[2024] KETAT 42 (KLR)

Energood East Africa Limited v Commissioner of Customs & Border Control (Tax Appeal 183 of 2022) [2024] KETAT 42 (KLR) (26 January 2024) (Judgment)

Neutral citation: [2024] KETAT 42 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 183 of 2022

RM Mutuma, Chair, M Makau, EN Njeru, BK Terer & W Ongeti, Members

January 26, 2024

Between

Energood East Africa Limited

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

Background 1. The appellant is a limited liability company duly incorporated under the Companies Act of the laws of Kenya, and is in the business of providing various energy & water, mechanical & electrical, security, safety and control solutions including solar heating solutions.

2. The respondent is a principal officer appointed under section 13 of the Kenya Revenue Authority Act and the Kenya Revenue Authourity is an agency of the Government of Kenya for the assessment, collection, receipt and accounting of tax revenue. The respondent is also mandated to administer and enforce the statutes set out in the schedule to the Act .

3. The background of the facts giving rise to this appeal is that the respondent‘s customs post clearance audit conducted a desk review of the customs entries of the appellant and other importers of solar water heating systems for the period November 2016 to October 2020 pursuant to sections 235 and 236 of the East African Community Customs Management Act, 2004.

4. Arising out of the PCA the respondent indicated that its examination of the appellant’s entries revealed that the solar water heating systems imported by the appellant have an electric component and therefore dual water heating systems classifiable under tariff code 8516. 10. 00.

5. Consequently, the respondent raised an assessment and sent a demand dated November 25, 2021 to the appellant for the sum of Kshs 5,070,044. 00.

6. The appellant applied for a review pursuant to section 229 of the EACCMA .

7. The respondent issued the appellant with its review decision and demand notice on January 5, 2022 wherein the respondent held that solar water heating systems that solely rely on solar energy are classified under tariff code 8419. 19. 00, whereas dual water heating systems are classified under tariff code 8516. 10. 00. Consequently, the respondent confirmed the demand notice on the principal amount, penalties and interest accrued amounting to a total demand of Kshs 82,995,375. 00.

8. The appellant being aggrieved with the respondent’s review decision filed the appeal herein.

The Appeal 9. The appellant filed its Memorandum of Appeal dated February 23, 2022 and filed on February 24, 2022 and set out the following grounds of appeal;a.The respondent erred in law and fact by not taking into account the fact that the appellant ‘s solar water heaters cannot be classified under Heading 85:16 but rather under Heading 84:19 which caters for “machinery, plant or laboratory equipment whether or not electrically heated for treatment of materials by a process involving change of temperature such as heating, cooking …”b.The respondent erred in law and fact by failing to appreciate that in the event the solar water heater with an electric back up could not be classified under both HS Code 85:16 and HS code 84:19 the same could only be classified under rule 3(b) of the WCO General Rules for interpretation of the Harmonized System.c.The respondent erred in law and fact by failing to appreciate that the appellant has a right to access information as provided under article 35 of the Constitution of Kenya 2010, by purporting to authoritatively rely on the opinion of the WCO dated November 3, 2021 without disclosing how the same opinion was arrived at, the appellant has infringed on the appellant’s right to access information.d.The appellant has a statutory right to fair administrative action pursuant to article 47 of the Constitution of Kenya , and the Fair Administrative Actions Act, 2015. e.Section 4 (3) of the Fair Administrative Action Act requires that where an administrative action is likely to adversely affect the right and fundamental freedom of any person, the administrator shall give the affected person-i.A statement of reasons and the information, materials ; and ,ii.Evidence to be relied upon in making the decision or the administrative action .f.By declining to provide the information, statement of reasons and evidence relied on in reaching its decision as per the mandatory terms of section 4 (3) of the FAA Act the Respondent has infringed on the appellant’s statutory rights.g.The respondent erred in law and in fact by purporting to rely on the opinion of the WCO Secretariat on the correct classification of the water solar heaters. The Secretariat of the WCO has no mandate to issue opinions or rulings on the interpretation of harmonized system since the function is the preserve of the HS Committee in line with article 7 (1) (b) of the HS convention.h.The respondent erred in law and in fact by presenting to the secretariat of the WCO a solar water heater whose electric backup had been removed leading to the Secretariat to apply GIR 2 (a) whose purpose is to give character to an unfinished product and classify it together with the finished product which without considering the solar capabilities would be considered electric .i.The Respondent erred in law by purporting to retrospectively apply the opinion of the WCO dated 3rd November 2021 to imports that took place many years before the same opinion was delivered .j.The Respondent erred in law and in fact by failing to acknowledge that the Appellant had a duty to uphold the legitimate expectation to the effect that the solar water heaters were classifiable under tariff code 84:19 for years without raising any additional assessment, the Respondent created a legitimate expectation on the part of the appellant that solar water heaters were classifiable under the same code.

