[2025] KETAT 59 (KLR)

Jumbo Foam Mattresses & Industries v Commissioner of Customs & Border Control (Tax Appeal E672 of 2023) [2025] KETAT 59 (KLR) (17 January 2025) (Judgment)

Neutral citation: [2025] KETAT 59 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E672 of 2023

E.N Wafula, Chair, G Ogaga, RO Oluoch, AK Kiprotich & Cynthia B. Mayaka, Members

January 17, 2025

Between

Jumbo Foam Mattresses & Industries

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

Background 1. The Appellant is a limited liability company dealing with the manufacture of foam mattresses and pillows.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya's laws. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Respondent carried out a verification of the Appellant’s products and consequently uplifted the Appellant’s duty by Kshs 3,112,231. 00 when it moved the Appellant’s imported products from classification under Hs Code 3910. 00. 00 to Hs Code 3402. 90. 00.

4. The Appellant in September, 2023 imported a consignment of silicone L580 and L618 under Hs Code 3910. 00. 00 contrary to the tariff classification ruling of 16th May, 2023. The dispute on the taxes and release of the imports prompted the filing of this Appeal.

5. The Appellant filed its Notice of Appeal dated and filed on 12th October 2023.

The Appeal 6. The Appellant filed its Amended Memorandum of Appeal dated 12th June 2024 on the 13th June, 2024 setting out the following grounds of Appeal:a.That the Respondent erred in law and in fact by changing the tariff classification of HS heading 3910. 00. 00 whose terms of the heading is Silicone in primary form whose duty is 0% rated to HS code 3402. 90. 00 whose terms of the heading stands for “others” that attracts duty rate of 25%.b.That the Respondent erred in law and in fact by passing and /or purposely misreading the General rules of Interpretation, Chapters and Section heads of the East Africa Community Customs External Tariff 2022 to undeservedly benefit themselves at the expense of Article 210 of the constitution of Kenya.c.That the Respondent erred in law and in fact by delivering a Ruling which upheld the Heading 3910. 00. 00 for the Niax Silicone and changed its mind to issue another Ruling changing the Tariff heading to 3402. 90. 00 which does not answer to the terms of the heading.d.That the Respondent erred in law and fact instating that the Appellant misclassified the product yet the terms of the headings under HS 3910. 00. 00 legally vindicates the Appellant.e.That the Respondent erred in law and in fact by ignoring the Shippers' safety data Sheet without informing the appellant why they could not rely on the manufacturer's description of the product.f.That the Respondent erred in fact and law by failing to produce the actual lab analysis of the results it depended on to change the tariff of the Appellant’s goods that breached Article 35 of the Constitution on access to information and Article 47 of on procedural fairness.g.That the three Tariff rulings are illegal, based on an erroneous interpretation of the law and are also against the doctrine of legitimate expectation.h.That the Appellant erred in law and fact vide letter dated 16th May 2023 which changed the Tariff classification of Niax silicone L-580 which rightly falls under 3910 to 3402. i.That the Appellant erred in law and fact vide letter dated 16th May 2023 which changed the Tariff classification of Niax silicone L-618 which rightly falls under 3910 to 3402. j.That the Appellant erred in law and fact vide letter dated 18th November 2023 which after the laboratory tests found that the ingredients in the compound were polymeric organs compound characterised soloxane functional groups that fall under Tariff classification 3910 that is silicone in primary form.

Appellant’s Case 7. The Appellant set out its case in its Statement of Facts dated 5th June, 2024 and filed on 11th June 2024 and Written submissions dated and filed 18th July 2024 where it stated that it had imported the following raw materials for its manufacturing business in September 2023: -a.Niax Silicone L-580 contained in 44 Drums X 210 Kgsb.Niax Silicone L-618 contained in 16 Drums X 210 Kgsc.A33 Amine catalyst made in 72 palletX25Kgsd.Niax Processing addictive DP-1022 contained in 8Drums X 200Kgs

8. That it declared and entered an Entry No. 23MKIM40100729 dated 18th September 2023 and duty amounting to Kshs. 3,130,228. 00 was generated and paid on 19th September 2023.

9. That on 20th September 2023 after verification and at the stage of valuation for value approval, the Respondent without reference to it uplifted the value of the goods alleging that the Appellant had miss-classified the goods. That the Respondent applied the following incorrect tariffs: -a.3910. 00. 00 on NIAX Silicone L-580 & L-618 instead of the Respondent’s preferred TI of 3402. 90. 00b.TI 3824. 99. 90 for A33 Amine catalyst instead of the Respondent preferred TI 3815. 90. 00. c.TI 2915. 90. 00 for NIAX Processing Additive instead of the Respondent’s preferred TI of 3824. 99. 90

10. It submitted that the Respondent thereafter proceeded to uplift its products and generated an alleged uplifted duty of Kshs 3,112,231. 00.

