Naluswa & Another v Uganda Revenue Authority (Civil Suit 658 of 2019) [2024] UGCommC 149 (15 May 2024)

### 5 **THE REPUBLIC OF UGANDA**

#### **IN THE HIGH COURT OF UGANDA AT KAMPALA**

**(COMMERCIAL DIVISION)**

#### **CIVIL SUIT No. 658 OF 2019**

- 10 **1. NALUSWA IRENE** - **2. RONALD MATOVU ……………………………………………… PLAINTIFFS**

#### **VERSUS**

**UGANDA REVENUE AUTHORITY …….……………………………. DEFENDANT**

### 15 **BEFORE: HON. LADY JUSTICE SUSAN ABINYO**

#### **RULING ON A PRELIMINARY OBJECTION**

#### Introduction

During the scheduling proceedings, Counsel for the Defendant raised a preliminary objection that this Court lacks jurisdiction to entertain the matter on 20 grounds that it is a tax issue to be filed before the Tax Appeals Tribunal, and that the filing of the suit before this Honorable Court is premature hence this ruling.

#### Background

That the Defendant carried out investigations leading to a search, and recovered a total of 156 smartphones, which were the Plaintiffs' goods. That on 9th February,

- 25 2015, seizure notice was issued to the 2nd Plaintiff in respect of the 156 phones on grounds of acquisition, and possession of uncustomed, and or smuggled goods vide UGKLA/C37/2/2015-232, and was received by the 2nd Plaintiff on 12th February, 2015. That on 13th February, 2015, the said goods were deposited at the Defendant's custom warehouse for safe custody vide Cargo Receipt No. 236756, - and Notice of Goods Deposited in Customs Warehouse dated 14th 30 February, 2015.

That clearance was to be obtained from Uganda Communication Communications (hereinafter referred to as "UCC"), as the importation of the said phones is regulated under the Communications (Telecommunications and Radio

- 5 Communications Equipment Type Approval) Regulations SI No. 22 of 2005. That this type of approval was therefore, for purposes of informing the auction process, since the Commissioner had already taken a decision for forfeiture, and disposal of the goods by way of auction under part XVIII of the East African Community Customs Management Act, 2004 (hereinafter referred to as the "EACCMA"). - 10 Consequently, the Plaintiffs instituted this suit against the Defendant for recovery of the value of the misappropriated goods under the Defendant's custody, damages for loss of business and income, arising from the conduct of the Defendant's agents (employees), which resulted from the misappropriation of the seized goods. - 15 The Plaintiffs further contended that before they applied for type approval from UCC, they discovered that the Defendants' employees, and or agents had tampered with or misappropriated the goods leading to loss of the same, and to date the said goods have never been recovered as impounded or seized.

### Representation

20 The Plaintiffs were represented by Mr. Ben Kisiki of M/S Atigo & Co. Advocates while the Defendant was represented by Mr. Donald Bakashaba of Legal Services & Board Affairs Department, Uganda Revenue Authority.

### Issues for determination

In accordance with the provisions of Order 15 Rule 3 of the Civil Procedure Rules 25 SI 71-1, this Court framed two issues in regard to the preliminary objection raised by Counsel for the Defendant as follows:

- 1. Whether the dispute herein is a tax dispute? - 2. Whether this Honorable Court has jurisdiction to hear, and determine the 30 dispute before it?

### Issue No. 1: Whether the dispute herein is a tax dispute?

### Submissions by Counsel for the Defendant

Counsel submitted that under the provision of section 253 of the East African Community Customs Act, 2004, this Act takes precedence over domestic laws of

35 the East African Partner states.

- 5 Counsel relied on section 1(k) of the Tax Appeals Tribunal Act, which defines a taxation decision to mean: any assessment, determination, decision, notice or omission, and section 229 of the EACCMA, to submit that the Defendant's issuance of a seizure notice for the Plaintiff's 156 smart phones, squarely falls within the meaning of a taxation decision, and that the right procedure was for the - 10 Plaintiff to file an application for review before the Tax Appeals Tribunal, as required under section 230 of the EACCMA.

Counsel cited the case of *Uganda Revenue Authority Vs Rabbo Enterprises (U) Ltd and Mt. Elgon Hardware Ltd, SCCA No. 12 of 2004,* in support of the above position.

