Introduction
1. This appeal arises from the judgment of the Tax Appeals Tribunal (hereinafter referred to as “the Tribunal”) delivered on 7th June, 2024, in which the Tribunal upheld the Respondent’s appeal thereat, and set aside the Appellant’s tax demand of Kshs. review decision dated 6th April 2023 for a tax demand of Kshs 1,611,403 as contained in the Appellant’s review decision dated 6th April 2023.
2. The background of the dispute at the Tribunal is that the Respondent, vide Import Entry No. 2021MSA 7869728 dated 7th September 2021, imported into the country Dolphin AM40(Rust remover), Dolphin PU Foam, and Dolphin Dashboard wax spray and classified them under HS Code 3403.19.00; HS Code 3909.50.00; and HS Code 3404.90.00, respectively.
3. Upon audit by the Appellant of the Respondent’s tax affairs covering the tax period 2019 to 2021, the Appellant formed the view that the said products were not properly classified by the Respondent. Consequently, the Appellant, after conducting a laboratory analysis on the goods, re-classified the goods vide its Tariff Ruling of 26th October 2021 as follows:
i. Dolphin AM40(Rust remover) – HS Code 2710.19.51
ii. Dolphin PU Foam – HS Code 3214.10.00
iii. Dashboard wax spray – 3405.05.90.00
4. Arising from the aforesaid re-classification, the Appellant issued a tax demand in the sum of Kshs. 1,611,403 vide its letter of 15th February 2023. The Respondent objected to the said tax demand vide its letter of 11th March 2023. The Appellant, after considering the Respondent’s Objection, vide its review decision dated 6th April 2023, confirmed the said tax demand of Kshs. 1,611,403.
5. Dissatisfied with the Appellant’s review decision, the Respondent vide its Memorandum of Appeal dated 31st May 2023, lodged an appeal at the Tribunal against the said decision. Upon considering the appeal, the Tribunal allowed the same and set aside the Respondent’s review decision dated 6/4/2023.
The Appeal
6. Aggrieved by the decision of the Tribunal, the Appellant filed the instant appeal against the said decision of the Tribunal vide an Amended Memorandum of Appeal dated 15th October 2024, raising the following grounds:
i. That the Honourable Tribunal erred in law and in fact in reclassifying the disputed products despite establishing that the Respondent herein failed to object to the tariff ruling dated 20th October 2021 as required by law under Section 229 of the EACCMA.
ii. That the Honourable Tribunal erred in law and in fact in upholding the classification of the product DOLPHIN Dashboard Wax Spray under HS CODE 3404.09.00 as opposed to the Appellant’s classification of HS CODE 3405.90.00.
iii. That the Honourable Tribunal erred in law and fact by finding in favour of the Respondent herein against the evidence adduced before the Honourable Tribunal.
7. Based on the foregoing grounds, the Appellant urged this Court to allow the appeal with costs, set aside the Tribunal’s Judgment of 7th June 2024, and uphold its Review decision dated 6th April 2023.
8. On its part, the Respondent opposed the appeal through its Amended Statement of Facts dated 12th November 2024, in which it supported the Tribunal’s decision and essentially reiterated its position before the Tribunal.
9. The appeal was canvassed by way of written submissions. The Appellant’s submissions are dated 7th November 2024, whilst the Respondent’s submissions are dated 13th November 2024.
Appellant’s Submissions
10. In support of the appeal, the Appellant submitted that the Tribunal erred in reclassifying the disputed products despite establishing the tariff ruling was not objected to contrary to Section 229 of EACCMA.
11. It was the Appellant’s position that despite the Tribunal’s finding that the Appellant’s review decision of 6th April 2023 was valid, the Tribunal erroneously failed to interrogate its contents. According to the Appellant, the tax demand of Kshs. 1,611,403/-, which was the subject of the said review decision emanating from the Tariff Ruling of 26th October 2021, which the Respondent had failed to object to the same within 30 days as required under Section 229 (1) of the EACCMA, 2004. The Appellant cited, among others, the case of Republic v Commissioner of Customs Services Exparte Tetra Pak Limited [2012] eKLR in support of this argument.
