[2025] KETAT 7 (KLR)

Arysta Lifesciences Kenya Limited v Commissioner of Customs and Border Control (Tax Appeal E930 of 2023) [2025] KETAT 7 (KLR) (17 January 2025) (Judgment)

Neutral citation: [2025] KETAT 7 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E930 of 2023

RM Mutuma, Chair, Jephthah Njagi, D.K Ngala, T Vikiru & M Makau, Members

January 17, 2025

Between

Arysta Lifesciences Kenya Limited

Appellant

and

Commissioner Of Customs And Border Control

Respondent

Judgment

Background 1. The Appellant is a private limited liability company registered under the Companies Act. The Appellant is engaged in the field of Agriculture, Forestry and Fishing.

2. The Respondent is appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and is 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. The Appellant imported a liquid fertilizer described as Foltron Plus vide import entry number 23MBA1M404458164 of 8th August 2023.

4. The Appellant classified the product under 2022 East African Community/Common External Tariff HS Code 3105. 59. 00 which provides for the classification of other mineral or chemical fertilisers containing the two fertilising elements nitrogen and phosphorus.

5. The Respondent issued a Tariff Ruling dated 22nd September 2023 through a letter reference number KRA/C&BC/BIA/THQ/750/09/2023 classifying the imported product under HS code 3824. 99. 90.

6. On 10th October 2023, the Appellant wrote to the Respondent requesting for review of the decision dated 22nd September 2023.

7. On 1st November 2023, the Respondent issued its Review Decision upholding the earlier decision dated 22nd September 2023.

8. On 30th November 2023, the Appellant gave notice of intention to appeal to the Tax Appeals Tribunal against the Commissioner’s Review Decision vide the Notice of Appeal dated and filed on 30th November 2023.

The Appeal 9. The Appeal is premised on the following grounds of Appeal as stated in the Appellant’s Memorandum of Appeal dated 14th December 2023 and filed on 15th December 2023;a.That the Commissioner has misclassified Foltron Plus Fertilizer under the wrong H.S. Code/Tariff No. 3824. 99. 90 (Chemical Products). The correct classification is expressly provided for in the East African Community, Customs Union, Common External Tariff as H.S. Code/Tariff No. 3105. 20. 00 (Mineral or chemical fertilizers containing the three fertilizing elements nitrogen, phosphorus and potassium).b.That under the East African Community, Customs Union, Common External Tariff, there is an explicit Chapter 31 with a heading Fertilizers, wherein fertilizers of various types are classified. Chapter 31 then goes ahead to provide for H.S. Code/Tariff No. 3105. 20. 00 (Mineral or chemical fertilizers containing the three fertilizing elements nitrogen, phosphorus and potassium). The Foltron Plus fertilizer is therefore classified under this tariff category as it expressly matches the description of the product.c.That under the East African Community, Customs Union, Common External Tariff, General Interpretation rules for the classification of goods, rule number 3 provides that: “When by application of Rule 2 (b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:i.The heading which provides the most specific description shall be preferred to headings providing a more general description.ii.Mixtures, composite goods consisting of different materials or made up of different components, and goods which cannot be classified by reference to 3 (a) shall be classified as if they consisted of the material or component which gives them their essential character.”d.That under the East African Community, Customs Union, Common External Tariff, General Interpretation rules for the classification of goods, rule number 4 provides that, “Goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are most akin.”e.That the Commissioner therefore erroneously misapplied the classification of the Foltron Plus Fertilizer to a very distant and inconsistent product category H.S. Code/Tariff No. 3824. 99. 90 (Chemical Products) on the basis that;i.The product contains micro-nutrients (minor elements) that constitute less than 1% of the product. The micronutrients (minor elements) are therefore erroneously applied by the Commissioner to determine the tariff classification of the product. The Commissioner ignored the Macronutrients (major elements) in product classification.ii.Common External Tariff General interpretation rule number 3 (c) which provides that, “When goods cannot be classified by reference to 3 (a) or 3 (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.” The Commissioner misinterpreted the EAC Common External Tariff, General Interpretation rules for the classification of goods.iii.The Commissioner did a laboratory analytical report, on a sample provided by the taxpayer, as indicated on the Commissioner’s decision letter dated 1st November 2023, and this in addition to the above assertions, influenced the decision taken. The taxpayer is yet to receive this laboratory analytical report for further interrogation.

