[2023] KETAT 896 (KLR)

Varun Distributors Limited v Commissioner of Customs and Border Control (Tribunal Appeal 547 of 2022) [2023] KETAT 896 (KLR) (24 November 2023) (Judgment)

Neutral citation: [2023] KETAT 896 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal 547 of 2022

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

November 24, 2023

Between

Varun Distributors Limited

Appellant

and

Commissioner Of Customs And Border Control

Respondent

Judgment

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

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. Under Section 5(2) of the Act with respect to the performance of its function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act for the purposes of assessing, collecting, and accounting for all revenues in accordance with those laws.

3. The dispute arose from the Respondent’s post clearance desk audit of the Appellant’s products imported under tariff 4802. 56. 00 for the period 2nd August 2018 to 8th February 2022 pursuant to Sections 235 and 236 of EACCMA and in reference to EAC Legal Notice No. EAC/112/2018 dated 2nd August 2018 which deleted item number 2 in the EAC Legal Notice No. EAC/69/2018 dated 30th June 2018. The Respondent alleged that the deletion effectively reverted the duty rate of items imported under tariff 4802. 56. 00 from 10% to 25%.

4. The post clearance audit resulted in the Respondent demanding short-levied taxes of Kshs. 1,213,670. 00 from the Appellant in a letter dated 8th February 2022 which the Appellant objected to on 27th April 2022.

5. The Respondent admitted that its customs systems were not adjusted with the new rate until the implementation of the provisions of EAC Gazette Notice No. EAC/112/2018 dated 2nd August 2018 resulting in goods being released at the lower duty rate and the short-levied taxes that arose from the Appellant’s application of a duty rate of 10% instead of 25%, and that the taxes were due and payable to the Respondent at the time of importation.

6. Upon the Respondent’s review of the objection, the Respondent issued its review decision in a letter dated 11th May 2022 demanding the taxes of Kshs. 1,213,670. 00.

7. The Appellant, dissatisfied with the review decision, filed its Notice of Appeal on 26th May 2022.

The Appeal 8. The Appeal is premised on the Memorandum of Appeal dated 20th May 2022 and filed on 26th May 2022 which raised the following grounds: -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 duty rate of 25% on paper and paperboard products imported under K.S. Code 4802. 56. 00 since 20th June 2014. ii.No Gazette Notice has never been published by the East African Community imposing a rate of 25% on paper and paperboard products imported under H.S. Code 4802. 56. 00 since 20th June 2014. iii.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 Schedules to the said Kenya Revenue Authority Act, and not any other law which not set out therein.b.That even if it were to be said arguendo that some law exists which imposed a 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 its 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 the code 4802. 56. 00, and the Appellant had to pay before the Appellant could get its 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 be found a cause of action as against the Appellant from the Respondent’s actions.ii.It is the Respondent (and not the Appellant nor its clearing agents) who instructed their ICT officers to approve online Form C. 17 B 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 be found a cause of action as against the Appellant from the Respondent’s actions.iii.It is the Respondent (and not the Appellant nor its clearing agents) their 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 H.S. ode 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 violate the Appellant’s right to fair administrative action, right to property, the right to access to 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 Appellant into paying customs duty at the mandatory rate of 10% for all paper and paperboard 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 them to subsequently demand that the Appellant pay duty at 25% long after the goods have been sold and used up by 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 4802. 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 holds different view with regard 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 Community Customs Management Act (EACCMA) 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 in 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 holds 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 with 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 certificate to the Appellant is estopped from changing its position and now averring as against the Appellant that the Appellant has outstanding taxes.

Appellant’s Case 9. The Appellant’s case is premised on the following documents: -a.Its Statement of Facts dated and filed on 3rd June 2022 and the documents attached to it; andb.Its Written Submissions dated 31st August 2023.

10. The Appellant submitted that Section 110 of the East African Community Customs Management Act (EACCMA) provides that the rates of duty payable shall be specified in the Protocol on the Establishment of East African Community Customs Union (the Protocol).

