Kansai Plascon Uganda Limited v Uganda Revenue Authority (Application 124 of 2021) [2023] UGTAT 35 (6 April 2023)

## **TAX APPEALS TRIBUNAL** IN THE TAX APPEALS TRIBUNAL OF UGANDA AT KAMPALA **APPLICATION NO.124 OF 2021**

KANSAI PLASCON UGANDA LIMITED.................................... **VERSUS** UGANDA REVENUE AUTHORITY....................................

## BEFORE DR. ASA MUGENYI, DR. STEPHEN AKABWAY, MS. CHRISTINE KATWE

## **RULING**

This ruling is in respect of an application challenging an import duty assessment of Shs 4,623,958,639 arising from purported misclassification of goods on certificates of origins issued under the common market for Eastern and Southern Africa (COMESA) Protocol Rules.

The applicant imports raw materials from Egypt. The respondent carried out a customs review on the applicant's imports of raw materials for paints from Egypt. During the review, the respondent discovered that from 2017 to 2021, the applicant presented COMESA Certificates of Origin with the origin criteria under Box 8 bearing letter 'V' (for value addition of the substantial transformation criteria) instead of $X'$ f (or change in tariff heading) prescribed in Appendix V of the COMESA Rules of Origin. On 6<sup>th</sup> October 2021, the respondent issued the applicant a tax demand notice of Shs 4,623,958,639. On 11<sup>th</sup> November 2021, the applicant objected. On 17<sup>th</sup> November 2021, the respondent disallowed the objection.

The following issues were agreed upon.

- 1. Whether the applicant is liable to pay the tax assessed? - 2. What remedies are available to the parties?

The applicant was represented by Mr. Cephas Birungi, Mr. Phillip Karugaba, Mr. Patrick Kabagambe and Mr. Patrick Turinawe while the respondent by Mr. Tony Kalungi

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This dispute revolves around the proper misclassification of goods on the certificates of origins under COMESA which were imported from Egypt in 2017 to 2021. The respondent contends that the use of a wrong letter resulted in denial of preferential treatment under COMESA which the applicant objects to.

The applicant's first witness, Mr. Francis Jabwor (AW1), its shipping executive testified that it manufactures paint and imports raw materials. He testified that the applicant imported raw materials from Egypt which included long oil alkyd resins, polymers, calcium carbonate. It declared the imports with certificates of origin and paid taxes. The goods under HSCs 390750 and 390799 were imported as part of the COMESA preferential treatment scheme and taxes were reduced from 10% to 0%. The respondent issued additional assessments of the raw materials imported on the basis that a wrong criterion was used. It alleged that the applicant used the letter "V" (Value addition) instead of "X" (Change in tariff heading). On 11<sup>th</sup> November 2021, the applicant objected to the assessment stating that a wrong procedure had been used and asked the respondent to demonstrate how inserting the wrong criterion had fiscal consequences. On 17<sup>th</sup> November 2021, the respondent made an objection decision maintaining its tax position.

The applicant's second witness, Mr. Mulaabi Stuart, a tax consulting assistant manager at Grant Thorton testified that on 6<sup>th</sup> October 2021, the respondent issued a demand notice to the applicant stipulating that the goods under question qualify for criterion "V" and not "X". At a meeting on 16<sup>th</sup> December 2021, he pointed out to the respondent that all criteria "X", "P" and "V" attract preferential benefits and that the respondent should adhere to administrative policies. He testified that he was guided by the COMESA Protocol on the Rules of Origin. During the audit, the respondent did not show any information that the goods imported did not originate wholly or partly from Egypt which is a COMESA country.

The respondents' witness, Mr. Timothy Malinga, a supervisor in its international affairs unit, testified that the respondent conducted out a compliance review of the applicant's imports. The imports under dispute were cleared under the blue lane which facilitates reduced clearance time but with a view of post importation controls such as audit and forensic investigations. During the review, the respondent focused on imports with

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HSCs 39069, 39075, 39079 for 2017 to 2021. It discovered that the applicant was presenting COMESA certificates of origin, where in Box 8 it inserted "V" (for goods satisfying the Value-added content of substantial transformation) instead of "X" (for goods satisfying the change of tariff heading criterion) as prescribed in Appendix V of the COMESA Rules of Origin. On 6<sup>th</sup> October 2021, the respondent issued a demand notice, based on the irregular COMESA preferential tariff treatment accorded to the applicant's imports for 2017 to 2021. The applicant objected in a letter of 1<sup>th</sup> November 2021. In a letter dated 17<sup>th</sup> November 2011, the respondent disallowed the objection.

