[2025] KETAT 180 (KLR)

UDV Kenya Limited v Commissioner of Customs and Boarder Control (Tax Appeal E964 of 2024) [2025] KETAT 180 (KLR) (Commercial and Tax) (14 March 2025) (Judgment)

Neutral citation: [2025] KETAT 180 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal E964 of 2024

E.N Wafula, Chair, Cynthia B. Mayaka, G Ogaga, RO Oluoch & AK Kiprotich, Members

March 14, 2025

Between

UDV Kenya Limited

Appellant

and

Commissioner of Customs and Boarder Control

Respondent

Judgment

Background 1. The Appellant is a limited liability company registered in Kenya and is a subsidiary of East African Breweries PLC (EABL). The Appellant's principal business activities are manufacturing, importation and distribution of alcoholic beverages.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 laws of Kenya and the Authority is mandated with the administration and enforcement of various revenue laws .

3. Kenya and UK entered into Economic Partnership Agreement (EPA) which came into force on 24th March 2023. The Agreement required Kenya to apply 25% import duty on Uk originating alcoholic beverages.

4. The EACCET 2022 version which came into force on 1st July 2022 placed the import duty of the alcoholic beverages at 35% and the Respondent configured its system to reflect this rate.

5. The Respondent reconfigured its system on 12th March 2024 to reflect the 25% import duty as per the EPA. On 16th May 2024, the Appellant made an application for refund of overpaid taxes of 10% in respect to the period 1st July 2022 to 30th April 2023,

6. The Respondent on 21st May 2024 rejected the Appellant’s refund application. The Appellant applied for review of the Respondent’s decision vide a letter dated 21st June 2024.

7. The Respondent subsequently issued its review decision through a letter dated 17th July 2024 upholding its decision to reject the refund application

8. Dissatisfied with this decision, the Appellant filed a Notice of Appeal dated 16th August 2024

The Appeal 9. The Appeal is set in the Memorandum of Appeal dated 30th August, 2024 and filed on the same date which raises the following grounds:i.That the Respondent erred in law and in fact in its review decision by holding that the import duty refund claim was time barred.ii.That the Respondent erred in law and in fact by failing to appreciate that its review decision contravenes principles of fair administrative action as enshrined under Article 47 of the Constitution of Kenya.iii.That the Respondent erred in law and in fact by reneging on legitimate expectation created to the Appellant.iv.That the Respondent erred in law and in fact by failing to appreciate that its decision rejecting the import duty refunds amounted to unjust enrichment of the Respondent.

Appellant’s Case 10. The Appellant’s case is premised on :a.Its Statement of Facts dated and filed on 30th August, 2024. b.Its written submissions dated 13th December 2024 and filed on 15th December 2024.

11. The Appellant submitted that Kenya and the United Kingdom of Great Britain and Northern Ireland entered into an Economic Partnership Agreement (the EPA) which was signed on 8th December 2020 and came into force on 24th March 2023, having been ratified by Kenya's National Assembly on 9th March 2021.

12. That the objectives of the EPA were, inter alia, to promote the gradual integration of Kenya and the other EAC member states into the world economy and improve Kenya's and other EAC Partner States capacity in trade policy and trade-related issues.

13. It averred that predominantly, Annex II(d) of the EPA required the application of 25% import duty on UK-originating alcoholic beverages of Chapter 22 of the Harmonized System (HS). That the annexture II(d) stipulated, inter alia: These alcoholic beverages listed in the table above are hereinafter referred to as “UK Origin Products".

14. That under the EPA, Kenya was therefore required to adhere to the rates from alcoholic beverages originating from the UK. That however, by virtue of the East African Community Common External Tariff (EACCET), 2022 version which came into force on 1st July 2022, the import duty rate applicable to the UK Origin Products was increased from 25% to 35%, without taking into consideration the provisions of the EPA. That therefore, pursuant to the amendments in the EACCET, the Respondent proceeded to erroneously reconfigure the Integrated Customs Management Systems (the iCMS) to apply the duty rate of 35% (rate in the EACCET) without taking into account the EPA rate for UK Origin Products.