The Appellant’s Case 10. The Appellant has set out its case in;a.The Appellant’s Statement of Facts dated 23rd February 2022 and filed on 24th February 2022, andb.The Appellant’s written submissions dated 2nd March 2023 and filed on 24th March 2023.

11. The Appellant stated that on the 25th November 2021 it received a demand notice which indicated that a desk audit finding of imports of solar water heaters for the period between November 2016 to 2021 had been conducted. The demand notice indicated that the desk audit review had revealed that the solar water heaters imported by the Appellant had been wrongly classified under a tariff code 8419. 19. 00 instead of 8516:10. 00, based on the understanding that the solar water heaters contained a back up electrical heating element. Consequently, the Respondent demanded a total of Kshs 5,070,044. 00.

12. The Appellant further stated that it applied for review under the provisions of Section 229 (1) of the East African Community Customs Management Act, 2004 on 7th December 2021 highlighting four issues as follows;i.Misapplication of the WCO Explanatory Notes;ii.WCO Secretariat decision;iii.Interpretation of tax laws;iv.The principle of legitimate expectation.

13. The Appellant stated that on the issue of misapplication of the WCO Explanatory Notes, the Appellant asserted that Heading 84. 19 covers machinery, plant or laboratory equipment ,whether on 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, non-electric.

14. The Appellant further stated that the Explanatory Notes constitutes the official interpretation of the harmonized system at the international level with each Explanatory Note providing a commentary on the scope of each heading and therefore indicative of the proper interpretation of these headings.

15. The Appellant also stated that Chapter 84 covers all electric machinery and equipment other than machinery and apparatus of a kind covered by chapter 84 which remains classified there even if electric. The Appellant therefore emphasized that the contents of the General Explanatory Note Chapter 84, states in the relevant part;“It should be noted that machinery and apparatus of a kind covered by chapter 84 remains in this chapter even if electric.”The Appellant therefore contended that the solar water heaters were classifiable under Heading 84. 19.

16. The Appellant further referred to the Explanatory Note to Heading 84. 19 which states in the relevant part;“the apparatus described above is essentially used industrially , but the heading also covers non-electric instantaneous water heaters and storage water heaters including solar water heaters , domestic or not , if electrically heated such appliances are excluded .”

17. It was also an averment of the Appellant that it sought a further clarification from the manufacturer of the product on the nature and classification of the product, and the manufacturer by the name of Viessmann Fauquemont SAS via a letter dated 16th December 2021 stated that the product in dispute is a thermal solar system for heating of domestic water with the electric heater being used as a back up when solar energy is inadequate. The said manufacturer indicated further that the thermal solar system BTS is sold under HS Code 84. 19. 00 and not any other tariff code, it being a solar system.

18. The Appellant averred that the decision of the WCO Secretariat dated 3rd August 2021 attached to the demand was incomplete and demanded for a complete copy of the same, and also a copy of the letter through which the Respondent sought the opinion of the WCO. The Appellant stated that the objective of this request was to enable it appreciate how the Respondent represented the dispute to the WCO, and that the request was in line with the provisions of Article 35 of the Constitution of Kenya, which provides that:-“Every citizen has the right of access to – a. information held by the state, and b. information held by another person and required for the exercise or protection of any right or fundamental freedom.”

19. The Appellant contended that failure by the Respondent to provide it with these documents was in contravention of its right to a fair administrative action under Article 47 of the Constitution of Kenya, and the Fair Administrative Actions Act.

20. The Appellant further asserted that the Explanatory Notes are the official interpretation of the HS code and can only be reviewed by the HS committee. The Appellant therefore posited that the Secretariat of the WCO has no mandate to issue opinions or advises on the interpretation of the harmonized system since those functions are the preserve of the committee in line with Article 7 (1) (b) of the HS Convention.

