[2023] KETAT 258 (KLR)

Climacento Green Tech Limited v Commissioner of Customs & Border Control (Appeal 135 of 2022) [2023] KETAT 258 (KLR) (Civ) (12 May 2023) (Judgment)

Neutral citation: [2023] KETAT 258 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 135 of 2022

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

May 12, 2023

Between

Climacento Green Tech Limited

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

1. The Appellant is a limited liability company incorporated in Kenya and carries on the business of providing a variety of solar water heating solutions and systems.

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.

3. The Respondent conducted a desk audit of the Appellant's imports of solar water heaters for the period 2016 to 2021.

4. Following the audit, the Respondent issued a demand notice of Kshs. 5,252,525. 23 on 25th November 2021 relating to additional import duty and VAT.

5. In the demand notice, the Respondent submitted that the proper classification for the Appellant's solar water heaters is under HS Code 8516. 10. 00 as opposed to HS Code 8419. 19. 00 as declared by the Appellant.

6. The Respondent further annexed to its demand letter an opinion indicated to be from the World Customs Organization (WCO), Secretariat dated 3rd November 2021 in support of its preferred classification.

7. The Appellant wrote to the Respondent on 23rd December 2021 objecting to the classification under HS Code 8516. 10. 00 and further requested the Respondent to re-evaluate the classification of the solar water heaters.

8. Vide a letter dated 20th January 2022, the Respondent issued a review decision confirming the demand on the grounds that there were no sufficient reasons to vacate the demand notice.

9. Aggrieved by the review decision the Appellant filed this Appeal on the 10th February, 2022.

The Appeal 10. The Appeal is premised on the Memorandum of Appeal dated and filed on the 10th February 2022 and filed on the same date raising the following grounds of appeal:-a.That the Respondent erred in law and fact by raising a demand of Kshs. 5,252,525. 23 arrived at by incorrectly classifying the Appellant's solar water heaters 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. 10. 00 of the East African Community Common External Tariff (EAC/CET).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. f.That the Respondent erred in law and fact by stating that a dual system water heater operates under both solar power and electricity when it is noticeably clear from the Explanatory Notes 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 that Heading 8419. 19. 00 as read together with chapter 84 Explanatory Notes (EN) provide for the most accurate classification of solar water heaters.h.That in addition, EN to Heading 8419. 19. 00 reads in the relevant part that:- "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)."i.That the Respondent erred in fact by implying in its 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. 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 sun’s thermal energy which gives them their essential character and ability to perform their principal function of heating water through solar energy otherwise they would not be termed as solar water heating systems.j.That the Respondent erred in law and fact by failing to appreciate the nature of the product in dispute, particularly, that the Appellant's solar water heaters are solely solar powered and do not meet provisions under terms of heading 85. 16 of the Harmonized System Nomenclature neither do they have thermostatic controls nor electric provisions.k.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 (sun’s thermal energy), and that they are not heated electrically or by connection to a fuel heated system and thus cannot be classified under heading 85. 16 of the EAC/CET.l.That the Respondent erred in law and fact by opting to base its decision to classify the solar water heaters as dual system heaters on an alleged World Customs Organization (WCO) opinion dated 3rd November 2021 whose veracity is highly in doubt. The alleged opinion is incomplete and lacks a signature and the capacity in which the sender is allegedly proffering the opinion.m.That the Respondent breached the Appellant’s right to access information in line with Article 35 of theConstitution of Kenya, by denying the Appellant access to information that is very crucial to this dispute.n.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 inspection 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 not have entered the country.o.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.p.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. As a result, the Appellant relied on this legitimate expectation to its detriment.q.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 Respondents 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.r.That the Respondent erred in law and fact by failing to appreciate that if there was 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 its agents. That the failure to do so is solely attributable to the Respondent and should not be held against the Appellant as it was relying on the presumption of regularity.

The Appellant’s Case 11. The Appellant’s case is premised on the following:-a.The Appellant’s Statement of Facts dated 10th February 2022 and filed on the same date together with the attachments thereto.b.The Appellant’s written submissions dated 25th November 2022 and filed on 29th November 2022 and the legal authorities filed therewith.

12. That the Respondent conducted a desk audit of the Appellant's imports of solar water heaters for the period 2016 to 2021. That following the audit, the Respondent issued a demand notice of Kshs. 5,252,525. 23 on 25th November 2021 relating to additional import duty and VAT.

13. That in its demand notice, the Respondent submitted that the proper classification for the Appellant's solar water heaters, was under HS Code 8516. 10. 00 in accordance with GR1 and Explanatory Notes to Heading 85. 16 attracting 25% import duty as well as 16% VAT as opposed to HS Code 8419. 19. 00 as declared by the Appellant which attracts 0% duty and 0% VAT.

