[2024] KETAT 1254 (KLR)

Chloride Exide Kenya Limited v Commissioner of Customs & Border Control (Tax Appeal E589 of 2023) [2024] KETAT 1254 (KLR) (9 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1254 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E589 of 2023

E.N Wafula, Chair, Jephthah Njagi, E Ng'ang'a & G Ogaga, Members

August 9, 2024

Between

Chloride Exide Kenya Limited

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya and carries on the business of installation of solar water heating systems, backup systems and distribution of automotive batteries.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the said Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all revenue. Respondent conducted a desk audit of the Appellant's imports of solar water heaters for the period 2016 to 2021.

3. On 13th June 2023, the Appellant imported solar water heater systems and declared the goods under the Harmonised Commodity Description and Coding System ("HS") Code 8419. 19. 00. The Appellant used import declaration form for the import as entry No 23EMKIM400638671.

4. The Respondent declined to clear the solar water heaters under HS Code 8419. 19. 00 and reclassified the solar water heaters under HS Code 8516. 10. 00.

5. The Appellant vide a letter dated 15th June 2023 requested the Respondent to clear the goods under HS Code 8419. 19. 00 in accordance with the Tax Appeals Tribunal's decision dated 12th May 2023 on a similar matter between the parties in TAT No. 369 of 2021, in which the Tribunal held that the Appellant’s solar water heater systems are classifiable under Heading 8419.

6. The Respondent vide a letter dated 21st June 2023 declined to release the goods under HS Code 8419. 19. 00 on the basis that the Respondent had filed an appeal at the High Court against the Tribunal's decision in TAT No. 369 of 2021.

7. The Appellant vide a letter dated 21st July 2023 lodged an application for review of the Commissioner’s decision to reclassify solar water heating systems under HS Code 8516. 10. 00.

8. The Respondent vide a letter dated 4th August 2023, declined the Appellant's application for review and upheld its decision to reclassify solar water heating systems under HS Code 8516. 10. 00.

9. Aggrieved by the Respondent's decision to reclassify solar water heating systems under HS Code 8516. 10. 00, the Appellant filed a Notice of Appeal dated 15th September 2023.

The Appeal 10. The Appeal is premised on the Memorandum of Appeal dated and electronically filed on 29th September 2023 raising the following grounds of appeal:-a.That the Respondent erred in law in failing to appreciate that the Appellant imported solar water heating systems.b.That the Respondent erred in law in failing to appreciate that solar water heater systems are classifiable under Harmonised Commodity Description and Coding System ("HS") code 8419. 19. 00. c.That the Respondent erred in law in failing to appreciate that the Tribunal has already held that the Appellant's solar water heater systems are classifiable under HS Code 8419. 19. 00. d.That the Respondent erred in law by finding that solar water heater systems are classifiable under HS Code 8516. 10. 00. e.That the Respondent erred in law by failing to appreciate that HS Code 8516. 10. 00 only applies to dual system heaters in which the dual system is either electrical or connected to a fuel heated hot water system.

The Appellant’s Case 11. The Appellant’s case was premised on the following documents and proceedings before the Tribunal:-a.The Appellant’s Statement of Facts dated and filed on 29th September 2023 together with the attachments thereto.b.The evidence of Sammy Waite as per the Witness Statement dated and filed on 26th April 2024 and admitted in evidence under oath by the Tribunal on 16th May 2024. c.The Appellant’s written submissions dated and filed electronically on 30th May 2024. d.Appellant’s list of legal authorities dated and filed on 30th May 2024.

12. The Appellant averred that it imports solar water heating systems and not electric or fuel heated systems. That these solar water heating systems constitute of specialized equipment for the development and generation of solar energy from sunlight.

13. That Regulation 2 of the Energy (Solar Water Heating) Regulations, 2012 has clearly defined a solar water heating system as:-“a device or system that uses sunlight to heat water and comprises of solar collectors, storage tanks, controls, installation hardware and fittings.”

14. That the solar water heating system imported by the Appellant is designed to exclusively use sunlight to heat water.

15. That further, the solar water heating system imported by the Appellant consists of solar collectors that absorb solar energy, a storage tank that accumulates thermal energy in the form of solar heated water, controls, solar hardware, and fittings installations which are exclusively designed to support the operation of the solar water heaters.