15. It stated that following the reconfiguration of the iCMS to apply the rate of 35%, there was outcry from various stakeholders trading in the UK Origin Products and eventually, on 12th March 2024, the Respondent reconfigured the iCMS to apply the EPA preferential rate of 25%.

16. That its refund application covered the 10% incremental import duty from clearance of premium and bulk liquid spirits for home use and additional taxes subsequently paid under a deductive value method.

17. It stated that vide a letter dated 21st May 2024, the Respondent rejected the Appellant's import duty refund application amounting to Kshs 161,883,904. 00 on the basis that the Appellant had outstanding tax liabilities and that the application for refund was made out of time as it was filed past the statutory Iimitation as provided under Section 144 (2) of the East African Community Customs Management Act (the EACCMA)

18. That the Appellant being dissatisfied with the Respondent's refund decision, filed an application for review of the refund decision pursuant to Section 229 of the EACCMA through a letter dated 21st June 2024.

19. That subsequently, the Respondent, in a letter dated 17th July 2024, which was received on 19th July 2024 communicated its decision in respect to the application for review (the review decision), and found that:i.The EPA indeed came into force on 24th March 2021 following its ratification by the Kenya National Assembly and consequently became an integral part of Kenyan law.ii.According to Section 144(2) of the EACCMA, a claim for a refund must be submitted twelve months from the date of the erroneous payment of duty. That in this case, the import taxes that formed the basis of the refund application were paid between July 2022 and April 2023. That however, the refund application was submitted on 16th May 2024. That as twelve-month period had elapsed by the time of submission, the refund application stood to be time barred.

20. The Appellant further expounded on its grounds of Appeal as hereunder.

a. That the Respondent erred in law and in fact in finding that the refund claim was time barred 21. It was the Appellant’s contention that in the review decision, the Respondent confirmed that upon the EPA being ratified by the Kenya National Assembly on 24th March 2023, it came into force and became part of Kenyan law. That the Respondent then further went ahead to conclude that Section 144(2) of the EACCMA provides for a twelve (12) months statutory period to make a refund claim and since the Appellant made the refund application on 16th March 2024, the application was time barred.

22. The Appellant asserted that it disputes the findings by the Respondent and averred that the Respondent erred in law and in fact by failing to consider the date when the refund became due.

23. The Appellant averred that despite the EPA being ratified and coming into force on 24th March 2021, the Respondent reconfigured the iCMS subsequently in July 2022 to apply the erroneous 35% rate and therefore the Appellant had no choice but to pay import duty as imposed at 35%.

24. That Article 2(6) of the Constitution of Kenya, 2010 (the Constitution), stipulates that any convention or treaty that the Country has ratified forms part of the laws of Kenya.

25. That in light of Article 2(6) of the Constitution, the Appellant contended that the ratification of the EPA effectively made the EPA Kenyan law.

26. To support its case the Appellant relied on the Supreme Court decision in the case of Mitu-Bell Welfare Society versus the Kenya Airport Authority and 2 others (2016) e-KLR.

27. The Appellant averred that the Respondent failed to consider that the increase of import duty rates through the revised EACCET which came into force on 1st July 2022 should not have impacted import duty rates of UK Origin products set out under the EPA, since the EPA had force in law in Kenya.

28. The Appellant asserted that the impact of the erroneous reconfiguration by the Respondent was that the Appellant and other importers from the UK who were entitled to import UK Origin Products at the lower rate of 25% under the EPA were forced to apply 35% import duty rate on UK Origin Products that should have been subject to import duty rate at 25%.