14. That the Appellant wrote to the Respondent on 23rd December 2021 objecting to the classification under HS Code 8516. 10. 00 and further requested the Respondent to re-evaluate the classification of the solar water heaters on the basis of the following grounds:a.That the Respondent in its demand asserted that the Appellant should have declared the imports under HS Code 8516. 10. 00 which relates to 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 in heading 85. 45. b.That the Respondent further referenced GR1 and Explanatory Notes to Heading 85. 16 providing in part for Dual- System Heaters in which the water is either heated electrically or by a connection of fuel heated hot water system they are often equipped with a thermostatic control to operate them electrically when the alternative means is insufficient.c.That the Appellant disagreed with this classification due to the following reasons:-i.That the nature of the product in dispute is not a dual-system heater and that the Appellant is not an importer of dual-system heaters but rather it imports solar water heating systems.ii.That solar water heating systems imported by the Appellant are solely solar powered and do not meet the provisions under the terms of heading 85. 16 of the Harmonized System Nomenclature neither do they have thermostatic controls nor electric provisions.iii.That principal heating system in the solar water heating system imported by the Appellant is solar energy. That they are not heated electrically or by connection to a fuel heated system. That they thus cannot be classified under heading 85. 16. or according to the Explanatory Notes to the aforementioned heading.iv.That being that the principal heating system is solar energy and that the Appellant's solar water heaters do not have the capacity or necessary mechanisms to undertake combustion of fuel to generate energy, the same cannot be classified as a dual-water heating system.v.That Chapter 84 Explanatory Notes provide for the most accurate classification of solar water heaters. The General Explanatory Notes to Chapter 84, East African Community, Common External Tariff (EAC/CET) state in relevant part:Quote (a) General Content Of The Chapter"... this Chapter covers all machine1y 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:(1)Machine1y 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.vi.That the Explanatory Notes to heading 84. 19, EAC/CET further state, 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. 16)vii.That heading 85. 16 on the other hand covers the classification of 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. viii.That according to the Additional Explanatory Notes to heading 85. 16, the heading includes Dual-System Heaters in which the water is either heated electrically or by a connection to a fuel heated hot water system, they are often equipped with a thermostatic control to operate them electrically when the alternative means is insufficient. subparagraph ix.ix.That additional Explanatory Notes to heading 85. 16 are clear in that in Dual­ System Heaters, the water is either heated electrically or by a connection of fuel heated hot water system. That it is noticeably clear that solar energy is not used in dual systems.x.That the principal heating system in the solar water heaters imported by the Appellant is the solar energy. That they are not heated electrically or by connection to a fuel heated system and cannot thus be classified under heading 85. 16. xi.That heading 84. 19 covers non-electric instantaneous water heaters and storage water heaters, including solar water heaters, domestic or not.xii.That the solar water heaters are therefore adequately covered for under Heading 84. 19.

15. That the Respondent erroneously assumed the Appellant's solar water heating systems have an electric heating component and are thus dual-system water heaters correctly classifiable under HS Code 8516. 10. 00 in accordance with GIR 1 and Explanatory Notes to heading 85. 16.

16. That the Respondent in its classification of the Appellant's solar water heaters as Dual-System Heaters, relied on an opinion allegedly proffered by the WCO. That the said opinion's veracity is highly in doubt as the alleged opinion does not bear the name of the sender or the sending authority, it lacks a signature and the capacity in which the sender is allegedly proffering the opinion.

17. That it should be noted that the WCO Secretariat has no legal mandate to issue classification opinions or other advice as guides to the interpretation of the Harmonized System. That the mandate of the Secretariat is to supply technical, logistical, and professional support to the various working bodies established by the Council, deliver capacity building, technical assistance, and training, and develop and maintain international Customs instruments and tools.

18. That had the Respondent engaged the services of any engineer or a forensic expert with thermal technical knowledge, they would have confirmed that the electric element supported by a solar water heater, (assuming that they are used), would be insufficient to heat the water capacity of the tank to any acceptable temperature in a reasonable amount of time.

19. That it is also worth noting that a solar water heater relying heavily on its electric system as alleged by the Respondent, is no longer a solar water heater and is in fact an electric heater which is an entirely different product from what the Appellant imports.

20. That further, assuming the Appellant's solar water heater had an electric system on which it relied heavily, the solar water heater would not be fit for purpose or use, as the electric component would be insufficient to adequately heat the water in a reasonable amount of time.

