[2023] KETAT 117 (KLR)

Towertech Africa Limited v Commissioner of Customs & Border Control (Tribunal Appeal 309 of 2022) [2023] KETAT 117 (KLR) (17 March 2023) (Judgment)

Neutral citation: [2023] KETAT 117 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal 309 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, Jephthah Njagi & AK Kiprotich, Members

March 17, 2023

Between

Towertech Africa Limited

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

BACKGROUND 1. The Appellant is a limited liability company incorporated in Kenya and is a manufacturer and supplier of a wide range of towers that include heavy to light duty self-support lattice towers, single tube/monopoles towers, guy wired steel lattice towers and beautification steel sowers for power transmission, wind energy, communication, and street lighting.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 of the laws of Kenya. The Authority is an agency established for the purposes of assessing, collecting and accounting for tax revenues.

3. The Respondent conducted a Post Clearance Audit and subsequently issued a demand notice for a total amount of Kshs. 11,383,975 comprising of Kshs. 5,672,852 principal tax and Kshs. 5,711,123 being interest. The amount was in relation to the Appellant’s importation consignments of cold rolled steel angles imported under Customs entry number 2018ICD24305 which had been declared by the Appellant under HS Code 9406. 00. 10 instead of Hs Code 7308. 90. 99.

4. The Appellant replied to the Respondent’s demand notice vide a letter dated 2nd June, 2021. In the letter, it agreed to settle the principal tax butdisputed the interest. Subsequently the Respondent issued its review decision vide a letter dated 7th June, 2021 confirming the entire amount as assessed.

5. The Appellant made payment for the entire amount of the principal tax and acknowledged by the Respondent vide E-slip Number 2021NBI830811F dated 7th June, 2021.

6. Vide a letter to the Respondent dated 31st August 2021, the Appellant applied for waiver of the entire amount relating to interest. The Respondent replied vide a letter dated 28th January 2022

7. By a letter dated 1st February 2022, the Appellant made a further appeal to the Respondent to consider its application for waiver of interest. The Respondent issued Agency Notice to the Appellant’s bank (Diamond Trust Bank) demanding payment of the entire amount of interest.

8. The Respondent further wrote to the Appellant vide a letter dated 25th February, 2022 reiterating its position to decline the Appellant’s application for waiver of interest.

9. The Appellant dissatisfied with the Respondent’s actions filed a Notice of Appeal dated 9th March, 2022.

THE APPEAL 10. The Appeal as presented in the Memorandum of Appeal dated and filed on 25th March, 2022 is premised on the following grounds:i.That the Respondent erred in law and fact in their demand letter of 5th May 2021`by charging interest of Kshs. 5,711,123 on the principal tax of Kshs. 5,672,852, the legality of which is not in line with the provisions of Section 135(2) of the EACCMA.ii.That Section 135(2) of the EACCMA is clear in that, “Where a demand is made for any amount pursuant to sub-Section (1), the amount shall be deemed to be due from the person liable to pay it on the date on which the demand note is served upon him or her, and if payment is not made within thirty days of the date of such service, or such further period as the Commissioner may allow, a further duty of a sum equal to five percent of the amount demanded shall be due and payable by that person by way of a penalty and a subsequent penalty of two percent for each month in which he or she defaults.”iii.That the Respondent erred in law and fact in failing to appreciate the fact that Section 135(2) of the EACCMA only requires that the principal amount becomes due on the date on which the demand note is served upon the taxpayer and only when the demand is not honored shall the Commissioner proceed to impose interest and penalties.iv.That the Respondent erred in law in issuing their response dated 28th January 2022, 5 months after the Appellant’s review application in relation to the interest amount dated 31st August, 2021, in contravention of Section 239(4) and (5) of the EACCMA which stipulates in part that the Commissioner shall within a period not exceeding thirty days of receipt of the application. Communicate his or her decision in writing to the person lodging the application stating reasons for the decision.v.That the Respondent’s decision dated 28th January, 2022 and subsequent decision dated 25th February, 2022 on the interest amount demanded are not valid review decisions as provided for under Section 229(4) of the EACCMA.vi.That the Appellant’s application for review of the interest amount dated 31st August, 2021 be allowed by operation of the law as provided for under Section 229(5) of the EACCMA

APPELANT’S CASE 11. The Appellant’s case is premised on the hereunder filed documents and proceedings before the Tribunal:i.The Appellant’s Statement of Facts dated 25th March, 2022 and filed on the same date together with the documents attached thereto.ii.The Appellant’s written submissions dated 1st November, 2022 and filed on 2nd November, 2022.