11. The Appellant submitted that during the clearance of the above-mentioned goods in September 2023 vide Import Entry No. 23MKIM40100729 dated 18th September 2023, the Respondent stated that it was refusing to accept the bank payment guarantee since there was an earlier tariff ruling on a consignment it had drawn samples in April 2023 and therefore it handed the Appellant the following tariff ruling letters: -a.Letter dated 16th May 2023 for tariff classification for NIAX Processing Additive for import entry No. 23EMK1M400327190. b.Letter dated 16th May 2023 for tariff classification for NIAX Sillicone L-618 for import entry No. 23EMK1M400327190c.Tariff classification for NIAX Sillicone L-580 for import entry No. 23WMK1M400327190

12. The Appellant averred that the samples of the products mentioned above under import entry No. 23EMKIM400327190 of 27th March 2023 were drawn by the Respondent and it never provided the laboratory result to it even after the Appellant demanded the results vide a letter dated 4th May 2023.

13. The Appellant stated that the tariff ruling letters were only shared with it in September 2023 whereas the stamp on them showed that the Manager Valuation & Tariff received them on 16th May 2023.

14. That the said letters were only brought to its attention when it was clearing goods under import entry No. 23EMKIM401006729 dated 18th September 2023 whereupon the Respondent declined to release the goods under this entry.

15. That it was unfair for the Respondent to hand over the letters to it more than four (4) months after they were received by the Manager Valuation & Tariff.

16. The Appellant averred that the Respondent vide letter dated 18th November 2020 had previously ruled in favour of the classification of its products under TI 3910. 00. 00 for NIAX Silicone l-580 but has since reneged on its decision without revoking this earlier Ruling and was thus denied the rights to appeal under Section 229(1)OF EACCMA by the Respondent.

17. The Appellant stated that it provided the Material Safety Data Sheets which confirmed the composition/information on ingredients of the product as: Polyalkyleneoxidemethyisiloxane copolymer.

18. That the major use of this product has been identified as used in the manufacturing of polyurethane foam used in the mattress manufacturing industries.

19. The Appellant averred that the Kenya Bureau of Standard list of raw materials exempted from PVOC under Serial number 2300162 dated 19th October 2022 also shows that silicone falls under HS Code 3910. 00. 00, NIAX Processing Additive DP-1022 falls under HS Code 2915. 90. 00 and A33 Amine catalyst DP 1022 falls under HS Code 3824. 99. 90.

20. That the Respondent misguided itself and misguided the Appellant product for no apparent reasons at all.

21. The Appellant responded to the Respondent’s preliminary objection as follows:i.That all four letters cover four (4) products imported by the Appellant under one import entry 23EMKIM400327190 dated 27th March, 2023. that this aspect can be confirmed by the title of the four (4) letters.ii.That samples of each of the product under this entry were drawn and taken for Laboratory test by the Respondent at that time during clearing of the product in March 2023. iii.That it is a fact that there was a delay in availing the Laboratory test results until 4th May 2023, when the Appellant wrote a letter to the Respondent questioning the delays. That the Respondent never responded to this letter.iv.That it is a fact from the stamp on the face of the letters that the Respondent received the letters on 17th May 2023 which was 14 days after receiving the Appellant’s letter but never forwarded the letters to the Appellant.v.That it is a fact that the Respondent withheld the stated Tariff Classification letter for four months after receipt and only unleashed the letters to the Appellant on 28th September 2023.

22. The Appellant submitted that the conduct of the Respondent in delaying to share these letters by about 4 months and only releasing them after its consignment had arrived was an affront to the Appellant’s rights espoused under Section 4(1) of Fair Administrative Action Act and Articles 35 and 47 of the Constitution.

23. That it is the actions of the Respondent which caused it to fail to comply with Sections 229(1) and (4) and 230(2) of EACCMA.

24. The Appellant submitted that the decision by the Respondent to deny it the four (4) Tariff Classification letters, denied it an opportunity to appeal against the Tariff Classification to the Commissioner of Customs in accordance with Section 229(1) of the EACCMA.

25. The Appellant identified the following issues for determination in this Appeal:-a.Whether the Appellant misclassified the four imported products imported vide import entry No. 23MKIM 40100729 dated 18th September 2023. b.Whether the four (4) Tariff Classification letters dated 16th May, 2023 should be vacated and declared null and void.