21. It was also the Appellant’s contention that on the issue of construction of laws, the Respondent has to apply a strict constructionist approach and exhaustively consider chapters, headings, subheadings, sections and the ENs to both Chapters 84 and 85 as opposed to selected provisions which favored the Respondent’s position.

22. The Appellant also contended that on the issue of legitimate expectation, it had over the years imported the product in question under HS code 84. 19. 00 and the Respondent has never raised an issue with this classification, which therefore created a legitimate expectation on the Appellant that the Respondent would classify the same product under the same code in the future. The Appellant asserted that this placed a limitation on the part of the Respondent from acting contrary to the consistent best practice from which the Appellant’s legitimate expectation emanated.

23. The Appellant further contended that the Respondent further created legitimate expectation when its customs officials at the point of clearance verified the containers, examined the imports, and established that the declared tariff classification by the Appellant under tariff code 84. 19. 00 was correct.

24. The Appellant contended that notwithstanding the foregoing compelling reasons, the Respondent disregarded the principles of interpretation as set out in the WCO Explanatory Notes and issued its review decision dated 5th January 2022 reiterating its demand and grossly misdirected itself on the classification of the solar water heaters.

25. The Appellant averred that while the Respondent contended that the WCO ruling shared with the Appellant was sufficient to justify the classification of the “dual system water heaters”, it never shared the full WCO advisory opinion, and indicated that the letters from the Secretariat remain the property of the WCO and can only be shared with a third party with the permission of the Secretariat. The Respondent also did not disclose why it could not avail their application/letters seeking an advisory opinion from the Secretariat of WCO.

26. The Appellant further stated that it contacted the WCO through its authorized agents on record, which declined to comment on the matter and indicated that correspondence between itself and its members is confidential and that neither could they supply confidential documents in response to a request from a third party.

27. To buttress its submissions the Appellant relied on the cases of:-i.Oindi Zaippeline & 39 others v Karatina University and Anor [2015] eKLR.ii.Communications Commission of Kenya & 5 others v Royal Media Services ltd & 5 others, Petition No.14 of 2014. iii.Kenya Revenue Authority v Universal Corporation Ltd [2020] eKLR.iv.Krish Commodities Ltd v Kenya Revenue Authority [2018] eKLR.tv.Commissioner of Domestic Taxes v Unga Ltd [2021] eKLR.

28. The Appellant in summing up its submissions stated that the Respondent had acted outside its mandate allowed under Sections 235 and 236 of EACCMA by attempting to use the Post Clearance Audit process to achieve an objective that it was not intended to. The Appellant further submitted that by attempting to make changes to the HS code, the Respondent has usurped the powers of the HS Committee and contradicted the practice of member states.

29. The Appellant submitted that in line with the position of the court and the Tribunal in the authorities cited, the Tribunal must find that the Respondent is not clothed with any powers to change the HS code neither can such inference read into the law as tax laws are to be read with no room for intendment.

Appellant’s Prayers 30. By reason of the foregoing the Appellant prayed that the Tribunal sets aside the Respondent’s review decision and allow the Appeal herein.

The Respondent’s Case 31. The Respondent has grounded its case on;a.The Respondent’s Statement of Facts dated and filed on 23rd March 2022, andb.The Respondent’s written submissions dated 10th March 2023 and filed on 13th March 2023.

32. The Respondent stated that on 3rd November 2021, its Policy and International Affairs Division received a WCO Advisory opinion on the classification of dual system water heaters in response to a request by the Respondent on 30th August 2021.

33. The Respondent further stated that its Customs Post Clearance Audit team conducted a desk review of customs entries of the Appellant and other importers of solar water heating systems for the period November 2016 to October 2020 pursuant to Sections 235 and 236 of the East Africa Community Customs Management Act, 2004.

34. The Respondent averred that its examination of the entries revealed that the solar water heating systems imported by the importers had an electric component and are therefore dual water heating systems classifiable under tariff code 8516. 10. 00. Consequently, the Appellant was sent a demand notice dated 25th November 2021 for the payment of taxes in the sum of Kshs. 5,070,044. 00.

35. The Respondent stated that the Appellant subsequently applied for a review pursuant to Section 229 of the EACCMA, 2004.