16. That due to the fact that the systems imported by the Appellant are solar water heating systems, for the period prior to June 2020, the Appellant’s solar water heating systems qualified for VAT exemption and were approved as such by the Respondent, Ministry of Energy and the National Treasury on the basis that they are specialized equipment which exclusively use solar power to heat water and/or are specialized equipment for the development and generation of solar energy to heat water.

17. That all solar water heaters sold or imported into Kenya are required by law to be fitted with an auxiliary electric heating element as a backup system. That this is pursuant to Regulation 9 of the Solar Water Heating Regulations and the Kenya Bureau of Standards quality standards No. KS 1860. 2009 that provides that the components for solar water heating systems must include an auxiliary heat source which supplements or functions as back-up on the rare occasion when there is insufficient sunlight.

18. That therefore, for purposes of compliance with the Regulations, the solar water heating systems imported by the Appellant were fitted with an auxiliary backup electric booster.

19. That the electric booster’s role is simply to supplement the solar heater, in the rare occasions when there is insufficient sunlight.

20. That the solar water heating system imported by the Appellant can only use one energy source at a time, and it is specifically designed to use solar energy to heat water. That the system is therefore not a dual or hybrid system. It is a solar water heating system that has an auxiliary backup electric booster as required by the Solar Water Heating Regulations.

21. That the solar water heating system can operate exclusively and independently using solar energy without the presence of the electric booster. That the presence of an electric booster is included for regulatory purposes and it does not take away the essential character of the solar water heating system, which is a devise designed to utilize solar energy to heat water.

22. That the electric booster is not automatically or simultaneously used when the solar water system is installed. That the electric booster can only be used when a customer after purchase of the imported solar water heaters, makes the necessary installations to activate the electric booster.

23. That customers who do not have access to electricity or who do not incur the additional installation material, never activate the booster and hence exclusively rely on solar energy to heat water.

24. That the solar water heating system imported by the Appellant is complete in itself and can solely rely on solar energy without a customer adding installations to activate the electric booster.

25. That as stated by the Appellant’s witness,“these solar water heating systems in areas which are off-grid power such as the lodges in Mara, Turkana, Samburu, and other arid areas function solely on solar energy, without ever having to activate the backup electrical component, as there is sufficient solar energy is such arid off-grid areas. This further goes on to demonstrate that these solar water heating systems are solely reliant on solar energy and are therefore not dual water heating systems.”

26. That the electric component is a minor component of these solar water heaters and the cost implication of the booster is a minor percentage of the solar water heating system's cost (less than 7%). That therefore, the inclusion of the back-up component mandated by law, does not take away the essential character of solar water heaters, which is to utilize sunlight to heat water.

27. The Appellant averred that the Company has been compelled to ensure that the solar water heaters have an auxiliary back up electric heating component as a result of the statutory requirements. That infact, if it was not for the policy directive and the statutory requirements, the Appellant would actually import systems without the auxiliary back up element, but such a system would not be approved or released from the point of import by KEBS officials.

28. The Appellant averred that solar water heaters are classified under HS Code 84. 19 That the East African Community Common External Tariff (EAC CET) provides the Harmonised Commodity Description and Coding System ("HS") code that is used to determine the HS Code for goods.

29. That in interpreting the EAC CET, one must be guided by the General Interpretation Rules ("GIR") for the classification of goods.

30. That Rule 1 of the GIR 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 heading and any relative Section or Chapter Notes ... "

31. Therefore, the determination of the classification of a product is duly based on the terms of headings and any relative Section or Chapter Notes.

32. That in accordance with GIR Rule 1, solar water heaters would fall under tariff Heading 84. 19 which covers non electric storage water heaters.

33. The Appellant averred that since the Appellant’s solar water heating system has been fitted with an auxiliary electric booster, it is deemed to be a composite machine.

34. That Note 3 to Section XVI of the EAC CET provides that a composite machine designed to perform two or more complementary or alternative functions should be classified as if consisting only of the component which performs the principal function.

