellant stopped charging and remitting Excise duty on locally produced plastic articles of tariff HS Code 3923. 30. 00.

4. On 2nd May 2023, the Respondent demanded an Excise duty additional assessment in the sum of Kshs. 159,543,931. 00 for the period September 2022 to January 2023 and issued an Agency notice to the Appellant’s bank agents.

5. Through a letter dated 4th May 2023, the Appellant objected to the assessment and the Respondent issued its Objection decision on 30th May 2023.

6. Aggrieved by the Respondent’s Objection decision, the Appellant lodged this Appeal on 29th June 2023.

The Appeal 7. The Appeal as contained in the Memorandum of Appeal dated and filed on 11th July 2023 is premised on the following grounds:a.That the Respondent erred in law and fact by demanding Excise duty on locally manufactured articles of plastic that are not excisable.b.That the Respondent erred in fact and law by disregarding the provisions of the National Assembly’s Hansard Report dated 2nd June 2022, and the letter from the clerk of the National Assembly dated 28th July 2022 that identify the prevailing position of whether locally manufactured plastics products are excisable or not.c.That the Respondent erred in fact and law in its tax demand for additional Excise duty by having complete visibility of the matter and not liaising with the Attorney General’s office, which handed the amendments on Excise duty on articles of plastic.

The Appellant’s Case 8. The Appellant has set out its case on its;a.Statements of Facts dated 10th July 2023 and filed on 11th July 2023 together with the documents attached thereto; andb.Written Submissions dated 28th of September 2023 and filed on 2nd October 2023.

9. In its Statement of Facts and Written Submissions, the Appellant submitted the following two issues for determination:a.Whether the Respondent erred in law and fact by demanding excise duty on locally manufactured articles of plastic that are not excisable.b.Whether the Respondent erred in law and fact by disregarding the National Assembly's Hansard Report dated 2nd June 2022, and correspondence between the National Assembly and the Attorney General's office dated 28th July 2022.

Whether the Respondent erred in fact and law by demanding excise duty on locally manufactured articles of plastic that are not excisable 10. The Appellant averred that prior to 1st July 2022, Excise duty was applicable on Articles of plastic of tariff heading 3923. 30. 00, whether manufactured locally or imported.

11. The Appellant further averred that the amendment introduced by the Finance Act, 2022 to the Excise Duty Act, 2015 with effect from 1st July 2022 was clear that Excise duty was applicable on imported articles of plastic of Tariff Heading 3923. 30. 00 and Tariff Heading 3923. 90. 90 and not on locally manufactured Articles of plastics of the aforementioned tariff headings as was previously the case prior to 1st July 2022.

12. The Appellant contended that Section 34 (b) (xviii) of the Finance Bill, 2022 as presented during the public participation stage, proposed to introduce Excise duty on articles of plastic of Tariff Code 3923. 90. 90 as reflected in the National Assembly's official Hansard Report of 2nd June 2022 during the Parliamentary approval process of the Finance Bill, 2022.

13. Consequently, the Appellant submitted that the amendment introduced by the Finance Act, 2022 should be interpreted to mean that Excise duty was only applicable on imported articles of plastic of Tariff Heading 3923. 30. 00 and 3923. 90. 90 with effect from 1st July 2022.

14. The Appellant asserted that the anomaly in drafting the Finance Bill, 2022 is what resulted in this dispute under Appeal because this drafting anomaly failed to give the amended provision the intended effect in the Finance Act, 2022.

15. The Appellant asserted that this anomaly was raised by the Kenya Association of Manufacturers (KAM) with the Clerk of the National Assembly who clarified that the amendment as per the Hansard report of 2nd June 2022, the National Assembly intended to introduce 10% Excise duty only on ‘imported’ articles of plastic.

16. The Appellant claimed that the Respondent’s assessment to impose Excise duty on locally manufactured plastic items oversteps the legislative authority granted to the National Assembly under Article 109 of the Constitution of Kenya, 2010.

Whether the Respondent erred in fact and in law by disregarding the National Assembly's Hansard Report dated 2nd June 2022, and correspondence between the National Assembly and the Attorney General's office dated 28th July 2022. 17. The Appellant submitted that the Respondent misinterpreted the Parliamentary records which clearly showed the National Assembly intended to impose Excise duty on ‘imported’ articles of plastic and not on those that are locally manufactured.

