REPUBLIC OF KENYA
IN THE HIGH COURT OF KENYA AT NAIROBI
COMMERCIAL AND TAX DIVISION
CTA APPEAL NO. E004 OF 2023
UNIVERSAL IMPEX LIMITED --------------------------------------APPELLANT
VERSUS
COMMISSIONER OF CUSTOMS AND
BORDER CONTROL ………………………………………. RESPONDENT
JUDGMENT
1. The appellant Universal Impex Ltd was the appellant in TAT 563/2021.
It is a Limited liability company pursuant to the companies Act Cap 486(Repealed) by Companies Act 2015) the respondent is the KRA established under Cap 469 and charged with the responsibility of collecting revenue on behalf of Government of Kenya. The appeal before the TAT arose out of the following facts:-
a. The appellant imported goods on diverse dates between 10 th January 2020 and 13 th January 2020 and under-declared them as follows:
b. Goods covered by customs declaration no. 202ICD174462 were entered on 10 th January 2020 and released on 18 th January 2020 with total taxes paid as Kshs. 776,141.00.
c. Goods covered by customs declaration no. 2020ICD174092 were entered on 13 th January 2020 and released on 5 th March 2020 with total taxes paid being Kshs. 1,522,217.00.
d. The respondent conducted a post clearance audit and learnt that for the two entries, the import duty was wrong and the importer had paid less import duty and VAT. The appellant was discovered to have under-paid the taxes for the two entries by Kshs. 2,142,427.70.
e. The respondent issued a demand notice on 22 nd September 2020 demanding the short-levied taxes of Kshs. 2,121,783.78 citing to the appellant section 135(1) of the East African Community Customs Management Act (EACCMA) that gave the commissioner the authority to demand any short-levied taxes.
f. The appellant objected to the assessment vide an undated letter reference number P05180753W stating that the appellant had simply input the import data on the Simba system which had automatically determined the tax payable and therefore the appellant had no control over the system.
g. The responded vide a letter dated 5 th November 2020 informing the appellant of the basis of the demand and clarifying certain issues that the respondent believed the appellant had misapprehended. To be specific the respondent informed the appellant that:
i. The demand was not pegged on undervaluation of goods or Traffic Misdeclaration.
ii. The demand was based on changes brought about by the East African Community Gazette notice of 30 th June 2019 .
iii. The gazette notice introduced a specific import duty rate at USD 175 on the items imported by the appellant.
iv. By the time of importation, these changes had not been reflected in the custom system something that led to short-levying of principal taxes of Kshs. 2, 142,427.70.
2. On appeal the TAT vide its judgment dated 10/2/2023 framed the issue for determination to be
“ Whether the respondent erred in fact and law in demanding short levied taxes vide its decisions dated 22/9/2020 & 5/11/2020”
3. The appellant’s position was that the respondent had failed/omitted to update its Simba System to reflect the new tax regime as at the time of the appellant’s transactions.
4. It is not disputed that the East African Community Gazette Notice of 30/6/2019 introduced a new tax regime.
5. That the appellant’s position was that the system was updated 5 months after it had imported two consignments, paid the taxes as required by then, and as computed by the respondent Simba System.
6. The appellant’s position was that the taxes computed post its transactions, based on the now updated system where unfair, and punitive as per Export Trading Company vs KRA [2018] eKLR where the court held that it was unfair and the Court of appeal held that
“ In our view, and in the circumstances of the present case, it is unfair and unreasonable for the appellant to have demanded the shortfall of duty four(4) years down the line ”
7. The respondent’s position was different - that this authority did not apply as every case must be determined on its own facts- that in this case – the short levy demand came only 7 months after the declaration and payment.
8. The respondent relied on section 135(3) of the EACCMA 2004 – stating that the commissioner could make a demand within 5 years from the date of the short levy: it states that:-
“The proper official shall not make any demand after five years from the date of the short levy or erroneous refund , as the case may be, unless the short levy or erroneous refund had been caused by fraud on the part of the person who should have paid the amount short levied or to whom the refund was erroneously made, as the case may be.”