29. That the erroneous application of the duty rate of 35% resulted in outcry from the various stakeholders trading in originating products that did not benefit from the EPA. It averred that this can be illustrated by a complaint letter to the National Treasury by the Scotch Whisky Association dated 14th November 2022

30. It stated that as a result of the complaints and the outcry from the various companies that were to benefit from the EPA, the Respondent reconfigured the iCMS system to capture the correct EPA rate of 25% on the imported alcoholic beverages originating from the UK effective 12th March 2024.

31. That the reconfiguration by the Respondent demonstrated an admission that it was wrong in imposing the EACCET import duty rate of 35% as opposed to implementing the applicable rate under the EPA, and furthermore demonstrated concurrence with the affected companies on their understanding of the applicable law, which is, that the EPA was a treaty which has force of law in Kenya by virtue of Article 2(6) of the Constitution.

32. The Appellant averred that following this admission by the Respondent and the reconfiguration of the iCMS, the need for a refund of overpaid taxes arising from the 10% incremental import duty by the Appellant arose, as at the date of the reconfiguration, being 12th March 2024. That it was on this basis that it made the refund application.

33. It was the Appellant's assertion that contrary to the Respondent's finding in the review decision, a refund application could not have been made at any time prior to the Respondent reconfiguring the iCMS as at that date the overpayment would not have been recognized by the Respondent as having been due, and in any case, could not have been an output of the system. Therefore, upon the reconfiguration of the iCMS, it became the case that the Appellant had overpaid its taxes for the period 1st July 2022 to 30th April 2023 amounting to Ksh 161,888,904. 00.

34. That on this basis, it was prejudicial and unjust for the Respondent to assert that the refund claim is time-barred, especially considering that the Appellant's rightful refund was denied due to the Respondent's own inaction in failing to reconfigure the iCMS to reflect the correct taxes on a timely basis.

35. The Appellant reiterated that its hands were tied as a result of the Respondent's action and had it not complied with the 35% rate, it would have been unable to clear the affected goods upon importation.

36. The Appellant averred that the Respondent's assertion that the statutory period for applying for a refund had already lapsed is fundamentally flawed because it disregards the fact that the Appellant could not have applied for a refund on the Respondent's system prior to the effective application of the 25% import duty rate by the Respondent. That the twelve-month statutory period for filing a refund claim therefore only began running once the iCMS system was reconfigured to reflect the lower rate of 25%.

37. The Appellant therefore urged the Tribunal to find that the review decision was erroneous and consequently allow the refund application.

b. The Respondent erred in law and in fact by failing to appreciate that its review decision rejecting the import duty refunds contravenes principles of fair administrative action enshrined under Article 47 of the Constitution 38. The Appellant submitted that in the review decision, the Respondent had rejected the Appellant’s application for refunds on the basis that the refund claim was time barred. That according to the Respondent, a refund application ought to have been made within 12 months from the date the payments for import duties were made to the Respondent.

39. The Appellant asserted that the Respondent's contention that the applications for refund were time barred whilst it delayed in configuring the iCMS system, is unfair and against the fair principles of administrative action enshrined under Article 47(1) of the Constitution of Kenya.

40. It was the Appellant's assertion that the Respondent in issuing its review decision rejecting the import duty refunds on the basis that it was out of time whilst it delayed in configuring the iCMS system was unfair and against the fair principles of administrative action and thus the review decision should be vacated.

41. In making this assertion, the Appellant placed reliance on the case of Kenya Revenue Authority versus Export Trading Company Petition No. 20 of 2020 where the Supreme Court of Kenya had to determine whether the Respondent in this case acted lawfully in demanding additional customs duties from Export Trading Group Limited (ETC) four years after the initial payment. That the issue arose because the Tradex Simba system, managed by the Respondent and which the Appellant in this case, used to declare its imports, erroneously assessed the duty at 35% instead of the correct 75%. That ETC had sought confirmation from Respondent before paying the duties, but received no response, leading them to pay the calculated 35%. That four years later, the Respondent demanded the additional duties citing the system error. That the Supreme Court upheld the decision of the lower court’s ruling that the Respondent's demand was unfair and violated the taxpayer's right to fair administrative action.