The applicant submitted that Uganda and Egypt are signatories to the COMESA treaty. Under Article 48 of the Treaty, goods from member states of COMESA are eligible for common market tariff treatment. Members are required to obtain a valid certificate of origin from the exporting country to benefit from preferential treatment. Certificates of origin were issued by Egypt. The Protocol on the Rules of Origin has classifications. They differentiate between classification 'X' and 'V'. Classification 'V' is captured under Rule $2(1)(b)(ii)$ and deals with value addition, that is where goods have been produced in a member state wholly or partially from imported materials (or materials of unknown origin) and the value added resulting from the process of production accounts for at least 35% of the ex-factory cost of the finished product. Classification 'X' is provided for under Rule $2(1)(b)(iii)$ which deals with change in tariff heading, that is where goods have been produced in a member state wholly/ partially from imported materials and are classified under a heading other than the tariff heading of the imported materials. The applicant contended that it has no say over the issuance of the certificate of origin and the criterion applied thereto.

The applicant cited *TATA Uganda Limited v Uganda Revenue Authority* Application 111 of 2020 which it contended is like this application. In that case, the applicant imported short alkyd resin from Egypt. In June 2020, URA informed the applicant that its certificate of origin bore an erroneous criterion letter 'P' instead of 'X'. URA issued the applicants with tax assessments. The supplier of the applicant, EL Obour Paints and Chemicals wrote to URA advising that the raw materials used were 100% locally sourced in Egypt. The Tribunal stated, inter alia, that letters on the certificates of origin are informative of the nature of the imports. For one to be denied preferential treatment it has to show that the goods do not fall under Rule 2 of the Protocol on the Rules of

Origin. The applicant contended that its imports were entitled to preferential treatment under Rule 1.5 of the COMESA Rules, irrespective of the letter on the certificate of origin. A mere change of the letter on the certificate of origin does not have any effect on the tariff charged. The applicant further cited British American Tobacco (U) Limited v Uganda Revenue Authority Application 62 of 2019 where the Tribunal stated that a mere letter cannot override a certificate of origin as the it is the official proof of origin by a competent authority. One cannot nullify what has expired. It prayed that the Tribunal applies the principles in the said cases to this application.

The applicant submitted that once import documents were submitted to customs, verified, taxes paid and imports released, the clearance of the goods is proof that the respondent is satisfied with the certificates of origin presented. The applicant argued that Rule 3.11.1 of the COMESA Rules states that if the respondent is not satisfied with the certificate origin, it can at the point of clearance query the documents and hold on to them. The applicant submitted that the respondent's letter of 6<sup>th</sup> October 2021 did not show which COMESA rules of origin the applicant violated. The applicant contended that the respondent did not show how it established that the value added to the applicants' products accounted for 35% of the ex-factory cost. The respondent shifted the burden of proving the production process of the imports to the applicant which contradicts the COMESA rules. The applicant contended it that has no control over the certificates of origin. Where there are doubts the COMESA rules provide for a verification process. Rule 3.12(ii) of the Rules deals with serious queries. It determining one is a serious query, the applicant cited $TATA$ Uganda Limited v Uganda Revenue Authority (supra) where the Tribunal stated that.

"Where inserting a correct letter may not lead to denial of preferential treatment, one may consider it as a minor issue. However, where it may lead to denial of preferential treatment it must be considered as a serious query."

It contended that if the irregular use of preferential treatment by it was regarded as that of a serious query. Article 3.11.1.1 of the Procedure Manual on the Implementation of the Protocol requires a formal query be communicated to the designated issuing authority which was not done by the respondent.

The applicant submitted that the respondent failed to prove that its imports bore the wrong criterion on the certificate of origin. The respondent also failed to prove that it

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conducted out a verification before raising the assessment. It argued that that the respondent can only dispense with Rule 3.12 COMESA rule it if it proves that the certificates of origin bore the wrong letter criterion.

