[2023] KETAT 500 (KLR)

Bobeco Limited v Commissioner of Customs & Border Control (Appeal 144 of 2022) [2023] KETAT 500 (KLR) (1 September 2023) (Judgment)

Neutral citation: [2023] KETAT 500 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 144 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, Jephthah Njagi & AK Kiprotich, Members

September 1, 2023

Between

Bobeco Limited

Appellant

and

Commissioner Of Customs & Border Control

Respondent

Judgment

1. The Appellant is a private limited company incorporated in Kenya under the Companies Act, 2015 laws of Kenya.

2. The Respondent is appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and Kenya Revenue Authority 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 Respondent conducted a desk audit of the Appellant's imports of solar water heaters for the year 2016. Following the audit, the Respondent issued a demand notice of Kshs. 8,683,125. 00 on 3rd December 2021 relating to additional import duty and VAT.

4. The Appellant, vide its tax agent, wrote back to the Respondent on 7th December 2021 objecting to the classification under HS Code 8516. l0. 00 and further requested the Respondent to re-evaluate the classification of solar water heaters.

5. The Respondent delivered its review decision on 3rd January, 2022.

6. The Appellant thereafter filed a Notice of Appeal on 3rd February 2022.

The Appeal 7. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated and filed on 11th February 2022:a.That the Respondent erred in law and fact by raising a demand of Kshs 8,683,125. 00 arrived at by incorrectly classifying the Appellant's solar water heaters (hereinafter referred to as “the Appellant's product”) under tariff 8516. 10. 00 as opposed to the tariff code 8419. 19. 00 which solar water heaters are classifiable under;b.That the Respondent erred in law and in fact in finding that the Appellant's product fell under HS Code 8516. 10. 00, despite the fact that the product does not fit within the heading, sections, and explanatory notes of the previously mentioned classification;c.That the Respondent erred in law and fact in failing to appreciate that solar water heaters imported by the Appellant do not meet the threshold envisaged by tariff code 8516. l0. 00 of the East African Community Common External Tariff (EAC/CET) (APPENDIX A).Heading 85. 16 provides for “Electric instantaneous or storage water heaters and immersion heaters; electric space heating apparatus and soil heating apparatus; electro-thermic hair-dressing apparatus (for example, hair dryers, hair curlers, curling tong heaters) and hand dryers; electric smoothing irons; other electro-thermic appliances of a kind used for domestic purposes; electric heating resistors, other than those of heading 85. 45. ”In particular HS Code 85I6. 10. 00 provides for “Electric instantaneous or storage water heaters and immersion heaters.”d.That the explanatory notes further categorize the HS Code 8516. 10. 00 to include geysers, storage water heaters, dual- system water heaters, electrode hot water boilers, immersion heaters and electric equipment for producing boiling water.e.That the Respondent further erred in law and fact by classifying the solar water heaters imported by the Appellant as dual-system heaters on the basis of Explanatory Note A to Heading 85. 16 (APPENDIX B) which reads as follows:“(A) Electric Instantaneous Or Storage Water Heaters And Immersion HeatersThis group includes:I. Geysers in which the water is heated as it flows through.(2)Storage water heaters (whether or not of the pressure type), i.e. heat-insulated tanks with immersion heating elements. In these heaters water is heated gradually.(3) Dual-system heaters in which the water is heated either electrically or by connection to a fuel-heated hot water system; they are often equipped with a thermostatic control to operate them electrically only when the alternative means is insufficient.”f.That the Respondent erred in law and fact by stating that a dual-system heater operates under both solar power and electricity when it is noticeably clear from the Explanatory Notes above that water in dual- system heaters is heated either electrically or by connection to a fuel- heated hot water system. It is on the basis of this flawed misinterpretation of the law that the Respondent misclassified the Appellant's product.g.That the Respondent erred in law and fact by failing to appreciate dual- system heaters do not operate under both solar and electricity as alleged by them. Dual-system heaters are in fact explicitly defined in the Explanatory Notes to Heading 85. 16 as, “system in which the water is heated either electrically or by connection to a fuel heated hot water system”h.That the Respondent erred in law and fact by failing to appreciate that the key consideration in dual-system heaters is how the water in the storage tank is heated. The water can be heated directly by an electric powered element or through a connection to a fuel heated hot water system. It is generally accepted that fuel means; materials such as coal, gas or oil that is burned to produced heat or power.i.That the Respondent erred in law and fact by failing to appreciate that the suns thermal energy is not named, listed, or understood to be a source of heat in a dual-system heater. It cannot be overstated that the principal heating system in a solar water heating system is the suns thermal energy and not electricity as alleged by the Respondent. Similarly, Appellant's solar water heaters lack connection to a fuel heated system and as such cannot qualify under heading 85. 