18. The Appellant further submitted that the Respondent is a statutorily mandated body to implement the tax laws enacted by the National Assembly and as such, it fits the public authority under this case and should have taken the responsibility to have the anomaly rectified, which would have ensured correct implementation of the change in law by the Appellant and other players in the industry.

19. The Appellant averred that the cardinal rule for the construction of a statute dictates that a statute should be interpreted based on the intention expressed within the statute itself. The Appellant relied on the cardinal rule to establish the intention behind the provision to impose Excise duty on imported articles of plastic of Tariff Headings 3923. 30. 00 and 3923. 90. 90.

20. The Appellant further contended that the primary objective of introducing Excise duty on imported articles of plastic under Tariff Headings 3923. 30. 00 and 3923. 90. 90, was to protect local companies involved in the manufacture of plastic products in Kenya.

21. The Appellant claimed that the Respondent failed to consider the discussions detailed in the National Assembly's Hansard Report of 2nd June 2022, which were relied upon by the Clerk of the National Assembly.

The Appellant’s Prayers 22. The Appellant prayed that this Tribunal;a.Sets aside the Respondent's Objection decision dated 30th May 2023, which demanded an additional Excise duty of Kshs. 159,543,391. 00 in its entirety.b.Bars and estops the Respondent, its employees, agents, or any other individuals purportedly acting on behalf of the Respondent from demanding or initiating any further enforcement or recovery measures regarding the principal tax, penalties, and interest as per the Respondent's demand.c.Allows the Appeal.d.Awards costs of this Appeal to the Appellant and any other remedies that the Honourable Tribunal deems just and reasonable.

The Respondent’s Case 23. In opposing the Appeal, the Respondent set out its case in its;a.Statement of Facts dated 8th August 2023 and filed on 9th August 2023 together with the documents attached thereto; andb.Written Submissions dated 30th October 2023 and filed on 2nd November 2023.

24. In its Statement of Facts and written Submissions, the Respondent submitted on three issues for determination as follows;a.Whether the Respondent erred by demanding excise duty on locally manufactured articles of plastic and ignored the National Assembly Hansard Report?b.Whether the Respondent erred by disregarding the letter to the Attorney General?c.Were the goods manufactured by the Appellant were subject to excise duty.

Whether the Respondent erred by demanding excise duty on locally manufactured articles of plastic and ignored the National Assembly Hansard Report? 25. The Respondent submitted that Article 94 of the Constitution of Kenya 2010 gives the National Government power to impose income tax, Value-added tax, Customs duties and other duties on import and export goods, and Excise tax. Further, Article 210 (1) of the Constitution of Kenya provides that no tax may be imposed, waived or varied except as provided for by legislation. It is apparent therefore that under the Constitution of Kenya, the power to impose tax reposes with the National Assembly. Such power, needless to say, will normally be exercised in consonance with the economic and other policies of the country.

26. The Respondent averred that it is empowered under the Kenya Revenue Authority Act, as an agency of the Government, to collect and receive all revenue. Section 5 of the Act provides that the Respondent has a function of the administration and enforcement of all written laws relating to the assessment, collection and accounting of all revenues.

27. The Respondent averred that the Finance Act 2022 sought to expand the scope of Excise duty on plastics under Tariff 3923. 90. 90 and that the word ‘imported’ mentioned in the current Act is not the current provision of the law, therefore Excise duty is applicable on all articles of plastics under Tariff 3923. 30. 00 and 3923. 90. 90 whether locally manufactured or imported.

28. The Respondent contended that the Finance Act 2022 did not bear the amendment as discussed by the house on 2nd June 2022 and that the goods of tariff classification ‘3923. 90. 90’ did not appear in the Hansard record of 2nd June 2022 but was included in the Finance Act 2022.

29. The Respondent further averred that at the date of giving the Objection decision, the Attorney General had not pronounced himself on the correction sought, the Appellant’s objection was therefore rejected and the assessments confirmed.