The applicant further submitted that the respondent did not exhaust the dispute settlement procedure under COMESA Protocol Rule 3.12(ii). Before the respondent may raise an assessment, the procedure must be followed. The procedure was never followed and no evidence of why their certificates of origin did not pass the test was given. The applicant cited British American Tobacco (U) limited v Uganda Revenue Authority (supra) where it was stated that there is need to exhaust all the remedies and processes under the ECCMA, before preferential is denied.

The applicant quoted an article "The principles of treaty interpretation and their application by the English Courts" by I. M. Sinclair published in "The international and Comparative Law Quarterly Vol.12, No.2 Cambridge University Press, pp. 508-551" to support the principle of treaty interpretation which states that treaties must be interpreted as a whole. It also cited Major Gen. David Tinyefuza v Attorney General, Constitutional Petition 1 of 1996 for the same principle. It was stated that Constitution should read as an integral whole, and no one particular provision destroying the other but each sustaining the other.

The applicant also contended that the respondent did not adduce evidence to show that its products were similar to those of other suppliers. The applicant argued that 'identical method' is not referred to under the COMESA Rules of Origin Protocol and hence not backed by any law. It cited TATA Uganda Limited v Uganda Revenue Authority (supra) where it was stated that." an administrative body cannot arbitrarily declare that one's goods are identical to another's without further verification.".

The applicants contended that the timelines to seek for verification under Rule 3.12(b) (iv) should be complied with. Verification should be done within 48 hours of the raising of a query, which was not done. It cited British American Tobacco (U) limited v Uganda Revenue Authority (supra) where the Tribunal stated, an audit should not be carried out long after the goods have been allowed through by customs authorities or where the certificates have expired.

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In reply, the respondent contended that the applicant's reliance on whether the certificates of origin were 'X' or not would still entitle it to preferential treatment amounts to approbation and reprobation and is a departure from pleadings. It cited $R$ v Southampton Justices Ex parte Green [1976] QB 11 at 22, Bakaluba Peter Mukasa v Nambooze Betty Bakireke Election Petition Appeal 04 of 2009; Interfereight Fowarders (U) Ltd v East African Development Bank EALR [1990-1994] EA 117 for the preposition that parties are bound by their pleadings and cannot depart from them. It also cited Commissioner of Customs v Prompt Packers & Forwarders Limited Civil Appeal 93 of 2015 and 169 of 2015 (consolidated), Degeya Trading stores CW Limited v Uganda Revenue Authority, Civil Appeal 44 of 1996; George Lubega and others V Uganda Transport Limited & another [1987] UGSC2; Car & General Itd v AFS Construction (U) [2018] UGSC 34.

The respondent submitted that its witness confirmed that it had conducted verifications on identical products imported form the applicant's suppliers, EL Shark Co. Ltd and Eagle Polymers in Egypt, and they bore the origin criterion 'X'. It also conducted a verification exercise on the applicant's imports which had the same criterion. The applicant and other importers who imported under the said criterion enjoyed preferential treatment. The witness confirmed that the correct criterion was 'X' which was supported by documentary evidence.

The respondent submitted that the applicant did not adduce any evidence to show that its COMESA certificate of origin ought to have 'V' as the origin criteria. It contended that the implication of the applicant's certificates of origin bearing 'V' instead of ' $X$ ' rendered them defective, hence losing preferential treatment. Therefore, the applicant was liable to pay the tax assessed. The respondent further submitted that the applicant did not deny it made an error on the certificate of origin. Hence British American Tobacco (U) limited v Uganda Revenue Authority (supra) and TATA Uganda Limited v Uganda Revenue Authority (supra) do not apply. They dealt with errors and their determination rested on whether they were minor/major. The respondent submitted that the applicant never proved that that its imports fulfilled the 'V' under 2(1)(b)(ii) of the COMESA Protocol Rules. The applicant also did not prove the calculation of the value addition. The applicant's witness admitted that it never provided proof the its imports fulfilled the 'V' criterion. He also admitted that the applicant did not provide the

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respondent with the costs of the raw materials, local market costs, direct labour, consumable stores or anything useful to calculate value addition.

The respondent submitted that according to exhibit AE11 a letter from the applicant's supplier, Eagle Chemicals, shows that the applicant had a say in the use of the correct letter on certificates of origin. The applicant instructed the supplier to rectify the certificate.