16 EAC/CET.j.That the Respondent erred in law and fact by failing to appreciate that the nature of the product in dispute is not a dual-system heater but rather a solar water heater with a provision of an electric element to heat the water connected to a storage tank.k.That the Respondent erred in law and fact by failing to appreciate that Heading 8419. 19. 00 (AppendixC) as read together as read together with Chapter 84 Explanatory Notes (EN) provide for the most accurate classification of solar water heaters. For the avoidance of doubt, the General EN to Chapter 84, EAC/CET (AppendixD), state in relevant part:“(A) General Content Of The Chapter“...this Chapter covers all machinery and mechanical appliances, and parts thereof, not more specifically covered by Chapter 85. .."It should also be noted that machinery and apparatus of a kind covered by Chapter 84 remain in this Chapter even if electric, for example:I. Machinery powered by electric motor.(2)Electrically heated machinery, for example, electric central heating boilers of heading 84. 03, machinery of heading 84. 19 and other machinery (e.g., calendars, textile washing or bleaching machines or presses) incorporating electrical heating elements.”l.That in addition EN to Heading 8419. 19. 00 (APPENDIX E) reads in the relevant part, “The apparatus described above is essentially used industrially, but the heading also covers nonelectric instantaneous water heaters and storage water heaters, including solar water heaters, domestic or not. If electrically heated, such appliances are excluded (heading 85. I6)·”m.That the Respondent erred in fact by implying in their review decision, that in solar water heating systems incorporating an electrical heating element, the system would not be effective in heating water when the solar energy is inadequate. However, the system would work perfectly without the solar component. That this inference by the Respondent is flawed and failed to consider that the solar water heating systems imported by the Appellant are solely powered by the suns thermal energy which gives them their essential character and ability to perform their principal function of heating water through the solar energy otherwise they would not be termed as solar water heating systems.n.That the Respondent erred in fact in failing to appreciate that the principal heating system in the solar water heaters imported by the Appellant is solar energy (suns thermal energy) and that they are not heated electrically or by connection to a fuel heated system and thus cannot be classil1ed under heading 85. 16 of the EAC/CET.o.That the Respondent erred in law and in fact by opting to base their decision on an alleged World Customs Organization (WCO) opinion dated 3rd November 2021 whose veracity is highly in doubt. That the alleged opinion is incomplete and lacks a signature and the capacity in which the sender is allegedly proffering the opinion.p.That the Respondent breached the Appellant's right to access information in line with Article 35 of the Constitution of Kenya, by denying the Appellant access to information that is very crucial to this dispute. The said information requested by the Appellant included:i.A copy of the Kenya Revenue Authority's letter submitted to the WCO Secretariat dated 30th August 2021 requesting the Secretariat's advice on a product named “dual-system solar water heater” and further presented their submissions to the Secretariat for consideration; andii.A complete signed copy of the WCO decision from the Secretariat dated 3rd November 2021. q.That the Respondent erred in law and fact by failing to appreciate that goods classified under Heading 84. 19 are subject to pre-export verification of conformity (PVoC) through a physical inspect1on by SGS as the appointed agent of Kenya Bureau of Standards. If any discrepancy with what was declared would have been found, it would have been reported and goods could have not entered the Country.r.That the Respondent erred in law and fact by failing to appreciate that the Appellant's goods were subjected to two inspections, both conducted by personnel appointed by the Respondent, one at the point of origin and one at the point of entry, and neither found any discrepancy with what was declared or confusion/ error with the code applied.s.That the Respondent erred in law and fact by failing to appreciate that the Respondent through its agents and/or representatives created a legitimate expectation when its customs officers at the point of clearance verified the containers, examined the imports, sighted the solar water heating systems imported by the Appellant and established that the declared tariff code 8419. 19. 00 was correct, and at no point in time did the officers raise concerns on the classification. That as a result, the Appellant relied on this legitimate expectation to its detriment.t.That the Respondent erred in law and fact by failing to appreciate the presumption of regularity providing that all official acts are done properly, and all procedures were lawfully followed. Upon verification of the containers, examination of the imports and approval by the Respondent and/ or their agents that tariff code 8419. 19. 00 was correct, the Appellant had no reason to doubt the procedure and eventually the outcome and correctness of its declaration.u.That the Respondent erred in law and fact by failing to appreciate that was there a discrepancy with regards to the tariff classification, it should have been raised in the first instance and at the point of entry upon inspection by the Respondent and/or their agents. The failure to do so is solely attributable to the Respondent and should not be held against the Appellant as he was relying on the presumption of regularity.