35. That in addition, GIR 3(b) which deals with classification of composite goods states that goods will be classified on the basis of the component that gives them their essential character. GIR 3(b) provides that:“Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, 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, insofar as this criterion is applicable.”

36. The Appellant averred that Heading 8516 does not apply to the products it imports. That the Respondent has indicated that the goods imported by the Appellant are dual water heating systems which fall under HS code 8516. 10. 00

37. That Heading 8516 covers electric instantaneous or storage water heaters and immersion heaters. Further, a dual system heater provided for under heading 8516 is specifically indicated to be one in which “water is heated either electrically or by connection to a fuel heated hot water system.”

38. That the equipment imported by the Appellant is a specialised equipment which uses solar energy derived from sunlight to heat water and does not have a fuel heated system, as such it does not qualify for the dual system heaters envisaged under Heading 8516.

39. That in view of the fact that Heading 8516 covers water heating systems that are either electric or fuel heated, and the solar water heating system imported by the Appellant does not fall within this category, Heading 8516 does not apply.

40. The Appellant submitted that in a similar matter between the parties, the Respondent reclassified the HS Code for the solar water heater systems which the Appellant had imported for the period January 2016 to December 2020 from HS Code 8419. 19. 00 to HS Code 8516. 10. 00.

41. That on 12th May 2023, the Tribunal in Tax Appeal No 369 of 2021 correctly held that the solar water heaters imported by the Appellant are classified under Heading 8419 and that the Respondent had erred in reclassifying the goods under HS Code 8516. 10. 00.

42. That therefore, the decision by the Respondent to reclassify solar water heating systems imported under Entry No 23EMKIM400638671 is in contravention of the Tribunal's decision.

43. That the Judgment issued by the Tribunal is binding and enforceable against the Respondent. That the Respondent has ignored the Tribunal's decision.

44. The Appellant submitted that the Tribunal in that Judgment, Chloride Exide Limited v the Commissioner of Customs and Border Control (TAT No. 369 of 2021) having analysed the solar water heaters and having applied the General Interpretative Rules (GIR) correctly found at paragraph 84, that:-“based on the submissions the essential characteristics of the water heaters in question that distinguish them are the solar collectors commonly fitted to all solar water heaters. They are offered for sale as solar water heaters and must essentially be fitted in a location where they are able to collect solar energy. The immersion heaters which is a characteristic of electric heaters forms only a small percentage of the system. Furthermore, the electric component is fitted largely to ensure compliance with the Regulatory requirements".

45. The Appellant submitted that the Tribunal then correctly concluded that the solar water heaters are properly classifiable under HS Code841919. 00.

46. The Appellant further submitted that the Tribunal has made the same finding in numerous other decisions including Orb Energy Private Limited v the Commissioner of Domestic Taxes (TAT No. 101 of 2022) and Power Max Solar Solutions v the Commissioner of Customs and Border Control (TAT No. 681 of 2022). The Appellant submitted that the Tribunal herein ought to apply its own decisions and uphold the Appellant’s Appeal.

47. The Appellant submitted that the Respondent attached an inconclusive WCO advisory opinion to its Statement of Facts. That the Tribunal has disregarded the opinion in previous decisions as the Respondent failed to demonstrate that the Explanatory Notes have been amended to adopt the opinion.

48. The Appellant submitted that the Respondent’s own witness admitted during cross-examination that another draft opinion would still have to presented at the next pre-sessional working party as is clearly stated on the last page of the opinion. That the opinion is therefore not conclusive and of no consequence to the Appeal herein.

49. The Appellant submitted that it sufficiently demonstrated to the Tribunal that the Respondent had no basis for classifying the Appellant's solar water heaters under Hs. Code 8516. 10. 00 as the system does not use fuel to heat water. That the Appellant correctly classified its water heating system under HS Code 8419. 19. 00. That this Tribunal has in a decision between the same parties as well as other numerous decisions cited herein held that solar water heaters are classifiable under HS Code 8419. 19. 00. The Appellant prayed that the Tribunal upholds its previous correct and well reasoned decisions to ensure consistency in its decision making process.

