London Distillers (K) Limited v Commissioner of Investigations & Enforcement [2023] KETAT 141 (KLR) | Excise Duty Assessment | Esheria

London Distillers (K) Limited v Commissioner of Investigations & Enforcement [2023] KETAT 141 (KLR)

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London Distillers (K) Limited v Commissioner of Investigations & Enforcement (Appeal 459 of 2022) [2023] KETAT 141 (KLR) (17 March 2023) (Judgment)

Neutral citation: [2023] KETAT 141 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 459 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, Jephthah Njagi & AK Kiprotich, Members

March 17, 2023

Between

London Distillers (K) Limited

Appellant

and

Commissioner Of Investigations & Enforcement

Respondent

Judgment

1. The Appellant, London Distillers (K) Limited, is a company incorporated in Kenya with its headquarters in Nairobi and is licensed to carry out the business of manufacturing, packaging, distributing and sale of excisable goods and more particularly alcoholic spirits.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act and the Kenya Revenue Authority is an agency charged with the responsibility of among others, assessment, collection, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. Pursuant to Kenya Gazette Supplement No. 199 dated 2nd November 2021 under Legal Notice No. 217, the rates of Excise Duty were adjusted and as a result the Excise Duty rate for spirits of undenatured ethyl alcohol; spirits liquers and other spirituous beverages of alcoholic strength exceeding 6% increased to Kshs. 278. 70 per litre while that of spiritous beverages of alcoholic strength not exceeding 6% increased to Kshs. 121. 85.

4. The Appellant filed Excise Duty returns on 18th February 2022 and 18th March 2022 for the months of January and February 2022, respectively, using the old rates ( and not the rates prescribed by Legal Notice No. 217).

5. The Appellant vide letters dated 18th February 2022 and 18th March 2022 informed the Respondent that it was unable to file for Excise Duty using old rates because the system was only allowing the rates prescribed by the Legal Notice No. 217.

6. The Respondent thereafter raised an additional assessment of Excise Duty for the months of January 2022 and February 2022 and imposed the same on the Appellant for immediate payment failure to which it would institute enforcement measures for recovery. This was communicated vide an email dated 5th April 2022 attaching an assessment order dated 5th April 2022. The additional assessment amounted to Kshs. 38,401,648. 75 inclusive of penalties and interest.

7. The Appellant raised an objection on 9th April 2022 reiterating the Court Order that stayed the implementation of Legal Notice No, 217.

8. On 21st April 2022, the Respondent dismissed the objection and demanded immediate payment of the principal tax together with penalties and interest amounting to Kshs. 38,401,648. 75

9. The Appellant being dissatisfied with the objection decision thereafter filed a Notice of Appeal dated 28th April 2022 and filed on the same date.

THE APPEAL 10. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal dated 5th May 2022 and filed on 6th May 2022:a.That the Respondent erred in law and in fact in raising additional assessments on account of Excise Duty against the Appellant herein.b.That the Respondent erred in law in assessing additional duty based on the rates spelt out in Legal Notice No. 217 of 2021 whose implementation/ operation was suspended by the orders issued by the High Court in Nairobi High Court Constitutional Petitions No. E491, E403 and E024 of 2021 (Consolidated): Pubs Entertainment & Restaurant Association of Kenya & 2 Others – versus – Commissioner General KRA & 7 Others.c.That the Respondent erred in law and in fact in assessing Excise Duty based on non-existent/ wrong rates.d.That the Respondent erred in law and in fact by failing to appreciate the import, purport and meaning of the Orders issued on 19th November 2021 and which Orders are in force to date and whose effect is to maintain the status quo on the rates prescribed under Legal Notice No. 217 of 2021. e.That the Respondent erred in law and in fact in rejecting the assessment as correctly computed by the Appellant using the old rate of Excise Duty on spirits.

APPELLANT’S CASE 11. The Appellant’s case is premised on the Appellant’s Statement of Facts dated 5th May, 2022 and filed on 6th May, 2022 and the written submissions dated 3rd June, 2022 and filed on 9th June, 2022.

12. The Appellant made submissions addressing various legal and factual issues separately.a.The Honourable Tribunal has jurisdiction to grant the prayers sought in the Appellant’s pleadings.

13. That Section 18 of the Tax Procedures Act (TPA) states as follows:“Where an appeal against a tax decision has been filed under this Act, the Tribunal may make an order staying or otherwise affecting the operation or implementation of the decision under review as it considers appropriate for the purposes of securing the effectiveness of the proceeding and determination of the appeal”.

