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Court of AppealDismissedCivil Appeal No. 44 of 2013· [2017] KECA 232 (KLR)

Mastermind Tobacco (K) Ltd v Commissioner of Domestic Taxes & 2 others [2017] KECA 232 (KLR)

Court of Appeal
6 October 2017
PWP. N. WakiDMD. K. MusingaKMK. M'Inoti
3,580 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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Kenya's Court of Appeal confirmed that a drafting error in a tax law does not excuse a company from paying excise duty clearly owed under the statute.

What this practically means

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Executive summary

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The appellant, Mastermind Tobacco (K) Ltd, a licensed manufacturer of the Supermatch cigarette brand, challenged a demand of Kshs 442,205,324 in principal under-declared excise tax and penalty for 2007, and agency notices issued to its bankers, via judicial review seeking certiorari and prohibition. It argued that duty should have been assessed under Category B rather than Category C of the Fifth Schedule to the Customs and Excise Act, that the demand relied on a non-existent fourth column of the Schedule, that the 2008 Finance Act amendments created ambiguity to be construed in the taxpayer's favour, and that the demand was illegal, irrational and breached its legitimate expectation. Majanja J. dismissed the application. On appeal, a unanimous Court of Appeal affirmed. It held that a schedule is an integral part of a statute with full status, and that Part II of the Fifth Schedule, introduced by the Finance Act 2003, specifically governed duty on cigarettes by retail price categories; sections 127 and 137 could not displace it. The missing fourth column was a mere aberration creating no ambiguity of the magnitude benefiting the taxpayer, and the 2008 amendments were irrelevant since the assessment related to the pre-amendment period, with the retail selling price supplied by the appellant itself. The demand was neither illegal nor Wednesbury irrational, and no legitimate expectation arose absent any representation by the respondents, since legitimate expectation cannot operate contrary to a statute. The appeal was dismissed in its entirety with costs to the respondents.

Key legal issues

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01

Whether a schedule to a statute has the same binding force as the body of the Act

Holding

Yes - a schedule is an integral part of the Act and is fully effective like any other provision; the specific regime in Part II of the Fifth Schedule governs excise duty on cigarettes

Reasoning

The Court adopted Halsbury's Laws on the functional construction rule, holding that a schedule is an adjunct to but fully part of the Act, and conflicts between sections and schedules are resolved without regard to where the words appear. It therefore rejected the appellant's attempt to ignore Part II of the Fifth Schedule and rely only on sections 127 and 137, reaffirming its earlier decision in the Mwau case.

p. 5
02

Whether the non-existent fourth column of the Fifth Schedule created ambiguity excusing payment

Holding

No - the reference was an aberration that could not obliterate the clear duty to pay tax; the 2003 amendment made specific provision for charging duty on cigarettes by retail price category

Reasoning

The Court found the argument disingenuous: the 2003 amendment clearly set out categories and rates for cigarettes. The missing fourth column was an irregularity later removed by the Finance Act, 2008, but it created no ambiguity of the magnitude that would favour the taxpayer. Literal interpretation of section 117 to defeat the tax was not warranted.

p. 5
03

Whether the 2008 amendments introduced ambiguity applicable to the disputed assessment

Holding

No - the assessment related to the period before the 2008 amendments, and the retail selling price was supplied by the appellant itself, so there was no ambiguity

Reasoning

The Court held the strict-construction authorities cited by the appellant stated the law correctly but had no application to the facts. For the period in dispute, duty was based on the retail selling price which the appellant itself supplied; hence no confusion or ambiguity arose for that period.

p. 5
04

Whether the tax demand was illegal, irrational or violative of legitimate expectation

Holding

No - the respondents acted within the law and the demand was neither Wednesbury unreasonable nor in breach of any legitimate expectation

Reasoning

Having found legal basis for the demand, the Court held no judicial review remedies could issue. The decision was not arbitrary or lacking in reason or logic. On legitimate expectation, applying Supreme Court and Court of Appeal authority, the appellant established no representation or practice by the respondents, and no legitimate expectation can operate in violation of a statute.

p. 5

Legal principles established

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  • A schedule to a statute is an integral part of the Act, with the same status as the other provisions, and must be given effect like all other provisions of the statute
  • An assessment based on retail selling price specifically provided for in Part II of the Fifth Schedule overrides reliance on the general provisions of sections 127 and 137
  • A reference to a non-existent column in a Schedule, being a mere aberration, does not create ambiguity of the nature or magnitude that would benefit a taxpayer
  • Legitimate expectation cannot arise where effectuating the expectation would violate a statute or where the decision-maker made a representation it had no power to make

Court orders

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  1. 1.The appeal is dismissed in its entirety
  2. 2.Costs of the appeal awarded to the respondents

Authorities

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Legislation

  • Customs and Excise ActCap 472, section 91
  • Customs and Excise ActCap 472, section 117(1)
  • Customs and Excise ActCap 472, section 127(2) and (3)
  • Customs and Excise ActCap 472, section 137(1)
  • Customs and Excise ActCap 472, section 166A
  • Customs and Excise ActCap 472, Fifth Schedule, Part II
  • Kenya Revenue Authority ActCap 469, section 13
  • Finance ActNo. 15 of 2003, section 17
  • Finance Act2008 amendments to Part II of the Fifth Schedule

Cases cited (10)

  • Whitley v. Burns
    [1908] 1 KB 705
  • Inland Revenue Commissioners v. Wolfson
    [1949] 1 All ER 864
  • Inland Revenue Commissioners v. Baldnoch Distillery Co. Ltd.
    (1948) 1 All ER 625
  • T. M. Bell v. The Commissioner of Income Tax
    [1960] EA 244
  • Henry Asava Mudamba v. Institute of Certified Public Accountants of Kenya
    CA No. 210 of 2012
  • Council of Civil Service Unions & Others v Minister for the Civil Service
    [1983] 3 All ER 935
  • Pastoli v. Kabale District Local Government Council & Others
    [2008] 2 EA 300
  • Centre for Rights Education & Awareness & 2 Others v. John Harun Mwau & 6 Others
    CA Nos. 74 & 82 of 2012
  • Communication Commission of Kenya & 5 Others v. Royal Media Services & 5 Others
    SC Petition Nos. 14, 14A, 14B & 14C of 2014
  • Invollate Wacike Siboe v. Kenya Railways Corporation & Another
    CA No. 157 of 2014
On appeal from
High Court at Nairobi
HC JR Misc. App. No. 710 of 2008
Jurisdiction invoked
First appeal to the Court of Appeal against the High Court's judgment dismissing a judicial review application

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "Mastermind Tobacco (K) Ltd v Commissioner of Domestic Taxes & 2 others [2017] KECA 232 (KLR)", Case Analysis (2017). Civil Appeal No. 44 of 2013. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2017/232/eng@2017-10-06

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.