[2023] KETAT 524 (KLR)

C & P Shoe Industries Ltd v Commissioner, Customs & Border Control (Tax Appeal 520 of 2022) [2023] KETAT 524 (KLR) (4 August 2023) (Judgment)

Neutral citation: [2023] KETAT 524 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 520 of 2022

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

August 4, 2023

Between

C & P Shoe Industries Ltd

Appellant

and

Commissioner, Customs & Border Control

Respondent

Judgment

Background 1. The Appellant is a private limited company incorporated in Kenya under the Companies Act 2015. The Appellant manufactures a variety of goods for the local and export market including sports shoes, leather shoes, PVC moulded shoes, rain boots, PVC coated fabrics, zip fasteners, shoelaces, and unit soles.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act and is mandated as an agent of the Government of Kenya for the assessment, collection, receipting and accounting for all the tax revenue, and is also responsible for the administration and enforcement of the statutes set out under the schedule to the Act.

3. The Appellant requested for a tariff classification of its product. Following the said request, the Respondent issued the Appellant with a tariffclassification ruling dated 25th October 2021 classifying the Appellant’s imported product under HS Code 3402. 13. 00.

4. The Appellant objected the ruling vide a letter dated 19th November 2021.

5. Based on the tariff ruling dated 25th October 2021, the Respondent issued the Applicant with a demand notice dated 3rd December 2021 for Kshs. 1,646,799. 00.

6. The Respondent further conducted a desk audit on the Appellant’s imports starting January 2017, and thereafter issued a demand notice of Kshs. 1,646,799. 00 on 3rd December 2021, pursuant to the provisions of Sections 234 and 235 of the East African Community Customs Management Act, 2004 (EACCMA).

7. The Appellant in response wrote to the Respondent on 9th December 2021 objecting to the classification under HS code 3402. 13. 00 and further requested the Respondent to re-evaluate the classification of the silicon emulsion based on the grounds raised in appeal letter to the earlier tariff ruling.

8. Subsequently, the Respondent rendered a review decision dated 20th December 2021 pursuant to the provisions of Section 229 of EACCMA 2004.

9. Being dissatisfied with the Respondent’s decision on the tariff classification of silicon emulsion, the Appellant filed a Notice of Appeal on 20th May 2022.

The Appeal 10. The Appeal as captured in the Memorandum of Appeal dated 20th May 2022 and filed on 20th May 2022, is based on the following grounds:-i.That the Respondents erred in fact and law by confirming that the SE- 8700 Silicon Emulsion (hereinafter referred to as “the Appellant’s Product”) imported by the Appellant is classifiable under tariff Code 3402. 90. 00 of the EAC/CET, and therefore, inter alia, subject to import duty at the rate of 25% and VAT at the rate of 16%;ii.That the Respondent erred in law and in fact in finding that the Appellant’s product fell under HS Code 3402. 90. 00, despite the fact that the product does not fit within the Heading, Sections, and Explanatory notes of the aforesaid classification;iii.That the SE-8700 Silicon Emulsion imported by the Appellant does not meet the threshold envisaged by tariff code 3402. 90. 00 of the EAC/CET.iv.That the Respondent erred in law and in fact in failing to recognize and find that the SE-8700 Silicon Emulsion imported by the Appellant should be classifiable under Heading 3910. 00. 00 of the EAC/CET, as the nature of the product aligns with the provisions of Heading 3910. 00. 00. v.That the Respondent erred in fact by failing to appreciate that the Silicon Emulsion imported by the Appellant is used in high pressure injection EVA shoe sole release and thus its main purpose is to act as a releasing agent in shoe soles production. Furthermore, the Silicon Emulsion is merely a lubricating (release agent) that helps easy removal of the shoe sole from the mould. It has no reaction with the surface of the metal mould.vi.That the Respondent failed to appreciate that the Harmonized Commodity Description and Coding System Explanatory Notes (“ENs”) to Heading 39. 10 only exclude silicones complying with the conditions of Note 3 to Chapter 34 to Heading 34. 02. vii.That the Respondent erred in law and in fact by failing to appreciate that for the Appellant’s product to qualify for classification under Heading 34. 02, the product has to meet several conditions stipulated under Note 3 to Chapter 34 of the EAC/CET.viii.That the General Interpretation Rules (“GIR”). GIR1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative Section or Chapter Notes. In the event that the goods cannot be classified solely on the basis of GIR1, and if the headings and legal notes do not otherwise require, the remaining GIRs may then be applied. Applying GIR1, the term of the heading, “Silicones in primary forms.” correctly classifies it under Heading 39. 10 of the EAC/CET.ix.That the Respondent in its review decision dated 20th December 2021 revised the product classification from HS Code 3402. 13. 00 to HS Code 3402. 90. 00 of the EAC/CET which was issued under their tariff ruling dated 25th October 2021. That this goes to show that the Respondent’s actions are arbitrary, capricious and without due regard to provisions of the EAC/CET and the product information provided by the Appellant.