In rejoinder, the applicant submitted that the exporting authority is the one that has the mandate to determine the criterion on the certificate of origin and not the importing authority. The applicant has no control over it. It submitted that the rules of origin are directive on preferential treatment. It reiterated the position that preferential treatment was applicable to all imports from a member state under the COMESA and the Protocol on Rules of Origin.

The applicant submitted TATA V Uganda Revenue Authority (supra) and BAT V Uganda Revenue Authority (supra) establish the principle of law on treatment of the criterion applied on certificates of origin. It requested the tribunal to find that the cases were applicable, and that the applicant is not liable to pay the taxes assessed. It refunds the 30% paid and awards general damages.

Having listened to the evidence of the parties, perused their exhibits, and read the submissions this is the ruling of the tribunal.

It is not in dispute that the applicant imports raw materials from Egypt. From 2017 to 2021, the applicant had been presenting COMESA Certificates of Origin with the origin criteria under Box 8 bearing letter 'V' (for value addition of the substantial transformation criteria) instead of 'X' (for change in tariff heading) prescribed in Appendix V of the COMESA Rules of Origin. Later, the applicant changed the letter to 'X'. The respondent contended that the applicant was using the wrong letters for 2017 to 2021. On 6<sup>th</sup> October 2021, it issued the applicant a tax demand notice of Shs. 4,623,958,639.

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Rules of origin have been defined as rules that determine where goods have been obtained, manufactured, their economic nationality. They set the conditions under which a good may be considered as having 'originated' in a certain country. These rules are used to determine the criteria of goods for purposes of according to them preferential treatment under any preferential trade agreement. Paragraph 1(e) of the World Customs Organization Guidelines defines origin criteria to mean the conditions regarding the production of goods which must be fulfilled for the goods to be considered as originating under applicable rules of origin. Paragraph 1(c) of the Guidelines define the term proof of origin as a document or statement (either in paper or electronic format) which serves as prima facie evidence to support that goods to which it relates satisfy the origin criteria under applicable rules of origin. Upon establishment that the goods satisfy the origin criteria, a certificate is issued. Paragraph $1(c)$ (ii) of the World Customs Organization Guidelines defines a certificate of origin as a 'a specific form, whether on paper, electronic, in which the government authority or body empowered to issue it expressly certifies that the goods to which the certificate relates are considered originating according to the applicable rules of origin. Black's Law Dictionary 10<sup>th</sup> Edition p. 272, defines a certificate of origin as an official document required by some countries upon the entry of imported goods, listing the place of production and what the goods are included, to be certified by a customs consular officer.

The dispute is not about the origin of the goods, but the letters inserted on the certificate of origin. The respondent contends that the authenticity of the certificate is not in doubt but rather the origin criteria that was used to obtain preferential treatment at importation which it states was wrong and thus the preference treatment recalled.

The law applicable to members of the Common Market for Eastern and Southern Africa (COMESA) partner states is the treaty establishing the Common Market for Eastern and Southern Africa (COMESA Treaty). Article 48 of the said treaty states that.

- "1. For the purposes of this treaty, goods shall be accepted as eligible for common market tariff treatment if they originate in the member states. - 2. The definition of products originating in the member states shall be as provided for in a protocol on the rules of origin to be concluded by the member states."

For one to be accorded preferential treatment under the COMESA treaty, goods must originate from the partner states and treatment shall be in accordance with the rules of origin provided under the Protocol. Article 2.2.1 of the Procedures Manual on the Implementation of the Protocol states that

"Article 48 of the treaty establishing the common market for eastern and southern Africa (herein after referred to as the treaty) provides that goods shall be accepted as eligible for common market tariff treatment if they originate in member states and in the definition of products originating in the member states shall be provided for in a protocol on rules of origin referred to in annex IX."

Article 1.5 of the Procedure Manual provides for when common market treatment may be preferential treatment. It states,

"Under the COMESA trade regime, goods qualify for preferential tariff treatment if they originate in the member states. This means that all goods that meet the requirements of the COMESA rules of origin qualify for preferential tariff treatment when they are traded within COMESA."