11. The Appellant further submitted that Article 12 (1) of the Protocol provides that the minimum rate shall be 0%, the middle rate shall be 10% and that's the maximum rate shall be 25% and that Article 12 (3) of the Protocol provides that the East African Community Council of Ministries (the Council) shall review the common external tariff structure from time to time. It added that the renewed tariff rates are published in the East African Community Gazette.

12. The Appellant stated 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%).

13. That on 30th June 2017, the Council, via Legal Notice No: EAC/85/2017 renewed and modified the East African Community Common External Tariff (EAC CET) to model it along the liens of the 2017 version of the Harmonized Community Description and Coding System version 2012 of the World Customs Organization. The Appellant submitted that the purpose of that review was merely to harmonise the commodity description and coding system of the EAC CET with that of the 2012 World Customs Union CET and that no tariff rate was reviewed. That the revised EAC CET was christened the 2017 version of the EAC CET.

14. The Appellant averred 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 at page 221 of the 2017 version of the EAC CET aforesaid the products imported H.S. 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.

15. The Appellant further averred that following the publication of the 2017 version of he EAC CET and upon noticing the purported erroneous change in the tariff rate for H.S. Code 4802. 56. 00, that the Respondent deliberated on the question whether the tariff rate for H.S. Code 4802. 56. 00 had been increased from 10% to for 25% and resolved to consult the EAC Secretariat for clarification on the matter whereupon the EAC Secretariat clarified to it 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. That the clarification by the EAC Secretariat was contained in an email which was circulated by Kenya Revenue Authority Manager for Post-Clearance Audit from Joab Omole to Senior Customs officers in the same organization at 11. 59 a.m. on 23rd February 2018.

16. 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% consequently, vide paragraph 2 of the Legal Notice No: EAC/69/2018 dated 30th June 2018, and that the Council purported to reduce the tariff rate for H.S. Code 4802. 56. 00.

17. That when it later dawned on the EAC Secretariat, and the Council that Paragraph 2 of the Legal No: EAC/69/2018 aforesaid was itself published ln error since it was purporting to reduce the tariff rate for H.S 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). The deletion of Paragraph 2 of the Legal Notice No. EAC/69/2018 via 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. The Appellant averred that the Respondent, being conversant with the foregoing and influenced thereby, that it configured its 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 good under H.S. Code 4802. 56. 00 would simply enter the H.S. Code into the system whereupon the duty rate as well as the total tax payable would be given by the Simba System itself in the 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 02. 6.00; nor to accuse any clearing agent or Importer of “applying” the wrong rate since the rate of 10% was actually "applied" by the Respondent who fed it into the 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 tile applicable duty rate as well as the total duty payable.

20. That on 27th January 2022, the Respondent, through a Memo prepared on his behalf by one John Gathatwa 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 purported because the Respondent had just “discovered” first that Legal Notice No: EAC/112/2018 had deleted paragraph 2 of the Legal Notice No: EAC/69/2018; Second, that the effect of the deletion was to import the duty rate of 25% for H.S Code 4802. 56. 00; and finally, that clearing agents/importers had been applying the rate of 10% for H.S. Code 4802. 56. 00 instead of 25%.

21. The Appellant submitted that the said Memo epitomised utmost dishonesty, callousness, malice and extreme bad faith to the extent that it purported to assert, on the one hand, that the Respondent was not aware that clearing agents/importers were applying a rate of 10% instead of 25%, and on the other hand, that the Respondent instructed customs officers to update the Customs System with immediate effect for tariff number 4802. 56. 00 to pick import duty at 25% (which the Appellant opined that it amounted to an admission that up to that date, the Customs System had been configured for tariff No: 4802. 56. 00 to reflect import duty at 10%).

22. That the said Memo further ignored the fact that up to the date of the said Memo, the the official position of the Respondent (as confirmed by the information which the Respondent fed into the Simba System) was that the tariff rate for since 20th June 2014 when it was set at 10% and consequently the deletion of Paragraph 2 of Legal Notice No: EAC/69/2018 had no effect whatsoever on the duty rate for H.S. Code 4802. 56. 00.