The Appellant’s Case 11. The Appellant has set out its case premised on the hereunder filed documents and proceedings before the Tribunal:i.The Appellant’s Statement of Facts dated 1st of April and filed on 4th April 2022. ii.The Appellant’s written submissions dated 7th February 2023 and filed on the same date.iii.The Appellant’s submissions dated 25th January 2023.

12. The Appellant states that at the release point of the importation of its product- silicon emulsion, requested the Respondent for a tariff classification of the said product. Following the said request, the Respondent tested a sample of the product and issued the Appellant with a tariff classification ruling dated 25th October 2021.

13. That in the said ruling, the Respondent indicated that the sample tested was found to be an organic compound with physical and chemical properties corresponding to those of an organic surface-active agent classifiable under HS Code 3402. 13. 00.

14. That the Appellant objected to the ruling vide a letter dated 19th November 2021 on the basis of the following grounds:i.The Silicon Emulsion imported by the Appellant is used in high pressure injection EVA shoe sole release and thus its main purpose is to act as a releasing agent in shoe soles production.ii.Heading 39. 10 and in particular HS Code 3910. 00. 00 specifically provides for silicones in primary forms.iii.The Explanatory Notes to Heading 39. 10, EAC/CET only excludes silicones complying with the conditions of Note 3 to Chapter 34. iv.That Note 3 to Chapter 34 of the EAC/CET states as follows:“For the purposes of heading 34. 02, "organic surface-active agents" are products which when mixed with water at a concentration of 0. 5% at 20°C and left to stand for one hour at the same temperature:a.give a transparent or translucent liquid or stable emulsion without separation of insoluble matter; andb.reduce the surface tension of water to 4. 5 x10-2 N/m (45 dyne/cm) or less”.i.Based on the product description and use above, the new silicon emulsion imported by the Appellant does not fit the description of an “organic surface-active agent” as:a.It is not mixed with water at a concentration of 0. 5% at 20°C and left to stand for one hour at the same temperature.b.It does not give a transparent or translucent liquid or stable emulsion without separation of insoluble matter; andc.It is not used to reduce the surface tension of water to4. 5 x10-2 N/m (45 dyne/cm) or less.vi.The product is therefore correctly classifiable under HS Code 3910. 00. 00 which specifically covers silicones in primary forms.

15. That from the above, it is clear that the Respondent has erred in fact and in law by:i.Failing to consider detailed explanation, documentation and evidence provided by the Appellant on the silicon emulsion;ii.Proceeding to confirm the tariff classification and the demand notice for extra taxes.

16. That the Respondent conducted a desk audit on the Appellant’s imports starting January 2017 and thereafter issued a demand notice of Kshs. 1,646,799. 00 on 3rd December 2021, pursuant to the provisions of Section 234 and 235 of the East African Community Customs Management Act, 2004 (EACCMA).

17. That in its demand notice, the Respondent submitted that the proper classification for the Appellant’s product- silicon emulsion, is under HS Code 3402. 13. 00 which attracts a duty of 10% and a VAT rate of 16%, instead of HS Code 3910. 00. 00 as declared by the Appellant which attracts a duty of 0% and a VAT rate of 16%.

18. That the Appellant in response wrote to the Respondent on 9th December 2021 objecting to the classification under HS code 3402. 13. 00 and further requested the Respondent to re-evaluate the classification of the silicon emulsion based on the grounds raised in appeal letter to the earlier tariff ruling.

19. That the Appellant additionally corroborated its position by providing a material data sheet and certificate of analysis from its manufacturer, confirming that the nature of the product and its composition.

20. That on 20th December 2021 the Respondent issued its review decision reclassifying the product under HS Code 3402. 90. 00 of the EAC/CET on the basis that the product is considered to be a surface-active preparation containing organic silicones dispersed in aqueous medium intended for use in the leather industry.

21. That being dissatisfied with the Respondent’s decision on the tariff classification of silicon emulsion, the Appellant filed a Notice of Appeal on 20th May 2022 after being granted leave to file the appeal out of time vide orders issued by the Tribunal on 9th May 2022.