Appellant’s Case 8. The Appellant’s case is premised on the following documents:a.The Appellant’s Statement of Facts dated 11th February 2022 together with the documents attached thereto and proceedings before the Tribunal.b.The Appellant’s written submissions dated 3rd January, 2023 and filed on 5th January, 2023 together with the authorities attached thereto

9. That should there have been a discrepancy with regards to the tariff classification, it should have been raised in the first instance and at the point of entry upon inspection by the Respondent and/or their agents. The failure to doso is solely attributable to the Respondent and should not be held against the Appellant as it was relying on the presumption of regularity.

10. That by allowing the goods past the ports and accepting the declared tariff code by the Appellant, the Respondent is now estopped from denying the same as it was on reliance of its acceptance that the Appellant went ahead to sell the goods within the Country. That any holding contrary to declared tariff classification will lead to the detriment of the Appellant whose actions were wholly reliant on the approvals provided by the Respondent and/ or their agents at the point of inspection.

11. That in regard to the WCO Secretariat decision, the Respondent has stated that the Commissioner does not find it necessary to share the complete findings of the WCO decision as well as their letter submitted to the WCO Secretariat dated 30th August 2021, unless the Appellant has doubts on the authenticity of the decision.

12. That in as much as the Appellant does not doubt the authenticity of the decision, it is more concerned that the argument made by the WCO decision in response to the Respondent's query, may have been compromised by the wrongly formulated question; that expressly enquires about “dual-system water heaters”, a term which carries implications which go beyond the nature of the goods imported by the Appellant.

13. That the Appellant’s request for information relating to the WCO decision is well within the Appellant's right to access information in line with Article 35 of the Constitution of Kenya, a right which the Respondent has breached by denying the Appellant access to information that is very crucial to this dispute. The Appellant reiterates the provisions of Article 35 as below:“35. Access to information1. Every citizen has the right to access to-a.information held by the State; andb.information held by another person and required for the exercise or protection of any right or fundamental freedom.2. Every person has the right to the correction or deletion of untrue or misleading information that affects the person.3. The State shall publish and publicise any important information affecting the nation.”

14. That the Appellant and the solar industry at large have all along, in their imports relied on HS Code 8419. 19. 00, a code that is applied internationally. That it is also important to note that most suppliers, when requested to export using a different HS Code other than 8419. 19. 00a, completely disregarding the request on the basis that, it would be inconsistent with HS Codes that apply to exports of solar water heaters worldwide. That the question the Appellant poses at this juncture therefore is, why would Kenya have a different classification for the same product when compared to other jurisdictions, yet we are all governed by the same principles of the World Customs Organization.