23. The Appellant submitted that following the issuance of the said Memo and in compliance therewith Kenya Revenue Authority customs officers rushed to calculate duty for all consignments that were cleared by the Appellant under H.S. Code 4802. 56. 00 between 2nd August 2018 and 27th January 2022 and proceeded to demand what they felt was the tax shortfall together with purported penalties and interest.

24. The Appellant stated that it was serviced with a demand notice requiring it to pay a sum of Kshs. 1,213,670. 00 within thirty (30) days from the date of the said demand notice. That the Appellant objected to the demand and the Commissioner subsequently gave its review decision on 11th May 2022 stating that the application for review was unsuccessful.

25. The Appellant collapsed its issues for determination into main issue and subsidiary issues as submitted below.On whether KRA can administer or enforce non-existent revenue law.

26. The Appellant submitted that under Section 110 of EACCMA, duty rates shall be as prescribed by the protocol and that it sets forth that: -“Liability on duty110. (1)Shall be paid on goods at the rate and in the circumstances specified in the Protocol”

27. That under Article 12(3) of the protocol for the Establishment of the EAC Customs Union the Council of Members of the EAC may review tariff rates for customs duties chargeable by member states. That the law states that: -“The Council may review the common external tariff structure and approve measures designed to remedy any adverse effects which any of the Partner States may experience by reason of the implementation of this part of the Protocol or, in exceptional circumstances, to safeguard Community interests.”

28. The Appellant further submitted that it was essential to note that the Council as establish under Chapter 5 of the EAC Treaty has it recognized as the policy organ of the Community under Article 14(5) of the Treaty for the establishment of the EAC directives issued or decisions taken by the EAC published in the EAC Gazette before they can come into force and the gazette notice must indicate the date when such directive came into force it set forth as follows: -“The Council shall cause all regulations and directives made or given by it under this Treaty to be published in the Gazette; and such regulations or directives shall come into force on the date of publication unless otherwise provided therein.”

29. The Appellant submitted that the assumption by the Respondent that the effect of the deletion of Legal Notice No. EAC/69/2018 was to increase duty for H.S. Code 4802. 56. 00 was erroneous for the following reasons: -a.That under Section 110(1) of EACCMA (supra), customs duty is payable at the rate and in such circumstances as specified in the EAC Customs Union Protocols.b.That under Article 9 of the Treaty for the Establishment of the EAC on the establishment of the Organs and Institutions of the Community as read together with Article 14 on the Functions of the Council, only the EAC Council of Ministers has the power to fix the rate of custom duties payable under the EACCMA.c.That under Article 14(5) of the Treaty for the Establishment of the EAC all regulations, directives and decisions of the EAC Council of Ministers must be published in the EAC Gazette vide a specific Legal Notice which must indicate when the decision directive or regulation comes into force.d.That since the EAC Council of Ministers fixed the duty rate for paper and paperboard products (under H.S Code No 4802. 36. 00) at 10% on 20th June 2014 vide Legal Notice No EAC/21/2014 no directive, regulation or decision has been taken by the EAC Council of Ministers (and duly gazette as required by law increasing the duty for paper and paperboard products from 10% to 25%.e.That any directive or regulation which purported to reduce the duty rate for paper and paperboard products from 25% to 10% (when the said rate was at all practical times fixed at 100/4) was therefore wholly erroneous and consequently of no legal effect.f.That documents published by the EAC Secretariat and posted on the EAC website which purport to indicate duty rates that have not been formally set by the EAC Council of Ministers and which have not been duly gazetted in the EAC Gazette are of no legal consequence and therefore lack the requisite legal force.g.That the Respondent acted illegally, unconstitutionally, irrationally, ultra vires and in bad faith when it purported to enforce and/or implement suggestions, proposals or other indications and communications posted on the EAC website which have no force of law.

i. On whether KRA can keep changing its position on a matter and then punish taxpayers for every changed position. 30. The Appellant contended 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 and to embrace a different interpretation of the same law tomorrow, especially in circumstances where doing so involves imposition of punishment (in the form of new taxes) upon innocent tax payers.

31. The Appellant averred that the doctrine of precedent governs administrative decision-making just as it governs judicial decision-making. That to do so, or to accept such conduct by the Respondent would be tantamount to collective irrationality.

