[2023] KETAT 252 (KLR)

Shriji Stationers Limited v Commissioner of Customs & Border Control (Appeal 198 of 2022) [2023] KETAT 252 (KLR) (12 May 2023) (Judgment)

Neutral citation: [2023] KETAT 252 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 198 of 2022

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

May 12, 2023

Between

Shriji Stationers Limited

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

1. The Appellant is a limited liability company incorporated in Kenya and deals in importation of printing paper.

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 (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 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 Part 1 & 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenue in accordance with those laws.

3. Under Sections 235 & 236 of the East African Community Customs Management Act, 2004 (EACCMA) the Respondent undertook Post Clearance Audit (PCA) on desk review of customs entries of importers and the Appellant was among those profiled in respect tariff No. 4802. 56. 00.

4. The tax dispute arose as a result of import of paper under tariff No. 4802. 56. 00 for the period 2nd August 2018 to 8th February 2022 where a short levy of taxes was detected by the Respondent.

5. The Respondent thereafter on the 7th February 2022 issued a demand of Kshs 35,081,408. 00 as import duty and Kshs 5,613,025. 00 as VAT totaling to Kshs 40,694,434.

6. The Appellant objected to the demand on 16th February 2022 and sought a review under Section 229 of EACCMA, on the basis that the Respondent is the one that configured the system of 10% on their Tradex, otherwise known as Simba System, which automatically entered the rate of 10% once the tariff was keyed in, and that in fact as per the existing law the correct rate was 10%.

The Appeal 7. Aggrieved by this decision the Appellant filed this Appeal vide a Memorandum of Appeal and Statement of Facts dated 23rd February 2022 and filed on 25th February 2022.

8. The Appellant raised the following issues in its Memorandum of Appeal;a.That there is no law that imposed a duty rate of 25% on paper and paper board products in the period between 2nd August 2018 and 27th January 2022. b.That even if there were to be said some law exists which imposed a duty rate of 25% on paper and paper board products imported under HS code 4802. 56. 00 as aforesaid, and even if it were to be said the Respondent is lawfully entitled to administer and enforce such law, it would still be illegal and unconstitutional for the Respondent to make and/or enforce compliance with the impugned decision or to issue the impugned demand notice.

9. The Appellant prayed that the Tribunal;i.Allows this Appeal.ii.Annuls the impugned decision as well as the impugned notices.iii.Award costs of this Appeal to the Appellant.

10. The Appellant contended that the applicable rate for the Appellant’s paper and paperboard imports is 10% and not 25% as asserted by the Respondent when it raised the demand in what it called short levied tax. That the tax being in relation to import duty and VAT the relevant law is the EACCMA, and the rate is to be specified in the Protocol on the Establishment of East African Community Customs Union.

11. That the rate should be set by East African Community Council Ministers and the Council should be reviewing the rate from time to time, which rate as per the relevant period was 10%.

12. The Appellant asserted that vide the Gazette Notice No: EAC/21/2014 dated 20th June 2014 the Council reduced the rate from 25% to 10%.

13. It averred that vide LN. EAC/85/2017 modified the East African Community Common External Tariff (EAC CET) to conform to the World Customs Organization and the Harmonized Commodity Description and Coding System and in the process the secretariat mistakenly indicated the tariff of 25% for imports under code 4402. 56. 00.

14. That on noticing the error the Respondent moved to impose the wrong rate despite the clarification from the EAC Secretariat that the Council had not increased the rate.

15. It stated that the Respondent whether in recognition of the error or inadvertently changed its Tradex System (Simba System) to 10% and any importer keying in the HS Code 4802. 56. 00 would automatically get amount of tax payable on the rate of 10%.

16. That the Appellant was on the 7th February 2022 subjected to a demand of short levied taxes based on the fact that the Respondent discovered that the applicable rate under the HS code 4802. 56. 00 should have been 25%.

17. It stated that the Appellant has no control over the Respondent’s Tradex System under iTax and it cannot change nor vary the rate and that its obligation was only to key in the HS code of its imports which generated tax payable at 10%.

18. It argued that changing the rate after tax had been paid at that rate in iTax and way back after the goods had been sold was unconstitutional, illegal unfair, irrational, and abuse of office. That the action violated Article 47 of the Constitution, and the legitimate expectation that what the Appellant was doing was right and had been sanctioned by the Respondent through its system which was under its sole control.

19. In its Submissions, the Appellant maintained that there is no law that was promulgated by the Council fixing the rate at 25%, the last set rate was entered on 20th June 2014.