22. The Appellant requested the Tribunal to consider the undermentioned issues for determination:i.Whether the silicon emulsion imported by the Appellant meets the threshold envisaged by HS Code 3910. 00. 00 of the EAC/CET and therefore correctly classified thereunder by the Appellant.ii.Whether the Respondent erred in classifying the silicon emulsion sheets under HS Code 3402. 13. 00 and subsequently HS Code 3402. 90. 00 instead of HS Code 3910. 00. 00 of the EAC/CET.

23. The Appellant states that, firstly to appreciate and understand the nature of the product in question and its uses so as to correctly classify it under the East African Community Common External (EAC/CET).

24. That the product in question is specified to be an SE-8700 Silicon Emulsion (the “Product”) which is a mold releasing agent. For clarity purposes, a release agent is a chemical used to prevent other materials from bonding to surfaces. It can provide a solution in processes involving mold release, die- cast release, plastic release, adhesive release, and tire and web release.

25. That the nature of SE-8700 allows it to spread quickly to the surface of the mold so that the defective rate of the product compared to the traditional release agent is substantially lower. There is no carbonation, especially when used in EVA rubber injection shoe sole manufacturing or EVA rubber footwear.

26. That silicon emulsion is applied for purposes that include:a.High pressure injection EVA shoe sole release.b.EVA foam rubber mould release.c.Rubber antistatic agent.d.Leather and wooden furniture or marble floor gloss.e.Vehicle tires and interior plastic gloss.f.SE-8700 can blend with other silicone emulsion softeners and resins to enhance the feel of fabric.

27. The Appellant further apprised the nature of the product as well as its uses, that will review its classification under the East African Community Common External Tariff (“EAC/CET”) as read together the Explanatory Notes to the EAC/CET.

28. The Appellant states that the two tariff codes in contention are HS Code 3402. 90. 00 and HS Code 3910. 00. 00. That firstly, in the case for HS Code 3910. 00. 00 as applied by the Appellant and afterwards establish that HS Code 3402. 90. 00 which is preferred by the Respondent is not applicable to the silicon emulsion imported by the Appellant.

29. That classification under the East African Community Common External Tariff (“EAC/CET”) is made in accordance with the General Rules of Interpretation (“GRI”). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative Section or Chapter Notes. In the event that the goodscannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs may then be applied.

30. That Chapter 39 of the EAC/CET covers plastics and articles thereof, Note 3(d) to the Chapter Notes categorizes silicones under Heading 39. 10 of the Chapter as illustrated below in an extract from the EAC/CET which provides as follows:“Headings 39. 01 to 39. 11 apply only to goods of a kind produced by chemical synthesis, falling in the following categories:a.Liquid synthetic polyolefins of which less than 60% by volume distils at 300°C, after conversion to 1,013 millibars when a reduced-pressure distillation method is used (headings 39. 01 and 39. 02);b.Resins, not highly polymerised, of the coumarone-indene type (heading 39. 11);c.Other synthetic polymers with an average of at least 5 monomer units;d.Silicones (heading 39. 10);e.Resols (heading 39. 09) and other prepolymers.” (Emphasis theirs)

31. That Heading 39. 10 in particular HS Code 3910. 00. 00 covers Silicones in primary forms. The Heading provides as follows;“3909. 10. 00 - Urea resins; thiourea resins kg 10% 3909. 20. 00 - Melamine resins kg 10%3909. 30. 00 - Other amino-resins kg 0%3909. 40. 00 - Phenolic resins kg 0%3909. 50. 00 - Polyurethanes kg 10% 10. 3910. 00. 00 Silicones in primary forms. kg 0%

11. Petroleum resins, coumarone-indene resins, polyterpenes, polysulphides, polysulphones and other products specified in Note 3 to this Chapter, not elsewhere specified or included, in primary forms. 3911. 10. 00 - Petroleum resins, coumarone, indene or coumarone- indene resins and polyterpenes kg 0%3911. 90. 00 - Other” (Emphasis theirs)

32. That Note 6 to the Chapter Notes defines the expression “Primary forms” as applicable only to;a.Liquids and pastes, including dispersions (emulsions and suspensions) and solutions;b.Blocks of irregular shape, lumps, powders (including moulding powders), granules, flakes and similar bulk forms.

33. That for accurate and exhaustive classification, the Harmonized Commodity Description and Coding System Explanatory Notes (“ENs”) constitute the official interpretation of the Harmonized System at the international level. That the ENs provide a commentary on the scope of each heading of the EAC/CET and are generally indicative of the proper interpretation of these headings.