### 15 Submissions in reply by Counsel for the Plaintiffs

Counsel submitted that the case before this Court is not a tax matter to be filed in the Tax Appeals Tribunal because there is no evidence to prove that there was an assessment, and a tax decision made in respect of the objection. That it is clear from Exhibits PE2 dated 7/02/2017, PE3 dated 15/7/2017, PE6 dated 28/7/2017, PE7

20 dated 14/7/2017, and PE15 attached to the plaint, in which the Plaintiffs applied for assessment, and were ready to pay taxes but that the Defendant's employees were not interested in the taxes.

Counsel further submitted that in this case, the Defendant is being held vicariously liable for the acts of its employees, which is a civil matter relating to recovery of

25 goods impounded or seized by the Defendant, misappropriated, and or tampered with, while in the Defendant's custody, and that to date the goods cannot be traced in their originality as seized; that for the Defendant to allege that this is a tax matter is an intention to delay the trial.

Counsel referred to section 1(a) (i) of the Tax Appeals Tribunal Act, Cap 345 (as 30 amended), which defines the term review to mean a taxation decision, and that paragraph (k)thereof provides that a taxation decision means any assessment, determination, decision or notice, to submit that the notice must relate to a taxation decision, and not just any notice issued by the Defendant.

Counsel further referred to section 14(2) of Tax Appeals Tribunal Act, which 35 provides for the powers of the Tax Appeals Tribunal to review a taxation decision in respect of an application properly made before it, and section 16(4) of the Act, which emphasizes that an application for review of a taxation decision follows an objection decision, to submit that when all these provisions of the law are read as 5 an integral whole, it follows that in the current circumstances, there was no taxation decision to warrant an appeal or application for review before the Tax Appeals Tribunal.

Counsel contended that the preliminary objection raised by Counsel for the Defendant is legally misplaced in fact and law. Counsel also relied on the case

- 10 of *Uganda Revenue Authority Vs Rabbo Enterprises (U) Ltd and Mt. Elgon Hardware Ltd (supra)*, to submit that the said case has been misapplied to the current case, as the Supreme Court found that case to be a tax matter, since the taxpayer had not paid taxes over the imported goods after being issued an assessment. - 15 Counsel further contended that the facts in that case are distinguishable from the instant case. In that case, the Defendant had ceased tons of cement, and commercial trucks for nonpayment of tax, and claimed a lien over the goods, while in the current case, the seizure of the goods was for "acquisition and possession of uncustomized, and or smuggled goods…" not for taxes, and that

20 there has never been an assessment for the 156 phones seized or impounded.

Counsel relied on the case of *Commissioner General Vs Meera Investment Ltd, SCCA No. 16 of 2007*, where Justice Kanyeihamba. JSC ( as he then was) stated that having found that the case was not concerned with the mere assessment, demand and refusal to pay tax but with the interpretation of, and relationship

- 25 between the Uganda Revenue Authority Act, and Uganda Investment Act, the issue of the suit being premature does not arise, to submit that the said case is similar to the current case, which is not concerned with the assessment of taxes, demand or refusal to pay the same but is rather for recovery of the value of goods impounded or seized by the Defendant, and misappropriated plus damages - 30 arising out of such inconveniences therefore, the issue of being premature, and this Court lacking jurisdiction to try the same does not arise.

### Submissions in rejoinder by Counsel for the Defendant

Counsel reiterated their earlier submissions on the preliminary objection, and contended further that a taxation decision can either be an assessment, 35 determination, decision, notice or omission, and that all these constitute or formulate a taxation decision; that the Plaintiff's case arose from the Defendant's issuance of a seizure notice, and consequent seizure of their uncustomized goods, and or smuggled goods, which in itself was a taxation decision, and that the 5 proper procedure is that all tax disputes must first be lodged with the Tax Appeals Tribunal, and only taken before the High Court on appeal.

### Determination of the preliminary objection

I have taken into consideration the facts of this case, and the submissions of Counsel for the parties herein above, to find as follows:

- 10 The term "uncustomed goods" is defined under section 1 of the *East African Community Customs Management Act, 2004* (EACCMA), to include dutiable goods on which the full duties due have not been paid, and any goods, whether dutiable or not, which are imported, exported or transferred or in any way dealt with contrary to the provisions of the customs laws. [ Emphasis is mine] - 15 The term "dutiable goods" means any goods chargeable with duty, while the term duty includes any cess, levy, imposition, tax, or surtax imposed by any Act. *(See the interpretation section of the EACCMA)*

"Customs laws" includes this Act, Acts of Partner States and of the Community relating to Customs, relevant provisions of the Treaty, the Protocol, Regulations

20 and Directives made by the Council, and relevant principles of international law. *(See the interpretation section of the EACCMA)*

"Customs" or "the Customs" means the customs departments of the Partner States.