26. The Appellant thereafter proceeded to argue these identified issues jointly by stating that the Respondent erred in law and in fact by incorrectly classifying NIAX Silicone L-580 and NIAX Silicone L-618 under Tariff heading 3402. 90. 00 despite the fact that the products do not fit within the Heading, Section and Explanatory Notes of the aforesaid classification.

27. That Niax Silicone L-580 and L-618 rightfully fall under tariff 3910 because of its use in the manufacture of polyurethane foam against the non-ionic surface active agents under HS Code 3402 that are used to manufacture washing and cleaning products.

28. The Appellant averred that it imported A33 NIAX Amine Catalyst and applied HS Code 3824. 99. 00. That its choice of classification is supported by the Kenya Bureau of Standards because its product was exempted from PVOC.

29. The Appellant stated that it also imported NIAX processing additives and applied HS Code 2915. 90. 00.

30. That NIAX processing additive is a reactive polyfunctional additive designed to create polyurethane foams hence its choice of classification.

31. The Appellant averred that the Respondent’s preferred choice of classification under Tariff 3824. 99. 00 is not appropriate or applicable to its product because:a.Its choice of classification has been supported by the Kenya Bureau of Standards.b.The mixture of chemicals in its products only fits under its preferred classification.c.The tariff preferred by the Respondent deals in prepared binders for foundry moulds chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products) not elsewhere specified or included.

32. The Appellant stated that it had appraised the nature of the product as well as its uses and also reviewed its classification under the East African Community Common External Tariff (EAC/CET) as read together the Explanatory Notes to the EAC/CET.

33. The Appellant submitted that its preferred tariff classification was consistent with the General Interpretation Rules ensuring that goods are classified under the correct headings and applying the remaining GIR if the rules headings and legal notes are not applicable.

Appellant’s prayers 34. The Appellant prayed that the Tribunal does declare the re-classification Rulings vacated for improper changing of classification of the Appellant’s products against the EAC/CET 2017 and WTO Harmonised Systems of Classification of goods.

Respondent’s Case 35. The Respondent's case is premised on its Statement of Facts dated 10th November 2023 and the documents attached thereto.

36. The Respondent raised a Preliminary Objection to the Memorandum of Appeal dated 24th March 2022 filed herein and urged that the same be struck out on the ground that the Appeal contravenes the provisions of Section 229 (1),(4) and 230 (2) of EACCMA.

37. It was its view that there was no Appeal to the Rulings classifying the products as envisioned under 229 (1) of EACCMA.

38. That no reason for not appealing the Commissioner’s tariff classification decisions dated 16th May 2023 has been provided and therefore the Appellant is deemed to have concurred with the Commissioner's decisions in classifying the two products under HS Code 3402. 90. 00.

39. The Respondent urged that the Appellant is time-barred in lodging the Appeal as provided for under Sections 229 and 230 of EACCMA which require the lodgment of the Appeal within 30 days of the Commissioner's decision and within 45 days of Commissioner's review decisions with the Tax Appeals Tribunal.

40. In the alternative, on whether the Respondent’s tarriff ruling dated 16th May 2023 classifying the subject goods is proper in law, the Respondent stated that Rule 1 begins thereof by establishing that the titles are provided “for ease of reference only”. They accordingly have no legal bearing on classification. That the Rule further provides that classification shall be determined according to the terms of the Headings and any relative Section or Chapter Notes. That it provides thus:“16. A surfactant (a contraction of surface-active agent) is a substance that, when present at low concentration in a system has the property of absorbing onto the surfaces or interfaces of the system and of altering to a marked degree the surface or interfacial free energies of those surfaces (or interfaces).” Rosen MJ, Kunjappu JT (2012). Surfactants and Interfacial Phenomena.”

41. That according to the Oxford Learners Dictionary, a surfactant is a substance that reduces the surface tension of a liquid, often forming bubbles in the liquid.

42. That contrary to the Appellant’s assertion, it had premised its classification by applying GR1 and using the Heading under 21. 03 as a guide, specifically, the phrase “preparations thereof”.

43. That it classified the subject products under Heading 3402. 49. 00 because the subject imports are composed of polyalkylenexidemethylsioxane and polyether polyol and thus the most appropriate subheading under other organic surface-active agents, whether or not put up for was deemed to be under the heading ‘others’.