34. That indeed, the Explanatory Notes to Heading 39. 10, EAC/CET are very categorical and provide as follows:“39. 10 – Silicones in primary formsThe silicones of this heading are non-chemically defined products containing in the molecule more than one silicon-oxygen-silicon linkage, and containing organic groups connected to the silicon atoms by direct silicon-carbon bonds.They have a high stability and may be either liquid, semi-liquid or solid. The products include silicone oils, greases, resins and elastomers.1. Silicone oils and greases are used as lubricants remaining stable at high or low temperatures as water repellent impregnating products, as dielectric products, as foam inhibitors, as mould release agents etc. Lubricating preparations consisting of mixtures containing silicon greases or oils fall in heading 27. 10 or 34. 03 as the case may be (see corresponding Explanatory notes)2. Silicone resins are used mainly in the manufacture of varnishes, insulating or waterproof coatings etc, where stability at high temperature is required. They are also used in the preparation of laminates with glass fibre, asbestos or mica as the reinforcing material, as flexible moulds and for electrical encapsulation.3. Silicone elastomers, although not covered by the definition of synthetic rubber in Chapter 40, have some extensibility which is not changed by high or low temperatures. This property renders them suitable for manufacture into washers or other packings for appliances submitted to high or low temperatures. An application in the medical field is the manufacture of automatic brain valves used in cases of hydrocephalus.For the classification of polymers (including copolymers), chemically modified polymers and polymer blends, see the General Explanatory Note to this Chapter.The heading excludes silicones complying with the conditions of Note 3 to chapter 34 (heading 34. 02)”

35. The Appellant avers that, fundamentally and from the above, Heading 3910. 00. 00 provides for silicones in primary form. The term primary form has been defined in the Chapter Notes to include dispersions (emulsions and suspensions). Additionally, the Explanatory Notes verify this classification by including silicones used as mould release agents.

36. Further the Appellant reiterates that its product, is a silicon emulsion primarily used as a mould release agent in the manufacture of shoes. The Appellant submits that the silicone emulsion it imports therefore possess the essential characteristics that qualify and enable its classification under heading HS Code 3910. 00. 00.

37. The Appellant takes note that the Harmonized commodity description is an international standard classification created by the World Customs Organization and the countries who are parties to it are guided by the General Interpretation rules with an aim of ensuring fair international trade. That the Respondent is bound by the Harmonized System and therefore is legally bound to collect what is due based on a strict interpretation of tax statutes, leaving no room for intendment.

38. In support of the aforementioned, the Appellant makes reference to the case of Republic v Commissioner of Domestic Taxes Large Taxpayer’s Office Ex-Parte Barclays Bank of Kenya LTD [2012] eKLR wherein it was held that:-“The approach to this case is that stated in the often-cited case of Cape Brandy Syndicate vs. Inland Revenue Commissioners [1920] 1 KB 64 as applied in T.M. Bell v Commissioner of Income Tax [1960] EALR 224 where Roland J. stated,“…in a taxing Act, one has to look at what is clearly said. There is no room for intendment as to a tax. Nothing is to be read in, nothing it to be implied. One can only look fairly at the language used… If a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be.”As this case concerns the interpretation of the Income Tax Act, I am also guided by the dictum of Lord Simonds in Russell vs. Scott [1948] 2 ALL ER 5 where he stated,“My Lords, there is a maxim of income tax law which, though it may sometimes be overstressed yet ought not to be forgotten. It is that the subject is not to be taxed unless the words of the taxing statute unambiguously impose the tax upon him” adopted in Stanbic Bank Kenya Limited v Kenya Revenue Authority CA Civil Appeal No. 77 of 2008 (Unreported) [2009] eKLR per Nyamu JA (See also Jafferali Alibhai v Commissioner of Income Tax [1961] EA 610, Kanjee Naranjee v Income Tax Commissioner [1964] EA 257).Any tax imposed on a subject is dictated by the terms of legislation and taxing authority must satisfy itself that the transaction fits within the definition of the statute. In Adamson vs. Attorney General (1933) AC 257 at p 275 it was held that,“The section is one that imposes a tax upon the subject, and it is well settled that in such cases it is incumbent on the Crown to establish that its claim comes within the very words used, and if there is any doubt or ambiguity this defect-if it be in view of the Crown a defect can only be remedied by legislation.”

39. That in Commissioner of Income Tax vs. Westmont Power (K) Ltd Nairobi High Court Income Tax Appeal No. 626 of 2002, the Court while citing Inland Revenue vs. Scottish Central Electricity Company [1931] 15 TC 761 expressed itself as follows:“Even though taxation is acceptable and even essential in democratic societies, taxation laws that have the effect of depriving citizens of their property by imposing pecuniary burdens resulting also in penal consequences must be interpreted with great caution. In this respect, it is paramount that their provisions must be express and clear so as to leave no room for ambiguity…any ambiguity in such a law must be resolved in favor of the taxpayer and not the Public Revenue Authorities which are responsible for their implementation.”