21. That Heading 84. 19 accurately covers the classification of 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, sterilizing, pasteurizing, steaming, drying, evaporating, vaporizing, condensing, or cooling, other than machinery or plant of a kind used for domestic purposes; instantaneous or storage water heaters, nonelectric.

22. The World Customs Organization Explanatory Notes to Heading 84. 19 stipulates that machinery of that heading covers non- electric instantaneous or storage water heaters, including solar water heaters, domestic or not.

23. That in relation to the above, the Respondent failed to appreciate General Interpretation Rules (GIR) 4 providing those goods which cannot be sufficiently classified according to the rules, shall be classified under the heading appropriate to the goods to which they are most akin; Kinship of course depending on description, character, and purpose.

24. That solar water heaters are therefore adequately covered for and are in fact specifically named under Heading 84. 19. That the Appellant's solar water heaters are most akin in description character and purpose to those under heading 84. 19 as opposed to 85. 16 as alleged by the Respondent.

25. That the Respondent's entire claim that the Appellant's solar water heaters are dual-system heaters, and as such should be classified under Heading 85. 16, hinges on an unsigned and unverified document alleging the same to be a WCO decision.

26. That it was the Appellant's contention that the Respondent submitted to the WCO in bad faith, for an opinion on dual water system heaters as opposed to solar water heaters as declared by the Appellant. That consequently, the alleged decision focuses solely on dual-system heaters and not on solar water heaters.

27. That the Respondent conveniently failed to notify the Appellant of its intention to seek for an opinion from the WCO allowing for input from the Appellant who would have undoubtedly opined unto the Respondent that its request for the opinion is only on dual water system heaters and did not adequately address the dispute between the Appellant and the Respondent.

28. That the unverified WCO decision, on which the Respondent chose to rely also fails to appreciate and apply the Explanatory Notes to heading 84. 19 which clearly provides that other machinery incorporating electrical heating elements shall remain in Chapter 84 even if electric.

29. That it should also not be overlooked that the Respondent erred in its reliance on an unverified WCO decision which disregarded the provisions of the Explanatory Notes. That it should be noted that the Explanatory Notes are the official interpretation of the HS Code and can only be changed by the HS Committee. That the Notes constitute the official interpretation of the Harmonized System at the International level and are an indispensable complement to the system.

30. That the Harmonized Commodity Description and Coding System Explanatory Notes constitute the official interpretation of the Harmonized System at the international level. That the Explanatory Notes provide a commentary on the scope of each heading of the EAC/CET and are indicative of the proper interpretation of these headings.

31. 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 HS Code 8419. 19. 00 was correct, and at no point in time did the officers raise concerns on the classification. As a result, the Appellant relied on this legitimate expectation to its detriment.

32. That further, the presumption of regularity provides that all official acts are done properly, and all procedures were lawfully followed. That upon verification of the containers, examination of the imports and approval by the Respondent and/ or its agents that HS Code 8419. 19. 00 was correct, the Appellant had no reason to doubt the procedure and eventually the outcome and correctness of its declaration.

33. 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 its agents. That the failure to do so is solely attributable to the Respondent and should not be held against the Appellant as it was relying on the presumption of regularity.

34. That by allowing the goods past the ports and accepting the declared tariff code by the Appellant, the Respondent is 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 its agents at the point of inspection.

35. That the Respondent issued the Appellant with its review decision on 20th January 2022. That from the said review decision, it is important for the Tribunal to appreciate that the following grounds upon which the Respondent has issued its decision are misguided and in bad faith:i.The Respondent has incessantly continued to term the Appellant's solar water heaters as, "Dual-System Heaters" throughout its letter despite the Appellant's efforts to clarify that they do not import dual-system heaters. That the use of the term "Dual-System Heater" was intended to fit the heading the Respondent wanted to classify the Appellant's products as opposed to what is actually imported by the Appellant.ii.That the Respondent also alleged that a dual-system heater operates under both solar and electricity, when it is noticeably clear from the Explanatory Notes to heading 85. 16 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 misrepresentation of the law that the Respondent misclassified the Appellant’s product.iii.That in regard to the WCO Secretariat’s decision, the Respondent stated that the Commissioner does not find it necessary to share the complete findings of the WCO decision as well as its letter submitted to the WCO Secretariat dated 30th August 2021, unless the Appellant has doubts on the authenticity of the decision.iv.The Appellant submitted that in as much as it 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.