Appellant’s prayers 50. The Appellant prayed that the Tribunal finds that:-a.This Appeal has merit and should be allowed.b.Ther solar water heaters imported by the Appellant are classified under tariff code 8419. 19. 00. c.The Respondent erred in law in reclassifying the HS Code of the solar water heater systems imported under Entry No 23EMKIM400638671. d.The Respondent's decision dated 4th August 2023 lacks basis in law and fact and be annulled and set aside in its entirety.

respondent’s case 51. The Respondent’s case was premised on the following documents:-a.The Respondent’s Statement of Facts dated 31st October 2023 and filed on 3rd November 2023 together with the documents attached thereto.b.The witness statement of Mr. Bernard Oyucho dated 19th April 2024 and filed on 24th April 2024 that was admitted in evidence under oath on 16th May 2024. c.The Respondent’s written submissions dated 30th May 2024 and filed electronically on the same date.d.The Respondent’s list of authorities dated and filed electronically on 30th May 2024.

52. The Respondent averred that it undertook a Post Clearance Audit of the Appellant's operations for the period January 2016 to December 2020 and the Respondent issued its demand on the subject Entry No. 23EMKIM400638671 of Kshs. 536,980. 00 being extra taxes (Import Duty and VAT) computed based on the HS Code 8516. 10,00 as opposed to the HS code declared by the Appellant being HS Code 8419. 90. 00.

53. That the Respondent assessed the Appellant for duties having classified solar water heaters it imported under HS Code 8419. 19. 00 instead of the correct classification which is HS Code 8516. 10. 00.

54. That the Appellant objected to the assessment vide its letter dated 21st July 2023 and the Respondent confirmed the assessment vide its letter dated 4th August 2023.

55. The Respondent averred that the item in question is specified to be a dual-system solar water heater that could be operated by both solar power and electricity. The system is designed to heat water and circulate the heated water to showers of faucets in homes.

56. That the system consists of a solar-energy collector panel and hot water storage tank. The collector panel receives cool water from the house's water supply by an included pump. The water in the panel is heated by the sun and then stored in the storage until used. That the water heating unit contains a copper coil as an auxiliary electric element. That the electric heating element is connected to the water tank to heat water electrically if solar power/energy is insufficient.

57. That the question is whether the solar water heaters with the provisions of electric heating element are classifiable under EAC CET 2017 HS Code 8516. 10. 00 as suggested or HS Code 8419. 19. 00 as was declared. That the basis of the decision on the tariff classification is the EAC CET 2022 CET Explanatory Notes and the item as presented at the time of importation.

58. The Respondent reiterated that the tariff classification for the item in question the dual water heating system, has been deliberated on by the World Customs Organization's Harmonised System Committee (HSC) and provided as HS Code 8516. 10. 00. That this review is now officially part of the Harmonised Systems Compendium of Classifications.

59. That further to the aforementioned, this decision was affirmed through a Meeting by the World Customs Organization where the HS Code 8516. 10. 00 was confirmed and Minutes of the Meeting were produced and shared.

60. The Respondent also stated that it has moved to the High Court to challenge and have the decision of the TAT on these matters reversed and the stay of previous orders of 30th September 2022 granted to the Appellant was lifted.

61. That the matter came up for mention on 4th October, 2023 before Justice Lawrence Mugambi, and the Court agreed with the Respondent to set aside the interim orders issued on 30th September, 2022 in lieu of the new developments of the World Customs Organization (WCO) ruling.

62. That classification of goods is guided by application of the General Interpretative Rules of the Harmonized System. That GIR 1 provides that 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 specified provisions.

63. That from the Explanatory Notes to GIR 1, it is evident that classification shall be determined according to the terms of the headings. Explanatory Note 1 states that: the expression “Provided such headings or Notes do not otherwise require" is intended to make it quite clear that the terms of the headings and any relative Section or Chapter Notes are paramount, they are the first consideration in determining classification.

64. That Heading 84. 19 provides for classification of instantaneous or storage water heaters, non-electric. In other words, in order to be classified in Heading 84. 19, such water heaters must heat water non-electrically.

65. That as provided for in the WCO classification guidance, a dual-system water heater that can heat water by an electric element does not meet the terms of heading 84. 19 and thus cannot be classified in this heading.