Therefore, any goods originating from Egypt qualify for preferential treatment if imported into Uganda. The applicant contends that the alkyd resin was imported from Egypt and thus entitled to preferential treatment regardless of the classification.

The Rules of Origin determine whether the goods originate from the Partner State, in this case Egypt. Goods may be imported from Egypt but do not originate from there. Rule 2.1 of the Protocol on the Rules of Origin provide that.

"Goods shall be accepted as originating from a member state if they are consigned directly from a member state to a consignee in another member state and:

- a) They have been wholly produced as provided for in rule 3 of this protocol; or - b) They have been produced in the member states wholly or partially from materials imported from outside the member states or of undetermined origin by a process of production, which effects a substantial transformation of those materials such that: - I) The C. I. F value of those materials does not exceed 60 percent of the total cost of the materials used in the production of the goods or - II) The value added resulting from the process of production accounts for at least 35 percent of the ex-factory cost of the goods; or - The goods are classified or become classifiable under a tariff heading other than $\parallel$ II) the tariff heading under which they were imported (the workings and processing conferring origin under this rule are in appendix V); or

c) They are produced in the member state and designated in a list by the council upon recommendation of the committee through the IC to be goods of particular importance to the economic development of the member states; and containing not less than 25 percent value added notwithstanding the provisions of subparagraph (b)(ii) of paragraph 1 of this rule. The list of goods so designated by council is in appendix VI."

The same provisions are contained in Article 2.2.3 of the Procedures Manual on the Implementation of the Protocol which shall not be reproduced here. Appendix V which deals with workings and processing conferring origin provides that.

"Rules of origin refer to a change in tariff heading, in terms of rule 2(1)(b)(iii) of the protocol, apply to non-originating materials only and such change in classification is at the level of the harmonized commodity description and coding system (hereinafter referred to as the harmonized system of 'HS') by reason of production, other than by minimal operations or processes defined in rule 5 of the protocol."

The above criterion is employed in determining whether the goods originate from a member state. It is not disputed that the applicant is the consignee of the goods.

A party is entitled to preferential treatment when it provides a certificate of origin under with Rule (10)(3) of the COMESA Protocol on the Rules of Origin which states that,

"The claim that goods shall be accepted as originating from a member state in accordance with the provisions of this protocol shall be supported by a certificate given by the exporter or his authorized representative in the form prescribed in appendix I of this protocol. The certificate shall be authenticated by an authority designated for that purpose by each member state."

Therefore, a certificate of origin is proof that the goods are entitled to preferential treatment. Article 3.3.2 of the Procedures Manual on the Implementation of the Protocol provides that.

"Goods that have been accepted as meeting all the requirements of the rules of origin are entitled to a COMESA certificate of origin, a specimen of which appears at annex I. the certificate is issued by the designated issuing authority in the exporting member state. [A list of member states' designated authorities is provided at annex II]

The certificate should be attached to the import goods declaration to enable the customs authorities of the importing member state to grant preferential tariff treatment to the shipment."

This provision further reveals that the goods that bear such certificate are accepted to have met the requirements of the rules of origin.

The Protocol provides for the application of different letters while completing the certificate of origin in the appendix to the Protocol as indicated here below.

"The following letters should be used when completing a certificate in the appropriate place:

"P' for goods satisfying the wholly produced criterion [Rule 2.1(a)]

"M" for goods satisfying the material content of the substantial transformation criterion [Rule $2.1(b(i))$ ]

"V" for goods satisfying the value-added content of the substantial transformation criterion [Rule $2.1(b)(ii)$ ]

"X" for goods satisfying the change of tariff heading of the substantial transformation criterion [Rule $2.1(b)(iii)$ ]

"Y" for goods satisfying the criterion of tariff heading of particular economic importance to the member states [Rule $2.1(c)$ ]"

It is not difficult to discern that the said letters correspond to the goods that have been produced in the member states wholly or partially from materials imported from outside the member states or of undetermined origin by a process of production, which effects a substantial transformation under Rule 2.1(b) of the Protocol on the Rules of Origin.