The Appellant Case 10. The Appellant’s case is premised on its;a.Statement of Facts dated 14th January 2024 and filed on 15th January 2024 together with documents attached thereto;b.Witness Statement of Titus Ngatia signed and dated 9th October 2024, filed on 10th October 2024 and admitted on oath by the Tribunal as evidence in chief on 12th November 2024; and,c.Written submissions together with the list of authorities relied upon both dated 29th November 2024 and filed on 2nd December 2024;

11. The Appellant averred that the Respondent erroneously classified the Product, Foltron Plus fertiliser, a liquid fertiliser, under H.S. Code/Tariff No. 3824. 99. 90 (Chemical Products) contrary to the East African Community, Customs Union, Common External Tariff General Interpretation rules for the classification of goods and contrary to previous classification of a similar product.

12. That the appropriate classification is under H.S. Code/Tariff No. 3105. 20. 00 (Mineral or chemical fertilisers containing the three fertilising elements nitrogen, phosphorus and potassium).

13. The Appellant averred that it has on numerous occasions requested the Respondent to provide the laboratory analytical report done by Kenya Revenue Authority on the sample product provided and quoted by the Respondent on its tariff classification decision dated 1st November 2023.

14. That the Appellant is yet to receive this laboratory analytical report for further interrogation. That the matter was raised on the Appellant’s letter to the Respondent dated 10th October 2023.

15. The Appellant submitted that at the heart of any taxation system is the principle of certainty, which ensures that taxpayers can anticipate their obligations with confidence and clarity. This principle is crucial in maintaining trust and compliance in the taxation system.

16. That the actions of the Respondent to challenge and contradict this fundamental expectation by introducing undue complexity and uncertainty through the unjustified re-classification of the Appellant’s product.

17. That while it is the Respondent’s mandate to collect taxes for national benefit, it must not be forgotten that its role must be balanced against the legitimate expectation that taxpayers should not be subjected to arbitrary, excessive and illegal burdens.

18. That this case presents the conundrum created by the Respondent, who seeks to impose an additional tax burden based on its own irregular re-classification of the Appellant’s product, Foltron Plus Fertilizer, due to a micronutrient constituting less than 1% in the product’s composition.

19. The Appellant relied on the case of Sigona Golf Club and Others vs. Commissioner of Domestic (Taxes Income Tax Appeal No. E043 of 2020) where the High Court was explicit that;“While the courts will facilitate legitimate collection of taxes for the economy, at the same time, they have the responsibility to guard against overzealousness, greed, unfairness, and unconscionableness in tax collection.While taxes are an inevitable and legitimate source of government revenue, we cannot tax anything and everything. A tax authority should, in carrying out its functions not take an unpopular and insensitive trajectory that makes tax and tax collection a bitter pill to swallow…”

20. The Appellant submitted that the following should be the issues for consideration and determination by the Tribunal;i.Can a fertilizer with 99% NPK lose its classification due to less than 1% micronutrients?ii.Can Foltron Plus fertilizer be classified under any other category other than fertilizer?iii.Has the Respondent breached the Appellant’s right to legitimate expectation in the reclassification of Foltron Plus Fertilizer?

21. The Appellant submitted that the Respondent erroneously disregarded the macro-nutrient composition of Foltron Plus Fertilizer, which constitutes 99% of its composition, in asserting that the NPK macro-nutrients do not contribute to its essential character.

22. That Foltron Plus contains Nitrogen, Phosphorus, and Potassium (NPK) as its essential constituents, which unequivocally define its nature and primary use as a fertilizer. These macro-nutrients are vital to plant growth and establish the product’s classification under HS Code 3105. 20. 00.