66. That Explanatory Note to Heading 84. 19 state".... The machinery and equipment classified under this heading may or may not incorporate mechanical equipment. They may be heated by any system (Coal, oil, gas, steam, electricity, etc.) except in case of instantaneous water heaters & storage water heaters which are classified in heading 8516 when electrically heated."

67. That Heading 85. 16 provides for the classification of electric instantaneous or storage water heaters and immersion heaters. The terms of Heading herein confirms that the water solar water heaters satisfy the terms of Heading 85. 16.

68. That as guided by the general Interpretative Rule 1 of the Harmonized System, a complete dual-system solar water heater with a provision of an electric heating element; whether presented with the electric heating element or not at the time of importation, is considered classifiable in EAC/CET 2017 HS Code 8516. 10. 00.

69. The Respondent submitted that the following should be the issues for determination in this matter.a.Whether the Tribunal is bound by WCO rulings?b.Whether the Respondent erred in classifying the Solar Heating Systems under tariff code 8516. 10. 00 instead of tariff code 8419. 19. 00.

70. The Respondent submitted that World Customs Organization (WCO), established in 1952 as the Customs Co- operation Council (CCC) is an independent inter-governmental body whose mission is to enhance the effectiveness and efficiency of Customs administrations.

71. That WCO plays an important role in promoting international customs co-operation and addressing new challenges for customs and trade.

72. That the Harmonized System (HS) is administrated by the World Customs Organization (WCO) and is updated every five years. It serves as the foundation for the import and export classification systems used in the United States and by many trading partners. That the HS assigns specific six-digit codes for varying classifications and commodities.

73. The Respondent submitted that it is alive to the fact that the Tribunal has rendered various Judgments touching on the classification of a product called “dual system solar water heater” wherein it was held that HS Code 8419. 19. 00 is applicable instead of HS Code 8516. 10. 00 proposed by the Commissioner.

74. The Respondent submitted that the issue of classification was taken to the WCO which is the body tasked with guiding customs organizations on matters classification and matters customs and trade and the Harmonised System Committee of the WCO has since deliberated on the appropriate classification of the dual system water heater and concurred with the Respondent’s classification under HS Code 8516. 10. 00.

75. That the decision of the WCO was drawn from the WCO’s website as evidence in the footnotes of the document with the ruling/decision, confirming it is indeed a legitimate document and further the same was annexed to the Respondent’s Statement of Facts and the same is on record before the Tribunal and was also shared with the Appellant.

76. That the Respondent is bound to apply the decisions of the Harmonised System Committee of the WCO by virtue of Article 2(6) of the Constitution of Kenya since it forms part of the Laws of Kenya.

77. The Respondent submitted that the Tribunal in light of the new developments and the uniqueness of this matter that is different from the previous ones the Tribunal has ruled on, the Tribunal ought to invite itself to consider keenly this case on its own merits and treat it differently to avoid a miscarriage of the law.

78. That from the perusal of the decision, it is evident that the same is directly relevant to the issue at hand as it offers critical guidance on the classification of dual solar water heaters. Particularly, page XVI/67 provides as follows:-“Dual system water heater for domestic use, which can be operated by solar power or electricity or both. The product has a solar panel with a collector, a pump and a hot water storage tank. When presented, the product contains all the electrical components except a copper coil needed for auxiliary electric heating element to function.”

79. On whether the Respondent erred in classifying the solar heating systems under tariff code 8516. 10. 00 instead of tariff code 8419. 19. 00 the Respondent submitted that the item in question is specified to be a dual-system solar water heater that could be operated by both solar power and electricity. That the system is designed to heat water and circulate the heated water to showers of faucets in homes.

80. The Respondent submitted that even though the water heaters are imported without the electric components as claimed by the Appellant, this does not change their essential character of being dual. The Respondent relied on Rule 2(a) of the GIR which provides as follows:-“Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled.”

81. The Respondent further submitted that the question was whether the solar water heaters with the provisions of electric heating element are classifiable under EAC CET 2017 HS Code 8516. 10. 00 as suggested or HS Code 8419. 19. 00 as was declared. The basis of the decision on the tariff classification is the EAC CET 2022 CET Explanatory notes and the item as presented at the time of importation.

