[2023] KETAT 952 (KLR)

Turaco Limited v Commissioner of Customs & Border Control (Tax Appeal 213 of 2022) [2023] KETAT 952 (KLR) (Commercial and Tax) (10 November 2023) (Judgment)

Neutral citation: [2023] KETAT 952 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal 213 of 2022

Grace Mukuha, Chair, G Ogaga, E Komolo, Jephthah Njagi & T Vikiru, Members

November 10, 2023

Between

Turaco Limited

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

Background 1. The Appellant is a company incorporated in Kenya and deals with the importation and sale of printing papers.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and KRA is charged with the responsibility of among others, assessment, collection, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. The EAC Legal Notice No. EAC/112/2018 dated 2nd August 2018 deleted item number 2 in the EAC Legal Notice No. EAC/69/2018 dated 30th June 2018. This effectively reverted the duty rate of items imported under tariff 4802. 56. 00 from 10% to 25%.

4. On 27th January 2022, the Respondent directed that an audit on products imported under tariff 4802. 56. 00 be conducted.

5. Subsequently, the Respondent's Customs Post Clearance Audit team conducted a desk review of customs entries of the importers of items under the tariff code 4802. 56. 00 for the period 2nd August 2018 to 7th February 2022 pursuant to Sections 235 and 236 of the East African Community Customs Management Act 2004 (EACCMA). The Appellant was amongst the importers profiled.

6. The Respondent then issued a demand to the Appellant dated 8th February 2022, requiring the taxpayer to pay the short-levied taxes of Kshs. 1,581,371. 00.

7. The Appellant in a letter dated 16th February 2022, sought for review of the taxes demanded and the letter was received by the Respondent on 16th February 2022.