42. The Appellant averred that as upheld in the case of Kenya Medical Association Housing Cooperative Society Limited versus Attorney General & Another (2016) eKLR, a decision by the Respondent which violates the principles of fair administrative action is void.

43. The Appellant asserted that it is grossly unfair to bear a tax burden which in the first place, it should not have borne and thus the decision by the Respondent should be vacated in its entirety as it amounts to unfair administrative action and thus void ab initio.

c. The Respondent erred in law and in fact by reneging on legitimate expectation created to the Appellant. 44. The Appellant stated that legitimate expectation arises where a person responsible for taking a decision has induced in someone a reasonable expectation that he will receive or retain a benefit of advantage. That it was a basic principle of fairness that legitimate expectations ought not to be thwarted. That the protection of legitimate expectations is at the root of the Constitutional principle of the rule of law, which requires predictability and certainty in government's dealings with the public.

45. The Appellant averred that as upheld in the case of Regina versus London Borough of Newham and Manik Bibi and Ataya Alnashed (2002) 1 WLR 237 , there are three questions that must be answered for legitimate expectation to arise. These are:i.What has the public authority, whether in practice or by promise committed itself;ii.Whether the authority has acted or proposes to act unlawfully in relation to the commitment; andiii.What should the Court do. In this, the Court has two functions assessing the legality of actions by administrators, and if it finds unlawfulness on the administrator's part, deciding what relief it should give.

46. The Appellant averred that the Respondent in issuing the review decision which rejects the import duty refund applications had reneged on its legitimate expectation in that;i.The Appellant had a legitimate expectation that the Respondent would strictly comply with the applicable law and apply the agreed import duty under the EPA in clearance of the Company's alcoholic beverages originating from the UK.ii.By the Respondent reconfiguring the iCMS to apply the correct import duty rates as set out under the EPA, the Respondent created a legitimate expectation that they would refund the overpaid taxes to the Appellant. This expectation was not only reasonable but also legally enforceable under the principles governing administrative action. The Appellant reiterates that the Respondent's actions in reconfiguring the iCMS to apply the correct duty rates, while simultaneously refusing to refund the overpaid taxes, amount to an abuse of power and a frustration of legitimate expectation without noting that the Appellant was not capable of applying for a refund until it had reconfigured its iCMS.iii.That it would be unreasonable for the Respondent to expect the Appellant to have applied for import duty refund before the reconfiguration, yet the Respondent's system had not been reconfigured.

47. The Appellant averred that the decision by the Respondent of rejecting the import duty refunds reneges the legitimate expectation created to the Appellant and thus should be vacated in its entirety.

d. The Respondent erred in law and in fact by rejecting the import duty refunds for the overpaid import duty resulting to the unjust enrichment of the Respondent. 48. The Appellant averred that the decision to reject the import duty refund which arose due to the Respondent's failure to implement the correct tax rates as set out under the EPA, places a tax burden on the Appellant which it ought, legally, not to be bound by, and thus enriching the Respondent unjustly.

49. The Appellant placed relience on the case of Chase International Investment Corporation and another v Laxman Keshra and others (1978) KLR 143, where it was held that there are three basic elements presupposed by the doctrine of unjust enrichment, which are:a)that the Respondent has been enriched by the receipt of a benefit;b)that he has been so enriched at the expense of the plaintiff; andc)that it would be unjust to allow the defendant to retain the benefit in the circumstances of the case.

50. The Appellant asserted that if the review decision rejecting the import duty applications is upheld, the Respondent shall unjustly enrich themselves on the following basis:i.The Respondent shall benefit from collecting taxes which were not due in the first place.ii.The rejection of the refund to the Appellant will essentially, mean that the Appellant shall be shouldering the tax burden that they should not bear based on delays by the Respondent to adjust the applicable import duty rates as provided for in the EPA.iii.It would be unfair and unjust to allow the Respondent to retain the taxes which were in the first place not due to them and which will essentially lead to cashflow constraints to the Appellant.