14. That in Subru Motors vs. Commissioner of Domestic Taxes (2016) eKLR, this Honorable Tribunal reiterated the provisions of Section 18 of the TPA when it rightly held that:“The stay envisaged thereunder relates to the Tribunal staying the operation of the Respondent’s decision where an Appellant elect to file an appeal to this Tribunal in exercise of the right donated by Section 52(1) of the Tax Procedures Act.”

15. That this Tribunal has jurisdiction to issue the orders sought.

16. That this Tribunal is bound by the doctrine of stare decisis. That the doctrine of stare decisis is a fundamental jurisprudential yardstick that dictates that prior decisions of a superior Court must be followed, save for good cause justifying a departure. This helps in achieving uniformity, consistency, predictability and certainty in law.

17. That the doctrine dictates that a legal principle established by a Superior Court should be followed in other similar cases by that Court and subordinate Courts. This is to promote consistency in decision making by Judges, on the basis that like cases should be determined in a like manner.

18. That in its vertical application the doctrine of stare decisis dictates that a Court is bound by the decisions of a superior Court to it.

19. That the doctrine holds that decisions of a higher Court, unless distinguished or overruled, bear the quality of law and bind all lower Courts in similar or like cases. It is not disputed that the High Court ranks above this Honourable Tribunal therefore the Tribunal is bound by the decisions of the High Court in so far as similar questions of law are concerned.

20. That on 19th November 2021 Justice Makau issued orders in Consolidated Constitutional Petitions Nos, E491, E403 and E024 of 2021 staying the operation of Kenya Legal Notice No. 217 of 2021. These orders were further extended to 18th May 2021 and are still in force todate.

21. That the substratum of this Appeal relates to the Respondent’s actions of issuing additional assessments calculated on the strength of a Legal Notice whose operation has been stayed by the High Court.

22. That the Supreme Court in Jasbir Singh Rai & 3 Others vs. Tarlochan Singh Rai & 4 Others [2013] eKLR observed that:“Adherence to precedent should be the rule and not the exception… the labour of Judges would be increased almost to breaking point if every past decision could be reopened in every case, and one could not lay one’s own course of bricks on the secure foundation of the courses laid by others who had gone before him”.

23. That the Respondent has not demonstrated in its submissions nor replying affidavit that the said order was issued per incurium which is the only exception to the doctrine of stare decisis.

24. That the Court of Appeal in National Bank of Kenya Ltd vs. Wilson Ndolo Ayah Civil Appeal No. 119 of 2002; [2009] KLR 762 held that:-“It is good discipline in courts for the smooth and efficient administration of justice that the doctrine of precedent be adhered to. If for any reason a Judge of the High Court does not agree with any particular decision of the Court of appeal, it has been the practice that one expresses his views but at the end of the day follows the decision which is binding on that court. The High Court has no discretion on the matter”.

25. That the Supreme Court in the case of COTU vs. Law Society of Kenya vs. Attorney General & Another [2019] eKLR held as follows:“However, before we conclude we must take note of a matter that was brought to our attention at the hearing of this Appeal. While this matter was before us awaiting determination, E. K. Ogola J, on 10th June 2019, in the High Court of Kenya at Mombasa, rendered a decision in the case of Juma Myamawi Ndungo & 5 Others vs. attorney General; Mombasa Law Society (Interested Party), Constitutional Petition No. 196 of 2018 [2019] eKLR. Broadly, some of the issues for determination in that matter included whether the WIBA was unconstitutional in light of the Constitution 2010. We are greatly dismayed that the learned Judge did not take judicial notice of the pendency of this Appeal although he was aware of it. As a matter offact, he stated so in his judgement that an appeal had been preferred to usagainst the decision of the Court of Appeal to the apex Court on matterswhose determination may well have been binding on him. The learned Judgeought to have held his horses and acknowledged the hierarchy of the courts and wait for this court to pronounce itself before rendering himself, if at all.As we perceive it, his judgement has created unnecessary confusion in theapplication of WIBA and cannot be allowed to stand as it may [may or is]also be contrary to this Judgement.b.The order issued in the Constitutional Court staying the implementation of the Legal Notice No. 217 of 2021 is still in force.

26. That it is not in dispute that there is an Order issued by the High court staying the enforcement of Legal Notice No. 217.