In TATA v Uganda Revenue Authority Application 111 of 2020 the tribunal stated that letters on the certificates of origin are informative of the nature of the imports. For one to be denied preferential treatment it has to show that the goods do not fall under Rule 2 of the Protocol on the Rules of Origin. A mere change of the letter on the certificate of origin does not have any effect on the tariff charged. In British American Tobacco (U) Limited v Uganda Revenue Authority Application 62 of 2019 the Tribunal stated that a mere letter cannot override a certificate of origin as the it is the official proof of origin by a competent authority. Therefore, the respondent was required to present evidence to show that upon change of the letter from $V'$ to $X'$ the applicants' goods did not originate from the partner state, Egypt. In TATA v Uganda Revenue Authority (supra) the Tribunal stated.

"There is need to show the goods the classifiable under the tariff heading other than the tariff heading under which they were imported did not originate from COMESA for

a party to be denied preferential treatment. The letters on the certificate of origin are informative of the nature of the goods imported."

Therefore, as stated the letters merely show which origin criterion the imports fall under Rule 2.1(b) of the Protocol on the Rules of Origin. Using a different letter does not imply that the goods did not originate from Eqypt.

The respondent contended that TATA v Uganda Revenue Authority (supra) and British American Tobacco (U) Limited v Uganda Revenue Authority (supa) are not applicable to this case because in the said cases, the applicants contended that the letter they used was the correct one. In this case the applicant was using the letter 'V' but changed to 'X'. By changing the letter from 'V' to 'X' wasn't the applicant admitting that it has been using the wrong letter all the time? Was it not conceding to the fact that it was using a wrong letter, which is an admission of guilt? The respondent contended that the change in the classification from 'V' to 'X' meant that the applicant was irregularly receiving preferential treatment which it was not entitled to. The respondent further contended that other importers from the applicant's supplier, Egypt were using letter $X'$ implying that it was the correct letter to use.

Where there is a change in the use of the letters it does not imply the letter changed to is the correct one. Because a party is swimming with the tide, does not mean that it is swimming in the right direction. Suppose all the parties are now using the wrong letter? Or the products the applicant was importing from 2017 to 2021 have a different composition from what is being imported now? The Tribunal cannot make assumptions that because everybody is using the letter 'X' it is now the correct letter. This is not 'mob justice'. A tribunal, like a count cannot work on assumptions. It needs hard evidence. The applicant already noted that the concept of identical goods is not in the COMESA Treaty. There is no evidence of the time or period the other importers imported their goods. There is no evidence that the composition of the goods imported after 2021 was the same as those that were imported from 2017 to 2021. The Tribunal would require the respondent to adduce evidence to show that the actual correct letter is letter 'X' and not 'V'. This was not done.

Before the respondent can dispute the use of the letters by the applicant, it ought to have found out from the designated authority which issued the certificates of origin,

which letter was the correct one. Where there is doubt as to the use of an appropriate letter on the certificates of origin the respondent ought to have made a query to the designated authority that issued it. Where a query arises, Rule 10(3) of the Protocol on the Rules of Origin states that.

"The competent authority designated by an importing member state may in exceptional circumstances and notwithstanding the presentation of a certificate issued in accordance with the provisions of this rule require, in case of doubt, further verification of the statement contained in the certificate. Such further verification should be made within three months of the request being made by a competent authority designated by the importing member state. The form to be used for this purpose shall be that contained in Appendix III of this protocol."

This rule provides for how the respondents should have handled the dispute.

The respondents submitted that the change in classification by the applicant disqualified it from enjoying preferential treatment. Article 3.11.1.1 of the Procedure Manual on the Implementation of the Protocol states that,

"The customs authorities of the importing member state may refuse a claim of COMESA tariff treatment if there is a reason to doubt the correctness of the particulars declared to them."

There are two types of queries- minor and serious. On minor queries, the provision states that

"Minor inaccuracies or omissions of a clerical nature or similar nature detected on a certificate of origin (e.g., the omission of the weight or other quantity or insertion of an incorrect customs tariff number) may be allowed to be corrected by the importer without rejection of the claim to COMESA tariff treatment"

Where there is a query leading to disqualification it should be of a serious nature. On serious queries, the Article states that,

"Where serious doubt arises about the eligibility of any consignment of goods for COMESA tariff treatment. (e.g., claim of wholly produced for certain kinds of machinery description of goods on the invoice different from that appearing in the certificate of origin, indication of dubious transport route, etc.) a formal query of the evidence of origin presented may be communicated to the designated issuing authority of the exporting member state. The procedures governing the raising of queries and the subsequent verification of the evidence of origin is discussed in the next section of this manual."

