At what point does a legal notice published in the Kenya Gazette become operative

At what point does a legal notice published in the Kenya Gazette become operative

Case Study: Commissioner of Domestic Taxes v Excel Chemicals Limited (Income Tax Appeal E058 of 2023) [2024] KEHC 2440 (KLR) (Commercial and Tax) (8 March 2024) (Judgment)

ECL is a food and beverage manufacturer. KRA reviewed ECL’s returns for excise duty for December 2021 to February 2022 and concluded that ECL had underpaid excise duty for the said period, basing its calculations on Legal Notice No 217 of 2021 (LN 217/2021). Through a letter dated 21st March 2022, KRA demanded the variance in the sum of Kshs.4,855,997.94.

ECL responded to the said demand in a letter dated 29th March 2022, protesting the application of LN 217/2021. ECL argued that their excise duty returns had been filed using the applicable rates contained in Legal Notice No. 194 of 2020 (LN 194/2020) since there were status quo orders on enforcement of LN 217/2021. KRA disagreed with ECL on the applicability of LN 194/2020 and issued its objection decision vide a letter dated 28th April 2022, confirming its additional assessment of Kshs.4,855,997.94

Dissatisfied with this finding, ECL lodged an appeal at the Tax Appeals Tribunal vide a Notice of Appeal dated 23rd May 2022. In a judgment delivered on 17th March 2023, the Tribunal allowed the appeal and set aside the objection decision dated 28th April 2022 confirming the additional assessment of excise duty amounting to Kshs.4,855,997.94

The Tribunal held that the High Court had suspended the implementation of LN 217/2021, which introduced excise duty that is the subject matter of the objection decision. It was the Tribunal’s finding that KRA’s attempt to implement excise duty that had been stayed by a court order was an illegality. The Tribunal confirmed that the applicable rate of excise tax pending the determination of the suit before the High Court was as contained under LN 194/2020.

Being dissatisfied with the Tribunal’s finding, KRA lodged the instant appeal vide a Memorandum of Appeal dated 11th May 2023, raising the following grounds of appeal:

• That the Honorable Tribunal erred in law and fact by holding that the date of gazettement of LN 217/2021 is not the effective date, contrary to Section 23(1) of the Statutory Instruments Act that provides that a statutory instrument shall come into operation on the date specified 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;
• That the Honorable Tribunal erred in law and fact by misapprehending the legislative process as outlined in the Statutory Instruments Act and holding that it was not possible for LN 217/ 2021 to come into effect on 2nd November 2021 when it was forwarded to the National Assembly on the 8th November 2021 and was acceded/approved by the same National Assembly on the 24th November, 2021;
• That the Honorable Tribunal erred in law and fact by misapprehending Section 23(1) of the Statutory Instruments Act that specifically anticipates that a statutory instrument can come into operation on the date of its publication in the Gazette subject to annulment where applicable;
• That the Honourable Tribunal erred, in fact, by failing to appreciate that by the time the High Court was issuing its status quo orders on 19th November 2021 in High Court Petition No. 024 of 2021 as consolidated with Petition E403 of 2021, LN 217/2021 had already become operational by virtue of its gazettement on 2nd November 2021, meaning that status quo meant that LN 217/2021 was the prevailing law;
• The Honourable Tribunal erred in both law and fact by arriving at the conclusion that the High Court had suspended the implementation of LN No. 217/2021, which introduced the excise duty that was the subject matter of the objection decision;
• That the Honourable Tribunal further erred in fact by selectively picking paragraphs of the advocate of KRA herein in an application dated 10th January 2022 to the High Court seeking clarity on status quo orders issued by the High Court on 19th November 2021 and making the finding that KRA herein was aware that it was in breach of the High Court orders by insisting on the implementation of LN 217/2021;
• The Honourable Tribunal erred in both law and fact by holding that the assessment and the objection decision dated 28th April 2022 were illegal and unjustified as they were grounded on LN 217/2021;
• The Honourable Tribunal misapplied the law and facts and therefore arrived at the wrong decision

In its ruling on 08/03/2024, the High Court observed that:

(a) The operative date of LN. 217/2021

• Statutory instruments are a means of delegated legislation, which allow government ministers or other authorities to make detailed orders, rules, or regulations under powers given to them by an Act of Parliament. Legal Notices are typically used to publish these regulations, making them an essential part of implementing and enforcing legislative provisions without the need for passing a new Act of Parliament.
• Section 2 of the Statutory Instruments Act defines a statutory instrument as: “Any rule, order, regulation, direction, form, tariff of costs or fees, letters patent, commission, warrant, proclamation, by-law, resolution, guideline or other statutory instrument issued, made or established in the execution of a power conferred by or under an Act of Parliament under which that statutory instrument or subsidiary legislation is expressly authorized to be issued.”
• LN 217/2021 constitutes a statutory instrument issued by the Treasury in the exercise of delegated powers under section 10 of the Excise Duty Act. Of particular note is section 23(1) of the Statutory Instruments Act, which provides for the commencement of statutory instruments. It provides that:

“A statutory instrument shall come into operation on the date specified 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.” (Judge’s emphasis)

• a statutory instrument should be published in the gazette prior to its presentation before Parliament, section 11(1) of the Statutory Instruments Act mandates that: “Every Cabinet Secretary responsible for a regulation-making authority shall within seven (7) sitting days after the publication of a statutory instrument, ensure that a copy of the statutory instrument is transmitted to the responsible Clerk for tabling before the relevant House of Parliament.”

This provision aligns with the enabling legislation, namely the Excise Duty Act, which, under section 10(2) obligates that the statutory instrument be tabled within 7 days from the date of publication in the Kenya Gazette for consideration by Parliament within 28 days under section 10(3). Section 23(1) of the Statutory Instruments Act implies that Parliament may retrospectively annul a statutory instrument even if it has already come into effect.

• LN. 217/2021 was duly published in the Kenya Gazette on 2nd November 2021, thereafter presented to Parliament on the 8th day of November 2021, and subsequently received parliamentary approval on the 24th day of November, 2021. Consequently, the operative date of LN. 217/2021 was affirmed to be 2nd November 2021, in contradiction to the Tribunal’s determination of 24th November 2021.

(b) The implication of the pending legal suits

• that various suits were filed by various stakeholders in the High Court, seeking to stop the implementation of the excise rates under LN 217/2021, pending the hearing and determination of the petitions being Petition No. 024 of 2021 as consolidated with Petitions E491 of 2021 and E403 of 2021; Pubs, Entertainment & Restaurants Association of Kenya & 2 Others vs National Assembly & 4 Others (the petitions).
• the said petitions were till before the High Court and yet to be determined. The Court does not sit on appeal in its own concurrent jurisdiction decisions. The constitutionality and application of LN 217/2021 must be determined by the Division of the said Court that is seized of the petitions.
• The court agreed with tribunal that the objective of the said directions of 19th November 2021 and 15th December 2021 in the said petitions was to suspend the implementation and coming into effect of LN. 217/2021 until the petitions have been heard and determined. This is in tandem with the Tribunal’s finding
• Legal Notice during the period under review was the previous law, which effectively had not been revoked and was LN. 194/2020. As such KRA’s additional assessment of Kshs.4,855,997.94 with respect to excise duty payable by ECL was invalid and unjustifiable

ECL won on the second ground

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