12. The Appellant submitted that a Post Clearance Audit was conducted on its import declarations of cold rolled steel angles under entry number 2018ICD24305 for the year 2018. That following the audit, it issued a demand notice of Kshs. 11,383,975. 00 on 5th May 2021 relating to additional import duty of 25% and interest at 2% on the basis that the items were mis-declared under tariff Code 9406. 00. 10 as opposed to tariff Code 7308. 90. 99. 00.

13. That the taxes were assessed and demanded in accordance with the provisions of Section 135 of the EACCMA. Of the demand amount of Kshs. 11,383,975. 00 the principal tax constituted a sum of Kshs. 5,672,852. 00 while the interest constituted Kshs. 5,711,123. 00.

14. The Appellant stated that in accordance with Section 135 of the EACCMA it was willing to settle the principal tax of Kshs. 5,672,852. 00 immediately as it was within the 30 day timeline and hence the Respondent would not levy the interest of Kshs. 5,711,123. 00

15. The Appellant averred that the Respondent did not address the legality of imposing the interest as contested in the Appellant’s objection letter of 2nd June, 2021 and proceeded to issue their review decision on 7th June 2021 upholding the total taxes and accrued interest of Kshs. 11,383,975. 00

16. It contended that in compliance with the provisions of Section 135 of the EACCMA, it made a payment of the principal tax of Kshs. 5,672,852. 00 on 18th June 2021 and further being dissatisfied with the decision to uphold the interest amount, appealed on 31st August, 2021 on the basis of the following grounds:i.That the Respondent carried out the assessments and computed the taxes payable complete with interest and penalties and issued the aforementioned demand pursuant to Section 135 of the EACCMA.ii.That the Respondent’s demand notice was inconsistent with the provisions of the EACCMA, whereby a demand can only be issued under 135 of the EACCMA, and only when such payment is not made, shall a further sum in form of a penalty be demanded.iii.That Section 135 thus requires that the principal amount becomes due on the date on which the demand note is served upon the taxpayer and that penalties can only be demanded if payment is not made within 30 days of the date of service of the demand notice.iv.That the Respondent lacks the legal backing for demanding penalties in relation to the imported cold rolled steel angles as the demand conflicts with the provisions of Section 135 of the EACCMA.

17. The Appellant stated that the Respondent further issued their response on 28th January 2022, 5 months after the Appellant’s application for review dated 31st August, 2021, which is in contravention of Section 229 (4) and (5) of the EACCMA which stipulates in part that the Commissioner shall within a period not exceeding thirty days of the receipt of the application, communicate his or her decision in writing to the person lodging the application stating reasons for the decision.

18. The Appellant submitted that the EACCMA was clear on the due date for payment of the tax assessed and the period in which interest and penalties ideally start accruing. To support its arguments, the Appellant cited the provisions of Section 135 (2) of the EACCMA.

19. The Appellant averred that the Respondent issued its demand notice dated 5th May, 2021 in accordance with the provisions of Section 135 of the EACCMA. That the Respondent further clearly stated that failure to pay the taxes within the stated period will attract a further sum equal to 5% of the amount demanded by way of penalty and subsequent penalty of 2% for each month in default.

20. That the Respondent however in its demand notice proceeded to impose interest of 2% on the principal tax notwithstanding that according to Section 135(2) of the EACCMA penalties and interest can only be levied and/or demanded if payment is not made within 30 days of the date of service of the demand notice.

21. According to the Appellant, the Respondent disregarded the fact that Section 135 of the EACCMA only requires that the principal amount becomes due on the date on which the demand note is served upon the taxpayer and only when the demand is not honored shall the Commissioner proceed to impose interest and penalties.

22. That it was critical to point out that the Appellant honored the demand and paid the principal tax and further challenged the legality of imposing the interest which was not in line with the provisions of Section of 135 (2) of the EACCMA, filed through its review application dated 31st August, 2021.

23. The Appellant contended that the Respondent only responded to the said application for review on 28th January, 2022, 5 months after the same was filed completely ignoring the requirements of Section 229 (4) and (5) of the EACCMA. To support its arguments, the Appellant cited the provisions of Section 229(1), (4) and (5) of the EACCMA.

24. That it should not be overlooked that the Respondent’s failure to issue a decision within the 30 days stipulated under Section 229 of the EACCMA further prevented the Appellant from exercising its right to appeal to the Tax Appeal Tribunal in accordance with Section 230 of the EACCMA.