36. 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 most suppliers, when requested to export using a different HS Code other than 8419. 19. 00, completely disregard the request on the basis that, it would be inconsistent with HS Codes that apply to exports of' solar water heaters worldwide. That why would Kenya have a different classification for the same product when compared to other jurisdictions, yet the world is governed by the same principles of the World Customs Organization.

37. The Appellant submitted that the following should be the issues for determination by the Tribunal.a.Whether the Appellant's solar water heaters are dual system heaters as alleged by the Respondent.b.Whether the Respondent's sole reliance on the alleged WCO opinion was justified.c.Whether the Respondent breached the Appellant's right to Legitimate Expectation.d.Whether the Respondents actions have created uncertainty and ambiguity in Law.e.Whether the Respondent breached the Presumption of regularity.

38. On each of the issues it identified, the Appellant submitted as follows:

a. Whether the Appellant's Water Heaters are Dual System Heaters as alleged by the Respondents. 39. The Appellant submitted that it is in dispute with the Respondent as to whether the Appellant's imported water heaters are solar water heaters or dual system heaters.

40. 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. That this means that provided there is warmth in the atmosphere, regardless of how cloudy the day is, the solar water heater will function appropriately. That this is indeed owing to the design of the solar water heaters.

41. That the Appellant’s 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.

42. That the Appellant's system is fully capable of operating purely on the reliance on solar energy, without the need for any electric component. That the Respondent is however erroneously trying to make a case for an exaggerated dependency on an electric component in order to deem it a dual system heater. paragraph 43.

43. 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. The Explanatory Notes then go further to define and prescribe what two elements must be there for the system to be defined as a dual system heater.

44. 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.

45. 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.

46. That the Appellant's solar water heaters are heated by the sun's thermal energy. That conversely, a fuel 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. Consequently, classification under the criteria of 85. 16 is not appropriate.

47. 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.

48. 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.

49. That Respondent cannot and should not be allowed to introduce solar energy as an element in dual system heaters as the same was not contemplated in the Explanatory Note to Heading 85. 16. That would the drafters have preferred to introduce solar energy as an element, they would have done so. That noting that they haven't, the Respondent should not be allowed to craft its own laws and apply them to the detriment of the Appellant.

50. That the Appellant's solar water heaters do not have a thermostatic control for the system as prescribed by Explanatory Note A.

51. That the Appellant's imported water heaters are solar water heaters and not dual system heaters as alleged by the Respondent.

b. Whether the Respondent's sole reliance on the alleged WCO opinion was justified. 52. The Appellant submitted that the Secretariat who issued the opinion does not have the mandate/jurisdiction to proffer such an opinion. It is not the function, mandate, or role of the Secretariat to issue classification opinions or other advice as guides to the interpretation of the Harmonized System. The Mandate of the Secretariat is to supply technical, logistical, and professional support to the various working bodies established by the Council, deliver capacity building, technical assistance, and training, and develop and maintain international Customs instruments and tools.

53. That in accordance with Article 7 of the Harmonized System Convention, only the HS Committee is mandated to issue classification opinions or decisions as per the International Convention on the Harmonized Commodity Description and Coding system.

54. That the Article gives the following as the functions of the Committee.“I. The Harmonized System Committee, having regard to the provisions of Article 8, shall have the following functions:a.to propose such amendments to this Convention as may be considered desirable, having regard, in particular, to the needs of users and to changes in technology or in patterns of international trade;b.to prepare Explanatory Notes, Classification Opinions or other advice as guides to the interpretation of the Harmonized System;”

55. The Appellant relied on the case ofOwners of the Motor Vessel "Lillian S" vs. Caltex Oil (Kenya) Ltd. (1989) to emphasize the importance of jurisdiction and mandate where it was stated that:-''Jurisdiction is everything. Without it a court has no power to make one more step. Where a court has no jurisdiction there would be no basis for a continuation of proceedings pending other evidence. A court of law downs its tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction.... Where a court takes it upon itself to exercise jurisdiction which it does not possess, its decision amounts to nothing. Jurisdiction must be acquired before judgement is given."

c). Whether the Respondent breached the Appellant's right to Legitimate Expectation. 56. The Appellant submitted that sudden and erratic change in tariff classification of the solar water heaters constitutes a fundamental breach of the Appellant’s legitimate expectation. That the principle of legitimate expectation was considered in the English case ofCouncil of Civil Service Unions v Minister for Civil Service (1995) AC 374 where Lord Diplock defined the principle as follows:“For a legitimate expectation to arise, the decision must affect the other person by depriving him of the same benefit or advantage which he had in the past been permitted by the decision maker to enjoy and which can legitimately expect to be permitted to continue to do until there has been committed to him some rational grounds for withdrawing it on which he has been given an opportunity to comment.”