27. That the Respondent in its Replying Affidavit sworn on 30th May 2022 has admitted that indeed there is an Order issued on 19th November 2022 by the High Court. That the Respondent has annexed an application for review dated 10th January 2022 and have stated at Paragraph 11 of their Replying Affidavit that the aforesaid application seeks to challenge the High Court Order issued on 19th November 2022. That it is prudent to note that the High Court has not made any orders with regards to the said application for review and it is therefore absurd for the Respondent to assume that by filing the said application, the stay orders earlier issued are automatically set aside.

28. That it is trite that a Court Order is binding on the party against whom it is addressed and until set aside remains valid and is to be complied with. An order passed by a competent court whether interim or final has to be obeyed without any reservation.

29. That rule of law makes it incumbent for all persons, without exception, to respect court orders at all times. The whole purpose of litigation as a process of judicial administration is lost if court orders are not complied with. A partywho knows of an order whether null or valid, regular or irregular cannot be permitted to disobey it.

30. That Justice Mativo in Trusted Society of Human Rights Alliance vs. Cabinet Secretary for Devolution and Planning & 3 Others [2017] eKLR rightly held as thus:“Clearly the High Court order still remains in force hence I find no difficulty in finding that the Respondents were obliged to comply with the said decision, It is essential for the maintenance of the rule of law and order that the authority and dignity of Courts is upheld at all times. The Court will not condone deliberate disobedience of its orders or shy away from its responsibility to deal firmly with proved contemnors. It is the plain and unqualified obligation of every person against, or in respect of whom, an order is made by the Court of competent jurisdiction, to obey it unless and until that order is discharged. The uncompromising nature of this obligation is shown by the fact that it extends even to cases where the person affected by an order believes it to be irregular or void. It must be remembered that court orders must be obeyed at all times in order to maintain the rule of law and good order. The Court does not, and ought not to be seen to make orders in vain; otherwise the Court would be exposed to ridicule ad no agency of the constitutional order would then be left in place to serve as a guarantee for legality, and for the rights of all the people”.

31. That the rule of law requires that orders of the Court be respected and obeyed and that duty equally applies even where a party is dissatisfied with an order and has appealed to an appellate court against the order, ruling or judgement.

32. That wilful and flagrant disobedience of court orders undermines the authority and dignity of Courts and must be dealt with firmly so that the Court’s authority is not brought into disrepute.

33. That this Tribunal is therefore called upon to balance competing interests of the parties herein and to ensure that the Orders that shall be granted in this instant Appeal promote consistency with the decision of the High Court in Consolidated Constitutional Petitions No. E491, E403 and E024 of 2021.

34. That it is not in dispute that on 19th November 2022, the Constitutional Court issued an order staying the implementation of the impugned Legal Notice No. 217 of 2021 pending the hearing and determination of the Consolidated petitions. The same was still pending before the said court at the time of filing of this Appeal.

35. That the Black’s Law Dictionary, Butter Worths 9th Edition defines “status quo” as a Latin word that means “the situation as it exists.

36. That in Republic vs. National Environment Tribunal ex-parte Palm Homes Limited & Another [2013] eKLR, Odunga J. stated as follows:“When a court of law orders of a statute ordains that the status quo be maintained, it is expected that the circumstances as at the time when the order is made on the statute takes effect must be maintained. An order maintaining status quo is meant to preserve existing state of affairs… Status quo must therefore be interpreted with respect to existing factual scenario….”

37. That further, in TSS Spinning and Weaving Company Ltd vs. NIC Bank Limited & Another [2020] eKLR, the purpose of a status quo order is as follows:“In essence therefore, a status quo order is meant to preserve the subject matter as it is/ existed, as at the day of making the order. Status quo is about a court of law maintaining the situation or the subject matter or the state of affairs as they existed before the mischief crept in, pending the determination of the issue in contention.”

38. That the Court in Kenya Airline Pilots (KALPA) vs. Cooperative Bank of Kenya Limited & Another [2020] eKLR, the purpose of a status quo order was explained as follows:“…By maintaining the status quo, the court strives to safeguard the situation so that the substratum of the subject matter of the dispute before it is not so eroded or radically changed or that one of the parties before it is not so negatively prejudiced that the status quo ante cannot be restored thereby rendering nugatory its proposed decision.”

