Tax Appeals Tribunal Decision Release of Goods in Dispute with Customs>Tax Consultant Kenya

1. The Applicant stated that its request for release of its goods pending appeal had been rejected by the Commissioner. Section 229 (6) of the EACCMA as relates to stay of execution of a decision pending appeal provides that:

JUDGEMENT

1. Before the Tribunal is an application by way of Notice of Motion dated 14th February 2022 and filed on 17th February 2022.The application is supported by an Affidavit of Oscar Mutiso, the Applicant’s Regulatory Manager sworn on 14th February 2022 and filed on 17th February 2022 and a Further Affidavit sworn on 23rd February 2022 filed on 25th February, 2022 seeking for Orders that:-
2. This matter be certified as urgent and be heard ex parte in the first instance
3. Pending the hearing and determination of this application, this Honourable Tribunal orders the release of the Appellant’s assignment customs entry number 22EMKIM400173871
4. Pending the hearing and determination of this application this Honourable Tribunal be pleased to issue a stay of execution of the Respondent’s impugned tax decision and all consequential steps taken in execution and /or enforcement affecting the operation or implementation of the decision under review
5. This Honourable Tribunal be pleased to issue any other order in the interest of justice
6. The costs of this application be provided for.
7. The Respondent has contested the application through a Replying Affidavit sworn by Judy Mwewa, an employer of the Respondent, on the 22nd February, 2022 and filed on the even date.
8. Both parties following the directions of the Tribunal filed written submissions that were duly considered by the Tribunal in arriving at its determination in this ruling.
9. The Applicant stated that its request for release of its goods pending appeal had been rejected by the Commissioner. Section 229 (6) of the EACCMA as relates to stay of execution of a decision pending appeal provides that:

“During the pendency of an application lodged under this section the Commissioner may at the request of the person lodging the application release any goods in respect of which the application has been lodged to that person upon payment of duty as determined by the Commissioner or provision of sufficient security for the duty and for any penalty that maybe payable as determined by the Commissioner. ”

5. The discretion to stay implementation of a decision by the Tribunal is immortalized in Section 18 of the Tax Appeals Tribunal Act which provides that:

‘‘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. ”

6. In considering this application the Tribunal was guided by the decision of the Court of Appeal in Ishmael Kagunyi Thande Vs. Housing Finance Kenya Ltd.,Civil Appln No. Na”57Of20Q6 (Unreported) where the court held as follows on the principles for stay of execution:-

“The jurisdiction of the Court under rule 5(2) (b) is not only original but also discretionary. Two principles guide the court in exercise of that jurisdiction. These principles are well settled. For an applicant to succeed he must not only show that his appeal or intended appeal is arguable, but also that unless the courtgrants him an injunction or stay as the case may be, the success of that appeal will be rendered nugatory. ”

7. In Hamisi Juma Mbava v Amakecho Mbava r2O18leKLR it was held：-

“The appellants need to satisfy the Court on the following conditions before they can be granted the stay orders:

1. Substantial loss may result to the applicant unless the order is made.
2. The application has been made without unreasonable delay, and
3. Such security as the Court orders for the due performance of the decree or order as may ultimately be binding on the applicant has been given by the applicant. ”
4. Based on the foregoing, the Tribunal set out a criteria for granting stay in this application as follows:-
5. There must be an arguable appeal
6. Substantial loss may result to the applicant unless the order is made.
7. the success of that appeal will be rendered nugatory. If the Application is not granted”
8. sufficient security for the potential tax liability has been posted.
9. It was held in Joseph Gitahi GachauS. Another v. Pioneer Holdings (A) Ltd.

& 2 others, Civil Application No. 124 of 2008 that an arguable appeal is

not one which must necessarily succeed, but one which ought to be argued fully before the court: one which is not frivo/ousThe court in Damji Pragji Mandavia v Sara Lee Household & Body Care (K) Ltd, Civil Application No. Nai 345 of 2004.