57. The Appellant submitted that in the case of the Republic v Kenya Revenue Authority Ex Parte Cooper K-Brands Limited [2016J eKLR learned counsels summarized the process of importation as follow;a.The importer makes a purchase order and obtains from the supplier, the commercial invoice, bill of lading or airway bill and in some cases, insurance documentation.b.With the documents outlined above the importer is then able to raise the Import Declaration Form (JDF).c.Upon arrival of the consignment at the port of entry, the importer or his agent completes an entry form.d.With the documents referred to above, the importer prepares a Single Administrative Form (Form Cl 7B), which indicates as a summary the nature of the imports hence the tax classification, the nature of the importation hence the customs processing code (CPC), the value of the imports and any exemption code applicable.e.KRA then computes the taxes payable on the entry using the automated Simba System.f.KRA's Customs Officers then verify the consignment at the point of entry to ascertain the value of the goods, tariff classification and quantity among other requirements. During this verification KRA checks the accuracy of the value of the goods and the sufficiency of the description thereof to enable it to verify the correct tariff code having regard to the particulars of the goods as shown in the commercial invoice. For purposes of imports of raw materials for the manufacture of medicaments by the Applicant and other importers in the industry, the exemption code assigned by KRA and verified by its custom officials was and still is B0260. g.All taxes including import duty, Value Added Tax (VAT) and the assessed IDF fees are then paid at this point after which a customs clearance certificate is issued, and the goods released.

58. The Appellant submitted that it declared solar water heaters under HS Code 8419. 19. 00 and that the same was allowed by the Respondent. That having allowed the same, the Respondent is now unjustly and unfairly attempting to demand for classification of the solar water heaters under a different tariff code which is subject to taxes at the rate of an additional 25% duty and 16% VAT. Conversely, tariff code 8419. 19. 00 accrues 0% duty and 0% VAT.

59. That the Respondent through their 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.

60. The Appellant relied on the case of Keroche Industries Limited vs. Kenya Revenue Authority & 5 Others Nairobi HCMA No. 743 of 2006 [2007] KLR 240 where the court pronounced itself on the issue of legitimate expectation.

d). Whether the Respondents actions have created uncertainty and ambiguity in Law. 61. The Appellant submitted that no international supplier at the point of origin, is willing to authorize a shipment of solar water heaters classified under Tariff code 8516. 10. 00 as the internationally recognized code is 8419. 19. 00. That the purpose for which the Harmonized System exists is to ensure that all goods in international trade are classified uniformly and consistently according to a common international nomenclature. That this avoids reclassifying goods as they are moved from one country to another.

62. That the Tariff classifications are not only applied in Kenya, but rather, they are utilized and implemented equally and unwaveringly around the world. That Kenya's key trading partners, including but not limited to the European Union, all recognize tariff code 8419. 19. 00 as the correct tariff code for solar water heaters, leaving the Appellant herein in a precarious situation.

63. That it is therefore not surprising that suppliers and shippers are unwilling to undertake importation under a heading that is varyingly different from all other countries party to the World Customs Organization. That the Kenya solar water heating industry is thus marred with uncertainty as suppliers and shippers are not willing to ship under heading 85. 16 demanded by the Respondent.

64. That heading 84. 19 is the internationally accepted heading for solar water heaters. That whereas it is generally accepted in the international community that solar water heaters are classifiable under heading 84. 19, the insisted deviation by the Respondent is creating an element of ambiguity and uncertainty in the application of the law and the HS Nomenclature.

65. That it is a cardinal and fundamental aspect of a taxation system that the tax laws of a Country be certain and leave no room for ambiguity. That ideally, tax certainty calls for clear and simple rules and regulations so as to minimize disputes.

66. The Appellant relied on the following cases to support its submissions:-i.Waweru & 3 others (suing as officials of Kitengela Bar Owners Association) & another v National Assembly & 2 others; Institute of Certified Public Accountants of Kenya (ICPAK) & 2 others (Interested parties) (Constitutional Petition E005 & EOOl (Consolidated) of 2021) [2021] KEHC 58 (KLR).ii.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. iii.Keroche lnd9stries Lfd v KRA &.S others [2007] eKLR.iv.Stanbic Bank Kenya Ltd vs Kenya Revenue Authority [2009] eKLR,v.Ecobank Kenya Limited V Commissioner Of Domestic Taxes [2012] eKLR.vi.Law Society ofKenya vs. Kenya Revenue Authority & another [2017] eKLR.f)Whether the Respondents breached the Presumption of Regularity

67. The Appellant submitted that the presumption of regularity was defined the case of Chief Land Registrar & 4 others - v - Nathan Tirop Koech & 4 others [2018] eKLR where it was stated that there is a presumption that all acts done by a public official have lawfully been done and that all procedures have been duly followed. The presumption of regularity is a presumption that executive officials have properly discharged their official duties. The presumption is aptly captured in the ancient Latin maxim "Omnia praesumuntur rite esse acta," which roughly translated means "All things are presumed to have been done rightly."