32. The Appellant submitted that having established that precedent binds administrative bodies such as the Respondent, that because the rate was capped by the EAC Council at 10% in 2014, then the Respondent cannot depart from the EAC Council’s decision. It is because of this publication that the Respondent’s officials in their independent capacities all were able to justify the rate of 10% used in its Simba System and at the clearance points. That to depart from this would simply be an act of collective irrationality per law to amend the tariff in question.

ii. Whether KRA can punish taxpayers for faithfully obeying its directions as per the Simba System/Tradex 33. The Appellant argued that the Respondent having configured its digital revenue collection infrastructure (Simba System or Tradex) to collect duty for paper products at 10% in circumstances that made it impossible for any importer of any such products to pay duty at 25% or any other rate is estopped from alleging that the duty rate should have been 15% instead of 10%.

34. The Appellant contended that there was no rational explanation why the applicable duty rate was 25% yet the Respondent did not reflect the change of rate in its Simba System, and that the Respondent could not purport to punish a taxpayer for being compliant with the terms of the Respondent’s system and claim short-levied taxes.

35. The Appellant buttressed it position on this issue by referring to the Court of Appeal case of Kenya Revenue Authority Vs Export Trading Company Limited (2020) and Krish Commodities Ltd Vs Kenya Revenue Authority (2018) eKLR.

iii. On whether KRA can lawfully punish taxpayers for the acts and/or omissions of their own officers 36. The Appellant averred that there was no rational explanation tendered on why a taxpayer should be punished and pay taxes for a rate declared in the Simba system as fixed by the Respondent as was held in the case of Krish Commodities ltd Vs Kenya Revenue Authority (2018) eKLR.

37. On this issue, the Appellant maintained that Respondent cannot purport to impose a punitive rate on the Appellant.

iv. On whether KRA can lawfully punish taxpayers for the acts and/or omissions of their own officers. 38. The Appellant relied on the Court of Appeal decision in Krish Commodities Ltd case (supra) and the case of Kenya Revenue Authority vs Export Trading Company Limited (2020) eKLR to submit that the Respondent cannot punish the Appellant for the acts and/or omissions of its own officers.

v. On whether any decision taken by KRA under Sections 135, 235, 236 or 249 of EACCMA can lawfully be impugned for violating the Appe1lant’s right to fair administrative action, the right to justice or the right to legitimate expectation. 39. The Appellant argued that the decision by the Respondent to purport to demand duty at the rate of 25% long after the same Respondent had not only lured - but indeed coerced - the Appellant to pay duty at the rate of 10% and that long after the subject goods had been sold to and consumed by third parties who could not later be asked to pay the additional duty was clear violation of the Appellant’s right to fair administrative action under Article 47 of the Constitution.

40. The Appellant further submitted that the mere fact that the Respondent has power under Sections 135, 235, 236 and 249 to conduct post clearance audit and thereafter demand short levied taxes did not ipso facto mean that a purported exercise of such power cannot be challenged and invalidated for violation of the right to fair administrative action.

41. The Appellant reiterated that although EACCMA under Section 135(3) allows the Respondent to conduct a post clearance audit for short levied taxes, the same ought to be done with reasonable expediency as was held in the case of Export Trading Company vs Kenya Revenue Authority 2018 eKLR.

42. The Appellant further buttressed its argument on legitimate expectation by citing the case of Keroche Industries vs Kenya Revenue Authority & 5 others Nairobi (2007).

43. On this issue, the Appellant finally submitted that Respondent violated the Appellant's legitimate expectation and cannot purport to rely on the provisions of the EACCMA to justify its actions.

vi. On whether KRA is guilty of inordinate delay. 44. The Appellant posited that the Court of Appeal several has several times held (notably in the case of Kenya Revenue Authority Vs Export Trading Company Ltd (2020) eKLR and in the case of Krish Commodities Ltd Vs Kenya Revenue Authority (2018) eKLR) that the mere fact that the Respondent is permitted by Section 135 of EACCMA to conduct post clearance audit within five (5) years does not mean that it is lawful and proper for them to conduct post clearance audit after four (4) years in the circumstances where it has become impossible for the taxpayer to recover the additional taxes now being demanded because the subject goods have been have been sold and even consumed by third parties.