40. The Appellant argues that Heading 39. 10 adequately and sufficiently provides for the silicon emulsion imported by the Appellant. That in contrast, the Respondent’s preferred tariff code barely captures the nature and attributes of the products. The words in the aforementioned cases are clear that; “…a subject is not to be taxed unless the words of the taxing statute unambiguously impose the tax upon him.”

41. The Appellant states that the Respondent erred in law by failing to appreciate that the Appellant’s product does not qualify for classification under Heading 34. 02 of the EAC/CET. That for the product to qualify under this Heading, it has to meet several conditions stipulated under Note 3 to Chapter 34 of the EAC/CET.

42. Note 3 to Chapter 34 of the EAC/CET states as follows:“For the purposes of heading 34. 02, "organic surface-active agents" are products which when mixed with water at a concentration of 0. 5% at 20°C and left to stand for one hour at the same temperature:a.give a transparent or translucent liquid or stable emulsion without separation of insoluble matter; andb.reduce the surface tension of water to 4. 5 x10-2 N/m (45 dyne/cm) or less.”

43. That the Respondent’s contention is that according to its laboratory findings, the product imported by the Appellant is an organic surface-active preparation containing polymeric organic silicones.

44. That to accordingly determine the proper classification of the said product, the Respondent stated that they submitted the product to a laboratory analysis wherein the following characteristics were patent:a.The Product when mixed with water at a concentration of 0. 5% at 20°C, it formed a stable emulsion without separation of insoluble matter;b.The product reduces the surface tension of water to 2. 9 x 10-2 N/m

45. That it is on this basis that the Respondent classified the Product under HS Code 3402. 90. 90.

46. The Appellant states that the Respondent had initially classified the product under HS Code 3402. 13. 00 on the basis that the sample tested was found to be an organic compound with physical and chemical properties corresponding to those of an organic surface-active agent. This is in line with the Respondent’s Ruling dated 25th October 2021 annexed to the Appellant’s Memorandum of Appeal & Statement of Facts.

47. That in the Respondent’s witness statement dated 6th October 2022 sworn by Mr. Ronald Okonjo, working under the Respondent’s Strategy, Innovation, and Research Management Department; stated under Paragraph 6 that the Respondent departed from the initial findings based on additional information submitted which confirmed the nature and application of the product as a surface active preparation containing polymeric organic silicones dispersed in aqueous medium intended for use in the leather industry and classifiable under HS 3402. 90. 90.

48. That though the witness further states under Paragraph 8 that, “… for avoidance of doubt, the Respondent herein had the Product re-tested…” It is not clear to the Appellant whether the reclassification was based on actual testing of the product, or the additional information submitted by the Appellant.

49. That in addition, Mr. Okonjo testified that there is a standard testing procedure for each product and in this case the silicon emulsion underwent the same testing procedure as before. That it is worth noting that despite the witnesses’ statement, the testing done produced two different findings which resulted in two different HS Codes; the first one being 3402. 13. 00 and finally 3402. 90. 00.

50. The Appellant argues that, what is even more surprising is that Mr. Okonjo is the same person who conducted both tests according to his testimony during the proceedings in open Court, yet he submitted two completely different results. That this leaves more questions than answers as to the credibility of the Respondent’s laboratory testing capacity.

51. That additionally, the Respondent has not shared with the Appellant nor the Tribunal the certified laboratory findings indicating the tests conducted and resultant findings on both occasions. That all they have shared is tariff rulings reporting what they claim to have tested and found.

52. For this reason, the Appellant argues that It is therefore simply impossible for the Respondent to expect it to rely on its findings which vary and quite honestly seem to be arbitrary rather than based on substantial, empirical and reliable evidence.

53. The Appellant avers that, the Respondent seems to be misleading itself, especially in relation to the nature of the product in question. That as it is indicated, the Respondent under Paragraph 16 of its Statement of Facts whereby it stated that;“… As a matter of fact, the Respondent, avers that for it to be used as a releasing agent, it must be a surface-active agent and therefore correctly classifiable under heading 34. 02. ”

54. The Appellant avers that under the Explanatory Notes to Heading 39. 10 that the silicones classified under this Heading are also used as mould releasing agents. It is therefore erroneous for the Respondent to state that for the Appellant’s silicon emulsion to be used as a releasing agent, it must be a surface-active agent; ultimately using this as a basis for classifying it under Heading 34. 02.