39. That the situation as it existed at the time of granting the order of 19th November 2021 was that the applicable rates of Excise Duty were the rates in place before the impugned Legal Notice No. 217 of 2021. b.Prejudice to be suffered by the Appellant

40. That the Applicant has by its supporting affidavit pleaded that it has not altered the price of its products to take into account the amendments on Excise Duty as spelt out in Legal Notice No. 217 because there is a stay Order on its implementation.

41. That by issuing additional assessment, the Respondent is coercing the Applicant to make additional payments on account of Excise Duty and in violation of a Court Order.

42. That unless the Order for stay is granted by this Honourable Tribunal, the substantive Appeal shall be rendered nugatory as the Appellant shall be condemned to pay the additional assessments based on the Legal Notice No. 217.

43. That the Respondent continues to raise additional duty on account of Excise Duty despite the Orders in place.

44. That the Appellant has a very strong appeal as demonstrated by the fact that the Respondent is demanding for additional Excise Duty based on Legal Notice No. 217 whereas there is a High Court Order staying the enforcement of this Legal Notice.

APPELLANT’S PRAYERS 45. The Appellant prays that:a.The Honourable Tribunal be pleased to allow the Appellant’s Appeal and set aside the objection decision communicated vide the letter dated 21st April 2022 demanding for the payment of additional assessment of Excise Duty in the sum of Kshs. 38,401,648. 75. b.The Honourable Court be pleased to issue orders restraining the Respondent from activating enforcement measures for the recovery of the sum of Kshs. 38,401,648. 75 and any other assessment based on the impugned rates.c.An order barring the Respondent from issuing any additional assessments and/ or demands and/ or activating enforcement measures on Excise Duty, penalty and interests thereof based on the rates prescribed in the impugned Legal Notice 217 of 2021 pending further Orders from the High Court in Nairobi High Court Constitutional Petition No. E491, E403 and E024 of 2021 (Consolidated).d.Costs of this Appeal.

THE RESPONDENT’S CASE 46. The Respondent’s case is premised on the following filed documents and proceedings before the Tribunal: -i.The Respondent’s Statement of Facts dated and filed on 9th June 2022 together with the documents attached thereto.ii.The Respondent’s written submissions dated and filed on 23rd August 2022 together with the legal authorities filed therewith.a.Whether the Implementation/ Operation of Legal Notice No. 217 Of 2021 was stayed by the Orders issued by the High Court in Nairobi.

47. That the Respondent reiterates its position as stated in the objection decision communicated to the Appellant.

48. The Respondent avers that subject to the provisions under the Excise Duty Act, it justifiably imposed Excise Duty subject to the requisites of the law as provided for under Section 5 of the Excise Duty Act (EDA).

49. That Section 5 of the EDA states as follows:-“(1)Subject to this Act, a tax, to be known as excise duty, shall be charged in accordance with the provisions of this Act on –a.excisable goods manufactured in Kenya by a licensed manufacturer;b.excisable services supplied in Kenya by a licensed person; orc.excisable goods imported into Kenya. 2. Excise duty shall be charged at the rate specified in the First Schedule for the excisable goods or services in force at the time the liability arises for excise duty as determined under section 6. ”

50. That the Respondent avers that it imposed tax on the Appellant subject to the rates of provisions under the 1st Schedule of the EDA as is stipulated by statute under Section 5(2) of the EDA.

51. The Respondent further submits that the Excise Duty imposed on the Appellant at the time was justified and was as per the rate specified by the variations made by the Cabinet Secretary and adopted by the National Assembly vide Legal Notice 217 of 2021 as per provisions of Section 8(1), (3) and (4) of the EDA.

52. That Section 8(3) and 8(4) of the EDA states that:“(1)The Cabinet Secretary may, by order in the Gazette, amend the First Schedule by increasing or decreasing any rate of excise duty on excisable goods or services from the date specified in the order by an amount not exceeding ten per centum of the rate set out in respect of those goods or services in the First Schedule.(2)… 2. The Cabinet Secretary shall lay an order varying the rate of excise duty made under subsection (l) before the National Assembly within seven days after its publication in the Gazette.

3. If the National Assembly passes a resolution disapproving of the variation within twenty days from the first day on which the National

Assembly next sits after the variation is laid before the National Assembly, the Order shall cease to have effect from the date of the resolution”. (Emphasis ours).

53. That as per Section 23 of the Statutory Instruments Act, Legal Notice No. 217 of 2021 came into force on the publication date and therefore, the orders of status quo issued by the Honourable High Court on 19th of November 2022 on the status quo that was effectively in existence was that for Legal Notice No. 217 of 2021.

