[2022] KEHC 13780 (KLR)

Solutions Medical Sytems Ltd v Commissioner of Customs and Border Control (Income Tax Appeal E006 of 2021) [2022] KEHC 13780 (KLR) (Commercial and Tax) (14 October 2022) (Judgment)

Neutral citation: [2022] KEHC 13780 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Income Tax Appeal E006 of 2021

A Mabeya, J

October 14, 2022

Between

Solutions Medical Sytems Ltd

Appellant

and

Commissioner of Customs and Border Control

Respondent

(Being an appeal from the Judgment of the Tax Appeals Tribunal delivered on 18/6/2021 in Nairobi TAT Appeal No. 472 of 2020)

Judgment

1. The appellant is a limited liability company incorporated in Kenya and provides medical services. The respondent is a principal officer of Kenya Revenue Authority (KRA), and is mandated with the management and control of customs including collection, accounting and general administration of customs revenue on behalf of the government.

2. On August 4, 2020, the appellant imported haemodialysers from China under customs entry number 2020ICDN22479. It declared the goods under HS Code 9018. 90. 00 under which import duty was charged at the rate of 0% and VATat 14%.

3. The respondent disputed the classification of the goods during the process of customs clearance and determined that the applicable tariff classification was 8421. 29. 00 which attracted import duty of 10% and VATat 14%.

4. The appellant disputed the respondent’s decision vide letters dated August 12, 2020 and August 19, 2020. However, the respondent affirmed its decision vide letters dated August 17, 2020 and 2August 4, 2020. The respondent then reviewed the appellant’s importation for the period 2015 – 2020 and on 24/9/2020, he issued a demand for Kshs 4,905,667/= being the principal tax plus interest for the years 2016 - 2019.

5. Aggrieved by that decision, the appellant appealed to the Tax Appeals Tribunal (“the Tribunal”) against that decision. The respondent filed its statement of facts on November 11, 2020. By its judgment of June 18, 2021, the tribunal dismissed the appeal in respect of which the appellant preferred the present appeal.

6. The memorandum of appeal was based on seven grounds that can be summarized as follows: -a.That the tribunal violated the appellant’s constitutional right to a fair administrative process in delivering two conflicting judgments on June 18, 2021 only hours apart based on the same facts and findings; and that the tribunal became functus officio after transmitting the first judgment by email and could not make another judgment in direct conflict with its first judgment, thus the second judgment was null and void.b.That the tribunal erred in dismissing its appeal despite finding that the respondent gave no reasonable explanation why clearance audit was done five years late.c.That tribunal declined to be guided by the law and legal precedents that were binding on it.

7. On the foregoing, the appellant prayed that the judgment delivered on June 18, 2021 at 2:38 pm be declared null and void and be set aside and the judgment delivered on June 18, 2021 at 10:43 am be declared as valid and binding.

8. The respondent filed his statement of facts dated September 1, 2021. It was averred that the tribunal acted within the law in correcting a clerical mistake or error in the judgment which did not go to the merits of the judgment. In the premises, the appellant’s rights were not violated by the correction.

9. The respondent contended that section 135 as read together with section 236 of the East African Community Customs Management Act (EACCMA) mandates the Commissioner to demand for any short-levied duty for a period of up to five years. in the premises, the tribunal did not err in affirming that position. That the audit done by the respondent was in adherence to section 236 of the EACCMAwhich empowers the respondent to conduct investigations in order to verify the accuracy of the entry of goods or documents.

10. The respondent also contended that the Tribunal was correct in its finding that the issue of fair administrative action raised by the appellant ought to have been adjudicated by a different forum.

11. The appeal was canvassed by way of written submissions. The appellant’s submissions were dated September 23, 2021 while those of the respondent were dated November 2, 2021. The court has considered those submissions and the entire record.

12. As a first appellate court, this court has a duty to examine matters of both law and facts and subject the whole of the evidence to a fresh and exhaustive scrutiny, before drawing its own independent conclusion.