82. The Respondent relied on the case of; Beta Healthcare International Ltd vs. Commissioner of Customs Services [2010] eKLR where the court opined thus:-“Kenya is a signatory to the International Convention on the Harmonized Commodity Description and Coding System. Kenya became a contracting party to the convention on 29th January 1988. The entry into force of the convention came into effect in Kenya on 1st January 1989. ”

83. The Respondent submitted that the Appellant’s imported solar water heating systems are classifiable under Chapter 85 of the East African Community Common External Tariff (EAC CET) which is derived from the International Convention on the Harmonized Commodity Description and Coding System to which Kenya is a signatory.

Respondent’s prayers 84. The Respondent prayed that:-a.The Tribunal upholds the Respondent's decision to charge tax amounting to Kshs 536. 980. 00 being extra taxes computed, as due and payable.b.The Tribunal finds that the Respondent correctly classified the Appellant’s item under HS Code 8516. 10. 00. c.The Tribunal dismisses the Appeal with costs.

Issues For Determination 85. The Tribunal having carefully reviewed the filings made by the parties, the supporting documentation, the witness statements and the submissions made, is the of the respectful view that the following are the issues that call for its determination in this Appeal:-a.Whether the solar water heaters imported by the Appellant are dual-system solar water heaters.b.Whether the Respondent erred in law and in fact in reclassifying the water heaters imported by the Appellant from tariff code 8419. 19. 00 to tariff code 85. 16. 10. 00.

Analysis And Findings 86. Having identified the issues falling for its determination, the Tribunal wishes to analyze them as hereunder.

a)Whether the solar water heaters imported by the Appellant are dual-system solar water heaters. 87. The Appellant submitted that its dispute with the Respondent is as to whether the water heaters it imported are solar water heaters or dual-system solar water heaters.

88. The Appellant submitted that a solar water heater is generally known, understood, and agreed to mean a device that captures, traps and utilizes the sun's thermal energy to heat water. That what is utilized is the sun's thermal energy/radiation.

89. The Appellant further submitted that its solar water heaters are comprised of the tank, and solar collectors among other crucial components all of which are crucial and fundamental to the functionality of the solar water heaters, and without which the system would be inoperable.

90. The Appellant submitted that an ordinary definition of the word dual is to consist of two parts or elements. That the use of dual in this instance is very deliberate on the part of the drafters. That is to say, for the system to qualify as dual, it must have not only one or two of the elements, but instead have both in order to be deemed a dual system heater.

91. The Explanatory Notes define and prescribe what two elements must be there for the system to be defined as a dual system heater. That the Explanatory Notes are very categorical. That the Notes provide that a dual system heater is one in which water is heated either by electricity "or" by a connection to a fuel-heated system. The use of the word "or" while further highlighting the dual nature of the system, limits the components applicable to only electricity or fuel. That accordingly, the use of the word "or" implies and dictates that for it to be deemed a dual system heater, the system must have the capacity to use both electricity and fuel as a means of heating the water.

92. The Appellant submitted that the Explanatory Notes provide a very exhaustive list of the elements to be included in a dual system heater set up, that is electricity and fuel. That there is no contemplation on the part of the drafters for any other components to be included in the set.

93. That the Appellant’s solar water heaters are heated by the sun's thermal energy. That conversely, a fuel water heater is understood to be a material like coal, gas or oil that is burned to produce heat or power. That this is not the case with the Appellant’s solar water heaters, which rely primarily on solar energy.

94. The Appellant submitted that as prescribed by the Explanatory Note to Heading 85. 16, a system is only deemed a dual system heater if it uses both electricity and the combustion of fuel to heat water. That the Appellant's solar water heaters do not have the capability, components or elements to undertake the combustion of fuel.

95. The Appellant submitted that the element of duality in the dual system heaters is present to allow for the inter switching between using of electricity or fuel-based combustion. That both systems must be present for it to be deemed dual, as otherwise the system would be solely an electric heater, or a fuel-based heater.

96. The Respondent on the other hand submitted 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.

97. The Respondent also submitted that the system can operate on solar energy or electricity. That without the electrical element, the system would not be effective in heating water when the solar energy is inadequate. That the system would work perfectly without the solar component.