45. The Appellant also relied on the High Court decision in Republic vs Kenya Revenue Authority Ex Parte Universal Corporation Ltd (2016) eKLR which discussed the effect of a delay by the Respondent and noted as follows at paragraph 162: -“Nevertheless, where the delay in exercising statutory power has led to injustice which would otherwise have been avoided and no explanation if forthcoming for such inaction the law must step in to ameliorate the injury. In my view this was the genesis of the principle of legitimate expectation. In the circumstances of this case, the respondent's actions and inactions legitimately created an expectation to the applicant that the taxes were not payable as was held by Nyamu Jin Akaba Investments Limited vs KRA (2007} eKLR that legitimate expectation may arise either from an express promise given on behalf of a public authority or form the existence”

46. The Appellant submitted that on appeal by KRA on the same case in Kenya Revenue Authority v Universal Corporation ltd [2020] eKLR the court found as follows:-“On the duty to act fairly, the learned judge reviewed the case of Pharmaceutical Manufacturing and 3 others vs. KRA and 2 Others [2014] eKLR, for the holding inter aila that public agencies have a duty to act fairly failing which they risk the court’s intervention to have those actions quashed by way of prerogative orders.Applying the above threshold to the rival positions before the court, the learned judge reasoned as follows:“156… Whereas the period for which the taxes were being demanded was within the statutory grace period of 6 years, when it comes to the consideration of legitimate expectation, it is the effect of the delay as opposed to the length coupled with the conduct of the parties that comes into focus. Where the inability by the taxing authority to discover the actual taxes payable was as a result of concealment by the tax payer, the tax payer cannot hide behind legitimate expectation to escape the payment of taxes.159. However, where the taxing authority goes to sleep and as a result lulls the taxpayer into a false sense of security that the taxes in question would not be demanded, as a result of which the tax paver loses recourse which would have been legally available to it had the tax been demanded promptly, it may well be unfair and unjust for the demand to be sustained.”

47. The Appellant submitted that the Respondent was guilty of inordinate delay and the effect of such delay ought not to be visited upon the Appellant.

vii. On whether there is a rational explanation for KRA's failure to collect taxes at 25% as they claim they ought to have done. 48. The Appellant submitted that the Respondent has no authority to claim to collect taxes at 25% as they claim they should have. It relied on the decision of the Court of Appeal in Fleur Investments Limited vs Commissioner of Domestic Taxes & Another {2018} eKLR where the court at paragraph 25 noted as follows: -“...whereas this Court is not entitled to question the merits of the decision of taxing authority that authority must exercise its powers fairly and there ought to be a basis for the exercise of such powers. A taxing authority is not entitled to pluck a figure from the air and impose it upon a taxpayer without some rational basis for arriving at that figure and not another figure. Such action would be arbitrary, capricious and in bad faith. It would be an unreasonable exercise of power and discretion and that would justify the Court in intervening.In Republic vs. Institute of Certified Public Accountants of Kenya ex. parte Vipichandra Bhatt T/ A J V Bhatt & Company Nairobi HCMA No. 285 of 2006, it was held that in the absence of a rational explanation, one must conclude that the decision challenged can only be termed irrational within the meaning of the Wednesbury unreasonableness, was in bad faith and constitutes a serious abuse of statutory power since no statute can ever allow anyone on whom it confers a power to exercise such power arbitrarily and capriciously or in bad faith. Faced with circumstances similar to the present case in Republic vs Kenya Revenue Authority Ex parte Jaffer Mujtab Mohammed (2015) eKLR, Odunga J held as follows: -“a taxing authority is not entitled to pluck a figure from the air and impose it upon a taxpayer without some rational basis for arriving at that figure and not another figure. Such action would be arbitrary, capricious and in bad faith. It would be an unreasonable exercise of power and discretion and that would Justify the court intervening.”