68. That it cannot be overlooked that the Appellant finds itself in this position owing in part to the actions of the Respondent. That upon arrival of the goods in the Country, the Respondent's 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.

69. That at no point in time did the officers raise concern about the classification. That it was in reliance on the Respondent's customs officers' clearances and verifications that the Appellants subsequent actions were based on. That a legitimate expectation was created, and the Appellant should now not be punished for relying on a Government authority's approvals as per the presumption of regularity.

70. That if there was a discrepancy in regards to the tariff classification, it should have been raised at the point of entry upon inspection by the Respondent and/or its agents. That the failure to do so is solely attributable to the Respondent and should not be held against the Appellant as it was relying on the presumption of regularity.

71. The Appellant submitted that Justice P.0 Kiage in the case of Kibos Distillers Limited & 4 others vs. Benson Ambuti Adega & 3 others [2020] eKLR opined that:-“I make a finding that the presumption of regularity cannot be rebutted through conflicting interpretation of a statutory or regulatory provision. Liability for any action cannot be founded on conflicting interpretation of statute."

Appellant’s prayers. 72. The Appellant made the following prayers:-a.That the Appeal be allowed.b.That the Respondent’s demand notice dated 25th November 2021 and subsequent review decision dated 20th 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 73. The Respondent’s case is premised on the hereunder filed documents before the Tribunal: -a.The Respondent’s Statement of Facts dated 14th March 2022 and filed on the same date together with the documents attached thereto.b.The witness statement of Mr. Bernard Oyucho dated 30th August 2022 and filed on 9th September 2022 that was admitted in evidence on oath on the 16th November, 2022. c.The Respondent’s written submissions dated 24th January 2023 and filed on 24th January 2023 together with the legal authorities attached therewith.

74. In response to grounds 1,2,3,4,5,6 and 7 in the Appellant’s Memorandum of Appeal, the Respondent averred that Section 229 (4) of EACCMA dictates the following:-“The Commissioner shall, within a period not exceeding thirty days of the receipt of the application under subsection (2) and any further information the Commissioner may require from the person lodging the application, communicate his or her decision in writing to the person lodging the application stating reasons for the decision."

74. The Respondent averred that the review decision issued to the Appellant responded to all the grounds raised by the Appellant, hence this claim is not justified.

75. The Respondent averred that it checked all the information provided by the Appellant, but none was sufficient to warrant a departure from the amount demanded.

76. The Respondent contended that the Appellant's products have an electric component and are therefore considered dual water heating systems. A dual-system water heater operates under both solar power and electricity.

77. 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.

78. In response to grounds 8 and 10 in the Appellant’s Memorandum of Appeal, the Respondent averred that it runs on a self-declaration regime where taxpayers make declarations, assess and pay taxes on the items they import.

79. That this creates a legitimate expectation that the taxpayer will make the correct declarations and pay the correct taxes. That in the event that the taxpayer defaults on this expectation, the law under Sections 235, 236, 135 and 249 of the EACCMA 2004 allows the Respondent within five years of importation, to assess and demand for the short-levied taxes.

80. That the Respondent has neither created nor breached any legitimate expectation towards the Appellant.

81. The Respondent submitted that this case raises the following issues for determination.a.Whether the solar water heaters are classifiable under EAC/CET 2017 HS Code 8419. 19. 00 or HS Code 8516. 10. 00. b.Whether the Respondent used the WCO findings to classify the water heaters.

82. On each of the two issues, the Respondent submitted as follows:-a). Whether the solar water heaters are classifiable under EAC/CET 2017 Hs code 8419. 19. 00 or 8516. 10. 00.

83. The Respondent submitted that the classification of goods in East Africa Community is done pursuant to the Harmonized Commodity Description and Coding system. That the classification under the Harmonized System (HS) Nomenclature is done in line with the General Interpretative Rules (GIRs) and the Explanatory Notes (EN) to the (HS).·

84. That according to GIR 1, 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.

85. That an understanding of Rule 1 of the GIR would render that if a product is classifiable under a heading, sections and chapter notes, then Rule 1 would suffice. That if the product is not easily classifiable within the ambit of Rule 1, therefore then the subsequent Rules 2 to 6 are used.