9. The TAT chose to be guided by Republic vs Commissioner General Kenya Revenue Authority Ex parte Mount Kenya Bottlers Ltd and Another [2016] eKLR where the court held that: -
“(57) the second issue is whether the respondent was entitled to carry out post clearance audits to verify the accuracy of the entries after the goods had been realised from customs control. In this respect section 235 and 236 of the EACCMA, 2014 are couched in the following terms: -
“235: (1) The “proper officer” may, within five years of the date importation, exportation or transfer or manufacture of any goods, demand for documents relating to the goods, to answer any question relation to the goods: and to make declaration for audit purposes.
236: The commissioner shall have the powers to-
(a) verify the accuracy of the entry of goods or documents
(b) question any person;
(c) inspect the premises of the owner of the goods or; and (e) examine the good:
(58) in my view, the customs officer is supposed to verify the accuracy of the entries made by the clearing agent within the shortest time possible in order to facilitate the release of the goods and mitigate the accrual of demurrage and customs warehouse rent hence the reason for conferment of the powers under section 235 and 236 of the EACCMA to conduct post Clearance Audits to verify the accuracy of the entries after the goods have been released from Customs control. Therefore the mere fact that goods have been released to the importer does not preclude the respondent from carrying out post clearance audit to verify the accuracy of the declarations made at the time of the clearance of the goods and where the said audit disclose that as there was an undervaluation of import values by the applicant company’s agents for customs purposes hence resulting in gross underpayment of duties on the applicant company’s imports, the importer will be liable to make good the difference . The general rule was propounded in Mombasa Civil Appeal no. 157 of 2007 between Commissioner Customs and others vs & Two Others where the Court cited Tarmal Industries Ltd Vs Commissioner of Customs and Excise [1968] EA 471 and held that:
The High Court of Tanzania (Georges, C.J) held that there was no estoppel against statute and that although the Commissioner initially erred in deciding the substance was not dutiable and possibly was negligent not to have analysed the sample, the commissioner was bound under the law to correct the matter and levy duty on the basis that the substance had always been dutiable.
The tribunal also relied on its own decision in TAX appeal NO. 11/2021 Jumbo Steel Mills Ltd vs Commissioner of Customs & Border Control
where it had previously pronounced itself on the matter of post clearance audits and short levied taxes as follows: -
“ In interrogating the above line of defence by the appellant, the tribunal fails to see the nexus between the appellant’s arguments and the short-levying of taxes based on the fact that the law remains relevant at the time of the transaction. Further, the law also provides for the respondent to demand the taxes due for a period of up to 5 years from date of importation. It is the Tribunal’s position that notwithstanding the respondent’s failure to update the system, admitted by the respondent, the appellants is neither precluded from paying the correct amount of tax nor the respondent estopped by law from demanding the same.”
The tribunal further stated
“ 43. The Tribunal, being cognizant of the clear admission by the respondent of the inadvertent administrative failure to capture the correct applicable rate, is of the respectful view that the appellant ought not to be punished by way of accrued interest and penalties, if any”
10. The tribunal dismissed the appeal, upheld the respondent decision of 5/11/2020
11. Aggrieved, the appellant filed this appeal - and in its submissions raised the following issues for determination:-
i. Whether tribunal erred by failing to consider that the TAX demand arose from the respondent’s own administrative omission.
ii. Whether the retrospective demand violated the constitutional safeguards including the right to fair administration action and legitimate expectation.
iii. Whether the tribunal property evaluated the evidence and applied correct legal standards
iv. Whether the appellant was entitled to relief based on the prejudice caused by retrospective taxation.
12. The appellant’s main argument is that the tribunal failed to appreciate that the taxes were assessed by respondent’s own system which had not been updated – that appellant acted in good faith.
13. Further that the Gazette notice did not provide for retrospective collection of taxes – and cited section 23(3) of the Interpretation General Provisions Act - that subsidiary legislation shall not be construed to have retrospective effect unless clearly stated.
14. That EACCMA’s Section 5 provides that taxes will be collected in accordance with the law in force and the appellant complied with what was on the platform.
15. That in R V KRA exparte Mkopa Ltd [2018] eKLR – it was held that it was improper for KRA to recover taxes from a tax payer where the shortfall resulted from the KRA’s own internal system errors.