20. That even if the law existed it is not proper for the Respondent to interpret the law differently another day and the next day especially where it involves a punishment meted on the Appellant in extra taxes and punitive interests. It is the Respondent who set the Tradex System to admit the rates applied.

21. The Appellant identified one issue for determination which is whether the Respondent can enforce a non-existent revenue law. It said any communication posted on the website of EAC Secretariat purporting to change the rate, which has not been gazetted in the EAC gazette is illegal and cannot have the force of the law.

22. The Appellant averred that the Respondent did not comply with Section 229(4) of EACCMA and therefore by failing to issue a review decision within 30 days as is envisaged in Section 229(5) of EACCMA. The review decision was thus deemed allowed under Section 229(5) of EACCMA.

23. The Appellant stated that it withdrew its Appeal by mistake and subsequently it filed a notice of cancellation of the withdrawal of the Appeal and the Appeal was reinstated by consent of the parties.

24. The Appellant has relied on several decisions in its case digest including Krish commodities ltd -Vs- Kenya Revenue Authority [2018] eKLR where the issue of the configuration of the rate by the Simba System was addressed; and Export Trading Company -Vs- Kenya Revenue Authority [2018] eKLR where the issue of post clearance audit was dealt with.

25. In concluding the submissions, the Appellant prayed that the Appeal be allowed and the impugned demand notices withdrawn.

The Respondent’s Case 26. The Appeal has been opposed by the Respondent by filing the Statement of Facts dated 24th March 2022, Submissions dated 18th October 2022 and a Preliminary Objection dated the 24th of March 2022.

27. The Respondent in its Statement of Facts stated that it moved under Section 235 and 236 of EACCMA, and subjected the Appellant to Post Clearance Audit for the period 2nd August 2018 to 8th February 2022 and discovered that there was a short levy of taxes due to misapplication of duty rate of 10% instead of 25% for imports of paper and paper board under HS code 4802. 56. 00.

28. The Respondent on 7th February 2022 raised an assessment of additional taxes in the sum of Kshs 40,694,434. 00 pursuant to East African Gazette Notice No. EAC/12/2018 of 2nd August 2018 and Section 135 of EACCMA.

29. The Respondent stated that in as much as the customs System had not reflected the correct rate as per the provisions of the EAC Gazette Notice No. EAC/112/2018, resulting in a short levy of taxes of Kshs 40,694,434. 00 that does not change the law as the configuration of the iTax, Simba System, is administrative issue, the demanded amount is due and payable.

30. The Respondent in the Statement of Facts identified two issues for determination.i.Whether the demand by the Respondent is lawful.ii.Whether the Appellant followed the laid down procedure under Section 229 of EACCMA 2004.

31. The Respondent argued that the Appellant as per the Notice of Appeal was appealing against the Respondent’s decision in the Memo dated 21st January 2022, retrospectively subjecting paper products imported to the Country between the period 2nd August 2018 to 8th February 2022 to an Import Duty rate of 25%.

32. That the Appellant vide a notice dated 14th April 2022 withdrew the Appeal. It later filed a Notice of Cancellation of Withdrawal of Appeal on 6th May 2022 and served on the Respondent on 20th April 2022.

33. That by dint of withdrawal of the Appeal by the Appellant, the Respondent opined that the Tribunal became functus officio. That the Notice was premised on Section 27(1) of the Tax Appeals Tribunal Act, 2013. That the right to withdraw is absolute and untrammeled.

34. That an Appeal can only be reinstated where the Tribunal dismisses an Appeal under subsection (2) or (3) or upholds the Appeal under Subsection (4). That there is no leeway for cancellation of withdrawal under Section 27 of the TAT Act. Among other decisions, it relied on the decision in Muhugu v Commissioner of Domestic Taxes [2020] eKLR where the implication of withdrawal was analyzed in line with Order 25(1) of the Civil Procedure Rules.

35. The Respondent therefore stated that the Tribunal cannot proceed to hear this Appeal. It further said this Appeal is incompetent and the Tribunal lacks jurisdiction to hear the Appeal in view of the doctrine of exhaustion of internal dispute resolution mechanism.

36. The Respondent stated that the Objection notice by the Appellant dated 16th February 2022 relied objection procedures under the TPA instead of objection procedures under EACCMA. It averred that the relevant law would have been Section 229 of EACCMA which gives the Respondent 30 days within which to render a decision on an application for review. The appeal was filed before the lapse of 30 days and the Respondent had not rendered its decision.

37. The Respondent maintained that there was no decision to Appeal against and the Appeal was filed prematurely and should be dismissed on that ground. That Sections 230 and 231 of EACCMA sets in after the decision provided for under Section 229 is rendered.