54. That Section 23 of the Statutory Instruments Act states as follows:“Commencement of statutory instrument 1. A statutory instrument shall come into operation on the date specified in that behalf in the statutory instrument or, if no date is so specified, then, subject to subsection (2), it shall come into operation on the date of its publication in the Gazette subject to annulment where applicable.

2. If a statutory instrument is made after the passing or making but before the coming into operation of the enabling legislation under which it is made, the statutory instrument, whether or not it is previously published, shall not come into operation before the date on which the enabling legislation comes into operation.

3. A statutory instrument may be made to operate retrospectively to any date not being earlier than the commencement of the enactment under which it is made but no person shall be liable to a penalty in respect of any contravention of a provision in a statutory instrument required to be published in the Gazette where the alleged contravention occurred before the publication unless the court is satisfied that before the alleged contravention the purport of the statutory instrument had been brought to that person’s notice.”

55. That the additional assessment inclusive of penalties and interest issued to the Appellant are justifiable under Sections 38 and 83A of the TPA.

56. That Sections 83A and 38 of the TPA expressly provide as follows regarding late payment penalty and late payment interest:“83A Late Payment PenaltyA person who fails to pay tax on the due date shall be liable to pay a late penalty of five percent of the tax due and payable.”“38 Late payment interest 1. Subject to subsection (2), a person who fails to pay a tax on or before the due date for the payment of the tax shall be liable for late payment interest at a rate equal to one per cent per month or part of a month on the amount unpaid for the period commencing on the date the tax was due and ending on the date the tax is paid.

2. If it is found that the principal amount or part of the principal amount was not payable, the late payment interest paid by a person under subsection shall be refunded to that person to the extent that the principal amount to which the interest relates is found not to have been payable.

3. The late payment interest payable under this section shall be computed as simple interest.

4. The late payment interest payable under this section shall be in addition to any late payment penalty or sanction imposed under Part XII in respect of the same act or omission.

5. The late payment interest shall be payable to the Commissioner and shall be treated as a tax payable by the person liable for the interest.

6. Where the Commissioner notifies a person of the person's outstanding tax liability under a tax law or this Act and that person pays the outstanding tax in full (including late payment interest payable up to the date of the notification) within the time specified in the notification, a late payment interest shall not accrue for the period between the date of notification and the date of payment.

7. A late payment interest payable by a person—a.in respect of withholding tax payable by the person; orb.in respect of an amount referred to in section 16(5) or (6), 17(3)(c), 18(1) or (2), 42(3), 43(9) or 46, payable by the person, shall be borne personally by the person and shall not be recoverable from any other person.”

8. The accrued late payment interest shall not, in aggregate, exceed the principal tax liability.”

57. That the Court never stayed the implementation of Legal Notice No. 217 of 2021 and therefore the Appellant erroneously believes that the same was stayed.

58. That status quo as per the High Court’s Order meant that the Legal Notice would continue being operational.

59. That the Respondent has since challenged the Court’s Orders vide an application for review dated 20th January 2022 as the Respondent firmly believes that the Court misapplied facts and misinterpreted the Legal Notice.

60. That the application came up for hearing on 8th June 2022 when all the parties were heard and a ruling slated for 22nd September 2022. b.Whether the Appellant has paid taxes not in dispute

61. That at Paragraph 17 of the Appellant’s Statement of Facts, the Appellant states that being dissatisfied with the objection decision it filed this Appeal to attain justice and ensure that it pays only what is lawfully due.

62. That our tax regime being that of self-assessment, the Appellant ought to havepaid the taxes due and which it considers in its own words “lawfully due”.

63. That “he who comes to equity must come with clean hands”.

64. That the Appellant has deliberately misinterpreted the orders that were granted by the High Court in a calculated bid to avoid paying taxes.c.Whether the Appeal is properly before the Tribunal in view of the sub- heading above regarding taxes not in dispute

65. That the Appellant has not complied with the mandatory provisions of Sections 51(3)(b) and 52 of the TPA.

66. That Section 52(2) of the TPA provides that:“A notice of appeal to the Tribunal relating to an assessment shall be valid if the taxpayer has paid the tax not in dispute or entered into an arrangement with the Commissioner to pay the tax not in dispute under the assessment at the time of lodging the notice.”