15. That from the foregoing, the Respondent has erred in fact and in law by:a.Failing to consider detailed explanation, documentation and evidence provided by the Appellant on solar water heaters and why the Appellant's goods are considered and classified as such under HS Code 8419. 19. 00. b.Proceeding to confirm the tariff classification of the solar water heaters as 8516. 10. 00 and, it's demand notice on the Appellant.

Appellant’s Prayers 16. The Appellant prays for the following orders:a.That this Appeal be allowed.b.That the Respondent's demand notice dated 25th November 2021 and subsequent review decision dated 3rd January 2022 be set aside.c.That the Appellant's declaration of its solar water heaters under tariff classification 8419. 19. 00 be allowed to stand.d.That the Respondent be restrained from taking any enforcement mechanisms with respect to the demand for taxes in the years of contention pending the determination of this matter.

The Respondent’s Case 17. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal: -a.The Respondent’s Statement of Facts dated and filed on 11th March, 2022 together with the documents attached thereto.b.The Respondent’s written submissions dated and filed on 23rd January, 2023 together with the legal authorities filed therewith.

18. That General Interpretation Rules (GIR) as cited in the East Africa Community Common External Tariff (CIT) govern classification of goods. According to GIR1, classification shall be determined according to the terms of the headings and any relative section or chapter notes and, provided the headings or notes do not require otherwise, according to GRls 2 through 6.

19. That the Harmonized Commodity Description and Coding System Explanatory Notes as well as the additional notes constitute the official interpretation of the Common External Tariff and provide the scope of each heading under the EAC CIT.

20. That it is imperative to note that tariff classification in Kenya is governed by the East Africa Community Customs, Common External Tariff 2017 read together with its explanatory notes, guided further by the General Interpretation Rules of classification and also based on the sample material presented and material information availed.

21. That the legal force governing HS tariff classification is premised on the WCO Harmonized Commodity Description Coding System principles of General Interpretative Rules (GI Rs) of classification, which was adopted and codified by the East African Community Partner States through the Common External Tariff (CET) book.

22. That the goods for tariff determination for this case and purposes is classified as presented at the time of importation.

23. That this tariff system is premised on the World Customs Organization Harmonized Commodity description coding system and its principles of general interpretative Rules (GIRs) of classification.

24. That further, the said EAC CET is derived from and informed by the International Convention on the Harmonized Commodity Description and coding system, to which Kenya and indeed all members of the East African Community are signatories.

25. That following the sequence of events the Respondent has exercised due diligence, by involving the Appellant in the deliberation of this matter with no success.

26. The Respondent gave a brief procedure or process that follows Tariff Classification as follows:a.A tariff dispute is forwarded from the release stationb.An analysis leading to tariff determination is done online and memo is done to the importer on the decision undertaken.c.In case, the importer is dissatisfied, and an appeal is lodged by the importer.d.A review of the appeal is undertaken and the review ruling communicated to the importer.e.The importer would still object to the findings, the matter is then forwarded to Policy for the constitution of a Technical Committee to deliberate on the tariff dispute.f.The Ruling of the technical Committee is deemed to be the final findings of the Commissioner.g.The importer is required to abide by the ruling or forward the matter to the Tax Appeal Tribunal.

27. The Respondent states that the above processes were undertaken in this case as will be stated below.

28. That the Appellant's products have an electric component and are therefore considered dual water heating systems. That a dual-system water heater operates under both solar power and electricity. That the system can operate solely on electricity or on solar energy. That without the electrical element, the system would not be effective in heating water when the solar energy is inadequate. That however, the system would work perfectly without the solar component.