36. The Respondent on 5th January 2022 issued the Appellant with a review decision and demand notice wherein the Appellant was informed that according to the EAC CET and WCO Explanatory Notes solar water heating systems that rely solely on solar energy are classified under tariff code 8419. 19. 00, whereas dual water heating systems are classified under tariff code 8516. 10. 00.

37. Consequently, the Respondent confirmed the demand notice plus penalties and interest thereof resulting to Kshs. 88,995,375. 00.

38. The Respondent averred that prior to July 2018, Paragraph 45 of the VAT Act, 2013 exempted VAT for specialized solar equipment and accessories including solar water heaters and deep cycle sealed batteries which exclusively use or store solar power but dual solar water heaters were not exempt from VAT because they do not exclusively use and or store solar power.

39. The Respondent further contended that the heating system in dispute is for use by both solar and electricity and was classified accordingly under tariff code 8516. 10. 00 according to EAC CET.

40. It was a contention of the Respondent that the General Interpretative Rules (GIR) as cited in the EAC CET govern classification of goods. It stated that according to GIR1, classification shall be determined according to the terms of the headings, and any relative section or chapter notes and, provided the headings or notes do not require otherwise, according to GIR2 through to GIR6.

41. The Respondent also submitted that GIR6 provides that, “ For legal purposes, the classification of goods in the sub-heading of a heading shall be determined according to the terms of those subheadings and any related sub-heading notes, and mutatis mutandis, to the above Rules, on the understanding that only subheadings at the same level are comparable. For the purposes of this Rule the relative Section and Chapter Notes also apply, unless the context otherwise requires.

42. It further submitted that the Harmonized Commodity Description and Coding System Explanatory Notes as well as the additional notes constitute the official interpretation of the Common External Tariff and provide the scope of each heading under the EAC CET. In accordance with GIRs 1, 6 and Explanatory Notes, the items are classified under 8516. 10. 00.

43. The Respondent stated that Heading 85. 16 covers;“electric instantaneous or storage water heaters and immersion heaters; electric space heating apparatus; electro-thermic hair dressing apparatus (or 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 those of heading 85. 45. While Heading 84. 19 covers; machinery, plant or laboratory equipment, whether or not electrically heated (excluding furnaces, ovens, and other equipment of heading 85. 14), for the treatment of materials by a process involving a change of temperature such as heating, cooking, roasting , distilling , rectifying , sterilizing, pasteurizing , steaming , drying, evaporating, vaporizing , condensing or cooling , other than plant and machinery of a kind used for domestic purposes ; instantaneous or storage water heaters , non-electric.”

44. The Respondent stated that Note A (3) to Heading 85. 16 also classifies dual system heaters in Heading 85. 16, in which the water is heated either electrically or by connection to a fuel heated hot water system; and they are often equipped with a thermostatic control to operate them electrically only when the alternative means is insufficient.

45. The Respondent also stated that Note 5 to Heading 85. 16 also indicates that:-“assemblies consisting of immersion heaters permanently incorporated in a tank, vat or other vessels are classified in Heading 84. 19 unless they are designed for water heating only, or for domestic use, in which case they remain in heading 8516. ”

46. It was a further submission of the Respondent that the Explanatory Notes to the Heading 8419 stated that heading machinery covered under the heading may be heated by any system, (coal, oil, gas, steam, electricity e.t.c) except in the case of instantaneous or storage water heaters which are classified in Heading 8516 when heated electrically.

47. The Respondent further submitted that Note (1) to Heading 8419 concludes that the apparatus described in the note (i.e. heating or cooling plant and machinery) is essentially used industrially, but the heading also covers non-electric instantaneous water heaters and storage water heaters, including solar water heaters, domestic or not. If electrically heated, such appliances are excluded (heading 85. 16).

48. The Respondent stated that Sections 235 and 236 gives the Respondent powers to call for documents and conduct a PCA on import and export operations of a taxpayer within a period of five years from the date of importation or exportation. It added that where the Respondent’s Post Clearance Audit reveals that taxes were short levied, or erroneously refunded, Sections 135 and 249 (1) empowers the Respondent to recover any such amount short levied or erroneously refunded with interest at a rate of two percent per month for the period the taxes remain unpaid.

49. The Respondent contended that the Appellant did not produce any material evidence to support the argument that the products under the audit were classifiable under EAC CET Heading 8419.