98. The Respondent further submitted that from the reference of Heading 84. 19 and 85. 16 read together with the relevant Explanatory Notes under subheadings, it is clear that the solar water heaters are classifiable under EAC/CET 2017 Hs code 8419. 19. 00 whilst the electric water heaters are classifiable under EAC/CET 2017 Hs Code 8516. 10. 00.

99. That the solar water heaters equipped with electric water heating back up component are classifiable under Hs Code 8516. 10. 00 and not Hs Code 8419. 19. 00.

100. The Tribunal has looked at the Explanatory Note A to Heading 85. 16 and found that it provides as follows:“(A) Electric Instantaneous Or Storage Water Heaters An Immersion HeatersThis group includes:1. 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.”

101. The Tribunal agrees with the Appellant that a system is only deemed a dual system heater if it uses both electricity and the combustion of fuel to heat water. In the pleadings, the Appellant expressly stated that the solar water heaters it imported do not have the capability, components or elements to undertake the combustion of fuel. The Appellant also stated that the solar water heaters it imported did not have “a thermostatic control to operate them electrically” and therefore do not fall within the definition of a dual system given in the Explanatory Notes. This fact was neither challenged nor denied by the Respondent.

102. The Tribunal also notes that the element of duality in the dual system heaters is present to allow for the switching between using of electricity or fuel-based combustion. Both systems must be present for it to be deemed dual.

103. Since the Appellant’s solar water heaters do not have a “connection to a fuel- heated hot water system” or “thermostatic control” for the system as prescribed by the Explanatory Note A to Heading 85. 16, the Tribunal finds that the solar water heaters imported by the Appellant are not dual-system solar water heaters.

104. Based on the Tribunal’s finding in this and other matters that the solar water heaters imported by the Appellant are not dual system heaters, it follows that the purported WCO Ruling on dual-system solar water heaters is not applicable to this matter as the product the Ruling addressed is different from the one imported by the Appellant and the subject of this Appeal.

b). Whether the Respondent erred in law and in fact in reclassifying the water heaters imported by the Appellant from tariff code 8419. 19. 00 to tariff code 8516. 10. 00. 105. The Appellant submitted that HS Code 8516. 10. 00 is not applicable to solar water heaters as the same covers instantaneous electric water heaters.

106. The Appellant also submitted that Heading 85. 16 does not in any way address solar water heaters incorporating a back up heating element. That by purporting to classify solar water heaters with an electric back up element under this Heading, the Respondent is purporting to enlarge the scope of HS Code 8516. 10. 00 which offends the requirements of Rule 3(b) of the GIR which offers clarity where a Heading does not provide clarity regarding the classification of a product.

107. The Appellant further submitted that the fact that the solar water heaters cannot be classified under Heading 85. 16 is further buttressed by the last paragraph of Explanatory Note A (5) of Chapter 85. 16. which provides as follows:-“Assemblies consisting of immersion heaters permanently incorporated in a tank, vat or other vessel are classified in heading 84. 19 unless they are designed for water heating only or for domestic use, in which case they remain in this heading.”

108. On the other hand, the Respondent submitted that the item in question is a solar water heater used to heat domestic water. That its main energy source is solar energy. However, electricity is secondary and supplies power when the solar function has failed.

109. The Respondent submitted that the product specification of the dual system for domestic use is one that has a provision for use of both solar water heater and electric water heater on one product as the one in the dispute before the Tribunal.

110. The Respondent submitted that Rule 1 of GIR (General Interpretation Rules), provides that classification shall be determined according to the terms of the Heading and any relative Section or Chapter Notes, provided such headings or notes do not otherwise require the provisions of Rules 2 to 6.

111. 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. The character of the product has not changed and all that happened was that the Respondent changed the interpretation of the applicable Code.

112. 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.”

113. 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.

114. 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 submitted 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.

115. According to Rule 1, what one sees when they look at the product in dispute is a solar water heater (which the parties agree should be classified under tariff code 8419), as opposed to a water heater, boiler, geyser or hot water tank (which the parties also agree should be classified under Tariff Code 8516). The electric heating element is an accessory to the solar water heater.

116. The HS tariff classification codes are internationally used to facilitate global trade. The WCO in the 2022 nomenclature, introduced Tariff Code 8419. 12. 00 to specifically provide for solar water heaters. The EACCET 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.