25. The Appellant concluded that the Respondent erred in fact and in law by charging interest of Kshs. 5,711,323. 00 on principal tax of Kshs. 5,672,852. 00 the legality of which was not in line with the provisions of Section 135(2) of the EACCMA. Further that issuing their response dated 28th January, 2022, 5 months after the Appellant’s review application in relation to the interest amount dated 31st August, 2021, in contravention with Section 229(4) and (5) of the EACCMA.

26. The Appellant was of the view that the issued for determination were the following;i.Whether the Respondent’s demand notice of Kshs 11,383,975 dated 5th May 2022 was issued in line with the provisions of Section 135 of the EACCMA.ii.Whether the Appellant’s review application dated 2nd June, 2021 and 31st August 2021 were deemed allowed by operation of law.iii.Whether the Respondents actions have created uncertainty and ambiguity in law.

Appellant’s Prayers

27. The Appellant prayed that the Tribunal grants the following prayers;a.That the Appeal be allowed.b.That the Respondent’s demand notice dated 5th May, 2021 in relation to the interest amount of Kshs. 5,711,123. 00 be vacated in its entirety as it is legally unenforceable in accordance with the provisions of Section 135(2) of the EACCMA.c.That the Respondent be restrained from taking any enforcement mechanisms with respect to the interest amount of Kshs. 5,711,123. 00 in the years of contention pending the determination of this matter.d.That a declaration be issued that the Respondent’s decision contained in the letters dated 28th January, 2022 and 25th February, 2022 is invalid as it contravenes clear provisions of Section 229(4) of EACCMA.e.Any other orders that the Tribunal may deem fit.

RESPONDENT’S CASE 28. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal:i.The Respondent’s Statement of Facts dated 8th April, 2022 and filed on the same date together with the documents attached thereto.ii.The Respondent’s written submissions dated 8th November, 2022 and filed on the same date.

29. The Respondent contended that a demand notice can only be issued under Section 135 of the EACCMA but interest was charged on the basis of Section 249 of the Act.

30. The Respondent stated that Section 249 of the Act stipulates that interest is chargeable on unpaid taxes from the date when they were payable in this case when they were short levied. That Section 249(1) of EACCMA reads as follows;-“Where an amount of duty or other sum of money which is due under this Act remains unpaid after the date upon which it is payable, an interest of two per cent per month or part of the month, of the unpaid amount shall be charged.”

31. The Respondent stated that the Demand notice consisted of the principal tax and interest and that no penalty was demanded.

32. The Respondent averred that it issued the demand notice dated 5th may, 2021 in accordance with the provisions of Section 135 of the EACCMA. The Respondent further averred that the failure to pay the taxes within the stated period would attract a further 5% of the amount demanded by way of penalty and a subsequent penalty of 2% for each month in default.

33. The Respondent stated that the initial interest was charged on the basis of Section 249(1) of EACCMA while the subsequent penalty (interest) of 2% for each month in default was to be charged if the amount demanded was not paid within the stated period.

34. It stated that by replying to the application for waiver of interest on 28th January, 2022, five months after the same was filed, it did not ignore the requirements of Section 229(4) and (5) of EACCMA because such application was not an application for review of a Demand notice issued on 7th June, 2021.

35. The Respondent contended that the letter dated 28th January, 2022 was simply feedback to the Appellant’s application for waiver of interest which was not bound by timelines.

36. The Respondent was of the view that the issues for determination were;i.Whether the Respondent’s demand of Kshs 5,711,123. 00 as interest for taxes that were short levied was erroneous.ii.Whether the Respondent’s review decision was issued outside the statutory timelines.

Respondent’s prayers

37. The Respondent prays for the orders that;i.The review decision dated 7th June, 2021 be upheld.ii.That the Appeal herein be dismissed with costs to the Respondent.

ISSUES FOR DETERMINATION 38. After studying the submissions and documents tendered by both parties, the Tribunal determined that the issues for determination were;a.Whether the Respondent’s letter dated 28th January, 2022 was in contravention of Section 229(4) and (5) of the EACCMA.b.Whether the Appellant’s letter dated 28th January, 2022 was an appealable decision.c.Whether the Respondent was justified in demanding for interest on the Appellant’s consignment under Customs entry number 2018ICD24305.

ANALYSIS AND DETERMINATION Whether the Respondent’s letter dated 28th January, 2022 was in contravention of Section 229(4) and (5) of the EACCMA.

39. It was the Appellant’s contention that the Respondent issued its response to the Appellant’s application for review dated 31st August, 2021 on 28th January 2022. That this was in contravention of Section 229 (4) and (5) of the EACCMA which stipulates in part that the Commissioner shall within a period not exceeding thirty days of the receipt of the application, communicate his or her decision in writing to the person lodging the application stating reasons for the decision.