30. The Respondent contended that Paragraph 32 (iv) of the Finance Act 2021 (amended), provided that Excise duty should be charged at the rate of 10% on the articles of plastic of Tariff 3923. 30. 00 and that a reading of the Finance Act 2021 reveals that there was no use of the word ‘imported’. The Respondent therefore averred that the amendment introduced by the Finance Act 2022 was the insertion of the words ‘and 3923. 90. 90’, the intention of which was to widen the scope of the tax.

31. The Respondent averred that then First Schedule of the Excise Duty Act provides that articles of plastic of Tariff Heading 3923. 30. 00 and 3923. 90. 90 are chargeable to Excise duty at 10%.

32. The Respondent asserted that the Appellant through different letters to the Clerk of the National Assembly sought to know the intention of the National Assembly in amending the Finance Act 2021 whereby the Clerk communicated that the intention of Parliament was to have excise duty on imports and not on goods manufactured in Kenya. This led to the Appellant writing to the Attorney General requesting the Attorney General to exercise his powers to amend the law to include the amendment as was intended by the National Assembly.

33. The Respondent contended that once a Bill is published in the Kenya Gazette it becomes law as is and, in the words, published in the Kenya Gazette and that there are only two ways that such a law can be amended; by Parliament or by the Attorney General through the revisionary powers bestowed upon it by law as stipulated under Section 13 of the Revision of Law

34. The Respondent averred that as at the date of the assessment, the only amendment made to the Excise Duty Act was to include 3923. 90. 90 as goods subject to Excise duty and none to exclude goods manufactured in Kenya and the request to the Hon Attorney General to amend the law had not been honoured as at the date of the assessment.

35. The Respondent submitted that a communication of the intention of Parliament and a request to amend a statute cannot operate as the law and that until the amendment or rectification is done by the National Assembly or the Attorney General in an order in the Gazette, the law stands, as it did as at the time it made the assessment.

36. The Respondent relied on the Court of Appeal in the case of Mount Kenya Bottlers Ltd & 3 others vs. Attorney General & 3 others [2019] eKLR as well as the Judgments on tax case of Scott v. Russell (Inspector of Taxes), [1948] 2 All ER.

37. The Respondent submitted that there should be no room for presumption or assumptions in this case and that the amendment was on the Finance Act 2021 and Excise Duty Act to include a wider scope of the tax. If the intention was to amend and limit the tax to imports, then the statute should have specifically stated so and the requisite amendment made after the error was established. Nothing is to be read in or implied in tax law and a strict constructionist interpretation must be adopted.

38. The Respondent stated that there is no intendment in tax law; there are no assumptions or presumptions and that the Excise Duty Act was and should be applied as it is since the Finance Act 2022 is a general guide on all matters finance and tax while the Excise duty Act is the specific law that guide the Respondent in charging and collecting Excise duty. As far as matters excise duty are concerned, the applicable law as at the time of the assessment was the Excise Duty Act which provided that Articles of plastic of Tariff Heading 3923. 30. 00 and 3923. 90. 90 are to be charged Excise Duty at 10%.

Whether the Respondent erred by disregarding the letter to the Attorney General? 39. The Respondent submitted that the Appellant referred to the letter dated 28th July 2022 from the clerk of the National Assembly to the Attorney General advising the Attorney General to use the powers under the revision of laws act to correct the anomaly in Section 35 (b) (xiv) of the Finance Act 2022.

40. The Respondent averred that at the date of giving its Objection decision, the Attorney General had not made the correction requested, and based on that, the Appellant's objection was rejected and the assessments confirmed.

41. The Respondent holds the view that until it receives communication from the Attorney General's office, it will continue raising assessments or confirming decisions geared towards collecting excise duty in compliance with the laws.

Whether the goods manufactured by the Appellant were subject to Excise Duty? 42. The Respondent submitted that Section 5 (2) of the Excise Duty Act provides that Excise duty shall be charged at the rate specified in the First Schedule for the excisable goods or services in force at the time the liability arises for excise duty.

43. That Respondent submitted that Section 2 of the Excise Duty Act defines an excisable good as goods under part I of the First Schedule and goods manufactured in Kenya or imported into Kenya on which an excise duty is imposed under the Act.