8. Consequently the Appellant lodged this Appeal on 1st March 2022.

The Appeal 9. The Appeal is premised on the Memorandum of Appeal dated 25th February 2022 and filed on 1st March 2022 raising the grounds stated hereunder:a.That there is no law which imposed a duty rate of 25% on paper and paperboard products in the period between 2nd August 2018 and 27th January 2022 in view of the fact that:-i.The East African Community Council of Ministers have never approved nor formally passed any law imposing a duty rate of 25% on paper and paperboard products imported under H.S Code 4802. 56. 00 since 20th June 2014. ii.No Gazette Notice has ever been published by the East African Communityiii.Imposing a rate of 25% on paper and paperboard products imported under H.S. Code 4802. 56. 00 since 20th June 2014. iv.The mandate of the Respondent under Section 5 of the Kenya Revenue Authority Act is confined solely to administering and enforcing tax legislations set out in the First Schedule to the said Kenya Revenue Authority Act, and not any other law which is not set out therein.b).That even if it were to be said arguendo that some law exist which imposed duty rate of 25% on paper and paperboard products imported under H.S. Code 4802. 56. 00 as aforesaid (which is denied); and even if it were to be said arguendo that the Respondent is lawfully entitled to administer and enforce such law (which is also denied) 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 on the following grounds:-i.It is the Respondent (and not the Appellant’s nor its clearing agents) who actually applied the duty rate of 10% on all paper and paperboard products imported into the country under H.S. Code 4802. 56. 00 between 2nd August 2018 and 27th January 2022 by feeding into their Tradex System (otherwise known as Simba System) the duty rate of 10% as the mandatory duty rate that all importers of paper and paperboard products under its code 4802. 56. 00 had to pay before they could get their goods cleared, as the system was configured by the Respondent to automatically "pick" the duty rate of 10% once the H.S. Code 4802. 56. 00 is keyed in. Consequently, the Respondent cannot found a cause of action as against the Appellants from their own actions.ii.It is the Respondent (and not the Appellant nor its clearing agents) who instructed its ICT officers to approve online Form C.17B customs entries that had indicated 10% as the mandatory duty rate for paper and paper board products imported under H.S. Code 4802. 56. 00. Consequently, the Respondent cannot found a cause of action as against the appellants from their own actions.iii.It is the Respondent (and not the Appellant nor its clearing agents) who instructed its customs and valuation officers tasked with the responsibility of verifying and approving the correctness of import duty charged and paid with respect to paper and paperboard product imported under H.S. Code 4802. 56. 00 to insist on payment of duty at the rate of 10% before such goods could be allowed to leave the port of entry.iv.The impugned decision as well as the impugned demand notice violates the Appellant's right to fair administrative action, right to property, the right to access justice and the right to protection of law.v.The Appellant had a legitimate expectation that the Respondent would not labour to put in place such expensive and tamper-proof infrastructural, technological, administrative, surveillance and monitoring systems as were necessary for purposes of inducing, encouraging and coercing the Appellants into paying customs duty at the mandatory rate of 10% for all paper and paper board products imported under H.S. Code 4802. 56. 00 only to subsequently change their mind and punish the Appellant for having paid duty at the rate of 10% and not 25% (which the Appellant could not have done even if it wanted at the time because the Simba System would not permit it so to do).vi.It is unconstitutional, illegal, unfair, irrational, capricious, in bad faith and abuse of office for the Respondent to encourage, induce and coerce the Appellant into paying duty at the rate of 10% for goods which the Respondent knew - or ought to have known - were meant to be sold out to third parties, only for it to subsequently demand that the Appellant pays duty at 25% long after the goods have been sold and used up by the third party purchasers at which point in time the Appellant cannot recover the uplifted duty from the third party purchasers.vii.The Respondent is institutionally bound by and cannot resile from its previous interpretation of the effect of the purported deletion of paragraph 2 of Legal Notice No. EAC/69/2018, which interpretation informed its decision to configure the Simba System to 'pick" import duty for paper and paperboard products imported under H.S. Code 480. 56. 00 at the rate of 10%.viii.The Appellant’s liability to tax cannot be made wholly dependent on the personal idiosyncrasies of the individual occupants of the office of the Commissioner of Customs and Border Control as the Respondent seems to opine. Consequently, the fact that the Respondent hold different views with regards to the effect of the purported deletion of paragraph 2 of Legal Notice No. EAC/69/2018 from a previous holder of the same office should have no effect whatsoever on the Appellant's tax liabilities.)ix.Section 135 of the East African Customs Management Act (EACMA) was intended to deal only with situations where the tax paid is less than what the Respondent honestly, sincerely and for good reasons, believed to be due and payable at the time, and not as is the case herein - where the tax paid is what the Respondent honestly, sincerely and for good reasons believed to be payable at the time, save for the fact that a different occupant of the same office subsequently held the view that the previous occupant of the same office should have collected more tax, than he did.x.The Respondent has been guilty of inordinate delay in carrying out the post clearance audit.xi.The Respondent's decision to initiate a post-clearance audit and to issue the impugned notice was actuated by malice, bad faith and improper motive.xii.By initiating a post-clearance audit as aforesaid and issuing the impugned demand notice, the Respondent acted unreasonably and took into account improper considerations while at the same time failed to take into account proper considerations.xiii.The respondent having issued tax compliance certificates to the appellant are estopped from changing their position and now averring as against the Appellants that they have outstanding taxes.

The Appellant’s Case 10. The Appellant’s case is premised on the documents hereinbelow:-a.The Appellant's Statement of Facts dated 25th February 2022. b.The Appellant’s written submissions dated 4th January 2023 and filed on 13th January 2023.

11. The Appellant averred that by a Gazette Notice No: EAC/21/2014 dated 20th June 2014 the Council reduced the tariff rate for paper and paper board products imported under H.S code 4802. 56. 00 (which was previously set on the maximum rate of 25% the middle rate of 10%).

12. That on 30th June 2017 the Council, vide Legal Notice No: EAC/85/2017 renewed and modified the East African Community Common External Tariff (Hereinafter called "EAC CET") to model it along the lines of the 2017 version of the Harmonized Community Description and Coding System version 2012 of the World Customs Organization. The purpose of that review was merely to harmonize the commodity description and coding system of the EAC CET with that of the 2012 version of the world customs union CET rates. The revised EAC CET was christened the 20l7 version of the EAC CET.

13. That in line with the Legal Notice No: EAC/85/2017 aforesaid the EAC Secretariat developed and published the 2017 version of the Harmonised Commodity Description and Coding System which was modelled upon the 2012 version of the World Customs Organization. That in the 2017 version of the EAC CET aforesaid the EAC Secretariat mistakenly indicated a tariff rate of 25% for paper and paperboard products imported under IAS Code 4802. 56. 00 without any approval by the council and without any publication by the Council to that effect through the EAC Gazette Notice.