29. That a dual-system water heater operates under both solar power and electricity. That the Appellant's system has an electrical component and can operate solely on either electricity or on solar energy.

30. The Respondent states that Heading 8419 covers machinery, plant or laboratory equipment, whether or not electrically heated (excluding furnaces, ovens and other equipment of heading 85. 14), for the treatment of materials by a process involving a change of temperature such as heating, cooking, roasting, distilling, rectifying, sterilising, pasteurising, steaming, drying, evaporating, vaporising, condensing or cooling, other than machinery or plant of a kind used for domestic purposes; instantaneous or storage water heaters, non-electric .

31. That Heading 8516 covers electric instantaneous or storage water heaters and immersion heaters, electric space heating apparatus and soil heating apparatus; electro-thermic hair-dressing apparatus (for example, hair dryers, hair curlers, curling tong heaters) and hand dryers; electric smoothing irons; other electro- thermic appliances of a kind used for domestic purposes; electric heating resistors, other than those of Heading 85. 45.

32. That the solar water heaters under HS Code 8419. 19. 00 operate purely on solar energy whereas the dual systems are often equipped with a thermostatic control to operate them electrically when the alternative means is insufficient.

33. That the Appellant's water heaters are designed to heat water by both solar and/or electricity. That given this, even though the product uses solar only, the essential character is that of a dual-system water heater.

34. That solar water heating systems that rely solely on solar energy are classified under tariff code 8419. 19. 00 whereas dual water heating systems are classified under tariff code 8516. 10. 00. That the Appellants products have an electrical component that acts as a back-up when solar energy is inadequate.

35. That Note (A) 3 to Heading 8516 also classifies dual system heaters in Heading 8516, in which the water is heated either electrically or by connection to a fuel heated hot water system; they are often equipped with a thermostatic control to operate them electrically only when the alternative means is insufficient.

36. That Note 5 to Heading 8516 also indicates that 'assemblies consisting of immersion heaters permanently incorporated in a tank, vat or other vessels are classified in Heading 8419 unless they are designed for water heating only or for domestic use, in which they remain in Heading 8516.

37. That the Explanatory Notes to the Heading 8419 state that heading machinery covered under this heading may be heated by any system (coal, oil, gas, steam, electricity, etc.) except in the case of instantaneous or storage water heaters which are classified in Heading 8516 when heated electrically.

38. That Note (I) to Heading 8419 concludes that the apparatus described in the note (I.e. heating or cooling plant and machinery) is essentially used industrially but the heading also covers non-electric instantaneous water heaters and storage water heaters, including solar water heaters, domestic or not. If electrically heated, such appliances are excluded (Heading 85. 16).

39. That the Respondent relied on the following provisions of the law:a.Section 135 of the East African Community Customs Management Act, 2004 (EACCMA)b.Sections 235 & 236 of the EACCMA gives the Commissioner powers to call for documents and conduct a Post Clearance Audit (PCA) on the import and export operations of a taxpayer within a period of five years from the date of importation or exportation.c.Section 230 of the EACCMAd.That where the PCA reveals that taxes were short levied, or erroneously refunded, Sections 135 and 249(1) of EACCMA empowers the Commissioner to recover any such amount short levied or erroneously refunded with interest at a rate of two percent per month for the period the taxes remain unpaid.e.That Section 229 of EACCMA provides for application for review by any person affected by the decision or omission of the Commissioner on matters relating to customs and provides the legal timelines to be observed.f.EAC Common External Tariff, 2017g.Article 8 and Article 12(4) of the Protocol on the Establishment of the East African Customs Union provides for the adoption and use of the Harmonized Customs Commodity Description and Coding System as the Common External Tariff.

40. That prior to July 2018, Paragraph 45 of the VAT Act, 2013 exempted VAT for specialized solar equipment and accessories including solar water heaters and deep cycle sealed batteries which exclusively use or store solar power. Dual solar water heaters, were not exempt from VAT because they do not exclusively use and/or store solar power.