67. That the Appellant has not disputed the taxes herein and has not paid the taxes it has not disputed. That the Appellant therefore has not contested the taxes but has agreed with the figures but only stated that the Legal Notice was stayed. That since there was no stay of operation the Appellant ought to have pad the taxes.

68. That in the circumstances there is no proper Appeal to be entertained by this Honourable Tribunal.

69. That therefore the Appeal is invalid because the Appellant has not paid tax not in dispute.

70. That further, and in light of the foregoing, the Respondent states that the allegations of the Appellant as laid out in its Memorandum of Appeal and Statement of Facts are unfounded in law and not supported by evidence.d.Whether the Matter is sub judice

71. That in view of the fact that the High Court was seized of the same dispute, and which was due for ruling on 22nd September 2022, the matter was sub judice at the time of Appeal.

72. That in the case of Pope Lawrence Ochieng Kalui & 2 Others vs. Raphael Ochieng Otieno & 2 Others [2021] eKLR, Migori Civil Appeal No. 3 of 2020, Justice Wendoh held as follows:“25. In a fairly recent decision of this Court, namely JR No. 146 of 2020, which incidentally involved the Law Society of Kenya, I stated that the words “directly and substantially in issue” are used in contradistinction to the words ‘incidentally or collaterally in issue.26 Paraphrasing what I said in the above case, the key words in applying sub judice rule is that “the matter in issue is directly and substantially in issue in the previously instituted suit.” The test for applicability of the sub judice rule is whether on a final decision being reached in the previously instituted suit, such decision would operate as res judicata in the subsequent suit. As concluded earlier, the answer to this question is a resounding yes. However, when the matter in controversy is the same, it is immaterial what further relief is claimed in the subsequent suit or suits.”

73. That the Respondent urges the Tribunal to be persuaded by this apt finding and down its tools and await the outcome of the case - High Court Constitutional Petitions No. E491, E403 and E024 of 2021 (Consolidated): Pubs Entertainment & Restaurant Association of Kenya & 2 Others – versus – Commissioner General KRA & 7 Others.

Respondent’s Prayers 74. The Respondent prays that this Honourable Tribunal:a.Finds that the status quo order did not stop the operation of Legal Notice No. 217 of 2021. b.Upholds the Respondent’s objection decision dated 21st April 2022 as proper in law and in conformity with the provisions of the Excise Duty Act, 2015 and the Tax Procedures Act, 2015. c.Finds that the Appeal is invalid before the Tribunal for lack of paying the undisputed taxes.d.Finds that there is no proper Appeal for adjudication before it.e.Finds that the Appeal is therefore unmerited and is dismissed with costs to the Respondent.

ISSUES FOR DETERMINATION 75. The Tribunal upon due consideration of the pleadings and the written submissions of the parties was of the considered view that the Appeal raises the following issues for its determination:a.Is there a valid appeal before the Tribunal?b.Did the status quo order stop the operation of Legal Notice No. 217 of 2021?c.Did the Respondent err in issuing the tax assessment as per its objection decision dated 21st April 2021?

ANALYSIS AND DETERMINATION 76. The Tribunal having identified the issues arising for its determination proceeded to analyse the issues separately as hereafter.

a. Is there a valid appeal before the Tribunal? 77. This dispute arose from the Respondent’s assessment of Excise Duty on the Appellant’s transactions for the periods January and February 2022

78. The Respondent’s assessment was pursuant to Kenya Gazette Supplement No. 199 dated 2nd November 2021 under Legal Notice No. 217, in which the rates of Excise Duty were adjusted and as a result the Excise Duty rate for undenatured spirits rose to Kshs. 278. 70 per litre while that of ready to drink (RTD) spirituous beverages rose to 121. 85. The commencement date was 20th December 2022.

79. Further, on 19th November 2021 the Honourable Court issued orders staying the operation of the Legal Notice No. 217 pending the hearing and determination of the Consolidated Petitions No. E491, E403 and E024 of 2021. The said Petitions sought to stay the implementation of Legal Notice 217 of 2021.

80. In compliance with the said orders, the Appellant filed Excise Duty returns on 18th February 2022 and 18th March 2022 for the months of January and February 2022, respectively, using the old rates and not the rates prescribed by Legal Notice No. 217 of 2021.

81. The Respondent argues that subject to the provisions under the Excise Duty Act, it justifiably imposed Excise Duty subject to the requisites of the law as provided for under Section 5 of the Excise Duty Act (EDA).