16. That Article 210(1) of the Constitution is clear that any variation of tax must be in accordance with legislation.
17. On legitimate expectation it is submitted that the respondent provided the Simba System for TAX clearance and that such clearance would be final. That failure by respondent to update its system, and then penalize the appellant breached the appellant’s, legitimate expectation. The Appellant relied on Keroche Industries Ltd vs KRA & 5 others [2007] eKLR.
18. The appellant also relied on section 4(3) of the Fair Administration Act, Article 47 of the Constitution and Kenya Bankers Association vs National Assembly & others [2017] eKLR.
19. The appellant argued further that the decision if upheld would cause it to suffer commercial prejudice – that the goods were sold on the basis of the initial tax assessment & VAT paid. A fresh assessment would lead to double taxation financial and legal uncertainty.
20. That in Commissioner of Domestic Taxes vs Total Kenya Ltd [2018]eKLR , it was held that tax decisions should not result in economic hardship/commercial uncertainty; and that in R Vs Commissioner of Customs Services Exparte Unilever Kenya Ltd [2005] eKLR the court was of the view that a public authority cannot penalize a tax payer for relying in good faith on its representations.
21. The respondent submitted that tax law is to be interpreted strictly. That the Simba system is a mere administrative tool for the facilitation of payment of duties and is not equivalent to legislation. It cannot impose, vary/waive taxes. (See Article 210 of Constitution). The respondent relies on section 135(1) of EACCMA which states :
“Where any duty has been short levied or erroneously defunded, then the person who should have paid the amount short levied or to who the refund has erroneously been made shall, on demand by the proper officer, pay the amount short levied or repay the amount erroneously refunded, as the case may be; and any such amount may be recovered as if it were duty to which the goods in relation to which the amount was short levied or erroneously refunded, as the case may be where liable.”
22. The respondent relied on Partington vs AG cited in LSK vs KRA & Another [2017] eKLR where it was stated;
“As I understand the principle of all fiscal legislation it is this: if the person sought to be taxed, comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirits of the law the case might otherwise appear to be.”
23. It is submitted that the appellant does not deny that the taxes had been underpaid. The respondent – cites the appellant submissions. The respondent distinguished the Export Trading Co. case holding – submitting that circumstances were not similar – that the 7 months delay was not unreasonable. It is submitted that;
If the argument by the appellant were to find merit as law, it would not matter if the post clearance audit had taken place two (2) days after the appellant had made payment from the rate on the Simba system. It would not even matter that the appellant had not sold the items to a third party. The appellant would still claim that in the Export Trading Case, the onus to make sure that the Simba System was updated was said to be on the respondent and as such the appellant ought to be excused from the correct rate by virtue of legitimate expectation.
24. This court is urged to find that the language of the Act is so clear that it must give effect to the same.
25. On the issue of legitimate expectation – it is submitted that it cannot take the place of statutory provisions as was held in R vs Kenya Revenue Authority & another exparte Krone LCS Center EA ltd [2012] eKLR – that it can only work within the law – that one cannot rely on legitimate expectation not to pay taxes.
26. The respondent relies on the Supreme Court in Communication Authority of Kenya & Others vs Royal Media Services and others [2014]eKLR submitting that the Court laid down the principles within which a public body can create legitimate expectation;
“The emerging principles may be succinctly set out as follows;
• There must be an express clear and unambiguous promise given by a public authority
• The expectation itself must be reasonable
• The representation must be one which it was competent and lawful for the decision maker to make; and
• There cannot be a legitimate expectation against dear provisions of the law or the Constitution”
27. The respondent- summarized its submissions thus;
▪ Its taxing regime is strictly guided by taxing statutes.
▪ Article 210 of the Constitution states that no tax may be waived or voided except by legislation.
▪ The Simba System is not a taxing statute
▪ The taxing regime is further based on the system of self-assessment.
▪ Neither the Simba System nor the i-Tax System can override the imperative of self-assessment.
▪ The respondent has the authority to claim for short-levied taxes
▪ A taxpayer cannot claim to have disposed of goods and therefore cannot meet the short-levied tax demand, as long as the PCA is done within five years.