In TATA v Uganda Revenue Authority (supra), the tribunal held that "where inserting a correct letter may not lead to denial of preferential treatment, one may consider it as a minor inaccuracy. However, where it may lead to denial of preferential treatment it must be considered as a serious query." When applied to the present case, it means that the respondent should have taken the above steps as provided in the Procedure Manual on the Implementation of the Protocol.

By raising doubts about the applicant's use of its letters on the certificates, the respondent should have raised queries to the authority the issued them. If it considered the anomaly as minor it should have followed the procedure dealing with minor queries. Dealing with the queries as minor means that the respondent cannot nullify the certificates. If the respondent considered the anomaly as serious, it ought to have followed the procedure dealing with serious queries. In this case the respondent contended the certificates should be invalid meaning that it ought to have followed the procedure dealing with serious queries. This was not done.

According to the respondent, doubt was aroused in its mind when goods of identical nature imported from the suppliers bore a different letter "X". The respondent stated that when the applicant was guided to change the classification, they did it without any qualms. The respondent also justified its decision on reliance of similar materials that fall under the same HSC that were captured under the criteria "X". These made it doubt the criteria of origin used by the applicant and thus recall the preference. The applicant by changing the letters it used or there being other goods that bear the letter "X" from the supplier in Egypt is not conclusive that the imports by the applicant bearing a different letter were the same as those relied by the respondent.

Was there procedural impropriety and irrationality by the respondent in handling the applicants' queries? Procedural impropriety was defined in Twinomuhangi Pastoli v Kabale District Local Government Council [2006] HCB Vol.1 as "when there is failure to act fairly on the part of the decision-making authority in the process of taking a decision." On irrationality, Sekaana J. in *Ndangwa Richard v Attorney General* Misc. Cause 244 of 2017 stated that,

"Although the terms irrationality and unreasonableness are often used interchangeably, irrationality is only one facet of unreasonableness. A decision is

irrational in the strict sense of that term if it is unreasoned if it is lacking ostensible logic or comprehensible justification.

Absurd or perverse decisions may be presumed to have been decided in unreasonable manner and contain reasons which are unintelligible. The courts should set aside decisions of public bodies or authorities if unsupported by substantial evidence..."

He also opined that,

"A decision which is unreasonable, or irrationality offends the values of the rule of law. The concept of unreasonableness or irrationality in itself imputes arbitrariness which is an antithesis of the rule of law..."

The respondent's decision was in relation to the origin criteria which led to a nullification of the certificates of origin leading to an assessment meant that it ought to have raised a serious query and complied with Rule 10(3) of the COMESA Rules of Origin Protocol and Article 3.11.1.1 of the Procedure Manual on the Implementation of the Protocol. The respondent should have raised a formal query with the designated authority of the exporting member state for verification of the evidence of origin. This was never done.

The tribunal has already held that the use of letters on certificates of origin is of an informative nature. Therefore, for the applicant to be denied preferential treatment, the respondent had to show that the goods did not fall under Rule 2(1)(b) of the Protocol on the Rules of Origin. There is no evidence that though the goods used by the applicant even where they may fall under a different tariff heading, did not originate from Egypt. In the event the particulars in the certificates of origin were not correct to deny a party preferential treatment under Article 3.11.1.1 of the Procedure Manual on the Implementation of the Protocol, the respondent has to show it was justified to do so. It should show that it followed the correct procedure in making a serious query to the designated authority that issued the certificates of origin. Relying on a reply from the designated authority that the letter was not correct it could have cancelled the certificates. This as already stated was not done. The respondent before making its decision had recourse within the law but instead ignored it. The decision of the respondent to deny the applicant preferential treatment without any justifiable proof was arbitrary and irrational in nature.

Taking all the above into consideration, the respondent did not have any reasonable ground to doubt the certificates of origin issued to the applicant. This application is allowed with costs to the applicant. The 30% deposit made by the applicant should be refunded.

Dated at Kampala this....................................

mmy

tre Katuo In It

DR. ASA **CHAIRMAN**

DR. STEPHEN AKABWAY **MEMBER**

**MS. CHRISTINE KATWE MEMBER**