86. That in the case of Kenya Breweries Limited vs. The Commissioner of Customs and Border Control, T.A.T No. 282 of 2020, the Tribunal quoted the Canadian case of Puratos Canada lnc.-Vs- Canada (Customs and Revenue) 2004 Canlii 57069 (Ca C ltt) where the Canadian Court observed as follows:“The General Rules for the Interpretation of the Harmonized System referred to in section 10 of the Customs Tariff originated in the International Convention on the Harmonized Commodity Description and Coding System. They are structured in cascading form so that, if the classification of the goods cannot be determined in accordance with Rule 1, then regard must be had to Rule 2 and so on. Rule 1 reads 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”.The above legislation requires the Tribunal to follow several steps before arriving at the proper classification of goods on an appeal: first to examine the schedule to see if the goods fit prima fade within the language of a tariff heading: second. to see if there is anything in the chapter or section notes that precludes the goods from classification in the heading: and third, to examine the Classification Opinions and the Explanatory Notes to confirm classification of the goods in the heading”

87. That therefore, based on the description of the solar water heaters found to be equipped with electric water heating back up component, the product was provided for under chapter 85, and specifically Subheading 8516. 10. 00.

88. That heading 8516 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.

89. The Respondent submitted that from the reference of heading 84. 19 and 85. 16 read together with the relevant explanatory notes under subheadings, what is clear is 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.

90. That from the foregoing, it is evident the solar water heaters equipped with electric water heating back up component is properly classifiable under Hs code 8516. 10. 00 and not Hs code 8419. 19. 00. That the Appellant cannot therefore contest the same while they are well aware that they had mis-declared the electric water heaters in order to attract low duty contrary to the law and further misled the Respondent to accepting that position. That in the case of Republic vs. Commissioner of Customs & Ex parte: Mulchand Ramji & Sons Limited (2010) the court was of the view that:“Since it's the duty of the Respondent to levy and collect taxes, it follows that, it is the Respondent who determines the codes applicable to the various goods guided by the Harmonized code. It is necessary to establish the exact contents of the goods and I believe the Respondent would have the necessary manpower or technical knowledge to do that."

91. That further, under Sections 235 and 236 of the EACCMA, the Respondent has a statutory duty to carry out Post Clearance Audits on the import declarations made by taxpayers by verifying the accuracy of the entry of goods or documents and determine whether a person has made the correct Customs declarations and paid all the taxes due. Section 235 (1) of the EACCMA provides that,“The proper officer may, within five years of the date of importation, exportation or transfer or manufacture of any goods, require the owner of the goods or any person who is in possession of any documents relating to the goodsa.To produce all books, records and documents in relation to the goods; andb.To answer any question in relation to the goods; andc.To make declaration with respect to weight, number, measure of goods, as the proper officer may deem fit."

92. That Section 236 of the EACCMA provides that the Commissioner shall have powers to: -a.Verify the accuracy of the entry of goods or documents through examination of books. records. computer stored information, business systems and all relevant custom documents, commercial documents and other data related to the goods;b.Question any person involved directly or indirectly in the business, or any person in the possession of documents and data relevant to the goods or entry;c.Inspect the premises of the owner of the goods or any other place of the person directly or indirectly involved in the operations; andd.Examine the goods where it is possible for the goods to be produced.

93. That the Respondent is therefore mandated to verify the accuracy of the entry of goods declared by importers. That it is important to note that post clearance audit is largely dependent on availed documentation. That should the Respondent realize a misclassification as was the case herein, the Respondent pursuant to the provision of Section 135 (1) of the EACCMA, is allowed to classify the products "electric water heater" under HS Heading 8516, specifically HS Code 8516. 10. 00.

94. That this position was upheld by the Superior Court in Bharat General Agency vs. Kenya Revenue Authority [2020] eKLR, wherein the Court stated that;“it was fully within the legal mandate of the Respondent to carry post clearance audit and demand for tax short levied taxes wherever it is clear that the amount paid is less than what ought to have been paid”

b). Whether the Respondent used the WCO findings to classify the water heaters. 95. The Respondent submitted that it sought an advisory opinion from the World Customs Organization (WCO) Secretariat on 30th August 2021 concerning the correct classification of the dual system solar water heaters with a heating component.

96. The Respondent further submitted that its action to seek guidance on the appropriate tariff classification of the dual system water heaters is lawful and justifiable.

