[2023] KETAT 283 (KLR)

Twiga Stationeries and Printer Ltd v Commissioner of Customs & Border Control (Tax Appeal 212 of 2022) [2023] KETAT 283 (KLR) (Civ) (19 May 2023) (Judgment)

Neutral citation: [2023] KETAT 283 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tax Appeal 212 of 2022

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

May 19, 2023

Between

Twiga Stationeries and Printer Ltd

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya. Its principal business activity is importation and sale of printing papers.

2. The Respondent is a principle officer appointed under Section 13 of the Kenya Revenue Authority Act Cap 469 Laws of Kenya. Under Section 5(1) of the Act, the Kenya Revenue Authority (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 purposes of assessing, collecting and accounting for all tax revenues in accordance with these laws.

3. The Respondent conducted a desk audit on the Appellant’s importation covering the period 2nd August 2018 to February 2022, and vide a letter dated 2nd February 2022 demanded short levied taxes of Kshs 11,662,451. 00 alleging that the Appellant had applied duty rate of 10% for a consignment of paper under Tariff 4802. 56. 00 instead of duty rate of 25%.

4. The Appellant applied to the Respondent for a review of the demand notice vide its letter dated 25th February, 2022.

5. The Appellant thereafter filed a Notice of Appeal dated 28th February on 1st March, 2022.

The Appeal 6. The Appeal is premised on the following grounds as set out in the Memorandum of Appeal: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. b.That even if it were to be said arguendo that some law exist which imposed a duty rate of 25% on paper and paperboard products imported under HS 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 an impugned Demand Notice.

The Appellant’s Case 7. The Appellant contended that it was the Respondent who actually applied the duty of 10% on all paper and paperboard products imported into the Country under HS Code 4802. 56. 00 between 2nd August 2018 and 27th January 2022 by feeding into its Simba System the duty rate of 10% as the mandatory duty rate that all importers of paper and paperboard products under HS Code 4802. 56. 00 had to pay before they could get their goods cleared. Consequently, the Respondent cannot found a cause of action as against the Appellant from its own actions.

8. The Appellant averred that it is the Respondent who instructed its ICT officers to approve online form C 17B customs entries that had indicated 10% as the mandatory duty for paper and paperboard products imported under Code 4802. 56. 00. Further that the Respondent 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 products imported under HS 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.

9. The Appellant contends that it had a legitimate expectation that the Respondent would labour to put in place expensive and tamper-proof infrastructural, technological, administrative, surveillance and monitoring system that had a customs duty rate of 10% then change its mind and punish the Appellant for having paid duty at the rate of 10% and not 25%. The Appellant contended further that the Respondent’s decision and demand notice violates the Appellant’s right to fair administration action, right to property, the right to access justice and the right to protection of law.

10. The Appellant asserted that 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 meant to be sold to third parties, only for the Respondent to subsequently demand payment of duty at 25% long after goods have been sold at which point the Appellant cannot recover the uplifted duty from the third party purchasers.

11. It is the Appellant’s contention that the Respondent cannot resile from its previous interpretation of the effect of the purported deletion of Paragraph 2 of the 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 HS Code 4802. 56. 00 at the rate of 10%.Further that the fact that the Respondent holds different view of the 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 liability.

12. The Appellant averred that the Respondent has been guilty of inordinate delay in carrying out the post clearance audit and that its decision to do so was actuated in bad faith. Further that having issued tax compliance certificates to the Appellant, the Respondent is estopped from changing its position and claiming outstanding taxes from the Appellant.

Appellant’s Prayers 13. The Appellant therefore prays:a.That the Appeal is allowedb.That the Respondent’s decision and demand notice is annulled.c.That the Appellant is awarded cost of this Appeal

The Response 14. In response to the Appellant’s Appeal, the Respondent through its Statement of Facts filed on 29 March, 2022 averred:a.That for purposes of verification of the applicable HS Code in the instant case, the East African Community Common External Tariffs (CET) 2017 version is applicable. Further that the applicable duty rate for the Appellant’s imported paper and paperboard products for the tax period 2nd August 2018 to February 2022 is in accordance with East African Gazette Notice No EAC/112/2018 dated 2nd August 2018. b.That it is empowered under Sections 235 and 236 ofEACCMA, 2004 to conduct post clearance audit on imports within 5 year, and further that Sections 135 and 249 of EACCMA, 2004 empowers it to demand for short levied taxes where the post clearance audit reveals that less taxes were paid.c.That the EAC Gazette Notice No 112/2018 dated 2nd August 2018 revoked the changes made in the EAC Gazette Notice No.69/2018 dated 30th June 2018 which had changed the duty rate of paper and paperboard products from 25% to 10 % thus reverted the duty rate back to 25%. That the Appellant cannot therefore contend that there was no law allowing the Respondent to charge the 25% duty rate yet the EAC Secretariat publishes gazette notices on the EAC website, thus it is a notice to the whole world and the Appellant was thus duly notified.d.That the fact that the Simba System was not adjusted is not a bar for demand of short levied taxes as the law provides for payment of the duty rate at 25% vide the EAC gazette notice EAC/112/2018 dated 2nd August, 2018. e.That the Appellant moved this Tribunal even before a review decision was issued under Section 229 of the EACCMA, 2004. That there is therefore no valid Appeal before the Tribunal as per Section 230 of the EACCMA, 2004.