In the instant case, the Defendant contends that this is a tax dispute to be filed in 25 the Tax Appeals Tribunal hence this Court lacks jurisdiction, and the suit should be dismissed.

The Plaintiffs on the other hand contend that the matter before this Court relates to recovery of goods impounded or seized by the Defendant, and or their value. In other words, it is a civil matter relating to recovery of goods impounded or 30 seized by the Defendant, and their value.

It is noteworthy that reference is made to the East African Community Customs Management Act, 2004 as above, by virtue of section 253 thereof, in which the EACCMA takes precedence over the Partner States' laws with respect to any matter to which its provisions relate, such as in this case.

5 The "Commissioner" under section 5(1) of the EACCMA means a Commissioner appointed in accordance with the Partner States' legislation.

There is no doubt in this case that the Commissioner was properly appointed; the issue in contention is whether the seizure of the Plaintiffs goods by the Defendant amounts to a tax dispute? If so, whether this Court has jurisdiction to entertain the

10 suit?

It's trite law that whoever alleges a given fact, and desires the Court to give judgment on any legal right or liability dependent on the existence of any fact, has the evidential burden to prove that fact unless, it is provided by law that the proof of that fact shall lie on another person. *(See sections 101, and 103 of the*

# 15 *Evidence Act, Cap 6*, and *Jovelyn Barugahare Vs Attorney General, S. C. C. A No. 28 of 1993[1994] KALR 190)*

In the instant case, the Defendant contends that it carried out investigations leading to a search, and recovered a total of 156 smartphones, which were the Plaintiffs' goods. Consequently, a seizure notice was issued by the Defendant to the 2nd Plaintiff on 9th 20 February, 2015, in respect of the 156 phones on grounds of acquisition, and possession of uncustomed, and or smuggled goods vide UGKLA/C37/2/2015-232, and was received by the 2nd Plaintiff on 12th February, 2015.

That the said goods were deposited at the Defendant's custom warehouse for safe custody vide Cargo Receipt No. 236756 on 13th 25 February, 2015, and the Notice of Goods Deposited in Customs Warehouse dated 14th February, 2015 as required by law however, clearance was to be obtained from UCC, since the importation of the said phones is regulated under the *Communications (Telecommunications and Radio Communications Equipment Type Approval)* 30 *Regulations, SI No. 22 of 2005*.

A taxation decision means any assessment, determination, decision or notice *(See section 1 (1) (k) of the Tax Appeals Tribunal Act, Cap 345, as amended)***)**

A tax dispute relates to a contention on the tax decision, which arises from any action or omission in the assessment, determination, decision or notice by the 35 Commissioner or any authorized officer.

The term notice is not defined by law however, it is my understanding that the seizure notice in itself is a taxation decision, and not just any notice issued by the Defendant.

- 5 The decision by the Commissioner to classify the Plaintiffs goods as "uncustomed goods" envisaged in the EACCMA, and the issuance of a seizure notice to the 2nd Plaintiff on 9th February, 2015 as above, amounts to a taxation decision by the Commissioner, which was in conclusion of several procedures that had been carried out by the Defendant such as a search, exchange of correspondences - 10 between the parties herein, and UCC in respect of the said goods. These procedures formed an integral part of the final decision reached by the Defendant on the issuance of the seizure notice to the Plaintiffs.

I am fortified in the above finding by the decision in *Uganda Revenue Authority Vs Rabbo Enterprises (U) Ltd & Anor, SCCA No. 12 of 2004*, in which the question 15 as to whether seizure of the Respondents' goods, and vehicles is strictly a tort or a tax dispute, was answered in the affirmative in respect of the tax dispute as follows:

*"In the present case, the lien imposed on the goods, out of which the dispute arose, was premised on a statutory provision- section 144 of the East* 20 *African Customs, and Transfer Tax Management Act, Cap 27.*