82. The Respondent further avers that the Excise Duty imposed on the Appellant at the time was justified and was as per the rate specified by the variations made by the Cabinet Secretary and adopted by the National Assembly vide Legal Notice 217 of 2021 as per provisions of Section 8(1), (3) and (4) of the EDA.

83. The Respondent also argues that our tax regime being that of self-assessment, the Appellant ought to have paid the taxes due and which it considers in its own words “lawfully due”. It further states that “he who comes to equity must come with clean hands”.

84. That the Respondent is therefore of the view that the Appellant has not disputed the taxes herein and has not paid the taxes it has not disputed. That the Appellant therefore has not contested the taxes but has agreed with the figures but only stated that the Legal Notice was stayed. That since there was no stay of operation the Appellant ought to have paid the taxes.

85. The Respondent therefore concludes on tax not in dispute that in the circumstances there is no proper Appeal to be entertained by this Honourable Tribunal and that therefore the Appeal is invalid because the Appellant has not paid tax not in dispute.

86. The Tribunal observes that on 18th February 2022 and 18th March 2022, the Appellant wrote letters to the Respondent referring to the Constitutional Petitions filed at the High Court as well as the fact that the Appellant was trying to file excise returns as per the old rates and that it was unable to do so because the iTax system was not allowing it to file returns at the old rates. The Tribunal notes that the Respondent did not issue any responses to the aforesaid correspondences by the Appellant.

87. The Tribunal refers to Section 51(2) of the TPA that states as follows:“A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision”.

88. Further, Section 51(3) provides as follows regarding the validity of a notice of objection by a taxpayer:“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—a.the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments; andb.in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute”.

89. Section 51(4) provides as follows regarding the rights of the Respondent at the instance that an invalid objection has been lodged by a taxpayer:“Where the Commissioner has determined that a notice of objection lodgedby a taxpayer has not been validly lodged, the Commissioner shall immediatelynotify the taxpayer in writing that the objection has not been validly lodged.”

90. In determining whether there was tax not in dispute, the Tribunal has reviewed in detail the correspondences between the parties; and more specifically, the notice of objection and the objection decision.

91. The notice of objection by the Appellant is dated 9th April 2022 and provides the specific grounds the basis of which the said objection was drafted. Further, the Appellant’s objection specifically states that” “it objects to the additional assessments for the month of January and February 2022 for Excise Duty, penalty and interest amounts imposed on the company….”. Further, it is worth noting that the Appellant does not concede to any taxes in its objection.

92. Further, the Tribunal notes that the Respondent’s assessment raised on iTax on 26th April 2022 is titled “Additional Assessment” and not “Default assessment”. The Tribunal is clear that if the assessment by the Respondent was founded on a tax liability that had not been declared at all by the Appellant the assessment notice would have been titled “Default Assessment”.

93. The Tribunal is of the considered view that to the extent that the Respondent raised an “additional assessment’ that was objected to in full by the taxpayer, the issue of tax not in dispute does not arise as the taxpayer objected to the additional assessment in its totality. Further, there was no express admission of taxes by the Appellant.

94. The Tribunal therefore concludes that the issue of taxes not in dispute is nugatory and that therefore the Appeal before it is a valid Appeal.

b.Did the status quo order stop the operation of Legal Notice No. 217 of 2021? 95. The Tribunal has reviewed in detail the chronology of events at the High Court in relation to Constitutional Petitions No. E491, E403 and E024 of 2021.

96. The Tribunal notes that Legal Notice No. 217 of 2021, dated 25th October 2021 and published on 2nd November 2021, sought to adjust for inflation the Excise Duty rates for various products including spirits of undenatured ethyl alcohol and spirituous beverages of alcoholic strength not exceeding 6% which the Appellant manufactures. Specifically, the Excise Duty rate for the said spirits and ready to drink products increased to Kshs. 278. 70 per litre and Kshs. 121. 85 per litre from the previous rates of Kshs. 265. 50 per litre and Kshs. 116. 08 per litre respectively.

97. The Tribunal further observes that Legal Notice No. 217 of 2021 did not expressly specify the commencement date of the inflationary adjustment. Further, although the Excise Duty Act provides that the adjusted prices should take effect on 1st October of every year, Legal Notice 217 was published on 2nd November 2021, and therefore a commencement date of 1st October 2021 would amount to a retrospective application of the law.