14. That following the publication of the 2017 version of the EAC CET and upon noticing the purported erroneous change in the tariff rate for H.S Code 4802. 56. 00, the Respondent deliberated on the question whether the tariff rate for H.S Code 4802. 56. 00 had been increased from 10% to 25% and resolved to consult the EAC Secretariat for clarification on the matter whereupon the EAC Secretariat clarified to them that the Council had not increased the duty rate for H.S Code 4802. 56. 00 and that the tariff rate of 25% appearing as against the H.S Code 4802. 56. 00 was caused by a mistake which occurred during the transposition process when they were changing the EAC CET to make it comply with the 2012 version of the WCO CET. The clarification by the EAC Secretariat was contained in an email which was circulated by Kenya Revenue Authority Manager for Post-Clearance Audit to Senior Customs officers in the same organization on 23rd February 2018.

15. That the EAC Secretariat subsequently albeit erroneously attempted to correct the mistake in the 2017 version of the EAC CET in connection with its code 4802. 56. 00 by causing the council to reduce the rate from 25% to 10% and consequently, vide paragraph 2 of the Legal Notice No: EAC/69/2018 dated 30th June 2018, the council purported to reduce the tariff rate for H.S Code 4802. 56. 00.

16. That when it later dawned on the EAC Secretariat and the EAC Council that Paragraph 2 of the Legal Notice No: EAC/69/2018 aforesaid was published in error since it was purporting to reduce the tariff rate for HS Code 4802. 56. 00 from 25% to 10% yet the said tariff rate had never been formally increased from 10% to 25% (as erroneously indicated in the 2017 version of EAC CET) the Council responded by publishing a Legal Notice No. EAC/112/2018 deleting paragraph 2 of the Legal Notice No: EAC/69/2018.

17. That the deletion of Paragraph 2 of the Legal Notice No: EAC/69/2018 vide the Legal Notice No: EAC/112/2018 did not have any impact at all on the tariff rate for H.S Code 4802. 56. 00 because the tariff rate for H.S Code 4802. 56. 00 had never been formally reviewed since 2014.

18. That being conversant with the foregoing, the Respondent configured their tradex system (otherwise known as Simba System) to collect duty under H.S Code 4802. 56. 00 fed by the Respondent into the Simba system with the result that any person wishing to import any goods under H.S Code 4802. 56. 00 would simply enter the H.S Code into the system whereupon both the duty rate as well as the total tax payable would be given by the Simba System itself in Form C17B Customs Entry.

19. That in these circumstances it would be dishonest, callous, malicious and in extreme bad faith for the Respondent to allege that the rate of 10% was not the correct rate for H.S Code 4802. 6.00; nor to accuse any clearing agent or importer of "applying" wrong rate since the rate of 10% was actually "applied" by the Respondent who fed it into its Simba System rather than by clearing agents who merely keyed in other details of the goods being cleared, leaving it entirely to the Simba System to give the applicable duty rate as well as the total duty payable.

20. That on 27th January 2022, the Respondent, through a Memo instructed customs officers to immediately conduct a Post Clearance Audit on all goods that were cleared under H.S Code 4802. 56. 00 between 2nd August 2018 and 27th January 2022.

21. That following the issuance of the said Memo the KRA Customs Officers rushed to calculate duty rates for all consignments of goods that were cleared by the Appellant under H.S Code 4802. 56. 00 and proceeded to demand what they felt was the tax short fall together with purported penalties and interests.

22. That the Appellant was thereafter served with a demand notice of Kshs 2,921,723. 00 requiring it to pay the same within Thirty (30) days.

23. The Appellant averred that in view of the foregoing, the reliefs sought in the Memorandum of Appeal should be granted because it is the Respondent who actually applied the duty rate of 10% on all paper and paperboard products imported into the country under H.S. Code 4802. 56. 00 between 2nd August 2018 and 27th January 2022 as per the Simba System settings.

24. The Appellant also argued that the impugned decision as well as the impugned demand notice violates the Appellant's right to fair administrative action, right to property, the right to access justice and the right to protection of law.