23. That the less than 1% micro-nutrient composition, including Folcysteine, is merely a fortifying agent that enhances the efficacy of the fertilizer. It neither transforms the product into a chemical preparation nor alters its essential purpose.

24. That the Respondent relied on the general note to Chapter 31, which excludes “micronutrient preparations containing small amounts of fertilizing elements. but not as the essential constituents (e.g., Heading 38. 24).”

25. That this argument is misplaced because Foltron Plus is not a micronutrient preparation. Its NPK elements, making up 99% of its composition, are the essential constituents and the defining feature of the product.

26. The Respondent’s attempt to classify Foltron Plus under Heading 38. 24, a residual heading covering miscellaneous chemical products like binders and solvents, is inappropriate. Heading 38. 24 applies to industrial products with no specific agricultural purpose, while Foltron Plus is a nutrient-based fertilizer explicitly designed for plant growth.

27. That the essential character of Foltron Plus as a fertilizer cannot exist without the NPK elements. Removing the NPK composition would strip the product of its primary function as a nutrient provider. Conversely, the absence of the micro-nutrient composition, which constitutes less than 1%, would not change its classification or essential character.

28. The Appellant relied on the case of Coffee Management Services Ltd vs. The Commissioner of Customs & Border Control [2022] eKLR wherein the Tribunal stated that;“However, the Respondent did not provide a laboratory analysis to elucidate the percentage composition of the elements not allowable in each of the two products. The Tribunal further takes note that in accordance with the certificate of analysis, the two products in question constitute boron, copper, iron, manganese and zinc in addition to nitrogen, phosphorus and potassium.The three fertilizing elements of nitrogen, phosphorus and potassium (NPK) constitute approximately 45% in Biofol Triple Max while in Biofol Boron Max they constitute 18%.It is the Tribunal’s view that the inclusion of boron and zinc in Biofol Triple Max and Biofol Boron Max as part of the fortification for the fertiliser does not change the use of the products.The Respondent has not adduced evidence to controvert the Appellant’s assertion that Biofol Triple Max and Biofol Boron Max are fertilisers. The Tribunal is of the further view that GIR1 should be used to classify both products as fertilizers by the terms of Heading 31. 05 of EACCET...”

29. The Appellant submitted that the Respondent’s attempt to classify Foltron Plus under Chapter 38, specifically Heading 38. 24. 99. 90, was fundamentally flawed. That Chapter 38 is intended for general industrial chemicals and miscellaneous products without a defined purpose in agriculture.

30. That Foltron Plus, as a nutrient-based fertilizer containing 99% NPK, meets every requirement under Chapter 31 and specifically Heading 31. 05. To classify it otherwise would be to misapply the tariff code, ignore its agricultural purpose, and create an unjustifiable precedent.

31. That the only logical and legally sound conclusion is that Foltron Plus belongs under Chapter 31, Heading 31. 05, as a chemical fertilizer containing essential nutrients nitrogen, phosphorus, and potassium.

32. The Appellant also relied on the case of Commissioner of Customs and Border Control vs. Lachlan Kenya Limited (Income Tax Appeal E054 of 2021) [2022] eKLR, where the Court affirmed that;“The classification of products under the East Africa Community Customs External Tariff is based on the major primary component and not the micronutrient content and to get the correct tariff one must be guided by the General Rules of Interpretation of the Harmonized Code (GIR).”

33. That guided by the General Rules of Interpretation of the Harmonized Code (GIR), the Appellant submitted that Foltron Plus is a Fertilizer as it contains macro- nutrients consisting of over ninety-nine (99%) being Nitrogen, Potassium, Phosphorus (NPK), whereas, its micronutrients constitute less than one (1%) percent are inclusive of trace-elements such as Zinc, Molybdenum, Arsenic, Cadmium, Mercury and Lead.