44. The Respondent further averred that First Schedule to the Excise Duty Act provides that articles of plastic of Tariff Heading 3923. 30. 00 and 3923. 90. 90 shall be charged excise duty at 10%.

45. The Respondent asserted that the Appellant is a manufacturer of plastics in Kenya, and plastics are exercisable goods under the Excise Duty Act. Accordingly, the goods manufactured by the Appellant are subject to excise duty.

The Respondent’s Prayers 46. The Respondent prayed that this Tribunal finds that: -a.The Respondent's Objection Decision dated 30th May 2023 was proper and in conformity with the provisions of the Law and uphold the same.b.This Appeal is devoid of merit and ought to be dismissed with costs to the Respondent.

Issues For Determination 47. The Tribunal having considered the Memorandum of Appeal, the parties’ Statements of Facts and submissions and the documents submitted finds that there is a single that calls for its determination;Whether the Respondent’s imposition of excise duty on the Appellant’s locally manufactured plastics is proper in law.

Analysis And Findings 48. The Appellant argued that it stopped charging and remitting Excise duty on locally manufactured plastics under Tariff Heading 3923. 30. 00 and 3923. 90. 90 because the amendment introduced by the Finance Act, 2022 to the Excise Duty Act, 2015 was clear that excise duty was only applicable on imported articles of plastic of Tariff Headings 3923. 30. 00 and 3923. 90. 90 and not on locally manufactured articles of plastics of the aforementioned tariff headings as was previously the case prior to 1st July 2022.

49. The Appellant argued that, as presented during the public participation stage and reflected in the National Assembly's official Hansard Report of 2nd June 2022, the amendment in the Finance Act, 2022 introduced Excise duty only on ‘imported Articles of plastic of Tariff Heading 3923. 30. 00 and Tariff Heading 3923. 90. 90 and not on locally manufactured articles of plastics since the intention of the National Assembly was to protect local industries by abolishing Excise duty on locally manufactured plastic products under Tariff Headings 3923. 30. 00 and 3923. 90. 90.

50. The Appellant submitted that in the Amended Finance Act, 2022, the term ‘imported’ was also added right before ‘articles’ in the tariff description, to read ‘imported articles of plastic of Tariff Heading 3923. 30. 00 and 3923. 90. 90’ and therefore the amendment introduced by the Finance Act, 2022 should be interpreted to mean that Excise duty was only applicable on imported articles of plastic of Tariff Heading 3923. 30. 00 and 3923. 90. 90 and not on locally manufactured Articles of plastic of the same headings.

51. The Respondent holds that the Amendment in the Finance Act 2022 only sought to expand the scope of Excise duty on plastics under tariff 3923. 90. 90 and the word ‘imported’ mentioned in the Finance Act 2022 is not in the current provision of the law and therefore, Excise duty is applicable on all articles of plastics under Tariff Heading 3923. 30. 00 and 3923. 90. 90 whether manufactured locally or imported.

52. The Respondent argued that as at the date of the assessment, the only amendment made to the Excise Duty Act was to include 3923. 90. 90 as goods subject to Excise duty and none to exclude goods manufactured in Kenya.

53. The Tribunal notes that the anomaly in drafting the Finance Bill, 2022 and the imposition of Excise duty by the Respondent on the Appellant’s plastic products is what resulted in this dispute under Appeal.

54. The Tribunal further notes that the Clerk of the National Assembly, in a letter dated 28th July 2022 to the Attorney General clarified that the amendments was intended to introduce 10% Excise duty only on ‘Imported articles of plastic of Tariff Heading 3923. 30. 00 and 3923. 90. 90’ and advised him to use the powers bestowed to him under the review of Laws Act to correct the anomaly. The Tribunal also notes that the Clerk of the National Assembly also gave similar clarifications to the Kenya Association of Manufacturers (KAM) and advised them to channel their concerns to Attorney General who is ceased of the matter.

55. The Tribunal in order to establish the law that was applicable at the time of the Appellant’s assessment delved in to a detailed reading of the Finance Act 2021 and Finance Act 2022.