25. The Appellant also averred that it is unconstitutional, illegal, unfair, irrational, capricious, in bad faith and an abuse of office for the Respondent to encourage the Appellant into paying duty at the rate of 10% for goods which the Respondent knew or ought to have known - were meant to be sold out to third parties and then subsequently demand that the Appellant pays duty at 25% long after the goods had been sold and the Appellant cannot recover the uplifted duty from the purchasers.

26. That the Respondent has also been guilty of inordinate delay in carrying out the post clearance audit.

27. The Appellant, on the Respondent's contention in its Statement of Facts that the instant Appeal is premature, submitted that as per the provisions of Section 229 of the EACCMA, its objection notice dated 25th February 2022 ought to be deemed to have been allowed by operation of law as the Commissioner did not issue an objection decision within the statutory timelines and as such the demand notice of Kshs 2,921,723. 12 ought to be set aside.

28. The Appellant also averred that the Respondent having taken part in the Appeal without raising a preliminary issue to the same in the form of a preliminary objection cannot now retreat and say that the same is premature. That the Respondent’s conduct has estopped it from disassociating itself with the Appeal on the premises that there is no review decision.

29. The Appellant also submitted that in view of the foregoing and the Respondent’s conduct in the instant appeal stops it from now turning back at this juncture.

30. The Appellant further submitted that the assertion that the Tribunal lacks jurisdiction is baseless and unfounded.

31. The Appellant also submitted that the doctrine of exhaustion is not an absolute doctrine and there are various exceptions to it. To buttress the argument, the Appellant cited the case of the Supreme Court of Kenya & another v Bryan Mandila Khaemba [2021] eKLR.

32. The Appellant relied in support of its arguments on the holdings in the cases of Phillip Chemwolo & Another vs Augustine Kubede [1982-1988]KLR;748 Air Services Ltd vs Theuri Munyi [2017]Eklr;KRA vs Universal Corporation Ltd [2020]Eklr amongst others.

Appellant’s Prayers. 33. The Appellant prayed that the Appeal be allowed and the impugned demand notices be withdrawn.

Respondent’s Case 34. The Respondent’s case is premised on the hereunder filed documents: -a.The Respondent’s Statement of Facts dated 24th March 2022 and filed on 30th March 2022. b.The Respondent’s written submissions dated 29th December 2022 and filed on 3rd January 2023.

35. The Respondent argued that the Appeal is premature as the Commissioner was yet to issue its decision as provided for in Section 229(4) of EACCMA and as such the Appeal herein does not have stilts to stand on until the decision is issued. That on the basis of this, the Appellant prayed that the Appeal be struck out.

36. The Respondent further argued that the Legal Notice No. EAC/112/2018 dated 2nd August 2018 clearly provided for the import duty rate of 25% to be applied when dealing with goods imported under tariff 4802. 56. 00.

37. The Respondent stated that the East African Community Secretariat publishes the EAC Gazette Notices on the EAC website and are available to the Public. These notices usually highlight changes effected by the Council of Ministers to the East African Community Customs Management Act, 2004 and the East African Community Common External Tariff (CET). The Gazettes usually indicate the date the legal notices come into effect hence the taxpayer's claim that there was no law that imposed a rate of 25% on paper and paperboard products is false.

38. That under Sections 135, 235, 236 & 249 of the EACCMA. 2004, the Respondent is allowed to conduct a Post Clearance Audit to assess and demand for the short-levied taxes within five years of importation.

39. That as such, the Respondent maintained that the failure to capture the amendment in the system does not take away the fact that the taxes are due and payable by law as the duty to pay the proper tax falls on the Appellant.

40. The Respondent stated that it does not instruct any of its officers to approve online C17B customs entries as all the entries are processed at the Data Processing Centre by customs officers.

41. In addition, the Respondent stated that in order to facilitate trade, the Respondent's Officers conduct due diligence before releasing the goods provided that the importation documents correspond to the imported goods and provided that the goods are not restricted goods or prohibited goods and subsequently, PostClearance Audit is conducted post the importation as provided for in Section 236 of EACCMA with an aim of verifying the accuracy of the entry of goods and further determining that the correct taxes are paid.