55. Based on the foregoing, the Appellant humbly submits that the Respondent the Respondent erred in classifying the silicone emulsion imported by the Appellant under HS Code 3402. 13. 00 and subsequently HS Code 3402. 90. 00 instead of HS Code 3910. 00. 00 of the EAC/CET.

The Appellant’s Prayers 56. The Appellant prays that the Tribunal grants the following prayers;a.That this Appeal be allowed.b.That the Respondent’s demand notice dated 11th November 2021 & 3rd December 2021 and subsequent review decision dated 20th December 2021 be set aside.c.That the Appellant be allowed to import the SE-8700 Silicon Emulsion under the HS Code 3910. 00. 00 pending the determination of this matter.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 57. The Respondent’s case is set on the following documents and proceedings before the Tribunal;a.The Respondent’s Statement of Facts dated 17th June 2022 and filed on the same date.b.The Respondent’s witness statement of Mr Ronald Okonjo dated 6th October 2022 and admitted as evidence on oath by the Tribunal on 26th January 2023. c.The Respondent’s written submission dated 19th January 2023 and filed on the same date.

58. The Respondent states that the Appellant requested for review of tariff classification vide the letter dated 19th November 2021 pursuant to Section229 of EACCMA 2004. That the Appellant hinged its request by highlighting the nature of the product, product description, product characteristics wherein it contended that the new silicon emulsion was classifiable under HS 3910. 00. 00 whose import duty rate is 0% with VAT chargeable at 16%.

59. That based on the Tariff Ruling dated 25th October 2021, the Respondent issued the Appellant with a demand notice dated 3rd December 2021 for Kshs. 1,646,799. 00. That the crux of this was that an audit of the Appellant’s customs transactions revealed that nine (9) entries spanning between October 2017 and September 2021 had an issue of tariff misclassification wherein the importer had been classifying the product under HS 3910. 00. 00 whose import duty rate is 0% with VAT chargeable at 16% as opposed to HS 3402. 13. 00 which provides an import duty rate of 10% and VAT chargeable at 16%.

60. That after due consideration of the Appellant’s request for review dated 19th November 2021, the Respondent wrote to the Appellant vide the letter dated 8th December 2021 effectively reversing the earlier classification contained in the letter dated 25th October 2021 and classifying the product under HS 3402. 90. 00. That the Respondent departed from the initial findings based on the additional information submitted which confirmed the nature and application of the product as a surface-active preparation containing polymeric organic silicones dispersed in aqueous medium intended for use in the leather industry and classifiable under HS 3402. 90. 00.

61. That being totally oblivious of the foregoing, vide the letter dated 9th December 2021, the Appellant wrote to the Respondent in response to the tariff ruling dated 25th October 2021 and the demand letter dated 3rd December 2021. That the Appellant sought a reclassification of the new silicon emulsion product from HS 3402. 13. 00 to HS 3910. 00. 00 whose import duty rate is 0% with VAT chargeable at 16%. That the Appellant further invited the Respondent to consider the characteristics and essential use/purpose.

62. That for avoidance of doubt, the Respondent had the product re-tested with the laboratory findings captured in the Memorandum dated 6th December 2021 accordingly re-classifying the SE-8700 silicon emulsion under EAC/CET HS Code 3402. 90. 00.

63. That subsequently the Respondent in relation to the tariff appeal, rendered a review decision dated 20th December 2021 pursuant to the provisions of Section 229 of EACCMA, 2004.

64. That the said review decision reaffirmed the Respondent’s position communicated through the letter dated 8th December 2021 classifying the new silicon emulsion under HS 3402. 90. 00. resulting to the demand notice dated 3rd December 2021 being reviewed to Kshs. 4,116,996. 53.

65. The Respondent avers that the product imported by the Appellant was SE- 8700 Silicon Emulsion. That the laboratory findings identified the product as an organic surface-active preparation containing polymeric organic silicones.

66. That to accordingly determine the proper classification of the said product, the Respondent submitted the product to a laboratory analysis wherein the following characteristics were patent;a.The product when mixed with water at a concentration of 0. 5% at 20◦c, it formed a stable emulsion without separation of insoluble matter;b.The product reduces the surface tension of water to 2. 9 ×10-2 N/m.

67. That Heading 34. 02 covers classification of organic surface-active agents (other than soap); surface-active preparations, washing preparations (including auxiliary washing preparations) and cleaning preparations, whether or not containing soap, other than those of Heading 34. 01. Further, the Heading also includes the classification of silicones that comply with conditions of Note 3 to Chapter 34.