34. The Appellant relied on the case of Commissioner of Customs & Border Control vs. Exome Life Science Kenya Limited (Income Tax Appeal E020 of 2023) [2024] where the High Court affirmed that;“Since Chapter 38 applies to chemical products, I align myself with the finding of the Tribunal that the more specific classification of the product would be under Chapter 31 as a fertilizer produced by the mixing or chemical treatment of animal or vegetable products as opposed to a classification under Chapter 38 of the CET.”

35. Further, GIR 3 states that prima facie the most specific description must be accorded to Foltron Plus fertilizer and in ascertaining its classification, its most material components must define its essential character.

36. In agreement with this finding and classification of similar products, the High Court aligned itself with GIR 3 in the case of Commissioner of Customs and Border Control vs. Lachlan Kenya Limited (Income Tax Appeal E054 of 2021) [2022] eKLR where the Court stated that;“From the foregoing and in particular rule 3(a), the Court is of the opinion that the most specific description is chapter 31 of the EAC CET at paragraph 3102. 80. 00 which states “Mineral or Chemical fertilizers, nitrogenous.”Further, under rule 3(b), the Court is of the opinion that the material component which gives Nitro zinc fertilizer its essential component is nitrogen at 30% which falls under chapter 31 of the EAC CET.”

37. That this was the Court’s conclusive and similar finding in Greenlife Crop Protection Africa Ltd vs. Commissioner of Customs and Border Control (Tax Appeal E691 of 2023) [2024] eKLR where it was observed;“Lavender fertilizer cannot fall under this categorization as the product composes 66% Nitrogen, Phosphorous and Potassium, which form its main elements and 0. 75% Micronutrients such as Zinc, boron, manganese, magnesium, iron, molybdenum, copper, cobalt and calcium.These Micronutrients are too little to qualify the product as a chemical composition as opposed to a liquid chemical fertilizer.…that the Appellant was justified in classifying the product Lavender Total as 2022 EAC/CET Code 3105. 90. 00 and the Respondent was not justified in reclassifying the Appellant’s goods under HS Code 3824. 99. 90 “Other” as opposed to the Appellant classification HS Code 3105. 90. 00. ”

38. The Appellant submitted that ordinarily, the burden of proof as enunciated under Section 56 (1) of the Tax Procedure Act and Section 30 of the Tax Appeals Tribunal Act is on the Appellant.

39. That however, it is imperative to note that this burden shifts to the Respondent where the Appellant has presented sufficient evidence to demonstrate its own tariff classification.

40. That this was the Court’s finding in Kenya Revenue Authority vs. Man Diesel & Turbo Se, Kenya [2021] eKLR where the Court observed: -“The shifting of the burden of proof in tax disputes flows from the presumption of correctness. The commissioner's determinations of tax deficiencies are presumptively correct.Although, the presumption created by the above provisions is not evidence in itself, the presumption remains until the taxpayer produces competent and relevant evidence to support his position. If the taxpayer comes forward with such evidence, the presumption vanishes, and the case must be decided upon the evidence presented…”

41. The Appellant submitted that it produced sufficient evidence to merit its classification of the Foltron Plus Fertilizer under HS Code 3105. 20. 00.

42. The Appellant submitted that the Respondent’s attempt to reclassify the product under HS Code 3824. 99. 90 is not only legally untenable but also irrational. It relies on emphasizing a minor element (less than 1% micronutrients) while disregarding the overwhelming majority of the product’s composition and its fundamental purpose as a nutrient-based fertilizer. Such an argument is arbitrary, inconsistent with classification principles, and undermines the integrity of the Harmonized System.

43. That in contrast, HS Code 3105 accurately reflects Foltron Plus’s agricultural purpose and essential character. The Appellant has provided clear, uncontested evidence to substantiate this classification, supported by precedent and the explicit language of the tariff notes.

