[2023] KETAT 328 (KLR)

Sojpar Limited v Commissioner of Customs & Border Control (Appeal 387 of 2022) [2023] KETAT 328 (KLR) (2 June 2023) (Judgment)

Neutral citation: [2023] KETAT 328 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 387 of 2022

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

June 2, 2023

Between

Sojpar 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 with its offices situated in Nairobi.

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 revenues in accordance with those laws.

3. Under Sections 235 & 236 of the EACCMA the Respondent undertook Post Clearance Audit 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 Code 4802. 56. 00 for the period 2nd August 2018 to 8th February 2022 where a short levy of taxes was detected due to misapplication of the rate of 10% instead of 25%.

5. The Respondent therefore on the 10th February 2022 issued a demand in the sum of import duty of Kshs 784,611. 00.

6. The Appellant objected to the demand on 16th February 2022 and sought a review under Section 229 of EACMA, on the basis that the Respondent is the one that configured the system of 10% on its 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 law existing the correct rate was that of 10%.

7. After considering the review application the Respondent confirmed its earlier decision. The Appellant being dissatisfied went ahead and filed this Appeal vide the Memorandum of Appeal dated 13th April 2022.

The Appeal 8. The Appeal is premised on the Memorandum of Appeal and the Statement of Facts dated 13th April 2022 and filed on 14th February 2022 and further supported by the Submissions dated 21st November 2022 together with the annextures and attachments thereto.

9. The Memorandum of Appeal has raised the following ground of appeal;a.That there is no law that imposed a duty rate of 25% on paper and paperboard 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 paperboard products imported under HS code 4802. 56. 00as 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.The Appellant has therefore prayed that the Tax Appeals Tribunali.Allows this Appeal;ii.Annuls the impugned decision as well as the impugned notices; andiii.Award costs of this Appeal to the Appellant.

10. The Appellant has extensively supported each of the grounds with arguments based both on law and facts.

11. In the Statement of Facts, the Appellant has 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 East African Community Customs Management Act (EACCMA), and the rate is to be specified in the Protocol on the Establishment of East African Community Customs Union.

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

13. 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%.

14. 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 tariff of 25% for imports under HS code 4402. 56. 00.

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

16. 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%.

17. 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%.

18. It said 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 then generated tax payable at 10%.

19. 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 it solely had control.

20. In its Submissions, the Appellant maintained that there is no law that was promulgated by the East Africa Council of Ministers fixing the rate at 25%, the last rate was set on 20th June 2014 at 10%.

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

22. 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.

23. The alleged LN No. EAC/85/2017 merely authorized the harmonization of the EAC CET to the WCO CET.

24. The Appellant said that it was inconsiderate for the Respondent to be inconsistent, the fact of changing the interpretation of the law midway without notice was inappropriate, as taxes could not be recovered from third parties, hence negating the doctrine of legitimate expectation.

25. In legal arguments in the issue for determination the Appellant said that the Appellant complied with the relevant law being Section 229(4) EACCMA. That the application for review of the demand was made on 16th February 2022 pursuant to Section 229(5) of EACCMA.

26. The Appellant has relied on several decisions which it has provided a digest and notably 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 post clearance audit was dealt with.

The Respondent’s Case 27. In its Statement of Facts dated and filed 9th May 2022 together with the Submissions dated and filed 10th November 2022, the Respondent stated that, under Sections 235 and 236 of EACCMA, it 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 paperboard under HS code 4802. 56. 00.

28. The Respondent on 7th February 2022 raised an assessment of additional taxes in the sum of Kshs 784,611. 00 under Section 135 of EACCMA, pursuant to East African Gazette Notice No. EAC/12/2018 of 2nd August 2018.

29. The Respondent said in as much as the customs ssystem 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 784,611. 00, which does not change the law as the configuration Tradex of the iTax, Simba System is administrative issue, the demanded amount is due and payable.

30. The Respondent in the Statement of Facts identified one issue for determination.

Whether the demand by the Respondent is lawful.

31. The Respondent said that since the tax regime is the self-assessment one, it is expected that the Appellant after declaring the returns it is expected legitimately that it would pay to the Commissioner the right taxes.

32. That because of nonpayment of the right taxes, it was only the Respondent’s duty under Sections 135, 235, 236 & 249 to raise demand for short levied taxes within five years of the import.

33. In its Submissions the Respondent has confirmed that there is no dispute as to what was imported by the Appellant.

34. It said the demand was based on Section 135 of EACCMA and the demand was within the mandate of the Commissioner to demand for the short levied taxes.

35. It said as regards legitimate expectation raised by the Appellant, there cannot be a legitimate expectation against clear provisions of the law.

36. It finally said the Appellant’s case is a nonstarter and should be dismissed.

Issues for Determination. 37. Having considered the pleadings and submissions of both parties together with the supporting documents the Tribunal has reached the conclusion that there is one issue that calls for determination;Whether the rate of the imports under H.S Code 4802. 56. 00 is 25% or 10%.

Analysis and findings 38. The Tribunal wishes to analyse the issue as herein-under:Whether the rate of the imports under H.S Codes 4802. 56. 00 is 25% or 10%.

39. In the instant appeal, the Appellant averred that there has never been any law that changed the duty rate of imports under H.S. Code 4802. 56. 00 at 25% since 20th June 2014.