▪ Legitimate expectation cannot operate outside the law. There is no greater legitimate expectation than what the law expressly provides, and such is the case that a taxpayer knows or ought to know
28. I have carefully considered the submissions by counsel – the statements of facts, the entire record of appeal.
29. The key issue remains the legal issue that was before the TAT: Whether the respondent erred in law in demanding short levied taxes vide its decisions dated 22/9/2020 & 5/11/2020
30. The applicable law is s. 135 of the EACCMA which states in full
(1) Where any duty has been short levied or erroneously refunded, then the person who should have paid the amount short levied or to whom the refund has erroneously been made shall, on demand by the proper officer , pay the amount short levied or repay the amount erroneously refunded, as the case may be; and any such amount may be recovered as if it were duty to which the goods in relation to which the amount was short levied or erroneously refunded, as the case may be, were liable.
(2) Where a demand is made for any amount pursuant to sub-section (1), the amount shall be deemed to be due from the person liable to pay it on the date on which the demand note is served upon him or her, and if payment is not made within thirty days of the date of such service, or such further period as the Commissioner may allow, a further duty of a sum equal to five percent of the amount demanded shall be due and payable by that person by way of a penalty and a subsequent penalty of two percent for each month in which he or she defaults.
(3) The proper officer shall not make any demand after five years from the date of the short levy or erroneous refund, as the case may be, unless the short levy or erroneous refund had been caused by fraud on the part of the person who should have paid the amount short levied or to whom the refund was erroneously made, as the case may be.
31. It is not in dispute that there was a short levy of the duty due that has developed into a case of blame game. The appellant has taken the position that the respondent is the one at fault for failing to update the system to enable the appellant carry out the correct assessment. The respondent on its part points to the law and states that it does not matter that it was at fault , the appellant must pay, arguing that it relies on the self-assessment of each tax payer.
32. I have considered all the facts as set out and the rival arguments and it clear to me that the under assessment was not deliberate on the part of the appellant nor was it intended to evade payment of the tax. It happened because the respondent failed to update its system.
33. I agree with the respondent that tax law is to be interpreted strictly. I also agree that the Simba system is an administrative tool for the facilitation of payment of duties and is not equivalent to legislation with the ‘power’ to impose, vary/waive taxes. However, the respondent must in the interests of justice accept its failure and give credit to the appellant .
34. It was not demonstrated before the tribunal that the appellant had committed any wrong doing or tampered with the system. It was because the system was the way it was at the time of the assessment.
35. Back to the statute, the only exception to this demand is any demand made after five years : That one is clearly prohibited. However, this is where the principle that each case must be determined on its own facts comes to work. Is there a delay that can be considered inordinate and oppressive? What then should the parties: the tax-collector and the tax-payer do?
36. It is my view that in a case like this the parties ought to seek the view of the reasonable person of the taxing regime: They ought to have been able to sit this one down and settle in in view of the respondent’s inadvertence.
37. The error was detected 7 months after the event and at a time the appellant had disposed off the goods affected. It is argued for the appellant that for that reason alone they will suffer financial prejudice, because this cost (of the demanded tax) was not factored when the goods were sold to third parties. Each side makes a good case and the decision to be made must of necessity take this into account.
38. Taking all that into account, it would be it is important to note that the respondent is mandated by the law to make the demand. Then the appellant is required by law to pay. Those are the mechanics of the law. So that even though the demand came late , the appellant is required to pay as it is only too late if it comes after 5 years.
39. However, I agree with the Tribunal that considering the admission on the respondent’s part that it did not update the system in time, the appellant should not be subjected to any penalties or interest on what is due.
40. In conclusion, there was no error on the part of the Tribunal as the provision of the law speaks for itself; When the short levy is discovered before the end of 5 years and a demand is made, the tax payer shall pay.
41. It is my finding and holding that the appellant shall pay the short levy less interest and penalties on account of the respondent’s conceded error.