12. The Appellant therefore urged this Court to allow the appeal, uphold its review decision and find the taxes demanded due and payable.
Respondent’s submissions
13. The Respondent supported the Tribunal’s decision and submitted that the Tribunal was right in reclassifying the disputed products. According to the Respondent, the tariff Ruling of 26th October 2021 could not be applied retrospectively to charge and/or demand taxes for the period between March 2019 and September 2021 in the manner that the Appellant did vide its letter dated 15th February 2023.
14. According to the Respondent, the tariff Ruling of 26th October 2021 by the Appellant could only inform the subsequent importations but could not be applied retrospectively to importations done previously in 2019. The Respondent maintained that a contrary approach would be against the principle of legitimate expectation. The case of Keroche Industries Limited vs. Kenya Revenue Authority & 5 Others, Nairobi HCMA No. 743 of 2006 [2007] KLR 240 was cited by the Respondent in support of this argument.
15. Citing the case of John Munuve Mati v Returning Officer Mwingi North Constituency & 2 others [2018] eKLR, it was further the Respondent’s position that the Amended Memorandum of Appeal dated 15th October 2024 is contra-statute and therefore incompetent since it does not confine itself to legal issues only, contrary to the provisions of Section 56(2) of the Tax Procedures Act, which requires that an appeal from the decision of the Tribunal to the High Court should be limited to matters of law only.
16. The Respondent maintained that the Tribunal was correct in upholding the classification of the products in the manner that it did, given the nature, use, and composition of the products.
17. Based on the foregoing, the Respondent prayed to have the instant appeal dismissed with costs and to have the Tribunal’s judgment upheld.
Analysis and Determination.
18. Having carefully considered the Amended Memorandum of Appeal dated 15th October 2024, the Respondent’s Statement of Facts filed in response thereto and the parties’ respective submissions, I note that the two issues for determination in this appeal are as follows; -
i. Whether the Appellant’s appeal is incompetent
ii. Whether the Tribunal erred in reclassifying the disputed products
Whether the Appeal is incompetent
19. In its submissions, the Respondent took the position that the Appellant’s Amended Memorandum of Appeal dated 15th October 2024 is incompetent for contra-statute and therefore ought to be struck out since the same does not confine itself to legal issues only, contrary to the provisions of Section 56(2) of the Tax Procedures Act, which requires that an appeal from the decision of the Tribunal to the High Court should be limited to matters of law only.
20. At the outset, it is important to point out that contrary to the position taken by the Respondent, the Tax Procedures Act does not govern the instant appeal and therefore, Section 56(2) of the Act is not applicable. The short title to the Act provides that it is “AN ACT of Parliament to harmonise and consolidate the procedural rules for the administration of tax laws in Kenya, and for connected purposes.” [emphasis added]
21. The term “tax law” is defined under Section 3 of the TPA as follows: -
“tax law” means—
(a) this Act;
(b) the Income Tax Act, Value Added Tax Act, and Excise Duty Act; and
(c) any Regulations or other subsidiary legislation made under this Act or the Income Tax Act, Value Added Tax Act, and Excise Duty Act;”
22. It must always be borne in mind that the definition of a “tax law” under Section 3 of the TPA is different from the definition of the same word under Section 2 of the Tax Appeals Tribunal Act, which defines the term “tax law” as follows: -
“tax law” means—
(a) the Income Tax Act (Cap. 470);
(b) the Excise Duty Act (Cap. 472); or
(c) the Value Added Tax (Cap. 476);
(d) the East African Community Customs Management Act, 2004;
(e) any other tax legislation administered by the Commissioner;
23. From the above, it is evident that the East Africa Community Customs Management Act (EACCMA, 2004), under which the present appeal emanates, is not one of the “tax laws” envisaged under the Tax Procedures Act.
24. While an appeal from the decision of the Commissioner to the Tribunal on matters arising from a “tax law” is governed by Section 52 of the Tax Procedures Act, an appeal on to the Tribunal from the decision of the Commissioner on matters involving customs is made pursuant to Section 230 EACCMA, 2004.