97. That the place of the World Customs Organization is well cemented in the case ofExport Trading Company Limited & another vs. Commissioner of Customs and Excise(2018) eKLR, where the Court observed that,“It is not dispute that Kenya is a member of World Customs Organization. One of the organization's role is to develop Harmonized commodity description and coding system generally referred to as "Harmonized System" or simply "HS". It is an international standard classification system for commodities. Harmonization is crucial for fair international trade. The role of a member state is to make the correct interpretation through its tax authority guided by General Interpretation Rules (GIRs) of Harmonized Systems (HS): to ensure that the correct classification of a product has been adopted.In the event of doubt on classification of a commodity, the Respondent is at liberty to seek assistance from the World Customs Organization (WCO)."

98. The Respondent submitted that contrary to the Appellant’s submissions, the WCO only agreed with the Respondent's position regarding the correct classification of the solar water heaters with a heating component.

99. The Respondent stated that the ruling it delivered on the 3rd November 2021, review of tariff classification: dual system solar heaters did not emanate from the WCO advisory opinion. That the classification decision on the item under dispute was strictly guided by the General Interpretation Rule 1 (GIR 1) and the item as presented at the time of importation.

100. That further, Section 107 of the Evidence Act states that:“(1) Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist”.(2) When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person."

101. That the law, therefore, places the onus on the Appellant to prove its case. That in this particular case, the Appellant has not proved that the Respondent indeed depended on the Advisory opinion from the WCO in arriving at the review decision. That the Appellant has the burden of proving its allegations that the Respondent used the Advisory Opinion from WCO in arriving at the review decision.

102. That this position has been reinforced in the case of Digital Box Limited versus Commissioner of Investigations and Enforcement [2020] where the Tribunal held that:-“The question of burden of proof in taxation matters is provided for under the Tax Procedures Act as well as the Tax Appeals Tribunal Act. Section 56(1) of the Tax Procedures Act states that: "In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.” Section 30 of the Tax Appeals Tribunal Act similarly provides that: "In a proceeding before the Tribunal, the Appellant has the burden of proving- (a) Where an appeal relates to an assessment, that the Assessment is excessive; or (b) in any other case, that the Tax Decision should not have been made or should have been made differently. " In this case, the Appellant is the one seized of the desire to prove that the Respondent used extraneous information in arriving at its assessment. That according to the provisions of the Evidence Act, the Tax Procedures Act and the Tax Appeals Tribunal Act, the burden of proof falls upon the Appellant. The Tribunal is of the view that the Appellant did not discharge its burden of proof in showing that the Respondent used extraneous considerations and documents other than those prescribed by the law. The averments made by the Appellant did not amount to evidence."

Respondent’s prayers. 1. The Respondent’s makes the following prayers:-a.That the Tribunal upholds the Respondents review decision dated 20th January 2022. b.That this Appeal be dismissed with costs as the same is without merit.

Issues For Determination 2. The Tribunal having carefully reviewed the filings made by the parties, the supporting documentation 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 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 3. 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 heaters. 92. 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 heaters.

93. 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.

94. 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.

95. 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.

96. 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.

97. 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.

98. That the Appellant's solar water heaters are heated by the sun's thermal energy. That conversely, a fuel 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.

99. 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.

100. 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.

101. 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.

102. 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.

103. 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.

104. 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.

105. 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.”

106. 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.

107. 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.

108. 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 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. 109. The Appellant submitted that HS code 8516. 10. 00 is not applicable to solar water heaters as the same covers instantaneous electric water heaters.

110. 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.

111. 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.

112. 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.

113. 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.

114. 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.

115. 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 code.

116. 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.”

117. 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.

118. 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.

119. 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.

120. The HS tariff classification codes are internationally used to facilitate global trade. The WCO in the 2022 Nomenclature, introduced tariff 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.

121. The Explanatory Note to heading 84. 19, EAC/ CET further states, 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. 16).

122. 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 (Emphasis ours).

123. 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.

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 is that the Appeal is merited and the Tribunal accordingly proceeds to make the following Orders:-a.This Appeal be and is hereby allowed.b.The Respondent’s review decision dated 20th January 2022 be and is hereby set aside.c.The correct tariff code for solar water heaters with or without an electric heating element during the period 2016 to 2021 was HS Code 8419. 19. 00. d.Each party to bear its own costs.

126. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 12TH DAY OF MAY, 2023. …………………………………ERIC N. WAFULACHAIRMAN…………………………………CYNTHIA B. MAYAKAMEMBER……………………………………GRACE MUKUHAMEMBER……………………………………JEPHTHAH NJAGIMEMBER……………………………………ABRAHAM K. KIPROTICHMEMBER