*The dispute between the parties arose out of an attempt by URA to use power granted to it by statute to enforce payment of what the tax body perceived as taxes owed by the Respondent. On the other hand, the Respondent denied liability. In such circumstances, there was need to* 25 *resolve the dispute. What would be adjudicated would be whether or not the Respondent in fact, and in law owed tax to URA. This question would have to be resolved before an ancillary question would be determined: whether a statutory lien existed over the goods, whether URA was using the law of seizure appropriately. The said questions involve interpretation of tax* 30 *law, they hinge on the question whether or not the Respondent owed tax to URA. Whether or not an entity owes tax money involves tax assessment and tax decisions. Even where URA is found to have erred in its assessment and subsequent decisions, such error does not amount to a tort. In the circumstances, I find that the seizure arose out of a tax assessment on the* 35 *imported goods…"* [ Emphasis is mine]

It is notable that the facts in Rabbo's case are distinguishable from the instant case. In that case, there was an assessment on the imported goods, in which the Respondent denied liability, and in this case, there was no assessment, since the said goods were allegedly dealt with by the Plaintiffs contrary to the provisions of 5 the customs laws, from which the Commissioner had to issue a seizure notice to the Plaintiffs, as required under section 214 of the EACCMA.

I am cognizant of the fact that any goods, which are imported or transferred or in any way dealt with contrary to the provisions of the customs laws, as in this case, would in practical terms pose a challenge on the assessment of tax payable, and

10 perhaps this explains the classification of the said goods as uncustomed goods.

The submission by Counsel for the Plaintiffs that this is not a tax matter because there is no evidence to prove that there was an assessment, objection to the assessment, and a taxation decision was made in respect of the objection is untenable.

15 For the reasons stated above, the question as to whether this is a tax dispute is answered in the affirmative.

## Issue No.2: Whether this Honorable Court has jurisdiction to hear, and determine the dispute before it?

The term "jurisdiction" means the authority which a court has to decide matters 20 that are litigated before it or to take cognizance of matters presented in a formal way for its decision. The limits of this authority are imposed by statute, charter or commission under which the court is constituted, and may be extended or restricted by similar means. If no restriction or limit is imposed, the jurisdiction is said to be unlimited. A limitation may be either as to the kind and nature of the actions

- 25 and matters of which the particular court has cognizance or as to the area over which the jurisdiction extends, or it may partake of both these characteristics. If the jurisdiction of an inferior court or tribunal (including an arbitrator) depends on the existence of a particular state of facts, the court or tribunal must inquire into the existence of the facts in order to decide whether it has jurisdiction…Where a - 30 court takes it upon itself to exercise a jurisdiction which it does not possess, its decision amounts to nothing." *(See Words and Phrases Legally Defined, Volume 2: D-J at page 497)*

On the question of jurisdiction, the Supreme Court stated in Rabbo's case above 35 that "… the proper procedure therefore is that all tax disputes must first be lodged with the Tax Appeals Tribunal and only taken before the High Court on appeal."

5 It's trite law that jurisdiction is conferred by statute. *(See David B. Kayondo Vs Cooperative Bank (U) Ltd, SCCA No.19 of 1991*, and *Habre International Company Ltd Vs Kassam & Others [1999] 1 E. A 125)*

In the circumstances of this case, this Court finds that the proper procedure was for the Plaintiffs to lodge an application to the Commissioner for review within 10 thirty days of the date of the decision or omission on this matter, pursuant to section 229 of the EACCMA, and any appeal against the decision of the Commissioner made under the aforesaid section would therefore, be lodged with the Tax Appeals Tribunal in accordance with section 230 of the EACCMA.

I am unable therefore, to agree with the submission of Counsel for the Plaintiffs 15 that this is a civil matter, in which the Plaintiffs seek recovery of goods impounded or seized by the Defendant, and their value, and that this Court has unlimited original jurisdiction.

It is notable that the Supreme Court stated in *Commissioner General Vs Meera Investment Ltd, SCCA No.16 of 2007*, that the case was not concerned with the 20 mere assessment, demand and refusal to pay tax but with the interpretation of, and relationship between the Uganda Revenue Authority Act, and Uganda Investment Act, and that the issue of the suit being premature does not arise.

I have taken into account the distinctions in Rabbo's case above, and Meera case to find that Meera case is not very relevant to this case.

25 In the final result, this Court finds that there is merit in the preliminary objection raised by Counsel for the Defendant.

Consequently, this Court makes orders that Civil Suit No. 0658 of 2019 was instituted prematurely.

This suit is accordingly dismissed for lack of jurisdiction with costs to the Defendant.

30 Dated, and delivered electronically this 15th day of May, 2024.

SUSAN ABINYO **JUDGE** 35 **15/05/2024**