25. An appeal to the High Court from the decision of the Tribunal on matters involving customs is exclusively governed by Section 32 of the Tax Appeals Tribunal Act. The section does not provide that an appeal to the High Court is limited to points of law. It therefore follows that in appeals from the Tribunal to this Court, the appellate jurisdiction of the Court involves the duty to re-evaluate and assess both factual and legal findings of the Tribunal and reach its own conclusions in the manner espoused in the locus Classicus case of Selle and another Vs Associated Motor Board Company and Others [1968] EA 123, where the Court stated as follows; -
“.. this court is not bound necessarily to accept the findings of fact by the court below. An appeal to this court ... is by way of re-trial and the Court of Appeal is not bound to follow the trial Court’s finding of fact if it appears either that he failed to take account of particular circumstances or probabilities or if the impression of demeanour of a witness is inconsistent with the evidence generally.”
26. In view of the above, it is the finding of this Court that the objection taken by the Respondent on the Appellant’s Amended Memorandum of Appeal dated 15th October 2024 is not merited and therefore fails.
27. On this point, though not material in respect of appeals emanating from EACCMA,2004, I wish to point out that there is an apparent conflict between Section 32 of the Tax Appeals Tribunal Act and Section 52 of the Tax Procedures Act, regarding the question of what would form the basis of an appeal to the High Court from the decision of the Tribunal, particularly in respect of appeals emanating from the “tax laws” as defined under Section 2 of the TPA.
28. While Section 52(6) of the Tax Procedures Act provides that an appeal from the decisions of the Tax Appeals Tribunal to the High Court would be limited to questions of law only, Section 32 of the Tax Appeals Tribunal Act does not provide for any such restrictions.
29. It is the view of this Court that this being the first appellate court and taking into account the nature of tax disputes and the extensive documentation involved, the proper approach should be that contained under Section 32 of the Tax Appeals Tribunal Act. Restricting appeals to questions of law only in the manner prescribed under Section 52(6) of the TPA is, in my view, too restrictive and is likely to be inhibitive of this Court’s ability in dispensing justice. This is the position that aligns with Rule 15 of the Tax Appeals Tribunal (Appeals to the High Court) Rules (Legal Notice No. 226 of 2015), which gives the High Court the discretion to admit additional evidence at the appellate stage as follows:
“15 Admission of other evidence
The Court may, at the time of hearing of an appeal, admit other documentary or oral evidence not contained in the statement of facts of the appellant or respondent should it consider it necessary for determination of the appeal.”
30. From the above, it is clear that there is an urgent need for legislative action to ensure that the above provisions of the law on appeals from the Tribunal to this Court are aligned.
Whether the Tribunal erred in reclassifying the disputed products
31. The second issue for determination is whether the Tribunal erred in law and in fact in reclassifying the disputed products despite establishing that the Respondent failed to object to the tariff ruling dated 20/10/2021 as required by law under Section 229 of the EACCMA.
32. From the record, it is not disputed that the Respondent imported the following three products on 7/9/2021: DOLPHIN AM40 RUST AND LUBRICATING SPRAY, DOLPHIN PU FOAM, and DOLPHIN DASHBOARD WAX SPRAY under Customs Entry No. 2021MSA7869728. It is further common ground that that the classification of these goods for customs purposes was disputed, and that a tariff Ruling was issued by the Appellant vide its letter to the Respondent dated 26th October 2021.
33. What is in dispute in this appeal is whether or not the Respondent objected to the said tariff Ruling within the 30 days as provided under Section 229 of the EACCMA, 2004. The Appellant has taken the position that the assessed taxes are payable since the Respondent failed to object to the said tariff ruling of 26th October 2021 within the timelines, and was therefore deemed to have accepted the same.
34. It was further the Appellant’s submissions that the Tribunal could not possibly reclassify products that were not disputed by virtue of the Respondent failing to lodge its objection as required by law.