98. In response to this Legal Notice, a petitioner filed a Notice of Motion at the High Court challenging the applicability of the new Excise Duty rates on the basis that consumers would experience financial constraints due to the increased tax pressure. Furthermore, the petitioner contended that the taxman’s action to adjust the inflation rate was not based on research findings and that the authority had “blindly borrowed” from previous existing rates and if left untamed would occasion business collapse due to reduced returns by affected enterprises

99. The High Court thereafter, on 19th November 2021, directed that the Respondent maintain status quo pending determination of the case filed by the petitioner.

100. The Respondent proceeded to implement the new Excise Duty rates where after two more petitioners filed further motions at the High Court to seek clarification on the status quo order issued by the High Court on 19th November 2021.

101. On 17th December 2021, the High Court clarified that under order 2, of the order of 19th November 2021, it was clear that in view of the fact that the effective date of the Legal Notice was to be 20th December 2021, status quo be maintained as at 19th November 2021.

102. The High Court further clarified that this meant as stated by the Respondent that the effective date of Legal Notice 217 of 2021 was 20th December 2021 and not any other date earlier than 20th December 2021. The Court further stated that any attempt to apply the Legal Notice before the effective date of 20th December 2021 is therefore improper.

103. The matter was then slated for mention on 26th January 2022 and the Court directed that the status quo be maintained.

104. The Tribunal has established that on 25th March 2022, the Court extended the interim orders issued on 19th November 2021 and ordered that the status quo order, amongst other orders, be extended and remain in force till 18th May 2022.

105. As a result of the foregoing, the Tribunal is of the view that the status quo order of 19th November 2021 stopped the operation of Legal Notice 217 of 2021 thereby maintaining the “old” Excise Duty rate for spirits of undenatured ethyl alcohol and for spiritous beverages of alcoholic strength not exceeding 6%.

106. The Tribunal therefore concludes that the applicable rates of Excise duty for spirits of undenatured ethyl alcohol; spirits liquers and other spirituous beverages of alcoholic strength exceeding 6% and for spiritous beverages of alcoholic strength not exceeding 6% for the months under dispute, i.e. January and February 2022, as at the time of filing of this instant Appeal were Kshs. 265. 50 per litre and Kshs. 116. 08 per litre, respectively.

c. Did the Respondent err in issuing the tax assessment as per its objection decision dated 21st April 2021? 107. The Tribunal notes that the Respondent issued an objection decision on the basis of additional assessments that were premised on the “new” Excise Duty rates of Kshs. 278. 70 per litre and 121. 85 per litre for the two products in dispute.

108. Going by the earlier findings on the issues for determination under (a) and(b)above, the Tribunal has established that, based on the orders by the High Court relating to Legal Notice No. 217 of 2021, Excise Duty was payable by the Applicant for spirits of undenatured ethyl alcohol; spirits liquers and other spirituous beverages of alcoholic strength exceeding 6% at the rate of Kshs.265. 50 per litre and not Kshs. 278. 70 per litre as implemented by the Respondent at the time of the filing of Excise Duty returns by the Appellant for the months of January and February 2022.

109. Further, Excise duty was payable by the Appellant for spiritous beverages of alcoholic strength not exceeding 6% at the rate of Kshs. 116. 08 per litre and not Kshs. 121. 85 per litre as implemented by the Respondent at the time of the filing of Excise Duty returns by the Appellant for the months of January and February 2022.

FINAL DECISION 110. In view of the foregoing analysis the Appeal is partially merited and the Tribunal accordingly proceeds to make the following Orders: -a.The Appeal be and is hereby partially allowed.b.The Respondent’s objection decision dated 21st April 2021 be and is hereby set aside.c.The Appellant to compute and pay Excise Duty for spirits at Kshs. 265. 50 per litre and for its Ready to Drink (RTD) product at Kshs. 116. 08 per litre only to the extent that its RTD product is of alcoholic strength not exceeding 6%.d.Each Party to bear its own costs.

111. It is so ordered.

DATED and DELIVERED at NAIROBI this 17th day of March, 2023. ..........................………….ERIC N. WAFULA CHAIRMAN…………………………. …………..…………CYNTHIA B. MAYAKA GRACE MUKUHA MEMBER MEMBER……………………… ………………….……………JEPHTHAH NJAGI ABRAHAM K. KIPROTICH MEMBER MEMBERPage | 1JUDGEMENT- APPEAL NO. 459 OF 2022 LONDON DISTILLERS (K) LIMITED - VERSUS-. COMMISSIONER OF INVESTIGATIONS & ENFORCEMENT