41. That the Appellant did not produce any material evidence to support the argument that the products under the audit were classifiable under CIT Heading 8419.

42. That the EACCET is derived from and informed by the International Convention on the Harmonized Commodity Description and Coding System to which Kenya and all member states of the East African Community are signatories.

43. The Respondent relied on the following cases:a.Republic v Commissioner General & Another Ex-Parte Awal Ltd [2008j eKLR on application of the rules of interpretation of tariff classification.b.Beta Healthcare International Ltd vs. Commissioner of Customs Services [2010] eKLR.c.Republic v Kenya Revenue Authority; Proto Energy Limited ex-Parte (Judicial Review Application E023 of 2021) [2022] KEHC5 KLR.d.Communications Commission of Kenya & 5 others vs. Royal Media Services Limited & 5 others [2014] eKLR.e.Mount Kenya Bottlers Limited & 3 Others vs. The Honourable Attorney General & 3 Others (Supra); Stanbic Bank Kenya Limited vs. Kenya Revenue Authority [2009] eKLR and Commissioner of Income Tax vs. Pan African Paper Mills (E.A) Limited [2018] eKLR.f.Pharmaceutical Manufacturing (K) Co Ltd. & 3 others vs. Commissioner General of Kenya Revenue Authority & 2 others [2017].

Respondent’s Prayers 44. The Respondent prays to the Honourable Tribunal to:a.Dismiss the Appealb.Uphold the assessment of additional duties of customs amounting to Kshs. 88,995,375. 00.

Issue For Determination 45. The Tribunal upon due consideration of the pleadings of the parties was of the considered view that the Appeal raises only one issue for its determination:Whether the Respondent erred in law and in fact in reclassifying the Appellant’s solar water heaters from tariff code 8419. 19. 00 to tariff code 8516. 10. 00

Analysis And Determination 46. The Tribunal having ascertained the issue for determination as set out above proceeds to deal with the same as hereunder.

47. This dispute arose from a re-classification of solar water heaters by the Respondent on the basis of a WCO advisory opinion.

48. The Appellant submitted that it had over the years imported the product in question under HS Code 8419. 19. 00 and the Respondent never raised an issue with the classification of the product. That this consistent practice of importing the product in question for a long time created legitimate expectation that the solar water heaters shall in future be imported under HS code 8419. 19. 00 and not any other code.

49. The Appellant further submitted that the decision by the Respondent to retrospectively apply the opinion of the WCO dated 3rd November 2021 to imports that took place many years before the same opinion was delivered was unfair.

50. The Appellant stated that on the issue of misinterpretation of the EAC Common External Tariff (CET), 2017, it is the Appellant’s position that the solar water heaters can only be classified under Heading 8419 and not under any other heading. That this is because Heading 8419 covers machinery, plant or laboratory equipment, whether or not electrically heated (excluding furnaces, ovens and other equipments of heading 8514) for the treatment of materials by a process involving a change of temperature such as heating, cooking, roasting, distilling, rectifying, sterilizing, pasteurizing, drying, evaporating, vapourising, condensing or cooling, other than machinery or plant of a kind used for domestic purposes, instantaneous or storage water heaters, non- electric.

51. It was also the Appellant’s position that the Explanatory Notes (ENs) constitute the official interpretation of the Harmonised System at the international level with each EN providing a commentary on the scope of each heading and therefore indicative of the proper interpretation of these headings.

52. The Appellant also averred that Chapter 85 covers all electric machinery and equipment other than machinery and apparatus of a kind covered by Chapter84 which remains classified there even electric. That the Appellant also emphasized the contents of the Explanatory Notes to Chapter 84 which state in the relevant part as follows: “it should be noted that machinery and apparatus of a kind covered by Chapter 84 remains in this chapter even if electric.” That the Appellant therefore holds the position that the solar water heaters are classifiable under Heading 8419.