44. That its application of GR 1 and the literal interpretation of Chapter 39 led it to the conclusion that surfactants (surface–active agents) do not come under the Chapter. That this was more so because:a.The Appellant had confirmed that the imported items are surfactants (surface-active agents) and thus not available under Chapter 39. b.The Appellant in paragraph 44 of its submissions submitted that the items are preparations of organo-modified polysiloxanes surfactant/silicone surfactant.c.Michael Szycher, under paragraph 9. 3 describes silicone surfactants as belonging to one of these two groups of polysiloxane-polyether copolymer.d.Hagiopo, in Encyclopedia of Condensed Matter Physics, 2024, copolymers are the products of addition polymerization between two different monomers, resulting in a polymer with properties that differ from both of its individual components.e.Hagiopo’s definition finds support from Hesham R. El-Seedi et. Al who defines Copolymers are a mixture of two or more polymers which synthesize to build a new structure with diverse functionalities of its constituents.

45. That based on the Appellant's admission and understanding of copolymers, the subject imports are not silicones in its primary form and hence the reason for its decision to re-classify them.

Respondent’s prayers 46. The Respondent's prayer to the Tribunal was for Orders that:i.It upholds the Respondent’s Tariff Ruling herein as proper and in conformity with the provisions of the law.ii.That this Appeal be dismissed with costs.

Issue for Determination 47. The Tribunal, having considered the pleadings, submissions and evidence adduced by the parties is of the view that the issues falling for its determination are:a.Whether the Appellant’s Appeal is valid and proper in law.b.Whether the Respondent was justified in reclassifying the Appellant’s products.

a. Whether the Appellant’s Appeal is valid and proper in law. 48. The Respondent raised a Preliminary Objection that the Appeal herein is invalid and contravenes Sections 229 and 230 of EACCMA to the extent that the Appellant did not Appeal against its Ruling first before filing its Appeal to the Tribunal.

49. The Appellant blamed the Respondent for this mishap because it was served with the said Rulings about 4 months late and after its consignment had arrived. That this was an affront to its rights as espoused under Section 4(1) of Fair Administrative Action Act and Articles 35 and 47 of the Constitution.

50. That it is the actions of the Respondent which caused it to fail to comply with Sections 229(1), (4) and 230(2) of EACCMA.

51. The Appellant’s response to this Preliminary Objection creates the distinct impression that it did not appreciate the gist of the Respondent’s objection.

52. Section 229(1) of EACCMA provides as thus regarding Appeals:“A person directly affected by the decision or omission of the Commissioner or any other officer on matters relating to Customs shall within thirty days of the date of the decision or omission lodge an application for review of that decision or omission.”

53. Section 230 EACCMA provides as follows regarding Appeals to the Tribunal:“(1)A person dissatisfied with the decision of the commissioner under section 229 may appeal to a tax appeals tribunal established in accordance with section 231. ”

54. It is thus clear from a plain reading of Sections 229(1) and 230 of EACCMA that any person aggrieved by any decision or omission by the Commissioner is required to lodge an application for review before the Commissioner. A taxpayer would thus be entitled to invoke the right of Appeal to the Tribunal only if it is not satisfied with the review decision made by the Commissioner.

55. The record before the Tribunal shows that the Appellant did not lodge its application for review with the Commissioner. It instead opted to file its Appeal directly to the Tribunal thereby bypassing the Commissioner contrary to the edicts of Section 229(1) of EACCMA.

56. The excuse that the Rulings were issued late on the 28th September 2023 and hence its decision to appeal directly to the Tribunal does not hold any water and also directly contravenes the provisions of Section 229(1) of EACCMA which required it to file:a.File its application for review with the Respondentb.Wait for the Commissioner to issue its review decision.c.File an appeal against the said review decision if it was not satisfied.

57. As it is, the Appellant has breached the mandatory edicts of Sections 229(1) and 230 of EACCMA. Its Appeal is thus invalid and improper in law for being filed before the Tribunal prematurely.

58. Having held that the Appeal herein is invalid. It follows that the remaining issue that fell for determination has become moot and shall thus not fall for determination.

Final Decision 59. The upshot of the foregoing analysis is that the Appeal herein is incompetent and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby struck out.b.The Respondent’s Tariff Classification Ruling dated 16th May 2023 be and is hereby upheld.c.Each party is to bear its own costs.

60. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 17TH DAY OF JANUARY, 2025. ERIC NYONGESA WAFULA - CHAIRMANGLORIA A. OGAGA - MEMBERDR. RODNEY O. OLUOCH - MEMBERABRAHAM K. KIPROTICH - MEMBERCYNTHIA B. MAYAKA - MEMBER