49. In view of the foregoing, the Appellant argued that the decision by the Respondent to impose duty at the rate of 25% was irrational and made in bad faith and this Tribunal ought to find that the Respondent abused its powers.

Appellant’s Prayers 50. The Appellant prays that the Tribunal: -a.Allows this Appeal.b.Annuls the impugned decision as well as the impugned demand notice.c.Awards the costs of this Appeal to the Appellant.

Respondent’s Case 51. The Respondent’s case is premised on the following documents:a.Respondent’s Statement of Facts dated and filed on 21st June 2022 and the attachments to it.b.Respondent’s Witness Statement dated 5th January 2023 and filed on 9th January 2023. c.Respondent’s Written Submissions dated and filed on 14th August 2023.

52. The Respondent averred that on 27th January 2022 its Risk Management Division of carried out an audit of products imported under tariff 4802. 56. 00. That its 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 8th February 2022 pursuant to Sections 235 and 236 of EACCMA, and that the Appellant was among the importers profiled.

53. The Respondent cited the EAC CET which provides that 4802. 56. 00 covers: -“Uncoated paper and paperboard, of a kind used for writing, printing or other graphic purposes, and non perforated punchcards and punch tape paper, in rolls or rectangular (including square) sheets, of any size, other than paper of heading 48. 01 or 48. 03; hand-made paper and paperboard.Weighing 40 g/m² or more but not more than 150 g/m², in sheets with one side not exceeding 435 mm and the other side not exceeding 297 mm in the unfolded state.”

54. The Respondent stated that the Appellant did not deny importing consignments comprising paper products under H.S. Code 4802. 56. 00.

55. The Respondent further stated that Sections 235 and 236 of EACCMA gives it powers to call for documents and conduct a post-clearance audit (PCA) on the import and export operations of a taxpayer within a period of five years from the date of importation or exportation. That where a PCA reveals that taxes were short-levied, or erroneously refunded, Section 135 and 249 (1) of EACCMA empower the Respondent to recover any such amount short-levied or erroneously refunded with interest ay a rate of two per cent per month for the period the taxes remain unpaid.

56. The Respondent stated that Section 229 of EACCMA provides for the application for review by any person affected by the decision or omission of the Commissioner on a matter relating to customs and provides the legal timelines to be observed.

57. The Respondent cited that Section 230 (1) of EACCMA provides that a person dissatisfied with the Commissioner’s decision after application for review under Section 229 of EACCMA may appeal to a tax appeals tribunal established in accordance with Section 231 of EACCMA.

58. The Respondent submitted that the Tribunal should take judicial notice that the Respondent operates on a self-declaration tax regime whereby a taxpayer is required to make declarations and pay taxes on the items that it imports and that this creates a legitimate expectation that the taxpayer will pay the correct taxes. The Respondent further submitted that in the event that the taxpayer defaults in this expectation, the law under Sections 135, 235, 236 and 249 of EACCMA allows the Commissioner, within five years of importation, to assess and demand for the short-levied taxes.

59. The Respondent argued that the assessment in this Appeal was made within the five-year window provided for by the law and therefore no legitimate expectation on the taxpayer was breached.

60. The Respondent averred that the EAC Secretariat publishes the EAC Gazette Notices on the EAC website and that the gazette notices are available to the public. The Respondent further averred that these notices usually highlight changes to EACCMA and EAC CET effected by the Council of Ministers.

61. The Respondent contended that the EAC Gazettes usually indicate the date that the legal notices come into effect, hence the Appellant’s claim that there was no law that imposed a rate of 25% on paper and paperboard products was false.

62. The Respondent stated that EAC Notice No. EAC/112/2018 dated 2nd August 2018 deleted item number 2 in the Legal Notice EAC/69/2018 dated 30th June 2018. That this deletion effectively reverted the duty rate of items imported under tariff 4802. 56. 00 from 10% to 25%, and that this change was not effected in the Respondent’s customs systems leading to goods being released at the lower duty rate.

63. The Respondent admitted that as its customs systems were not adjusted with the new rate until the implementation of the provisions of EAC Gazette Notice No. EAC/112/2018 dated 2nd August 2018, this resulted in short-levied taxes that arose from the Appellant’s application of a duty rate of 10% instead of 25%, and that the taxes were due and payable to the Respondent at the time of importation.