51. It was therefore the Appellant's assertion that the Respondent's decision to disallow the import duty refund application was obtained against the legal tenets of the applicable import duty rates and should therefore be vacated in its entirety.

Appellant’s Prayers 52. The Appellant prayed for the following:i.That the Respondent erred in law and in fact in its review decision by holding that the import duty refund was time barred.ii.That the Respondent erred in law and in fact by failing to appreciate that its review decision contravenes principles of fair administrative action as enshrined under Article 47 of the Constitution of Kenya.iii.That the Respondent erred in law and in fact by reneging on legitimate expectation created to the Appellant.iv.That the Respondent erred in law and in fact by failing to appreciate that its decision rejecting the import duty refunds amounted to unjust enrichment of the Respondent.v.That the decision of the Respondent contained in the review decision letter dated 17th July 2024 rejecting the Appellant's refund application amounting to Kshs 161,888,904. 00 be set aside in its entirety.vi.That the Appeal be allowed with costs to the Appellant.vii.Any other orders that this Tribunal deems just and reasonable.

Respondent’s Case 53. The Respondent’s case is premised on the following:a.Its Statement of Facts dated and filed on 14th October, 2024. b.Its written submissions dated 15th December 2024.

54. The Respondent contended that the dispute arose after it declined the taxpayer's refund application since it was time barred.

55. That the taxes arose by charging 35% duty rate instead of 25% as per taxpayer's claim. That the Integrated Customs Management System (ICMS) system had not been re-configured to capture the rates on 24th March 2021.

56. The Respondent stated that the Appellant submitted a refund application dated 16th May 2024 to the Respondent's office at Nairobi Customs Station which was received on 17th May 2024.

57. That a response dated 21st May 2024 was written declining the application due to the claim period having elapsed as per Section 144(2) of EACCMA, 2004.

58. That in addition, the Respondent's response letter dated 21st May 2024 provided a breakdown of taxes due and owing from the Appellant for different tax periods, and advised the Appellant to resolve the outstanding tax issues pending processing of the refund claim.

59. That on 21st June 2024, the Appellant sent a letter of even date seeking a review decision from the Respondent on its refund application.

60. That the Respondent issued its review decision rejecting the refund claim on the basis of Section 141(2) of the East Africa Community Customs Management Act, 2004.

61. That the Appellant paid the duties in the month of July 2022 to April 2023 while the refund application was received on 17th May 2024

Respondent’s Prayers 62. The Respondent prayed to the Tribunal to find;i.That this Appeal be dismissed with costs to the Respondent as the same lack merit.ii.The Respondent's decision is proper and in conformity with the provisions of the law.

Issue For Determination 63. The Tribunal upon considering all the pleadings in the matter and written submissions by all the parties has determined that the issue crystallizing for its determination is:Whether the Respondent’s decision to reject the Appellant’s refund claim was proper in law.

Analysis And Findings 64. Having identified the issue falling for its determination, the Tribunal shall proceed to analyse the same as hereunder.

65. The Appellant in the matter applied for refunds for overpaid taxes on 17th May 2024 on the basis of the Kenya-Uk Economic Partnership Agreement (EPA) which came into effect on 1st July 2022. The Agreement required the application of 25% import duty rate on UK originating alcoholic beverages which the Appellant was dealing in.

66. It was the Appellant’s contention that in the review decision, the Respondent confirmed that upon the EPA being ratified by the Kenya National Assembly on 24th March 2023, it came into force and became part of Kenyan law. That the Respondent then further went ahead to conclude that Section 144(2) of the EACCMA provides for a twelve (12) month statutory period to make a refund claim and since the Appellant made the refund application on 16th March 2024, the application was time barred.

67. The Appellant asserted that it disputes the findings by the Respondent and averred that the Respondent erred in law and in fact by failing to consider the date when the refund became due.