35. On its part, the Respondent submitted that the tax demand that was the subject of the appeal before the Tribunal was for the period starting March, 2019 to September, 2021; that the tariff ruling which the Appellant is making reference to was made on 26th October 2021, but the Appellant purported to apply the tariff retrospectively through its tax demands issued in March, 2023.
36. The Respondent maintained that the tariff ruling made by the Appellant on 26th October 2021 could only inform the subsequent imports but could not be applied retrospectively to imports done previously in 2019.
37. The Respondent submitted that the Tribunal was right by not applying the tariff ruling retrospectively and that the only right thing for the Tribunal to do was what it did, that is, determine whether the items under scrutiny were correctly classified and whether the reclassification done by the Appellant in its tax demands was correct. The Respondent stated that the Tribunal, having found that the re-classification done by the Appellant in its tax demand was erroneous, and therefore, that this appeal is not merited.
38. A review of the Record of Appeal reveals that the consignment, the subject of the Appellant’s tax demand of 15th February 2023, was imported by the Respondent vide Import Entry No. 2021MSA 7869728 of 7th September 2021 and that the goods were declared as Dolphin AM40(Rust remover), Dolphin PU Foam, and Dolphin Dashboard wax spray; and classified under HS Code 3403.19.00; HS Code 3909.50.00; and HS Code 3404.90.00, respectively.
39. It is also clear from the record that in the process of customs clearance, a dispute arose between the Appellant and the Respondent on the classification of the imported goods, which dispute resulted in a tariff Ruling of 26th October 2021 by the Appellant. There is, however, no evidence on record that the Respondent challenged the said tariff ruling by the Appellant. It is only after the Appellant demanded the taxes (Kshs.1,611,403/-) vide its letter of 15th February 2023 that the Respondent again raised ‘an objection’ to the demand.
40. Section 229(1) of the East African Community Customs Management Act (EACCMA) states:
“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.”
41. In Republic v Commissioner of Custom Services Exparte Tetra Pak Limited [2012] eKLR, it was held:
“In my view, Section 229 of the Act, when considered as a whole, is so clear and self-explanatory that no two meanings can be attributed to it. It can only be interpreted in one way using the ordinary meaning of the words used since they are plain and clear. In my opinion, it simply means that a party who is aggrieved by the decision or omission of the Respondent is allowed under Section 229(1) to make an application for review within 30 days to the Commissioner asking for a review of the decision or omission.”
42. Precedent supports the strict interpretation of tax laws; the authority above affirms that non-compliance with statutory timelines results in a deemed acceptance of the decision, precluding subsequent challenges.
43. The Respondent, having failed to exercise the right to apply for a review of the tariff ruling dated 26th October 2021 within the prescribed period above, nor to apply for an extension of time, was bound by the classification determined in the said tariff ruling. The letter of demand of 15th February 2023 for taxes was merely due to the fact that the taxes had crystallized, occasioned by the Respondent’s failure to challenge the said tariff ruling. It did not form a new cause of action that could be subject to a new objection process.
44. I find merit in the Appellant’s argument that the Tribunal erred in reclassifying the disputed products despite the absence of an objection to the tariff ruling, as required under Section 229 of the EACCMA 2004.
45. Consequently, I agree with the Appellant that the Tribunal lacked the jurisdiction to revisit and reclassify the products, as the tariff ruling had attained finality under the law.
46. By engaging in a reclassification process that was not in dispute due to the Respondent’s inaction, the Tribunal exceeded its jurisdiction, amounting to procedural impropriety as elucidated in Republic v Principal Secretary, Ministry of Defence & Others Ex parte Unique Supplies Ltd [2019] KEHC 2903 (KLR) cited by the Appellant.
47. Accordingly, this court finds merit in the instant appeal. I hereby set aside the Tribunal’s decision and uphold the Appellant’s review decision, confirming that the assessed taxes remain due and payable.
48. The Appellant is hereby awarded costs of this appeal.
49. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT
THIS 15TH DAY OF MAY 2025
ADO MOSES
JUDGE
In the presence of:
Moses – Court Assistant.