117. The Explanatory Note to Heading 84. 19, EAC/ CET further states, in the relevant part as thus:-“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. 16).”

118. The Explanatory Note to Heading 85. 16 similarly provides in the relevant part as follows:-“Assemblies consisting of immersion heaters permanently incorporated in a tank, vat or other vessel are classified in heading 84. 19 unless they are designed for water heating only or for domestic use, in which case they remain in this heading. Solar water heaters are also classified in heading 84. 19. ”

119. Going by the provisions in the Harmonized System (HS) Nomenclature and the Explanatory Notes to the same, the Tribunal finds that the correct classification of the solar water heaters imported by the Appellant is Heading 84. 19. Indeed, as captured above, even the Explanatory Note to Heading 85. 16 which is preferred by the Respondent, directs that solar water heaters should be classified under Heading 84. 19.

120. The Tribunal in a similar matter by the same parties and on the same product in TAT No. 369 of 2021 Chloride Exide Limited v the Commissioner of Customs and Border Control, having analysed the solar water heaters and having applied the General Interpretative Rules (GIR) correctly found at paragraphs 84 to 86 that:-“84based on the submissions the essential characteristics of the water heaters in question that distinguish them are the solar collectors commonly fitted to all solar water heaters. They are offered for sale as solar water heaters and must essentially be fitted in a location where they are able to collect solar energy. The immersion heaters which is a characteristic of electric heaters forms only a small percentage of the system. Furthermore, the electric component is fitted largely to ensure compliance with the Regulatory requirements".

85. Based on the materials and submissions presented before the Tribunal, the heating system has the appearance and character of a solar heating system. It is the considered view of the Tribunal that the systems are not electric water heating systems fitted with solar components but rather solar water heating systems fitted with electric accessories to enable them to function as electric heaters.

86. Consequently, by dint of GIR 3(b), the subject solar water heaters as imported are most appropriately classifiable under HS 8419. ”

121. The Tribunal has made a similar finding and holding that the correct HS classification for solar water heaters is 8419. 19. 00 in the following among other matters:-a.Appeal No. 179 of 2022, Sunpower International Limited V Commissioner of Customs & Border Control.b.Appeal No. 101 of 2022, ORB Power V Commissioner of Customs & Border Control.c.Appeal No. 249 of 2021, Scandinavian Solar Systems Limited V Commissioner of Customs & Border Control.d.Appeal No. 368 of 2021, Davis and Shirtliff Limited V Commissioner of Customs & Border Control.e.Appeal No. 922 of 2022, Namah Enterprises Limited V Commissioner of Customs & Border Control.

122. In the decisions on classification of solar water heaters indicated above, the Tribunal correctly held that the solar water heaters are properly classifiable under HS Code 8419. 19. 00 and no evidence has been placed before the Tribunal to persuade it to depart from this finding.

123. During the hearing the Tribunal asked the Respondent to distinguish the instant matter from the ones that the Tribunal had decided upon. The Respondent indicated that in its submissions, it would attach the decision of the High Court on the issue of classification of solar water heaters from Heading 8419 to Heading 8516. Although in its list of authorities it indicated that the document was attached, the Tribunal did not sight any authorities relating to the purported High Court ruling. In the circumstances the Tribunal is bound by the decisions it has made in the past as there is no reason to make it depart from its earlier findings in the many solar matters that have been concluded.

124. In view of the above, the Tribunal finds that the Respondent erred in law and in fact in reclassifying the water heaters imported by the Appellant from Tariff Code 8419. 19. 00 to Tariff Code 8516. 10. 00.

Final Decision 125. The upshot of the foregoing analysis 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 solar water heaters imported by the Appellant are classified under Tariff Code 8419. 19. 00. c.The Respondent’s decision dated 4th August 2023 be and is hereby set aside.d.Each party to bear its own costs.

126. It is so ordered.

DATED and DELIVERED at NAIROBI this 9th day of August, 2024. ERIC NYONGESA WAFULA- CHAIRMANJEPHTHAH NJAGI - MEMBEREUNICE N. NGA’NG’A- MEMBERGLORIA A. OGAGA- MEMBER