Respondent’s Prayers 15. The Respondent therefore prays that:a.Its demand letter dated 2nd February, 2022 is proper in law and the same be affirmed.b.The short levied taxes of Kshs 11,662,451. 00 are due and payable by the Appellant.c.This Appeal be struck out as there is no appealable decision before the Tribunal for determination.

Submissions Of The Parties 16. In its Written Submissions filed on 15th December, 2022 the Appellant raises one main issue and subsidiary issues for determination.

Main issue: Whether KRA can administer or enforce non-existent revenue law. 17. The Appellant submitted that for a law to be operational, it must be formally enacted, and promulgated by the requisite legal mandate to enact the law. On this case, the Appellant maintained that no law has ever been enacted and promulgated by the Council of Ministers of the East African Community increasing duty rate for paper products from 10% to 25% since 20th June 2014 when the duty for the paper products was last set by the Council.

18. The Appellant submitted further that any statements, proposals, suggestions or other communications posted on EAC Council of Ministers and which purports to indicate a different duty rate for paper and paperboard products have no legal force and cannot be implemented or enforced by the Authority. Further that Legal Notice No. EAC/85/2017 merely authorized the harmonization of the EACCET with the WCO CET and did not review or change the tariff rate for paper and paperboard products.

Subsidiary issues. a. Whether KRA can keep changing its position on a matter and to punish taxpayers for every changed position. 19. The Appellant submitted that it was not legally possible for the Respondent to adopt one interpretation of a revenue legislation today and purport to resile from that interpretation especially in the circumstances where doing so involves imposition of punishment upon an innocent taxpayer. The Appellant submitted further that the doctrine of precedence found administrative decision making just as it governs judicial decision making and to accept such conduct by the Respondent would be tantamount to collective irrationality.

b. Whether KRA can punish taxpayers for faithfully obeying its directions as per the Simba System/Tradex 20. The Appellant submitted that the Simba system is an automated tax collection and import clearance system which the Respondent configures appropriately which makes it impossible for any importer of such products to pay any other rate which is not programmed in the Respondent’s system. Its actions therefore are unfair, unjust, oppressive and in extreme bad faith to purport to punish the Appellant for the direct consequences of its own actions.

c. Whether KRA can lawfully punish taxpayers for the acts and/or omissions of its own officers 21. On this issue, the Appellant submitted that the clearance process and declaration can only be approved by the Respondent, which process has to be approved by four (4) independent officers of the Respondent. It would be the height of irrationality for the Respondent who confirmed that the correct duty rate of paper product was 10% by confirming the Simba system to purport to punish the taxpayers for having used the duty rate 10%.Whether any decision taken by KRA under Sections 135,235, 236 or 249 of EACCMA can lawfully be impugned for violating the Appellant’s right to fair administration action, the right to justice or the right to legitimate expectation.

22. The Appellant submitted that the Respondent’s actions violated the Appellant’s right to fair administrative action under Article 47 of the Constitution and that the mere fact that the Respondent has powers under Sections 135, 235, 236 and 249 of EACCMA, 2004 to conduct post clearance audit and demand short-levied tax does not ipso facto mean that such power cannot be challenged and invalidated.

23. On the issue of whether the Respondent was guilty of inordinate delay, the Appellant submitted that although empowered by law to conduct the post clearance audit, conducting the audit after 4 years in the case of the Appellant is unreasonable, especially in the circumstances where it is impossible to recover the tax now demanded because the subject goods have since been sold and even consumed by third parties.

24. The Appellant also submitted that it was an irrational explanation for the Respondent to collect taxes at 25% as this was made in bad faith and an abuse of its powers.

25. On the issue of how the Appellant came into possession of an email correspondence between the Respondent’s officers, the Appellant submitted that the same was shared by the Respondent with clearing agents during a training session. Further that the said email is admissible for reasons that it is a public document under Section 79 of the Evidence Act.

26. The Respondent, through its Written Submissions filed on 21st December, 2022 raised two issues for determination.

a. Whether the Appeal herein is valid 27. The Respondent has relied on Sections 229(1), 229(4), 230(1) and 231 of EACCMA 2004 and submitted that there is no appealable decision before the Tribunal as the Appellant herein lodged this Appeal even before the review decision was issued given the statutory timelines had not lapsed.