40. The Respondent on its part contended that the letter dated 28th January, 2022 was simply feedback to the Appellant’s application for waiver of interest which was not bound by timelines. That the same was not a review decision.

41. The Respondent added that by replying to the application for waiver of interest on 28th January, 2022, five months after the same was filed, it did not ignore the requirements of Section 229(4) and (5) of EACCMA because such application was not an application for review of a demand notice issued on 7th June, 2021.

42. The Tribunal noted that Appellant had sought to rely on Section 229(4) and (5) to argue that the Respondent’s letter dated 28th January 2022 was in contravention of the law. The Sections provides as follows;“(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 to the person lodging the application for review within the time specified in subsection (4) the Commissioner shall be deemed to have made a decision to allow the application”(Emphasis added)

43. The Tribunal further noted that although none of the parties attached the Appellant’s letter dated 31st August 2021, the Respondent’s letter dated 28th January, 2022 attached to the Appellant’s Memorandum of Appeal which was titled “REQUEST FOR WAIVER ON INTEREST KSHS 5,711,123. ”, stated in part as follows;“We refer to your letter Ref: WCL/310821CBM dated 31st August, 2021; contents therein noted and where you have applied for waiver on interest.Kindly note that upon due consideration, your request has not been granted as you have not met the requirements for consideration for waivers as stipulated in Section 249 of the East Africa Community Customs Management Act 2004. Kindly therefore note that the interest is payable and that you are called upon to pay the same within (7) days from the date of this letter…”

44. Going by the above letter from the Respondent it was clear to the Tribunal that what the parties were discussing was regarding waiver of interest. Indeed, in the Appellant’s letter to the Respondent dated 1st February, 2022 titled “Request for waiver on Interest Kshs 5,711,123”, the Appellant stated in part;“We refer to your letter dated 28th January, 2022 referenced CSD/DMU/59/643/2021, and our response letter dated 31st August 2021 in which we requested the Commissioner to waive the whole of the interest due of Ksh. 5,711,123 on the basis that it was inconsistent with Section 135(2) of the EACCMA ……”

45. From the above correspondences it was the view of the Tribunal that the provisions of Section 229 of EACCMA were not applicable in this instance since the Appellant’s letter dated 31st August 2021 was not an application for review as envisaged under Section 229 of EACCMA, but rather a request for waiver of interest having conceded to the principal taxes.

46. Consequently, the Tribunal finds that the Appellant’s letter dated 28th January, 2022 was not in contravention of the law.b.Whether the Appellant’s letter dated 28th January, 2022 was an Appealable decision.

47. Under the EACCMA the provision for Appeals to the Tribunal is provided for under Section 230(1) which reads as follows;“A person dissatisfied with the decision of the commissioner under Section 229 may appeal to a tribunal established in accordance with Section 231”

48. Going by the above provision, an appealable decision is defined in Section 229(1) being the beginning of an Appeal process. The Section provides as follows;“A person directly affected by the decision of the Commissioner or any 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”(emphasis added)

49. The Tribunal noted that the Appellant had relied on the Commissioner’s letter of 28th January 2022 as the basis for its Appeal. It is worth noting that the Appellant had earlier admitted to the Customs matter after the Post Clearance Audit and indeed made full payment for the same. What was pending was the interest which it consequently applied for waiver. Having found that the letter dated 28th January 2022 was a response by the Respondent to the Appellant’s application for waiver of interest and not in relations to Customs as envisaged under Section 229(1) of EACCMA, the Tribunal finds that the said letter dated 28th January 2022 was not an appealable decision.c.Whether the Respondent was justified in demanding for interest on the Appellant’s consignment under entry number 2018ICD24305.

50. Having entered the above two findings, the Tribunal finds that the Respondent was justified in its demand for interest from the Appellant’s imports under Customs entry number 2018ICD24305.

FINAL DECISION 51. The Tribunal on the basis of the foregoing analysis determined that the Appeal lacked merit and the Orders that recommend themselves are as follows:a.The Appeal be and is hereby dismissedb.Each party to bear its own costs.

DATED and DELIVERED at NAIROBI this 17th day of March, 2023. ERIC N. WAFULA CHAIRPERSONCYNTHIA B. MAYAKA GRACE MUKUHA MEMBER MEMBERJEPHTHAH NJAGI ABRAHAM K. KIPROTICH MEMBER MEMBERJUDGMENT- TAT NO. 309 OF 2022 TOWETECH AFRICA LTD –VERSUS- THE COMMISSIONER OF CUSTOMS OF CUSTOMS AND BORDER CONTROLPAGE 1 OF 15