56. The Tribunal notes the amendment introduced by the Finance Act 2022 was the insertion of the words “and 3923. 90. 90” immediately after the …. word imported appearing, yet a reading of the Finance Act 2021 establishes that there was no use of the word “imported” that appeared immediately after.

57. Section 5 of the Excise Duty Act, 2015 states as follows regarding imposition of Excise duty:“Imposition of excise duty 1. Subject to this Act, a tax, to be known as excise duty, shall be charged in accordance with the provisions of this Act on—a.excisable goods manufactured in Kenya by a licensed manufacturer;b.excisable services supplied in Kenya by a licensed person; orc.excisable goods imported into Kenya.”

58. The Tribunal further notes that Section 5(2) of the EDA regarding chargeability of Excise duty states as follows:“(2)Excise duty shall be charged at the rate specified in the First Schedule for the excisable goods or services in force at the time the liability arises for excise duty as determined under section 6. 3.The excise duty payable—a.under subsection (1)(a), shall be payable by the licensed manufacturer;b.under subsection (1)(b), shall be payable by the licensed person making the supply: orc.under subsection(1)(c), shall be payable by the importer of the excisable goods.”

59. The Tribunal is alive to the fact that tax laws are amended each year through the Finance Act and in this case, the Finance Act 2022 made the following amendment to the Finance Act 2021 in regard to Excise duty:“The First Schedule to the Excise Duty Act, 2015 is amended—a.in paragraph 1 of Part I—i.by inserting the following item at the end of the second table— Description Rate of Excise Duty Articles of plastic of tariff heading 3923. 30. 00 10%”

60. Further, the Finance Act 2022 was amended in the following manner in regard to items of plastic:“The First Schedule to the Excise Duty Act, 2015 is amended — in the second table appearing in paragraph 1 of Part I—xiv.by inserting the expression “and 3923. 90. 90” immediately after the expression “3923. 30. 00” appearing in the tariff description “Imported Articles of plastic of tariff heading 3923. 30. 00”;

61. The Tribunal notes that the word “imported” appearing in the Finance Act 2022 amendment to the Excise Duty Act did not appear in the Finance Act 2021, yet as can be discerned from (xiv) above appeared in the Finance Act 2022 as passed by Parliament.

62. In this regard, it is discernible that the Finance Act introduced the word “imported” ahead of the description of the articles falling under the tariff code 3923. 30. 00. The literal interpretation of this is that this change in the Finance Act 2022 was intended to levy this duty only on items that fall within the description of imported plastic items of the specified tariff codes. Meaning that only imported items falling within the description of tariff codes 3923. 30. 00 and 3923. 90. 90 were excisable with effect from the effective date of 1st July, 2022 under this particular amendment.

63. The provisions of the law surrounding the charge of Excise duty on commodities are clear and that items listed in the First Schedule of the Excise Duty Act are chargeable based on their descriptions and the rates specified therein.

64. The Tribunal is thus enjoined to interpret the law as it is without looking at its intendment or any other justification which may have formed its enactment. Tax statutes must be interpreted literally and without equity as was explained in the classicus case of Cape Brandy Syndicate vs. Inland Revenue Commissioner [1921] 1 KB 64, where it was held that:“In a taxing Act one has to look merely at what is clearly stated. There is no room for any intendment. There is no equity about tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.”

65. In view of the foregoing, the Tribunal holds that that the Finance Act 2022 provided that only imported articles of plastic that fell under Tariff Codes 3923. 30. 00 and 3923. 90. 90 were excisable at 10%.

66. The Tribunal is therefore convinced that the Respondent was not justified in levying Excise duty on the Appellant’s goods since locally manufactured articles of plastic were left out of the goods chargeable to duty under the Finance Act 2022.

Final Decision 67. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is merited and consequently makes the following orders; -a.The Appeal be and is hereby allowed;b.The Respondent’s Objection decision dated 30th May 2023 is hereby set aside.c.Each party to bear its own cost.

68. It’s so ordered.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF MARCH, 2024ROBERT M. MUTUMA - CHAIRPERSONMOHAMED A. DIRIYE - MEMBERMUTISO MAKAU -MEMBERELISHAH N. NJERU - MEMBERBERNADETTE M. GITARI - MEMBER