28. The Respondent cited the doctrine of exhaustion by citing the Court of Appeal case of Speaker of the National Assembly v James Njenga Karume (1992) eKLR where the Court of Appeal stated as follows:“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.”

b) Whether the Respondent’s decision to demand for the short levied taxes was proper in law 29. On this issue, the Respondent submitted that the Kenyan tax system is a self-assessment regime where a taxpayer is required to self-assess and submit the correct and applicable taxes to the Respondent. The Respondent submitted further that it acted within its powers under Sections 235(1) and 236 of EACCMA, 2004 to conduct post clearance audit within 5 years and seek for documentation to verify the correctness of the taxes paid. The Respondent submitted further that the Appellant imported paper and paperboard products during the tax period 2nd August 2018 to February 2022 classifiable under Tariff Code 4802. 56. 00 and applied a duty rate of 10% instead of 25% hence the demand for short levied tax.

30. The Respondent submitted that the Appellant failed to prove that the East Africa Gazette Notice No. EAC/112/2018 dated 2nd August 2018 was not in force as at the time the Appellant imported the consignment in dispute. It therefore submitted that the decision to demand for short-levied taxes was proper in law as the Appellant applied the duty rate of 10% for consignment of paper under tariff 4802. 56. 00 instead of the duty rate of 25% as provided for under the East African Community Gazette Notice No. EAC/112/2018.

Issues for Determination 31. Having considered the parties’ pleadings, documentation and submissions made, the Tribunal is of the considered view that this Appeal distils into two issues for determination as follows:-a.Whether there is a valid Appeal before the Tribunal; andb.Whether the Respondent’s demand for the short-levied tax is proper in law.

Analysis and Findings 32. Having established the two issues for determination, the Tribunal will proceed to analyse then as hereunder.

a. Whether there is a valid Appeal before the Tribunal. 33. The Respondent, in its submissions has raised the issue of the validity of this Appeal stating that the Appellant has lodged this Appeal prematurely, and before receiving the Respondent’s review decision following its application for review dated 25th February, 2022. Section 229(1)(4) of EACCMA with respect to statutory timelines in seeking and receiving a review decision is concerned provides as follows: -“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.4)The Commissioner shall, within a period not exceeding thirty days of the receipt of the application under subsection (2) and any other 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”

34. Section 230 (1) (2) of EACCMA, 2004 prescribes the procedure for lodging an appeal to the Tribunal. It provides as follows: -(1)“A person dissatisfied with the decision of the Commissioner under Section 229 may appeal to a tax appeals tribunal established in accordance with section 231. (2)A person intending to lodge an appeal under this section shall lodge the appeal within forty-five days after being served with the decision, and shall serve a copy of the appeal on the Commissioner.”

35. From the chronology of events, the Respondent’s demand letter for short levied tax was dated 2nd February, 2022, while vide its letter dated 25th February, 2022 the Appellant applied for a review of the Respondent’s decision. As per Section 229(4) of EACCMA, the Respondent had up to about 24th March, 2022 to render its decision on the review application, if it turns out the review is not favourable, then the Appellant had forty-five days to lodge an appeal with the Tax Appeals Tribunal.

36. The Tribunal observes that the Appellant applied for a review of the Respondent’s decision vide its letter dated 25th February, 2022 and before receiving a response on the same, it lodged the Appeal by filing its Memorandum of Appeal and Statement of Facts dated 28th February, 2022 and received at the Tribunal on 1st March, 2022 contrary to the provisions of Section 229 of EACCMA, 2004.

37. The Tribunal is guided by the authority in the case of Owners of Motor Vessel “Lillian S v Caltex Oil(Kenya) Ltd (1989) eKLR where the Court stated as follows: -“I think it is reasonably plain that a question of jurisdiction ought to be raised at the earliest opportunity, and the court seized of the matter, is then obliged to decide the issue right away on the material before it. Jurisdiction is everything. Without it, a court has no power to make one more step. Where a court has no jurisdiction, there would be no basis for continuation of proceedings pending other evidence. A court of law down tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction…. Where a court takes it upon itself to exercise jurisdiction which it does not possess, its decision amounts to nothing. Jurisdiction must be acquired before judgement is given”

38. Consequent to the above analysis, the Tribunal finds that this Appeal is prematurely before it for want of an appealable decision.

39. Having established that the Appeal is invalid, the Tribunal will not delve into the second issue as the same has been rendered moot.

Final Decision 40. The upshot of the above is that the Appeal is prematurely before the Tribunal, and the Tribunal therefore proceeds to make the following final Orders;a.The Appeal be and is hereby struck out.b.Each party to bear its own costs

41. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF MAY, 2023. ROBERT M. MUTUMA....................CHAIRPERSONDELILAH K. NGALA.........................MEMBERRODNEY O. OLUOCH..........................MEMBEREDWIN K. CHELUGET.........................MEMBER