64. The Respondent stated that it consequently demanded the short-levied taxes of Kshs. 1,213,670. 00 from the Appellant on 8th February 2022 which the Appellant objected to on 27th April 2022.

65. The Respondent confirmed that upon its review of the objection, it issued its review decision in a letter dated 11th May 2022.

Respondent’s prayers 66. The Respondent prays that the Tribunal:a.Finds that this Appeal lacks merit and the same be dismissed with costs.b.Upholds the Respondent’s review decision dated 11th May 2022.

Issue For Determination 67. The Tribunal has considered the facts of the matter and the submissions made by the parties, and considers the issue for determination as follows:Whether the duty rate of the imports under H.S. Code 4802. 56. 00 is 25% or 10%.

Analysis And Findings 68. Having identified the issue that calls for its determination, the Tribunal proceeds to analyse it as hereunder.

69. In the instant Appeal, the Appellant averred that there has never been any law that changed the duty rate of imports under H.S. Code 4802. 56. 00 from 10% to 25% since 20th June 2014.

70. The Respondent stated that EAC Notice No. EAC/112/2018 dated 2nd August 2018 deleted item number 2 in the Legal Notice EAC/69/2018 dated 30th June 2018. That this deletion effectively reverted the duty rate of items imported under tariff 4802. 56. 00 from 10% to 25%, and that this change was not effected in the Respondent’s customs systems leading to goods being released at the lower duty rate. The Respondent subsequently demanded from the Appellant taxes which it determined to be short-levied.

71. In determining the correct duty rate for imports under H.S. Code 4802. 56. 00, the Tribunal will look at the chronology of events, the actions of the stakeholders involved, and their propriety thereof.

72. The 2012 version of the EAC CET provides as thus:-“48. 02Uncoated paper and paperboard, of a kind used for writing, printing or other graphic purposes, and non perforated punch cards and punch tape paper, in rolls or rectangular (including square) sheets, of any size, other than paper of heading 48. 01 or 48. 03; hand-made paper and paperboard…4802. 56. 00 -- Weighing 40 g/m² or more but not more than 150 g/m², in sheets with one side not exceeding 435 mm and the other side not exceeding 297 mm in the unfolded state- kg- 25%.”

73. Item 2 of Legal Notice No. EAC/21/2014 published in EAC Gazette Notice Vol.AT 1 – No.8 dated 20th June 2014 provides: -“4802. 56. 00; Paper and Paperboard- Decreased the duty rate from 25% to 10% on the following HS Codes… 4802. 56. 00…”

74. It is the Tribunal’s finding that Legal Notice No. EAC/21/2014 published in EAC Gazette Notice Vol.AT 1 – No.8 dated 20th June 2014 is what prompted the Respondent to change its systems to conform and charge the rate of 10% for paper and paperboard products imported under H.S. Code 4802. 56. 00. There thus does not seem to be any error or mistake in implementing the changes in its system as the same were in conformity with the Legal Notice.

75. Later, Legal Notice No. EAC/85/2017 was published in EAC Gazette Notice Vol.AT 1 – No.8 dated 30th June 2017 which stated:-“IN EXERCISE of the powers conferred upon the Council of Ministers by Article 42(2) (1) of the Protocol on the Establishment of the East African Community Customs Union, the Council of Ministers has reviewed and modified the EAC Common External Tariff into a 2017 Version in conformity with the Harmonised Commodity Description and Coding System Version 2012 of the World Customs Organisation. The EAC Common External Tariff 2017 Version comes into force on 1st July 2017. This Notice shall come into force on the 1st day of July 2017. ”

76. The Tribunal agrees that Legal Notice No. EAC/85/2017 was published in EAC Gazette Notice Vol.AT 1 – No.8 dated 30th June 2017 did not purport to change or overturn or amend the provisions of Legal Notice No. EAC/21/2014 with regard to paper and paperboard products imported under H.S. Code 4802. 56. 00, and if indeed those were the intentions of the Council, the same would have been clearly indicated by the Secretariat. This provision, therefore, does not change the provisions of Legal Notice No. EAC/21/2014 in EAC Gazette Notice Vol.AT 1 – No.8 dated 20th June 2014.