38. The Respondent relied on the case of Geofrey Muthinja Kabiru & 2 Others -Vs- Samuel Munga Henry & 1756 others to support its argument on the doctrine of exhaustion.

39. The Respondent then asserted that if the Tribunal finds that the objection is not merited and that it is seized of jurisdiction to hear the matter then the Respondent indeed applied the law properly because it raised the additional assessment based on law and under its mandate.

40. The Respondent stated that the Tribunal cannot deal with the issues of judicial review on matters of fair administrative action or the retrospective application of the decisions as that is a preserve of the High Court which has the original jurisdiction.

Issues for Determination 41. The Tribunal has assessed the pleadings and the supporting documents and concludes that the issues calling for determination are two.i.Whether the Appellant’s Appeal is competent.ii.Whether the demand by the Respondent of short levied taxes in demand letter dated 7th February of Kshs 40,694,434. 00 is lawful and justified.i.Whether the Appellant’s Appeal is competent.1. At the outset, the Respondent raised a Preliminary Objection against the Appellant’s Appeal as set out here below:“Take Note that the Respondent intends to raise a preliminary objection against the Appeal on the grounds that; The Appeal offends the mandatory provisions of Section 229(1) as read with Section 229(4) of EACCMA 2004. ”

43. The relevant Section 229 of EACCMA addresses the issue of statutory timelines within which to lodge an application for review and issuance of review decision:“(1)(1) A person directly affected by the decision or omission of the Commissioner or any other officer on matters relating to Customs shall within thirty days of the date of the decision or omission lodge an application for review of that decision or omission.(2)The application referred to under subsection (1) shall be lodged with the Commissioner in writing stating the grounds upon which it is lodged.(3)…………(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”.

44. The Appellant made an application for review on 16th February 2022. The Respondent was under obligation to render its decision not later than 16th March 2022. However, before the Respondent rendered its decision, the Appellant filed the current Appeal dated 23rd February 2022 on 25th February 2022.

45. The Tribunal agrees with the Respondent that this Appeal was prematurely filed because the principle of exhaustion of jurisdiction had not been exhausted by the Appellant. There was therefore, nothing to anchor the Appeal on because the statutory timelines under which the Respondent is allowed to make a determination on the application for review had not lapsed. This means that no decision had been rendered by the Respondent to warrant the Appeal.

46. The decision of the Tribunal was affirmed by the Superior court in case of Speaker of National assembly v Karume [1992] eKLR where the court observed as follows:-“where there is a clear procedure for the redress of any particular grievance prescribed by the Constitution or an Act of Parliament, that procedure should be strictly followed. We observe without expressing a concluded view that order 53 of the Civil Procedure Rules cannot oust clear constitutional and statutory provisions.”

47. The Tribunal is further guided by the decision in Geoffrey Muthinja Kabiru & 2 Others v Samuel Munga Henry & 1756 Others [2015] eKLR to the effect that:-“It is imperative that where a dispute resolution mechanism exists outside courts, the same be exhausted before the jurisdiction of the courts is invoked. Courts ought to be the fora of last resort and not the first port of call the moment a storm brews within churches, as is bound to happen. The exhaustion doctrine is a sound one and serves the purpose of ensuring that there is a postponement of judicial consideration of matters to ensure that a party is first of all diligent in the protection of his own interest within the mechanisms in place for resolution outside of courts. This accords with Article 159 of the Constitution which commands Courts to encourage alternative means of dispute resolution.”

48. Accordingly, the Tribunal has not found any reasonable cause why it should depart from this well paved judicial principle of the doctrine of exhaustion.ii)Whether the demand by the Respondent of short levied taxes in demand letter dated 7th February of Kshs 40,694,434 is lawful and justified.

49. Having concluded that the Appellant’s preliminary objection is merited and that the Tribunal lacks the jurisdiction to hear and determine this matter, the Tribunal is compelled to down its tools. It cannot therefore, endeavor to determine this second issue.

DIVISION -Final DecisionPARA 50. The upshot of the foregoing analysis is that the Appeal is incompetent and unsustainable in law and the Tribunal accordingly proceeds to make the following orders.i. The Appeal be and is hereby struck out.ii. Each party to bear its own costs.

DATED AND DELIVERED AT NAIROBI THIS 12TH DAY OF MAY, 2023. ......................................ROBERT M. MUTUMACHAIRPERSON.........................................ELISHAH NJERU RODNEY O. OLUOCHMEMBER MEMBER.........................................DELILAH K. NGALA EDWIN K. CHELUGETMEMBER MEMBER