68. The Appellant averred that despite the EPA being ratified and coming into force on 24th March 2021, the Respondent reconfigured the iCMS subsequently in July 2022 to apply the erroneous 35% rate and therefore the Appellant had no choice but to pay import duty as imposed at 35%.

69. That the reconfiguration by the Respondent demonstrated an admission that it was wrong in imposing the EACCET import duty rate of 35% as opposed to implementing the applicable rate under the EPA, and furthermore demonstrated concurrence with the affected companies on their understanding of the applicable law, which is, that the EPA was a treaty which has force of law in Kenya by virtue of Article 2(6) of the Constitution.

70. The Respondent on its part stated that the Appellant submitted a refund application dated 16th May 2024 to the Respondent's office at Nairobi Customs Station which was received on 17th May 2024.

71. That a response dated 21st May 2024 was written declining the application due to the claim period having elapsed as per Section 144(2) of EACCMA, 2004.

72. The brief undisputed facts of this case are as follows;a.Kenya and UK entered into an Agreement ((EPA) which came into force on 24th March 2023. The Agreement required Kenya to apply 25% import duty on Uk originating alcoholic beverages.b.The EACCET 2022 version which came into force on 1st July 2022 placed the import duty of these products at 35% and the Respondent configured its system to reflect this rate.c.The Respondent reconfigured its system on 12th March 2024 to reflect the 25% import duty as per the EPA.d.On 16th May 2024, the Appellant made an application for refund of overpaid taxes of 10% in respect to the period 1st July 2022 to 30th April 2023,e.The Respondent on 21st May 2024 rejected the Appellant’s refund application.f.The Appellant applied for review of the Respondent’s decision vide a letter dated 21st June 2024. g.The Respondent subsequently issued its review decision through a letter dated 17th July 2024 upholding its decision to reject the refund application.h.Dissatisfied with this decision, the Appellant filed a Notice of Appeal dated 16th August 2024

73. Section 144(2) of the EACCMA in relations to timelines for application for refund provides as follows;“Refund of import or export duty or part thereof, shall not be granted under subsection (1) unless the person claiming such refund presents such claim within a period of twelve months from the date of the payment of the duty.”(Emphasis added)

74. In the instant case, the Appellant made the application for a refund on 16th May 2024 and received by the Respondent on 17th May 2024. Going by the provisions of Section 144(2) of the EACCMA the application could only cover refunds of up to 16th May 2023.

75. The schedule presented by the Appellant shows that the refund claim is for incremental taxes for the period July 2022 to April 2023 which is beyond the 12-month period covered by law. As it is, there is no law that could expand the time. Time counts from the date the tax is paid and once 12 months lapse notwithstanding the configuration of the Respondent’s system.

76. The Tribunal notes the Appellant’s extensive pleadings and submissions regarding failure by the Respondent to adhere to the principles enshrined in the Fair Administrative Action Act and on legitimate expectation. While the Tribunal empathizes with the Appellant’s frustration, the Appellant’s remedy lies elsewhere.

77. The Tribunal is enjoined to apply tax law as is clearly stated and as reiterated in the classicus case of Cape Brandy Syndicate V Inland Revenue Commissioners (1920) 1KB as applied in TM Bell V Commissioner of Income Tax (1960) EALR 224 where Roland J stated:“…. In a taxing Act, one has to look at what is clearly said. There is no room for intendment as to a tax, nothing is to be read in, nothing is to be implied. One has look into the language used…”

78. In the circumstances the Tribunal finds that the Respondent’s decision to reject the Appellant’s refund claim was proper in law.

Final Decision 79. The upshot of the foregoing analysis is that the Appeal lacks merit and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s review decision dated 17th July, 2024 be and is hereby upheld.c.Each party to bear its own costs.

80. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 14TH DAY OF MARCH, 2025ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERGLORIA A. OGAGA - MEMBERDR. RODNEY O. OLUOCH - MEMBERABRAHAM K. KIPROTICH- MEMBER