42. In the circumstances the decision of the Tribunal is upheld in the foregoing terms. The appeal is dismissed.
Dated, signed and delivered via CTS 14 th January 2026
Mumbua T Matheka
Judge
CA Chrispol
Judgment NBI CTA E004 of 2023 Page 2 of 2
IN THE HIGH COURT OF KENYA AT NAIROBI
COMMERCIAL AND TAX DIVISION
CTA APPEAL NO. E004 OF 2023
UNIVERSAL IMPEX LIMITED --------------------------------------APPELLANT
VERSUS
COMMISSIONER OF CUSTOMS AND
BORDER CONTROL ………………………………………. RESPONDENT
JUDGMENT
1. The appellant Universal Impex Ltd was the appellant in TAT 563/2021.
It is a Limited liability company pursuant to the companies Act Cap 486(Repealed) by Companies Act 2015) the respondent is the KRA established under Cap 469 and charged with the responsibility of collecting revenue on behalf of Government of Kenya. The appeal before the TAT arose out of the following facts:-
a. The appellant imported goods on diverse dates between 10 th January 2020 and 13 th January 2020 and under-declared them as follows:
b. Goods covered by customs declaration no. 202ICD174462 were entered on 10 th January 2020 and released on 18 th January 2020 with total taxes paid as Kshs. 776,141.00.
c. Goods covered by customs declaration no. 2020ICD174092 were entered on 13 th January 2020 and released on 5 th March 2020 with total taxes paid being Kshs. 1,522,217.00.
d. The respondent conducted a post clearance audit and learnt that for the two entries, the import duty was wrong and the importer had paid less import duty and VAT. The appellant was discovered to have under-paid the taxes for the two entries by Kshs. 2,142,427.70.
e. The respondent issued a demand notice on 22 nd September 2020 demanding the short-levied taxes of Kshs. 2,121,783.78 citing to the appellant section 135(1) of the East African Community Customs Management Act (EACCMA) that gave the commissioner the authority to demand any short-levied taxes.
f. The appellant objected to the assessment vide an undated letter reference number P05180753W stating that the appellant had simply input the import data on the Simba system which had automatically determined the tax payable and therefore the appellant had no control over the system.
g. The responded vide a letter dated 5 th November 2020 informing the appellant of the basis of the demand and clarifying certain issues that the respondent believed the appellant had misapprehended. To be specific the respondent informed the appellant that:
i. The demand was not pegged on undervaluation of goods or Traffic Misdeclaration.
ii. The demand was based on changes brought about by the East African Community Gazette notice of 30 th June 2019 .
iii. The gazette notice introduced a specific import duty rate at USD 175 on the items imported by the appellant.
iv. By the time of importation, these changes had not been reflected in the custom system something that led to short-levying of principal taxes of Kshs. 2, 142,427.70.
2. On appeal the TAT vide its judgment dated 10/2/2023 framed the issue for determination to be
“ Whether the respondent erred in fact and law in demanding short levied taxes vide its decisions dated 22/9/2020 & 5/11/2020”
3. The appellant’s position was that the respondent had failed/omitted to update its Simba System to reflect the new tax regime as at the time of the appellant’s transactions.
4. It is not disputed that the East African Community Gazette Notice of 30/6/2019 introduced a new tax regime.
5. That the appellant’s position was that the system was updated 5 months after it had imported two consignments, paid the taxes as required by then, and as computed by the respondent Simba System.
6. The appellant’s position was that the taxes computed post its transactions, based on the now updated system where unfair, and punitive as per Export Trading Company vs KRA [2018] eKLR where the court held that it was unfair and the Court of appeal held that
“ In our view, and in the circumstances of the present case, it is unfair and unreasonable for the appellant to have demanded the shortfall of duty four(4) years down the line ”
7. The respondent’s position was different - that this authority did not apply as every case must be determined on its own facts- that in this case – the short levy demand came only 7 months after the declaration and payment.
8. The respondent relied on section 135(3) of the EACCMA 2004 – stating that the commissioner could make a demand within 5 years from the date of the short levy: it states that:-
“The proper official shall not make any demand after five years from the date of the short levy or erroneous refund , as the case may be, unless the short levy or erroneous refund had been caused by fraud on the part of the person who should have paid the amount short levied or to whom the refund was erroneously made, as the case may be.”