44. The Appellant also relied on the High Court’s finding in the case of Commissioner of Customs & Border Control vs. Western Seed Ltd (Income Tax Appeal E035 of 2023) where the court emphasized as follows;“In view of the foregoing, this court agrees with the Tribunal’s position that the Respondent’s product being a fertilizer and having contained nitrogen and phosphates as the essential character was classifiable under Chapter 31 on fertilizers.The Court has further considered Chapter 38. 24 to which the Appellant relies on and notes that the same was a general classification with respect to chemicals.The Court’s finding is that the Respondent’s product qualifies to be classified as fertilizer under HS Code 3105. 90. 00. The Tribunal’s decision was guided by the principles of classification of goods provided for under the Harmonized Systems Convention as well as the EACCET.”

The Appellant’s Prayers 45. The Appellant prayed for orders that the said be vacated, the Appeal to the Tribunal to admit the Appellant’s objection to the Commissioner’s decision.

The Respondent’s Case 46. The Respondent’s case was premised on its;a.Statement of Facts dated 18th January 2024 and filed on 22nd January 2024 together with the documents attached thereto;b.Witness Statement of Thaddeous Ogoti signed and dated 25th October 2024, filed on the same date and admitted on oath by the Tribunal as evidence in chief on 12th November 2024;c.Written submissions dated and filed on 5th August 2024; and,d.The supplementary written submissions dated 2nd December 2024 and filed on 3rd December 2024.

47. The Respondent averred that it took into account the provisions of the Custom Tax Nomenclature classification and the General Interpretation Rules and applied it correctly when classifying the Appellant’s imported product.

48. That Chapter 31 covers classification of chemical fertilizers as specified in the limitive lists in Heading 31. 02 - mineral or chemical fertilizers; nitrogenous, 31. 03 - mineral or chemical fertilizers; phosphatic, 31. 04 - mineral or chemical fertilizers; potassic, and 31. 05 - Mineral or chemical fertilisers containing two or three of the fertilizing elements nitrogen, phosphorus and potassium; other fertilizers; goods of this Chapter in tablets or similar forms or in packages of a gross weight not exceeding 10 kg.

49. That further, the general notes to Chapter 31 excludes micronutrient preparations which are applied to seeds, to foliage or to soil to assist in seed germination and plant growth. That they may contain small amounts of the fertilising elements nitrogen, phosphorus and potassium, but not as essential constituents (such as Heading 38. 24).

50. The Respondent contented that Heading 38. 24 covers the classification of prepared binders for foundry moulds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included.

51. The Respondent averred that as per the terms of Heading 38. 24, the heading provides for, in pertinent part, the classification of chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products).

52. That ultimately considering the composition of the product also includes micronutrients and a biostimulant, tariff classification can not only be limited to the macronutrients - Nitrogen, Phosphorous and Potassium.

53. That the Appellant's product, Foltron Plus is specified to be a foliar agricultural nutritional formulation with a mixture of micronutrients and thus cannot be classified within the scope of Chapter 31.

54. The Respondent submitted that it derived the information used to classify the product from the Appellant which is a data sheet attached to the import declaration.

55. That the document indicated that the product is a foliar fertilizer that is enriched with lignin and folcysteine used for the correction of nutrient deficiencies that negatively influence plant growth resulting in reduction of abortion of flowers and fruits. That the document also highlights the contents of the fertilizer to be as follows; Nitrogen (N), Phosphorous (P), Potassium (K), Iron (Fe), Zinc (Zn), Magnesium (Mg), Manganese (Mn), Boron (B), Molybdenum (Mo), Copper (Cu) and Folcysteine.

56. That the manufacturer is required to set down information concerning the product including but not limited to product description, contents of the product, use of the product and warnings concerning the product. Consumers are entitled to information on the product pursuant to Article 46 of the Constitution.

57. That the information from the manufacturer will be relied upon by potential buyers for use and classification for tax purposes during importation.

58. That when the Appellant contested the Tariff classification, they brought a lab analysis which differed from what was initially availed. That a review of the alleged lab analysis indicated that the product contained; Nitrogen, Potassium, Phosphorous and micro elements such as zinc, molybdenum, arsenic, cadmium, mercury and lead.