68. That the product is not a lubricant as alleged by the Appellant owing to its solubility in water to form a stable emulsion. On the contrary, the product’s description, characteristics and intended use falls squarely on the classification 3402. 90. 00. Further, note 2 (f) of Chapter 39 excludes organic active surface agents or preparations of heading 34. 02.

69. That what differentiates this type of silicon from HS 3910, which is the position adopted by the Appellant is that it is surface-active. It is because of the foregoing that the silicon emulsion was reclassified from HS 3910 to HS 3402. The said product is formulated and made suitable for shoe making. Particularly, when you put the shoe sole in a mold, for you to remove it seamlessly, you spray it with a surface-active agent for the mold to release the sole. As a matter of fact, the Respondent avers that for it to be used as a releasing agent, it must be a surface-active agent and therefore correctly classifiable under heading 34. 02.

70. The Respondent avers that based on the interpretation above, the silicon emulsion is therefore considered to be a surface-active preparation containing organic silicones dispersed in aqueous medium intended for use in leather industry and is therefore appropriately classifiable under tariff code 3402. 90. 00 which attracts import duty rate at a rate of 25% and VAT at 16%. Consequently, the demand notice for Kshs. 4,116,997. 00 is warranted.

Respondent’s Prayer 71. The Respondent prays that the Appeal be dismissed and the Respondent’s review decision dated 20th December 2021 be upheld.

Issue for Determination 72. Based on the pleadings filed and the submissions of both parties, the Tribunal was of the view that the only issue falling for its determination was:Whether the Silicon Emulsion imported by the Appellant meets the threshold of classification under HS Code 3910. 00. 00.

Analysis and Determination 73. Having established the issue for determination, the Tribunal will proceed to analyse the same as hereunder:Whether the Silicon Emulsion imported by the Appellant meets the threshold of classification under HS Code 3910. 00. 00.

74. The genesis of the dispute is the tariff classification ruling by the Respondent dated 25th October 2021of the Appellant’s imported product the new silicon emulsion product under Code HS 3402. 13. 00 as opposed to HS 3910. 00. 00 which the Appellant had declared the product. Tariff Code HS 3402. 13. 00 attracts duty at 25%, while HS 3910. 00. 00 attracts import duty rate at 0%.

75. It was the Appellant’s contention that Heading 3910. 00. 00 provides for silicones in primary form. That the term primary form has been defined in the Chapter Notes to include dispersions (emulsions and suspensions). That additionally, the Explanatory Notes verify this classification by including silicones used as mould release agents.

76. The Appellant further stated that its product, is a silicon emulsion primarily used as a mould release agent in the manufacture of shoes. The Appellant therefore submitted that the silicon emulsion it imports possess the essential characteristics that qualify and enable its classification under Heading HS Code 3910. 00. 00.

77. The Respondent on the other hand stated that the product imported by the Appellant was SE-8700 Silicon Emulsion. That the laboratory findings identified the product as an organic surface-active preparation containing polymeric organic silicones.

78. The Respondent stated that to accordingly determine the proper classification of the said product, the Respondent submitted the product to a laboratory analysis wherein the following characteristics were patent;a.The product when mixed with water at a concentration of 0. 5% at 20◦c, it formed a stable emulsion without separation of insoluble matter;b.The product reduces the surface tension of water to 2. 9 ×10-2 N/m.

79. That Heading 34. 02 covers classification of organic surface-active agents (other than soap); surface-active preparations, washing preparations (including auxiliary washing preparations) and cleaning preparations, whether or not containing soap, other than those of Heading 34. 01. That further, the Heading also includes the classification of silicones that comply with conditions of Note 3 to Chapter 34.

80. That the product is not a lubricant as alleged by the Appellant owing to its solubility in water to form a stable emulsion. It added that on the contrary,the product’s description, characteristics and intended use falls squarely on the classification 3402. 90. 00. That further, Note 2 (f) of Chapter 39 excludes organic active surface agents or preparations of Heading 34. 02.

81. The Respondent stated that what differentiates this type of silicon from HS 3910, which is the position adopted by the Appellant is that it is surface- active. That it was because of the foregoing that the silicon emulsion was reclassified from HS 3910 to HS 3402. That the said product is formulated and made suitable for shoe making. Particularly, when you put the shoe sole in a mold, for it to be removed seamlessly, it has to be sprayed with a surface-active agent for the mold to release the sole. As a matter of fact, the Respondent avers that for it to be used as a releasing agent, it must be a surface-active agent and therefore correctly classifiable under Heading 34. 02.