9. The TAT chose to be guided by Republic vs Commissioner General Kenya Revenue Authority Ex parte Mount Kenya Bottlers Ltd and Another [2016] eKLR where the court held that: -
“(57) the second issue is whether the respondent was entitled to carry out post clearance audits to verify the accuracy of the entries after the goods had been realised from customs control. In this respect section 235 and 236 of the EACCMA, 2014 are couched in the following terms: -
“235: (1) The “proper officer” may, within five years of the date importation, exportation or transfer or manufacture of any goods, demand for documents relating to the goods, to answer any question relation to the goods: and to make declaration for audit purposes.
236: The commissioner shall have the powers to-
(a) verify the accuracy of the entry of goods or documents
(b) question any person;
(c) inspect the premises of the owner of the goods or; and (e) examine the good:
(58) in my view, the customs officer is supposed to verify the accuracy of the entries made by the clearing agent within the shortest time possible in order to facilitate the release of the goods and mitigate the accrual of demurrage and customs warehouse rent hence the reason for conferment of the powers under section 235 and 236 of the EACCMA to conduct post Clearance Audits to verify the accuracy of the entries after the goods have been released from Customs control. Therefore the mere fact that goods have been released to the importer does not preclude the respondent from carrying out post clearance audit to verify the accuracy of the declarations made at the time of the clearance of the goods and where the said audit disclose that as there was an undervaluation of import values by the applicant company’s agents for customs purposes hence resulting in gross underpayment of duties on the applicant company’s imports, the importer will be liable to make good the difference . The general rule was propounded in Mombasa Civil Appeal no. 157 of 2007 between Commissioner Customs and others vs & Two Others where the Court cited Tarmal Industries Ltd Vs Commissioner of Customs and Excise [1968] EA 471 and held that:
The High Court of Tanzania (Georges, C.J) held that there was no estoppel against statute and that although the Commissioner initially erred in deciding the substance was not dutiable and possibly was negligent not to have analysed the sample, the commissioner was bound under the law to correct the matter and levy duty on the basis that the substance had always been dutiable.
The tribunal also relied on its own decision in TAX appeal NO. 11/2021 Jumbo Steel Mills Ltd vs Commissioner of Customs & Border Control
where it had previously pronounced itself on the matter of post clearance audits and short levied taxes as follows: -
“ In interrogating the above line of defence by the appellant, the tribunal fails to see the nexus between the appellant’s arguments and the short-levying of taxes based on the fact that the law remains relevant at the time of the transaction. Further, the law also provides for the respondent to demand the taxes due for a period of up to 5 years from date of importation. It is the Tribunal’s position that notwithstanding the respondent’s failure to update the system, admitted by the respondent, the appellants is neither precluded from paying the correct amount of tax nor the respondent estopped by law from demanding the same.”
The tribunal further stated
“ 43. The Tribunal, being cognizant of the clear admission by the respondent of the inadvertent administrative failure to capture the correct applicable rate, is of the respectful view that the appellant ought not to be punished by way of accrued interest and penalties, if any”
10. The tribunal dismissed the appeal, upheld the respondent decision of 5/11/2020
11. Aggrieved, the appellant filed this appeal - and in its submissions raised the following issues for determination:-
i. Whether tribunal erred by failing to consider that the TAX demand arose from the respondent’s own administrative omission.
ii. Whether the retrospective demand violated the constitutional safeguards including the right to fair administration action and legitimate expectation.
iii. Whether the tribunal property evaluated the evidence and applied correct legal standards
iv. Whether the appellant was entitled to relief based on the prejudice caused by retrospective taxation.
12. The appellant’s main argument is that the tribunal failed to appreciate that the taxes were assessed by respondent’s own system which had not been updated – that appellant acted in good faith.
13. Further that the Gazette notice did not provide for retrospective collection of taxes – and cited section 23(3) of the Interpretation General Provisions Act - that subsidiary legislation shall not be construed to have retrospective effect unless clearly stated.
14. That EACCMA’s Section 5 provides that taxes will be collected in accordance with the law in force and the appellant complied with what was on the platform.
15. That in R V KRA exparte Mkopa Ltd [2018] eKLR – it was held that it was improper for KRA to recover taxes from a tax payer where the shortfall resulted from the KRA’s own internal system errors.