77. The process and manner in which a tariff is supposed to be changed and published by the Council is well coded in the law. Article 12(3) of the East African Community Protocol (the Protocol) for the Establishment of the EAC states: -“The Council may review the common external tariff structure and approve measures designed to remedy any adverse effects which any of the Partner States may experience by reason of the implementation of this part of the Protocol or, in exceptional circumstances, to safeguard Community interests.”

78. Further, Chapter 5 of the Protocol provides under Article 14 (5) as follows: -“The Council shall cause all regulations and directives made or given by it under this Treaty to be published in the Gazette, and such regulations or directives shall come into force on the date of publication unless otherwise provided therein.”

79. The Tribunal notes that this was not the procedure followed by the East African Community Council of Ministers when it published the 2017 version of the East African Community Common External Tariff which indicated the duty rate for products imported under H.S. Code 4802. 56. 00 at 25% (matching the 2012 version) instead of 10% in accordance with the duly passed and published Legal Notice No. EAC/21/2014 in EAC Gazette Notice Vol.AT 1 – No.8 dated 20th June 2014.

80. The Tribunal opines that, it is for this reason that the Council purported to correct the changes by publishing Legal Notice No. EAC/69/2018 in EAC Gazette Notice Vol. AT 1 – No. 10 dated 2nd August 2018 which states: -“Corrections are hereby made to the EAC Gazette Vol. AT. 1 – No 8 of 30th June 2017, in Legal Notice No. EAC/85/2017 in respect of: … 2. HS Code 4802. 56. 00, changing the rate of 25% to 10%.”

81. It is however noted that in order to change the tariff code, as aforementioned, specific procedures need to be followed. It is therefore the Tribunal’s position that the said Legal Notice No. EAC/69/2018 in EAC Gazette Notice Vol. AT 1 – No. 10 dated 2nd August 2018 erroneously tried to make changes to a tariff code without a sound procedure under the law, therefore, the Tribunal finds that Legal Notice No. EAC/112/2018 in EAC Gazette Notice Vol. AT 1 – No. 10 dated 2nd August 2018 which provides in item 2 that “2. A Correction is hereby made to the EAC Gazette Vol. AT. 1 – No. 8 dated 30th June 2018, in Legal Notice No. EAC/69/2018 by deleting item No. 2. ” merely purported to correct the erroneous mistake of procedure occasioned by publishing Legal Notice No. EAC/69/2018 in EAC Gazette Notice Vol. AT 1 – No. 10 dated 2nd August 2018.

82. Having established the foregoing, it therefore follows that the law reverts to the only properly enacted and published Legal Notice No. EAC/21/2014 in EAC Gazette Notice Vol.AT 1 – No.8 dated 20th June 2014 which remains unchanged and unamended to date. Thus, the proper rate to be applied on products falling under the H.S. Code 4802. 56. 00 is 10% and not 25%.

83. The Tribunal has not been persuaded by the Respondent to depart from its holdings in the following matters amongst many others: -a.TAT No. 391 of 2022 Cents Traders Limited vs Commissioner of Customs and Border Control.b.TAT No. 790 of 2022 Patricia Wanjiru Mwangi vs Commissioner of Customs and Border Control.c.TAT No. 389 of 2022 Amstel Trading Company Limited vs Commissioner of Customs and Border Control.

Final Decision 84. The upshot of the foregoing is that the Appeal succeeds, and the Tribunal accordingly proceeds to make the following Orders: -a.The Appeal be and is hereby allowed.b.The Respondent’s review decision dated 11th May 2022 be and is hereby set aside.c.Each party to bear its own costs.

85. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 24TH DAY OF NOVEMBER, 2023. GRACE MUKUHA............CHAIRPERSONTIMOTHY VIKIRU...............MEMBERJEPHTHAH NJAGI...............MEMBERGLORIA A. OGAGA...............MEMBER