50. To buttress it submissions, the Respondent relied on the following cases;i.Republic vs. Commissioner General & Anor Exparte Awal Ltd [2008] eKLR.ii.Associated Battery Manufacturers Ltd v Commissioner of Customs Services [2020] eKLR.iii.T.M Bell v Commissioner of Income Tax [1960] EA 224. iv.Cape Brady Syndicate v Inland Revenue Commissioners [1920] 1 KB 64.

51. The Respondent therefore submitted that the classification was based on the HS Code 8516. 10. 00.

Respondent’s prayers 52. By reason of the foregoing the Respondent prayed that the Tribunal to;a.Uphold its review decision and dismiss the Appeal herein.

Issues for Determination 53. The Tribunal having considered the pleadings and rival submissions made by the parties is of the considered view that the Appeal herein distils into one issue for determination as hereunder: -Whether the Respondent erred in classifying the Appellant’s imported solar water heating system under tariff HS code 8516:10:00 instead of tariff HS code 8419:19:00.

Analysis And Findings 54. The issue for determination shall be analyzed as herein under: -

55. The background of the facts giving rise to this Appeal is that the Respondent’s Customs Post Clearance Audit conducted a desk review of the customs entries of the Appellant and other importers of solar water heating systems in the period November 2016 to October 2020 pursuant to Sections 235 and 236 of EACCMA, 2004. As a result of the aforesaid audit the Respondent concluded that the imported solar water heating systems have an electric component and therefore dual water heating systems classifiable under tariff code 8516. 10. 00. Consequently, the Respondent raised an assessment and sent the Appellant a demand dated 25th November 2021 for the sum of Kshs. 5,070,044. 00.

56. Following the Respondent’s assessment and demand, the Appellant applied for review under Section 229 of EACCMA, and the Respondent issued its review decision on the 5th January 2022, upholding that solar water heating systems that solely relied on solar energy are classified under tariff code 8419. 19. 00, whereas dual water heating systems are classified under Hs Code 8516. 10. 00, thus confirmed the assessment and demand on the Appellant triggering this Appeal.

57. In its Appeal, the Appellant has contended that its imported solar water heater should be classified under tariff HS code 8419. 19. 00. The Respondent, however, maintained that the Appellant’s solar system is a dual water heating system and should be classified under tariff HS code 8516. 10. 10.

58. It is apparent to this Tribunal that the parties are in consensus that solar water heaters which solely rely on solar heat are classifiable under HS tariff code 8419, and water heaters that use other electricity, or electricity and other fuels are classifiable under tariff code HS 8516.

59. In the instant Appeal , the Appellant has averred that its product subject of the dispute is a thermal solar system for heating of domestic water with the electric heater being used as a backup when solar energy is inadequate, thus contended that the same is not a dual system as contended by the Respondent , and therefore not classifiable under HS code 8516.

60. The classification of goods under the EAC CET are provided for in the General Interpretative Rules (GIRs).

61. The first Rule GIR 1 provides that the classification shall be determined according to the terms of the headings, and any relative Section and Chapter Notes.GIR 1 –“ 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 and notes do not otherwise require, according to the following provisions “.

62. The Appellant has argued that the solar water heaters in question are correctly classifiable under Heading 8419 as is the practice worldwide, which heading applies to;” machinery, plant or laboratory equipment, whether or not electrically heated (excluding furnaces, ovens and other equipment of heading 84,14), 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 machinery or plant of a kind used for domestic purposes; instantaneous or storage water heaters, non-electric.”

63. The Appellant did submit that indeed since the heading is clear on the treatment of solar water heaters, there is no need to consider the Chapter Notes or what other section provides, because the heading takes priority and reference to Chapter Notes or the relative section should only be made when the heading lacks clarity on the classification of the item in question.

64. It was further argued that HS Code 8516. 10. 00 is not applicable to solar water heaters as the same cover instantaneous electric water heaters. The heading provides;“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 thermic appliances of a kind used for domestic purposes; electric heating resistors, other those of heading 85. 45. ”

65. According to the terms of the Heading 8419, solar heaters are ideally non-electric equipment correctly classifiable under Heading 8419. The EAC CET, prior to 2020 sets out the classification thus;“Instantaneous or storage water heaters, non-electric:8419. 11. 00 – Instantaneous gas water heaters.8419. 19. 00- other.”

66. The Appellant’s solar water heater is fitted with an ancillary electric immersion heating element as a backup to enable them use electric power when solar energy is not adequate.