13. This duty is captured by section 78 of the Civil Procedure Act which espouses the role of a first appellate court as being ‘…… re-evaluate, reassess and reanalyze the extracts of the record and draw its own conclusions.’

14. This was buttressed by the Court of Appeal in Peter M Kariuki v Attorney General [2014] eKLR where it stated: -“We have also, as we are duty bound to do as a first appellate court, to reconsider the evidence adduced before the trial court and revaluate it to draw our own independent conclusions and to satisfy ourselves that the conclusions reached by the trial judge are consistent with the evidence. See Ngui v Republic, (1984) KLR 729 and Susan Munyi v Keshar Shiani, Civil Appeal No. 38 of 2002 (unreported).”

15. On the first ground, it was contended that the Tribunal became functus officio after delivering its first judgment at 10:43 am on June 18, 2021. That it violated the appellant’s right to a fair administrative process in delivering the second judgment at 2:38pm thereby making the latter null and void.

16. It is not in dispute that the tribunal delivered a judgment via email on June 18, 2021 and later on delivered another judgment at 2:38pm on the same day.

17. The first judgment read that, “The respondent’s demand for Kshs 4,905,667/= being short levied taxes for years 2016, 2017, 2018 and 2019 is hereby set aside.” The second read that, “The respondent’s demand for Kshs 4,905,667. 00/= being short levied taxes for years 2016, 2017, 2018 and 2019 is hereby upheld.”

18. The appellant submitted that though section 99 of the Civil Procedure Act allows a court to correct a clerical or arithmetical mistake in a judgment, there was no such clerical or arithmetic mistake in the first judgment. That the second judgment went against the intention of the tribunal by overturning the finding and thus went into the merit of the judgment. That the tribunal had become functus officio and thus sat on its own appeal.

19. In rebuttal, the respondent submitted that the Tribunal correctly invoked section 99 and 100 of the Civil Procedure Act to amend the clerical mistake. That the Tribunal had found that he was empowered by statute to carry out post clearance audits and demand for short levied taxes. That in this regard, he did not err in demanding the short-levied taxes. That the Tribunal corrected the orders by replacing the words ‘is hereby set aside’ with the words ‘is hereby upheld’ in the last paragraph of the judgment. That a court only becomes functus officio once it has perfected its judgment and orders.

20. The guiding principle here is found in section 99 of the Civil Procedure Act which can be invoked to correct clerical or arithmetical mistake in judgment, decree or orders, or errors arising from an accidental slip or omission.

21. In Leonard Mambo Kuria v Ann Wanjiru Mambo(2017) eKLR, the Court of Appeal delivered itself thus: -“The application of these two sections [sections 99 and 100 of the Civil Procedure Act, cap 21] has been considered before in several decisions. They vest a general power to the courts to correct or amend their records. As such they are an exception to the doctrine of ‘functus officio’-- the principle that once a decision has been given, it is (subject to any right of appeal) final and conclusive. It cannot be revoked or varied by the decision-maker. As the court stated in the case of Jersey Evening Post Limited v Ai Thani [2002] JLR 542 at 550:-“A court is functus when it has performed all its duties in a particular case. The doctrine does not prevent the court from correcting clerical errors nor does it prevent a judicial change of mind even when a decision has been communicated to the parties. Proceedings are only fully concluded, and the court functus, when its judgment or order has been perfected. The purpose of the doctrine is to provide finality. Once proceedings are finally concluded, the court cannot review or alter its decision; any challenge to its ruling on adjudication must be taken to a higher court if that right is available”.

22. From the foregoing, it is clear that the doctrine offunctus officiois not applicable where section 99 is correctly invoked. In the present case, the court has carefully read through the tribunal’s judgment. At paragraph 53 of the judgment, the tribunal found that the correct classification of the haemodialysers imported by the appellant was 8421. 29. 00 as submitted by the respondent.

23. At paragraphs 60-61, it found that the respondent was empowered by statute to carry out post clearance audits and demand for short-levied taxes as long as it is within the statutory timelines provided under section 235 and 236 of EACCMA. The Tribunal also found that the appellant’s issue of fair administrative action in respect to the respondent’s conduct in post audit clearance process ought to have been addressed elsewhere if the appellant was aggrieved.