82. The rules of interpretation are found in Annex 1 to the Protocol for the Establishment of the East African Customs Union and therefore form part of the customs law of this Country. The EAC CET nomenclature groups goods in Sections, Chapters and sub-Chapters which have been given titles indicating as concisely as possible the categories or types of goods they cover.

83. The primary method of determining classification is GIR 1 which 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 and, provided such headings or Notes do not otherwise require, according to the following provisions…”

84. From the description of the product the Tribunal noted it was not disputed that the SE Silicon Emulsion imported by the Appellant is used in high pressure injection EVA shoe release, and its main purpose is to act as a releasing agent in shoe sole production. As such it is used as a releasing agent that helps easy removal of the shoe sole from the mould. It can spread the surface of the mould to ensure that the product do not differentiate due to un-uniform layer.

85. The Tribunal notes that under Tariff Heading 39. 10 the HS Code 3910. 00. 00 caters for “Silicones in primary forms.”

86. On the other hand, Heading 34. 02 used by the Respondent provides for “Organic surface-active agents (other than soap); surface-active preparations, washing preparations (including auxiliary washing preparations) and cleaning preparations, whether or not containing soap, other than those of heading 34. 01.

87. Notes to Chapter 39 under Note 3(d) provide for:“(d)Silicones (Heading 39. 10)”

88. Further, the Explanatory Notes to Heading 39. 10 provide for the following:“39. 10 - Silicones in primary forms.The silicones of this heading are non-chemically defined products containing in the molecule more than one silicon-oxygen-silicon linkage, and containing organic groups connected to the silicon atoms by direct silicon-carbon bonds. They have a high stability and may be either liquid, semi-liquid or solid. The products include silicone oils, greases, resins and elastomers.1. Silicone oils and greases are used as lubricants remaining stable at high or low temperatures, as water-repellent impregnating products, as dielectric products, as foam inhibitors, as mould release agents, etc. Lubricating preparations consisting of mixtures containing silicone greases or oils fall in heading 27. 10 or 34. 03 as the case may be (see corresponding Explanatory Notes).2. Silicone resins are used mainly in the manufacture of varnishes, insulating or waterproof coatings, etc., where stability at high temperature is required. They are also used in the- preparation of laminates with glass fibre, asbestos or mica as the reinforcing material, as flexible moulds and for electrical encapsulation.3. Silicone elastomers, although not covered by the definition of synthetic rubber in Chapter 40, have some extensibility which is not changed by high or low temperatures. This property renders them suitable for manufacture into washers or other packings for appliances submitted to high or low temperatures. An application in the medical field is the manufacture of automatic brain valves used in cases of hydrocephalus.For the classification of polymers (including copolymers), chemically modified polymers and polymer blends, see the General Explanatory Note to this Chapter. The heading excludes silicones complying with the conditions of Note 3 to Chapter 34 (heading 34. 02).”

89. In the instant case, the Appellant in support of its case attached a certificate of analysis from its supplier Yung YI Company Ltd and manufacturer stating the specification and description of the product. This certificate of analysis has not been challenged by the Respondent.

90. The Tribunal further took note of the fact that although the Respondent stated that the product was re-tested and the laboratory findings captured in the Memorandum dated 6th December 2021 accordingly reclassifying the SE 8700 Silicon Emulsion under EAC/CET HS code 3402. 90. 00, none of the laboratory test results or analysis results were attached for the benefit of the Tribunal. The Respondent only attached internal communication that advised that the product was to be classified under HS Code 3402. 90. 00.

91. Based on the foregoing Rules of Interpretation, and the Explanatory Notes to Heading 39. 10, from the first Rule “Which is of the most specific description”, the most specific description can be found in the laboratory analysis of the product. In the instant case, the certificate of analysis from the manufacturer was attached by the Appellant and had all along been used to classify the Appellant’s product under Heading 39. 10 as opposed to the Respondent’s preferred Heading 34. 02

92. The Tribunal further notes that as provided for under GIR 1, nothing under Heading 34. 02 describes the silicone product that were imported by the Appellant.

93. Consequently, the Tribunal finds that the Appellant’s imported product is correctly classifiable under HS Code 3910. 00. 00.

Final Decision 94. The upshot of the foregoing is that the Appeal is merited and the Tribunal accordingly proceeds to make the following Orders: -a.The Appeal be and is hereby allowed.b.The Respondent’s review decision dated 20th December 2021 be and is hereby set aside.c.Each party to bear its own costs.

95. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 4TH DAY OF AUGUST, 2023. ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERGRACE MUKUHA - MEMBERJEPHTHAH NJAGI - MEMBERABRAHAM K. KIPROTICH - MEMBER