67. The solar water heating system with a backup electric immersion heating element cannot be deemed as a dual system because according to the Explanatory Notes to this heading the dual system heaters of this heading are those 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 which must be of a fuel source is insufficient.

68. Turning to the Explanatory Notes to HS 8516 however, which states;“the 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. ”

69. Taking due regard to the foregoing explanatory notes, the subject solar water heaters are potentially classifiable under the two Headings 8419 and 8516, because as presented the water heaters can function as a solar heating system as well as electric water heaters. They have all the characteristics of a solar water heater and also the characteristics of an electric water heater. Therefore, GIR 1 cannot be used to classify the goods because it results in two possible classifications.

70. The Tribunal ‘s considered view is that the heaters are a combination of the two types of the heaters and therefore may be classifiable under Rule 2 (b), which provides thus;“Any reference in a heading to a material or substance shall be taken to include a reference to a mixtures or combinations of that material or substance with other materials and substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance, the classification of goods consisting of more than one material or substance shall be according to the principles of Rule 3. ”Rule 3 provides that;“When by application of Rule 2 (b) or for any other reason, goods are prima facie, classifiable under two or more headings, classification shall be effected as follows –a.The heading which provides the most specific description shall be preferred to headings providing a more general description .However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set up for retail sale , those headings are to be regarded as equally specific, in relation to those goods , even if one of them gives a more complete or precise description of the goods.b.Mixtures, composite goods consisting of different materials or made up 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, as far as this criterion is applicable.”

71. It is noteworthy that the water heaters cannot be classified in accordance with Rule 3 (a) as neither of the two codes give a more specific description of the goods than the other. Consequently, the goods must be classified according to Rule 3 (b) . The issue emerging then would be what gives the water heaters their essential character- the prominent characteristics which serve to distinguish the water heaters?

72. Gleaning from the pleadings and submissions filed by the parties, the essential characteristics of these water heaters that distinguish them are the solar collectors commonly fitted to all solar water heaters. They are offered for sale as solar heaters and must essentially be fitted in a location where they are able to collect solar heat. They mainly function as solar water heaters and resort to electricity only when there is inadequate solar energy. The immersion heaters which is a characteristic of electric heaters form only a small percentage of the system. In addition, the electric component is fitted as a regulatory requirement rather than for any technical expediency.

73. In light of the foregoing, and based on the evidence presented, it is clear that the water heating system has the characteristics of a solar water heating system. It is apparent that the water heating system is not an electric water heating system fitted with solar components, but a solar heating system fitted with electric accessories to enable them to function as electric heaters when there is need.

74. The Tribunal has taken note that the East Africa Solar Taxation Handbook at page 38 describes solar waters in the following terms;“Machinery, plant for conversion of sunlight into heat for water heating using a solar thermal collector “The handbook indicates that HS code used for solar heaters in East African countries is 84. 19. 00. ”

75. The Tribunal notes the Respondent did not offer satisfactory justification for departure from the code that it has used over the years and that continues to be used by other countries in the East Africa Union.

76. It is noteworthy that similar decisions have been made in the following Tax Appeals;i.TAT 249 OF 2021 Scandinavia Solar Systems ltd vs. Commissioner of Customs and Border Control,ii.TAT 142 of 2022 Sollatek Electronics (K) Ltd vs. Commissioner of Customs and Border Control,Where the Tribunal found that solar heaters are classifiable under HS Code 8419. 19. 00. In the instant Appeal, the Tribunal finds no reason to depart from the above captioned decisions.

77. In light of the foregoing the Tribunal holds that the Appellant’s imported water heaters are classifiable under tariff HS Code 8419. 19. 00 applicable for solar water heaters.

78. The upshot of the foregoing is that the Appeal is successful and the Tribunal proceeds to issue the following orders.

Final Decision 79. The Appeal is merited and the Tribunal accordingly proceeds to make the following Orders:-a.The Appeal be and is hereby allowed.b.The Respondent’s review decision dated 5th January 2022 be and is hereby set aside.c.Each party to bear its own costs.

80. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF JANUARY, 2024ROBERT M. MUTUMA - CHAIRPERSONMUTISO MAKAU - MEMBERELISHAH N. NJERU - MEMBERBONIFACE K. TERER - MEMBERDR. WALTER ONGETI - MEMBER