59. The Respondent submitted that a fertiliser with Nitrogen, Phosporous and Potassium together and/or alone will thus fall under Chapter 31 of the EACCET. Chapter 31 of EACCET does not apply in this case because there is the presence of other trace nutrients which are essential to plant development and growth.

60. The Respondent submitted that the terms of Heading 3824 are appropriate, itemizing several items that fall under the heading including “chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included.”

61. That Foltron Plus is a chemical mixture whose composition of constituent elements eliminates it from classification under any other chapter heading. Since the nature of this composition is not anywhere else provided, it rightly falls under Heading 3824. Specifically, Section 3824. 90. 99.

Respondent’s Prayers 62. The Respondent prayed that the Appellant’s Appeal be dismissed with costs and the Tribunal find that the Commissioner’s proposed classification under HS Code 3824. 99. 90 (Prepared binders for foundry moulds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included) falls within the language of the Tariff Heading, Section and Chapter Notes and was within the interpretation rules of the General Interpretation Rule.

Issues For Determination 63. The Tribunal has considered the parties pleadings, documentation and submissions and is of the view that the only issue for determination in this Appeal is;Whether the Respondent was justified in re-classifying the Appellant’s Foltron Plus from HS Tariff Code 3105. 59. 00 to HS Tariff Code 3824. 99. 90.

Analysis And Findings 64. Having identified the issue for determination in this Appeal, the Tribunal will proceed to analyse it as hereunder.

65. The genesis of this Appeal is the Review Decision made by the Respondent on 1st November 2023 re-classifying the foliar fertilizer known as Foltron Plus, imported by the Appellant from HS Code 3105. 59. 00 to HS Code 3824. 99. 90.

66. The Appellant’s averments were that Foltron Plus contains Nitrogen, Phosphorus, and Potassium (NPK) as its essential constituents, which unequivocally define its nature and primary use as a fertilizer. These macro-nutrients are vital to plant growth and establish the product's classification under HS Code 3105. 20. 00.

67. That the less than 1% micro-nutrient composition, including Folcysteine, is merely a fortifying agent that enhances the efficacy of the fertilizer. It neither transforms the product into a chemical preparation nor alters its essential purpose.

68. The Appellant submitted that the Respondent relied on the general note to Chapter 31, which excludes “micronutrient preparations containing small amounts of fertilizing elements but not as the essential constituents (e.g., Heading 38. 24).”

69. That this argument was misplaced because Foltron Plus is not a micronutrient preparation. Its NPK elements, making up 99% of its composition, are the essential constituents and the defining feature of the product.

70. The Appellant submitted that the Respondent’s attempt to classify Foltron Plus under Heading 38. 24, a residual heading covering miscellaneous chemical products like binders and solvents, is inappropriate.

71. The Appellant submitted that Heading 38. 24 applies to industrial products with no specific agricultural purpose, while Foltron Plus is a nutrient-based fertilizer explicitly designed for plant growth.

72. One of the Appellant’s grounds of Appeal was that under the East African Community, Customs Union, Common External Tariff, there is an explicit Chapter (31), with a heading Fertilizers, wherein fertilizers of various types are classified. That chapter 31 then goes ahead to provide for H.S. Code Tariff Number 3105. 20. 00 (Mineral or chemical fertilizers containing the three fertilizing elements nitrogen, phosphorus and potassium). The Appellant argued that Foltron Plus fertilizer is therefore classified under this tariff category as it expressly matches the description of the product.

73. The Appellant relied on the EAC Common External Tariff, General Interpretation rules for the classification of goods, rule number 3 provides that;“When by application of Rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows;a.The heading which provides the most specific description shall be preferred to headings providing a more general description.b.Mixtures, composite goods consisting of different materials or made up of different components,....., and goods which cannot be classified by reference to 3(a) shall be classified as if they consisted of the material or component which gives them their essential character.”