53. The Respondent submitted that the EACCET is derived from and informed by the International Convention on the Harmonized Commodity Description and Coding System to which Kenya and all member states of the East African Community are signatories.

54. The Respondent further submitted that, in line with the EACCET and the General Interpretation Rules (GIRs) to the EACCET, the Appellant's imported solar water heating systems are classifiable under Chapter 85 of the East African Community Common External Tariff (EAC CET) which provides for:“Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles”

55. The Tribunal has established that the demand by the Respondent was on the basis of an application made by the Respondent to the WCO and an advisory opinion issued by the WCO which documents were neither availed to the Appellant nor to the Tribunal.

56. Further, the Tribunal has looked at the arguments advanced by both parties. The Appellant’s position is that nothing has changed to warrant the re- classification of the product. That the character of the product has not changed and all that happened was that the Respondent changed the interpretation of the code and applied it retrospectively on the Appellant’s solar water heaters.

57. The Tribunal finds that the General Interpretation Rules (GIR 1) under the EAC Common External Tariff 2017 provides that classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes. This Rule provides as follows:“The 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.”

58. The Tribunal notes that since the heading is clear on the treatment of the solar water heaters, there is no need to consider the Chapter Notes or what other Sections provide. This is because the heading takes priority and reference to Chapter notes or other Sections should only be made when the heading lacks clarity on the classification of the item in question.

59. The Tribunal agrees with the Appellant that the electric heating element is not a significant part of the system as the bulk of the water heating system is made of the collectors and heat exchange tank. The Appellant demonstrated that the backup heater plays a very incidental role in the functioning of the system as the solar system still functions without the electric heating element.

60. According to GIR 1, what one sees when they look at the product in dispute is a solar water heater as opposed to a water heater, boiler, geyser or hot water tank. The electric heating element is an accessory to the solar water heater. The HS tariff classification codes are internationally used to facilitate global trade. The WCO in 2022 Nomenclature, introduced tariff 8419. 12. 00 to specifically provide for solar water heaters. The East African Common External Tariff structure that came into force on 1st July 2022 also classified solar water heaters under HS Code 8419. 12. 00. This is an indication that the WCO and its member states intend that solar water heaters be classified under Chapter 84 thereby reinforcing the Explanatory Notes under Chapter 8516 (5) that solar water heaters should be classified under Chapter 8419.

61. The Tribunal also notes that the East African Solar Taxation Handbook at page 38 describes solar water heaters as:-“Machinery, plant for conversion of sunlight into heat for water heating using a solar thermal collector.” The Handbook indicates that the HS code used for solar water heaters in the East African countries is 8419. 19. 00. The Tribunal notes that the Respondent did not offer a satisfactory justification for departure from the code that it has used over the years and that continues to be used by the other countries in the East African Customs Union.”

62. The Tribunal reiterates its decisions in similar matters being TAT 249 of 2021 - Scandinavian Solar Systems Ltd and TAT 135 of 2022 - Climacentro Green Tech Ltd, where the Tribunal found that solar water heaters are classifiable under HS Code 8419. 19. 00 during the period under review. The Tribunal has found no reason to depart from its earlier decisions.

63. In view of the above, the Tribunal finds that the correct tariff code for the classification of the Appellant’s water heaters for the period under dispute is 8419. 19. 00.

Final Decision 64. The upshot of the above is that the Tribunal finds that the Appeal as filed is merited and the Tribunal accordingly proceeds to issue the following Orders:a.The Appeal be and is hereby allowed.b.The Respondent’s review decision in its letter dated 7th December, 2021 be and is hereby set aside.c.Each party to bear its own costs.

65. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 1ST DAY OF SEPTEMBER, 2023ERIC NYONGESA WAFULA CHAIRMANCYNTHIA B. MAYAKA GRACE MUKUHA MEMBER MEMBERJEPHTHAH NJAGI ABRAHAM K. KIPROTICH MEMBER MEMBER