24. The tribunal therefore proceeded to find that the respondent did not err in law and fact in demanding short-levied taxes through its letter of August 4, 2020.

25. From the foregoing, it is clear that the Tribunal’s intention was to make a finding in favour of the respondent. It then follows that the Tribunal erred in its first judgment by writing that the respondent’s demand was set aside. In this regard, the Tribunal was correct to amend that error under section 99 of the Civil Procedure Act by replacing the words “set aside” with “upheld”. The act was correct because the conclusion did not agree with the rest of the judgment. The Tribunal was only aligning the conclusion with its reasoning in the judgment. It gave effect to the Tribunal’s intention and findings in the body of the judgment.

26. Accordingly, the tribunal’s judgment dated June 18, 2021 is not null and void as the tribunal was not functus officiowhen it corrected a mistake on its first judgment.

27. The second ground of appeal relates to the judgment itself. It was the appellant’s case that the Tribunal erred in finding that the appellant’s appeal lacked merit despite finding that the respondent gave no reasonable explanation why clearance audit was done five years later and finding that it was unreasonable for the respondent to demand tax for goods sold two to five years ago.

28. The appellant submitted that it was unfair for the respondent to demand for short levy dating 5 years back and that section 15 of EACCMAought to be administered fairly. That even if it was the appellant that had declared the imports under tariff head 9018, it was the respondent’s duty to verify the same within a reasonable time.

29. In upholding the respondents demand, the tribunal found that though it was questionable why the respondent waited five years to demand for the short levy, the appellant could seek redress elsewhere if it was aggrieved by the respondent’s actions.

30. The tribunal was not conferred with the jurisdiction to determine fair administrative issues. That the appellant could find recourse through a fair administrative action under the Fair Administrative Action Act, 2015.

31. The promulgation of theConstitutionof Kenya, 2010 (the Constitution) brought with it article 47 which expressly provides for the right to fair administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair. In operationalizing article 47, Parliament enacted the Fair Administrative Action Act, 2015 (“the FAAA”). The FAAAhas transformed judicial review in Kenya by expanding its scope from a review of the decisions of not only public entities or administrative bodies, but to include any person, body or authority which exercises a judicial or quasi-judicial function.

32. In the case relied in by the appellant of Kenya Revenue Authority v Export Trading Company Limited [2020] eKLR, it was in relation to a constitutional petition against KRA(Constitutional Petition No. 148 of 2013) wherein the court recognized that indeed the respondent had power to conduct the post clearance audit and demand short levied duty under the EACCMA, but the pertinent issue therein was whether the manner in which the decision was made or the process followed was reasonable, fair and in conformity with article 47 of the Constitution.

33. The Court’s view is that the nature of the appellant’s claim was that of a fair administrative action and by virtue of section 9 of the FAAA, could only be heard and determined by the High Court or a subordinate court upon which original jurisdiction is conferred pursuant to article 22(3) of the Constitutionupon the filing of a judicial review, or a constitutional petition.

34. The appellant does not challenge the powers of the respondent under the EACCMA, but rather the manner in which those powers were invoked. As correctly submitted by the respondent, the appellant did not dispute the classification arrived at by the respondent, but instead took issue with the respondent’s conduct in demanding for levy dating back to 5 years. For all intents and purposes, the claim against the manner in which a public body exercises its statutory powers falls under the ambit of a fair administration action.

35. Let the appellant file the appropriate suit wherein the administrative concerns can competently be addressed. This court finds it fit to add that with regards to the case before it, it seats as an appellate court and not a judicial review court. Consequently, this court cannot issue orders that would ordinarily issue in judicial review proceedings.

36. In the end, the appeal lacks merit and is dismissed with costs to the respondent.It is so decreed.

DATED AND DELIVERED AT NAIROBI THIS 14TH DAY OF OCTOBER, 2022. A. MABEYA, FCIArbJUDGE