40. The Respondent submitted that the 2012 Version of the East African Community CET provides the rate of paper and paperboard products imported under H.S. Code 4802. 56. 00 at 25% and following subsequent deletions of various Legal Notices that changed the rate from 25% to 10%, they shall revert to this 2012 version which charges the rate of the products at 25%.

41. In determining the correct duty rate for imports under H.S. Codes 4802. 56. 00, the Tribunal will look at the chronology of events, the actions of the stakeholders involved, and their propriety thereof.

42. The 2012 version of the EAC CET provides as thus:-“48. 02 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…

4802. 56. 00 -- 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- kg- 25%.”

43. Item 2 of Legal Notice No. EAC/21/2014 provides as follows:-“4802. 56. 00; Paper and Paperboard- Decreased the duty rate from 25% to 10% on the following HS Codes… 4802. 56. 00…”

44. It is the Tribunal’s finding that this Legal Notice is what prompted the Respondent to change its systems to conform and charge the rate of 10% for paper and paperboard products imported under H.S. Code 4802. 56. 00. There thus doesn’t seem to be any error or mistake in implementing the changes in its system as the same were in conformity with the Legal Notice.

45. Later, Legal Notice No. EAC/85/2017 was published which stated that:- “IN EXERCISE of the powers conferred upon the Council of Ministers by Article 42(2) (1) of the Protocol on the Establishment of the East African Community Customs Union, the Council of Ministers has reviewed and modified the EAC Common External Tariff into a 2017 Version in conformity with the Harmonised Commodity Description and Coding System Version 2012 of the World Customs Organisation. The EAC Common External Tariff 2017 Version comes into force on 1st July 2017. This Notice shall come into force on the 1st day of July 2017. ”

46. The Tribunal agrees that the Legal Notice did not purport to change or overturn or amend the provisions of Legal Notice No. EAC/21/2014 with regard to paper and paperboard products imported under H.S. Code 4802. 56. 00, if indeed that were the intentions of the Council, the same would have been clearly indicated by the Secretariat. This provision, therefore, does not change the provisions of Legal Notice No. EAC/21/2014.

47. The process and manner in which a tariff is supposed to be changed and published by the Council is well coded in the law. Article 12(3) of the Protocol for the Establishment of the EAC states as follows:-“The Council may review the common external tariff structure and approve measures designed to remedy any adverse effects which any of the Partner States may experience by reason of the implementation of this part of the Protocol or, in exceptional circumstances, to safeguard Community interests.”

48. Further, Chapter 5 of the East African Community Treaty Protocol duty rates provides under Article 14(5) as follows:-“The Council shall cause all regulations and directives made or given by it under this Treaty to be published in the Gazette, and such regulations or directives shall come into force on the date of publication unless otherwise provided therein.”

49. This is not the procedure followed by the East African Community Council of Ministers when it published the 2017 version of the East African Community Common External Tariff which indicated the duty rate for products imported under H.S Code 4802. 56. 00 at 25% (matching the 2012 version) instead of 10% in accordance with the duly passed and published Legal Notice no. EAC/21/2014.

50. The Tribunal opines that, it is for this reason that the Council purported to correct the changes by publishing Legal Notice No. EAC/69/2018 which states as thus:“Corrections are hereby made to the EAC Gazette Vol. AT. 1 – No 8 of 30th June 2017, in Legal Notice No. EAC/85/2017 in respect of: … 2. HS Code 4802. 56. 00, changing the rate of 25% to 10%.”

51. It is however noted that in order to change the tariff code, as aforementioned, specific procedures need to be followed. It is therefore the Tribunal’s position that the said Legal Notice No. EAC/69/2018 erroneously tried to make changes to a tariff code without a sound procedure under the law, therefore, the Tribunal finds that Legal Notice No. EAC/CET/112/2018 which provides that:- “2. A Correction is hereby made to the EAC Gazette Vol. AT. 1 – No. 8 dated 30th June 2018, in Legal Notice No. EAC/69/2018 by deleting item No. 2. ” merely purported to correct the erroneous mistake of procedure occasioned by publishing Legal Notice No. EAC/69/2018.

52. Having established the foregoing, it therefore follows that the law reverts to the only properly enacted and published Legal Notice which is Legal Notice No. EAC/21/2014 which remains unchanged and unamended to date. Thus, the proper rate to be applied on products falling under the H.S. Code 4802. 56. 00 is 10% and not 25%.

Final Decision 53. The upshot of the foregoing is that the Appeal is meritorious and the Tribunal consequently makes the following Orders;-i.The Appeal be and is hereby allowed;ii.The review decision dated 15th March 2022 be and is hereby is set aside;iii.Each party to bear its own costs.

54. It is so ordered.

DATED and DELIVERED at NAIROBI this 02nd day of June, 2023. .........................................ROBERT M. MUTUMACHAIRPERSON…………………………………….….……………….ELISHAH N. NJERU RODNEY O. OLUOCH MEMBER MEMBER……………………. ……...........…………..DELILAH K. NGALA EDWIN K. CHELUGETMEMBER MEMBERJUDGEMENT APPEAL NO. 387 OF 2022 SOJPAR LIMITED VS. COMMISSIONER OF CUSTOMS & BORDER CONTROL Page | 6