42. The Respondent also averred that the Appellant having filed an Appeal on 22nd February 2022 proceeded to withdraw the same by filing a notice of withdrawal dated 20th April 2022 withdrawing the appeal pursuant to Section 27 of the Tax Appeals Tribunal (TAT) Act.

43. That the Appellant's attempt at revoking the withdrawal via a notice of cancellation of withdrawal is alien in law and of no legal consequence. That Section 27 of the TAT Act, which the Appellant relied upon to terminate the Appeal does not provide for reinstatement in instances where an Appellant exercises its right to withdraw an appeal.

44. That the alleged reinstatement of the Appeal by notice of cancellation of withdrawal equally does not merit under Article 159(2)(d) of the Constitution. That the mode of reinstatement adopted, is cavalier at best.

45. The Respondent relied on the cases of KRA vs Export Trading Co. Ltd [2020] Eklr, Krish Commodities Ltd v KRA [2018] Eklr and Ann Wanjiku Kahwai v KRA & Anor [2019] Eklr amongst others.

Respondent’s Prayers 46. The Respondent prayed that the Tribunal do find that:-a.The Respondent’s demand letter issued on 9th February 2022 demanding for short levy of Kshs. 2,921. 723. 12 was properly issued and uphold the same.b.The Appeal lacks merit and dismiss the same.

Issues for Determination 47. After perusing the pleadings, evidence and documentation produced before it, the Tribunal is of the view that there are two issues for determination as follows:-a.Whether the Appeal before the Tribunal is valid.b.Whether the Respondent’s assessment of the Appellant’s imports under HS Code 4802. 56. 00 is 25% or 10%.

Analysis and Findings 48. Having identified the issues that call for its determination, the Tribunal proceeds to analyse them as hereunder.a.Whether the Appeal before the Tribunal is valid.

49. The Respondent issued to the Appellant a demand notice pursuant to Section 135 of the EACCMA dated 8th February 2022 requiring the taxpayer to pay the short levied taxes of Kshs. 1,581,371. 00.

50. The Appellant consequently on 16th February 2022 made an application for review of the taxes under Section 229 of EACCMA but before the Commissioner made a decision on the application for review the Appellant decided to file the Appeal.

51. The Appellant filed its Memorandum of Appeal on 7th March 2022 but failed to file a Notice of Appeal.

52. The Tribunal notes that the procedure for filing appeals is set out in Sections 12 and 13 (1) (b) of the Tax Appeals Tribunal Act (TAT Act).

53. Section 12 provides as follows:“A person who disputes the decision of the Commissioner on any matter arising under the provisions of any tax law may, subject to the provisions of the relevant tax law upon giving notice in writing to the Commissioner, appeal to the Tribunal.”

54. Section 13 (1) (b) of TAT Act provides and requires that a notice of appeal shall be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.

55. This Appeal was filed before the Commissioner made its decision on the request for review.

56. Its trite law that the legal procedures have to be followed when pursuing appeals and the Tribunal has also on many occasions determined that where specific procedures for redress have been set out the same have to be adhered to.

57. The Tribunal reiterates its holding in the case of W.E.C. Lines Ltd vs. The Commissioner of Domestic Taxes [TAT No. 247 of 2020] where it was held at paragraph 70 while reiterating the holding in Krystalline Salt Ltd vs KRA [2019] eKLR that: -“Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures. The relevant procedure here is the process of opposing an assessment by the Commissioner.”

58. Based on the fact that there was no decision made by the Commissioner, the Tribunal finds that there is no valid Appeal before it.

59. Having found that there is not valid Appeal before it, the Tribunal did not delve into the second issue for determination as it had been rendered moot.

Final Decision 60. The upshot of the foregoing is that the Appeal is incompetent and therefore fails and the Tribunal accordingly proceeds to make the following final Orders:a.The Appeal be and is hereby struck outb.Each party to bear its own costs.

61. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 10TH DAY OF NOVEMBER,2023. GRACE MUKUHA...............CHAIRPERSONGLORIA OGAGA.....................MEMBERERICK KOMOLO.....................MEMBERJEPHTHAH NJAGI..................MEMBERTIMOTHY VIKIRU.................MEMBER