74. The Appellant submitted that the Respondent’s attempt to classify Foltron Plus under Chapter 38, specifically Heading 38. 24. 99. 90, was fundamentally flawed. That Chapter 38 is intended for general industrial chemicals and miscellaneous products without a defined purpose in agriculture.

75. The Appellant submitted that the Tribunal and the High Court had dealt with similar matters which form precedents that are binding to the Tribunal. The Appellant cited the following among other cases;a.Coffee Management Services Ltd vs. The Commissioner of Customs & Border Control [2022] eKLR;b.Commissioner of Customs and Border Patrol vs. Lachlan Kenya Limited (Income Tax Appeal E054 of 2021) [2022] eKLR;c.Commissioner of Customs & Border Control vs. Exome Life Science Kenya Limited (Income Tax Appeal E020 of 2023) [2024];d.Greenlife Crop Protection Africa Ltd vs. Commissioner of Customs and Border Control (Tax Appeal E691 of 2023) [2024] eKLR; and,e.Commissioner of Customs & Border Control vs. Western Seed Ltd (Income Tax Appeal E035 of 2023).

76. On the other hand, the Respondent averred that the general notes to Chapter 31 exclude micronutrient preparations which are applied to seeds, to foliage or to soil to assist in seed germination and plant growth. They may contain small amounts of the fertilising elements nitrogen, phosphorus and potassium, but not as essential constituents.

77. That Heading 38. 24 covers the classification of prepared binders for foundry moulds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included.

78. The Respondent submitted that as per the terms of Heading 38. 24, the heading provides for, in pertinent part, the classification of chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products).

79. The Respondent submitted that the Appellant's product, Foltron Plus is specified to be a foliar agricultural nutritional formulation with a mixture of micronutrients and macronutrients and thus cannot be classified within the scope of Chapter 31.

80. The Respondent submitted that a fertiliser with Nitrogen, Phosphorous and Potassium together and/or alone will thus fall under Chapter 31 of the EACCET. Chapter 31 of EACCET does not apply in this case because there is the presence of other trace nutrients which are essential to plant development and growth.

81. The Tribunal has handled disputes similar to the current one and ruled in favour of the taxpayers. The Respondent went ahead and filed Appeals in the High Court of Kenya which upheld the decision of the Tribunal.

82. The Tribunal relies on the High Court holding in the case of Commissioner of Customs & Border Control vs. Exome Life Science Kenya Limited (Income Tax Appeal E020 of 2023) [2024] where the High Court affirmed that;“Since Chapter 38 applies to chemical products, I align myself with the finding of the Tribunal that the more specific classification of the product would be under Chapter 31 as a fertilizer produced by the mixing or chemical treatment of animal or vegetable products as opposed to a classification under Chapter 38 of the CET.”

83. Further the Tribunal is bound by the decision in the case of Commissioner of Customs & Border Control vs. Western Seed Limited (Income Tax Appeal E035 of 2023) where the High Court emphasized as follows;“In view of the foregoing, this court agrees with the Tribunal’s position that the Respondent’s product being a fertilizer and having contained nitrogen and phosphates as the essential character was classifiable under Chapter 31 on fertilizers.The Court has further considered Chapter 38. 24 to which the Appellant relies on and notes that the same was a general classification with respect to chemicals.The Court’s finding is that the Respondent’s product qualifies to be classified as fertilizer under HS Code 3105. 90. 00. The Tribunal’s decision was guided by the principles of classification of goods provided for under the Harmonized Systems Convention as well as the EACCET.”