16. That Article 210(1) of the Constitution is clear that any variation of tax must be in accordance with legislation.
17. On legitimate expectation it is submitted that the respondent provided the Simba System for TAX clearance and that such clearance would be final. That failure by respondent to update its system, and then penalize the appellant breached the appellant’s, legitimate expectation. The Appellant relied on Keroche Industries Ltd vs KRA & 5 others [2007] eKLR.
18. The appellant also relied on section 4(3) of the Fair Administration Act, Article 47 of the Constitution and Kenya Bankers Association vs National Assembly & others [2017] eKLR.
19. The appellant argued further that the decision if upheld would cause it to suffer commercial prejudice – that the goods were sold on the basis of the initial tax assessment & VAT paid. A fresh assessment would lead to double taxation financial and legal uncertainty.
20. That in Commissioner of Domestic Taxes vs Total Kenya Ltd [2018]eKLR , it was held that tax decisions should not result in economic hardship/commercial uncertainty; and that in R Vs Commissioner of Customs Services Exparte Unilever Kenya Ltd [2005] eKLR the court was of the view that a public authority cannot penalize a tax payer for relying in good faith on its representations.
21. The respondent submitted that tax law is to be interpreted strictly. That the Simba system is a mere administrative tool for the facilitation of payment of duties and is not equivalent to legislation. It cannot impose, vary/waive taxes. (See Article 210 of Constitution). The respondent relies on section 135(1) of EACCMA which states :
“Where any duty has been short levied or erroneously defunded, then the person who should have paid the amount short levied or to who the refund has erroneously been made shall, on demand by the proper officer, pay the amount short levied or repay the amount erroneously refunded, as the case may be; and any such amount may be recovered as if it were duty to which the goods in relation to which the amount was short levied or erroneously refunded, as the case may be where liable.”
22. The respondent relied on Partington vs AG cited in LSK vs KRA & Another [2017] eKLR where it was stated;
“As I understand the principle of all fiscal legislation it is this: if the person sought to be taxed, comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirits of the law the case might otherwise appear to be.”
23. It is submitted that the appellant does not deny that the taxes had been underpaid. The respondent – cites the appellant submissions. The respondent distinguished the Export Trading Co. case holding – submitting that circumstances were not similar – that the 7 months delay was not unreasonable. It is submitted that;
If the argument by the appellant were to find merit as law, it would not matter if the post clearance audit had taken place two (2) days after the appellant had made payment from the rate on the Simba system. It would not even matter that the appellant had not sold the items to a third party. The appellant would still claim that in the Export Trading Case, the onus to make sure that the Simba System was updated was said to be on the respondent and as such the appellant ought to be excused from the correct rate by virtue of legitimate expectation.
24. This court is urged to find that the language of the Act is so clear that it must give effect to the same.
25. On the issue of legitimate expectation – it is submitted that it cannot take the place of statutory provisions as was held in R vs Kenya Revenue Authority & another exparte Krone LCS Center EA ltd [2012] eKLR – that it can only work within the law – that one cannot rely on legitimate expectation not to pay taxes.
26. The respondent relies on the Supreme Court in Communication Authority of Kenya & Others vs Royal Media Services and others [2014]eKLR submitting that the Court laid down the principles within which a public body can create legitimate expectation;
“The emerging principles may be succinctly set out as follows;
• There must be an express clear and unambiguous promise given by a public authority
• The expectation itself must be reasonable
• The representation must be one which it was competent and lawful for the decision maker to make; and
• There cannot be a legitimate expectation against dear provisions of the law or the Constitution”
27. The respondent- summarized its submissions thus;
▪ Its taxing regime is strictly guided by taxing statutes.
▪ Article 210 of the Constitution states that no tax may be waived or voided except by legislation.
▪ The Simba System is not a taxing statute
▪ The taxing regime is further based on the system of self-assessment.
▪ Neither the Simba System nor the i-Tax System can override the imperative of self-assessment.
▪ The respondent has the authority to claim for short-levied taxes
▪ A taxpayer cannot claim to have disposed of goods and therefore cannot meet the short-levied tax demand, as long as the PCA is done within five years.