10. In the present application, the Applicant argues in its Memorandum of Appeal dated 19th May 2021 that it was appealing against the Respondent’s decision to, inter alia, reclassify its goods in a different tariff heading. Based on the grounds set out in the said Memorandum of Appeal the Tribunal determined that the Applicant had an arguable Appeal which requires the Appellant to be accorded an opportunity to vindicate his case without undue interference with its exercise of the right of appeal.
11. On substantial loss Kimaru, J in Century Oil Trading Company Ltd vs. Kenya Shell Limited Nairobi (Milimani) HCMCA No. 1561 of 2007 stated that:

“The word “substantial” cannot mean the ordinary loss to which every judgement debtor is necessarily subjected when he loses his case and is deprived of his property in consequence. That is an element which must occur in every case and since the Code expressly prohibits stay of execution as an ordinary rule it is clear the words “substantial loss” must mean something in addition to all different from that…Where execution of a money decree is sought to be stayed, in considering whether the applicant will suffer substantial loss, the financial position of the applicant and that of the respondent becomes an issue. The court cannot shut its eyes where it appears the possibility is doubtful of the respondent refunding the decretal sum in the event that the applicant is successful in his appeal. The court has to balance the interest of the applicant who is seeking to preserve the status quo pending the hearing of the appeal so that his appeal is not rendered nugatory

and the interest of the respondent who is seeking to enjoy the fruits of his judgement.”

12. TheTribunal was also persuaded by the position adopted in Bungoma High Court Misc Application No 42 of 2011 – James Wangalwa & Another vs. Agnes Naliaka Cheseto that:

“The applicant must establish other factors which show that the execution will create a state of affairs that will irreparably affect or negate the very essential core of the Applicant as the successful party in the appeal. This is what substantial loss would entail. ”

13. In the present application, the Tribunal was alive to the fact that continued stay of the goods at the Port attracted losses such as demurrage charges which the Applicant could not recover from the Respondent even if it was successful in its Appeal.
14. The Court of Appeal in Fred Matiang’i the Cabinet Secretary, Ministry of Interior and Co-ordination of National Government v Miguna Miguna & 4 others [2018] eKLR stated that:-

“Whether or not an appeal will be rendered nugatory depends on whether or not what is sought to be stayed if allowed to happen is reversible; or if it is not reversible whether damages will reasonably compensate the party aggrieved. ”

The court went on to cite Reliance Bank Ltd v Norlake Investments Ltd [2002] 1 EA 227 at page 232.where it was stated:

“The term „nugatory? has to be given its full meaning. It does not only mean worthless, futile or invalid. It also means trifling.

15. Casting the foregoing on the present case, the Tribunal was of the view that withdrawal of the tax sum from the business and the cumulative demurrage charges would render the Appeal nugatory as this coupled with business interruption would be irreversible as the Applicant would not easily be compensated by the Respondent.
16. Furthermore, the Applicant has posted security amounting to Ksh 4,321,441.00 for the duties payable and therefore the Respondent will not suffer any prejudice if the goods are released pending hearing and determination of the Appeal. Moreover, the Tribunal does not see any disclosed flight risk posed by the Appellant.
17. In view of the foregoing, the Tribunal was satisfied that the Appellant had satisfied the criteria for grant of stay of enforcement of the assessed taxes and for the Tribunal to exercise of its discretion donated by Section 18 of the Tax Appeals Tribunal Act.

ORDERS

18. The Tribunal consequently issues the following Orders:
19. The Respondent be and is hereby restrained from the implementation of its decision dated 30th September 2016 pending the hearing and determination of the Appeal.
20. The Respondent to release the Applicant’s goods covered by Entry Number 22EMKIM400113872.
21. The Applicant to pay any undisputed taxes in relation to the consignment in issue.
22. No orders as to costs.
23. It is so ordered.

DATED and DELIVERED at NAIROBI on this  day of March, 2022.

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Janron Consult, Tax Consultant Kenya, Customs Tax Consultant Kenya, Tax Advisory Kenya

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