84. The Tribunal also relies on its holding and finding in a similar matter in TAT E691 of 2023 Greenlife Crop Protection Africa Limited vs. Commissioner of Customs and Border Control where from paragraphs 141 to 145 the Tribunal stated;141. The Kenya Fertilizers Act Cap 345 Laws of Kenya defines a fertilizer to mean any substance or mixture of substances which is intended or offered for improving or maintaining the growth of plants or the productivity of the soil, but does not include manure, compost, wood ash, gypsum or refuse when sold in its original condition and under the same name, nor does it include organic fertilizers, other than lime.142. The Tribunal further notes that fertilizers are classified under Chapter 31 of the EAC CET 2017. “Heading 3105 provides for Mineral or chemical fertilizers containing two or three of the fertilizing elements nitrogen, phosphorus and potassium, other fertilizers and goods of this Chapter in tablets or similar forms or in packages of a gross weight not exceeding 10 kg.”143. The Tribunal, from the foregoing analysis, therefore is persuaded by the Appellants classification of the product Lavender Total using GIR 1 to classify the product as a fertilizer. GIR 1 states: “Rule 1The titles of Sections, Chapters and sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions: The legal elements of classification are: the terms of headings;

Section or Chapter Notes; and

if not prevented by the two elements above, the remaining General Interpretative Rules.

For legal purposes classification is determined by the terms of the headings, the Section or Chapter Notes where relevant, and, if necessary and allowable, the other GIRs. Where the terms of the headings and any relevant Notes leave only one heading open for consideration, or they direct either the classification or the means of classification, then only GIR 1 is used at heading level.”144. In conclusion the Tribunal finds that the Appellant was justified in classifying the product Lavender Total as 2022 EAC/CET Code 3105. 90. 00 which states as follows; “Chapter 31 – Fertiliser. Heading 05 - Mineral or chemical fertilisers containing two or three of the fertilising elements nitrogen, phosphorus and potassium; other fertilisers; goods of this Chapter in tablets or similar forms or in packages of a gross weight not exceeding 10 kg.

99. 00 – ‘Other’.”as opposed to the Respondent classification 2022 EAC/CET Code 3824. 99. 00 which states as follows” Chapter 38 - Miscellaneous chemical products. Subheading 24 - Prepared binders for foundry moulds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included.

99. 00 which reads ‘Other’.”145. The net effect is that the Tribunal finds that the Respondent was not justified in reclassifying the Appellant’s goods under HS Code 3824. 99. 90 “Other” as opposed to the Appellant classification HS Code 3105. 90. 00. ”

85. In the instant Appeal, the Tribunal notes that although the Appellant provided a sample to the Respondent and that Laboratory analysis of the sample was carried out, no results of the Laboratory analysis were provided to the Appellant or to the Tribunal.

86. In absence of contradicting evidence, the Tribunal holds that Foltron Plus is not a micronutrient preparation. Its NPK elements, making up 99% of its composition, are the essential constituents and the defining feature of the product. The less than 1% micro-nutrient composition, including Folcysteine, is a fortifying agent that enhances the efficacy of the fertilizer. It neither transforms the product into a chemical preparation nor alters its essential character. The Respondent did not adduce evidence to controvert the Appellant’s assertions.

87. The Tribunal agrees with the Appellant that Chapter 38 is intended for general industrial chemicals and miscellaneous products without a defined purpose in agriculture and that Foltron Plus, as a nutrient-based fertilizer containing 99% NPK, meets every requirement under Chapter 31 and specifically Heading 31. 05.

88. Based on the evidence provided and the case laws presented above, the Tribunal holds and finds that Respondent was not justified in re-classifying the Appellant’s Foltron Plus from HS Tariff Code 3105. 59. 00 to HS Tariff Code 3824. 99. 90.

Final Decision 89. The upshot of the foregoing is that the Appeal succeeds and the Tribunal proceeds to issue the following final Orders;a.The Appeal be and is hereby allowed;b.The Respondent’s Review Decision dated 1st November 2023 be and is hereby set aside; and,c.Each party to bear its own costs.

90. It is so ordered

DATED AND DELIVERED AT NAIROBI THIS 17H DAY OF JANUARY 2025ROBERT M. MUTUMA - CHAIRMANJEPHTHAH NJAGI - MEMBERDELILAH NGALA - MEMBERDR. TIMOTHY B. VIKIRU - MEMBERMUTISO MAKAU - MEMBER