▪ Legitimate expectation cannot operate outside the law. There is no greater legitimate expectation than what the law expressly provides, and such is the case that a taxpayer knows or ought to know
28. I have carefully considered the submissions by counsel – the statements of facts, the entire record of appeal.
29. The key issue remains the legal issue that was before the TAT: Whether the respondent erred in law in demanding short levied taxes vide its decisions dated 22/9/2020 & 5/11/2020
30. The applicable law is s. 135 of the EACCMA which states in full
(1) Where any duty has been short levied or erroneously refunded, then the person who should have paid the amount short levied or to whom the refund has erroneously been made shall, on demand by the proper officer , pay the amount short levied or repay the amount erroneously refunded, as the case may be; and any such amount may be recovered as if it were duty to which the goods in relation to which the amount was short levied or erroneously refunded, as the case may be, were liable.
(2) Where a demand is made for any amount pursuant to sub-section (1), the amount shall be deemed to be due from the person liable to pay it on the date on which the demand note is served upon him or her, and if payment is not made within thirty days of the date of such service, or such further period as the Commissioner may allow, a further duty of a sum equal to five percent of the amount demanded shall be due and payable by that person by way of a penalty and a subsequent penalty of two percent for each month in which he or she defaults.
(3) The proper officer shall not make any demand after five years from the date of the short levy or erroneous refund, as the case may be, unless the short levy or erroneous refund had been caused by fraud on the part of the person who should have paid the amount short levied or to whom the refund was erroneously made, as the case may be.
31. It is not in dispute that there was a short levy of the duty due that has developed into a case of blame game. The appellant has taken the position that the respondent is the one at fault for failing to update the system to enable the appellant carry out the correct assessment. The respondent on its part points to the law and states that it does not matter that it was at fault , the appellant must pay, arguing that it relies on the self-assessment of each tax payer.
32. I have considered all the facts as set out and the rival arguments and it clear to me that the under assessment was not deliberate on the part of the appellant nor was it intended to evade payment of the tax. It happened because the respondent failed to update its system.
33. I agree with the respondent that tax law is to be interpreted strictly. I also agree that the Simba system is an administrative tool for the facilitation of payment of duties and is not equivalent to legislation with the ‘power’ to impose, vary/waive taxes. However, the respondent must in the interests of justice accept its failure and give credit to the appellant .
34. It was not demonstrated before the tribunal that the appellant had committed any wrong doing or tampered with the system. It was because the system was the way it was at the time of the assessment.
35. Back to the statute, the only exception to this demand is any demand made after five years : That one is clearly prohibited. However, this is where the principle that each case must be determined on its own facts comes to work. Is there a delay that can be considered inordinate and oppressive? What then should the parties: the tax-collector and the tax-payer do?
36. It is my view that in a case like this the parties ought to seek the view of the reasonable person of the taxing regime: They ought to have been able to sit this one down and settle in in view of the respondent’s inadvertence.
37. The error was detected 7 months after the event and at a time the appellant had disposed off the goods affected. It is argued for the appellant that for that reason alone they will suffer financial prejudice, because this cost (of the demanded tax) was not factored when the goods were sold to third parties. Each side makes a good case and the decision to be made must of necessity take this into account.
38. Taking all that into account, it would be it is important to note that the respondent is mandated by the law to make the demand. Then the appellant is required by law to pay. Those are the mechanics of the law. So that even though the demand came late , the appellant is required to pay as it is only too late if it comes after 5 years.
39. However, I agree with the Tribunal that considering the admission on the respondent’s part that it did not update the system in time, the appellant should not be subjected to any penalties or interest on what is due.
40. In conclusion, there was no error on the part of the Tribunal as the provision of the law speaks for itself; When the short levy is discovered before the end of 5 years and a demand is made, the tax payer shall pay.
41. It is my finding and holding that the appellant shall pay the short levy less interest and penalties on account of the respondent’s conceded error.
42. In the circumstances the decision of the Tribunal is upheld in the foregoing terms. The appeal is dismissed.
Dated, signed and delivered via CTS 14 th January 2026
Mumbua T Matheka
Judge
CA Chrispol
Judgment NBI CTA E004 of 2023 Page 2 of 2