[2024] KETAT 569 (KLR)

Kaish Mering Plastic Company Limited v Commissioner Customs And Border Control (Tax Appeal 1127(NRB) of 2022) [2024] KETAT 569 (KLR) (22 March 2024) (Judgment)

Neutral citation: [2024] KETAT 569 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1127(NRB) of 2022

E.N Wafula, Chair, D.K Ngala, CA Muga, GA Kashindi, AM Diriye & SS Ololchike, Members

March 22, 2024

Between

Kaish Mering Plastic Company Limited

Appellant

and

Commissioner Customs And Border Control

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated under the Companies Act (Cap 486) Laws of Kenya and domiciled in Kenya. The Appellant is in the business of importing and distributing plastic films from China to manufacturers in Kenya.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 of the laws of Kenya. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all revenue. Under Section 5(2) of the Act with respect to the performance of its function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts I and II 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 conducted a post clearance audit review on the Appellant’s custom entries for the period 2016 to April 2021.

4. The audit was on duty paid on PVC heat shrink films imported by the Appellant. The Respondent issued the Appellant with a demand dated 16th June 2021 for the amount of Kshs. 7,132,942. 00.

5. The Appellant sought for an extension from the Respondent vide a letter dated 6th August 2021 to reply to the demand. The Respondent granted the Appellant 7 days extension vide a letter dated 17th August 2021. The Appellant objected to the demand notice on 19th August 2021.

6. The Respondent tested samples of an identical product from a random shipment of the Appellant. The Respondent issued the Appellant with a review decision on 21st September 2021 upholding the demand. The Appellant responded to the Respondent’s review decision vide a letter dated 7th November 2021.

7. The Respondent’s Enforcement Unit issued an agency notice to the Appellant, which was stayed by the Tribunal via a Ruling dated 23rd September 2022.

8. The Appellant, being dissatisfied with the review decision and the agency notice, applied to the Tribunal via Misc.219/2022 requesting the Tribunal to allow the Appellant’s late appeal application, which was granted.

The Appeal 9. The Appeal was premised on the following grounds as contained in the ppellant’s Memorandum of Appeal dated 3rd October 2022 and filed on 6th October 2022:a.That the Respondent erred in fact and in law in finding that the Appellant had declared a wrong tariff and underpaid import taxes despite all the verification reports being done and submitted. In addition, the Valuation and Tariff department agreed with the tariff and transaction values declared.b.That the Respondent erred in fact by failing to consider the three laboratory verification results provided by the Appellant confirming the goods to be under tariff classification attracting import duty of 10%.(c)That the Respondent erred in facts and in law by relying on an imaginary report in arriving at his decision to impose an additional 15% duty on the products imported by the Appellant. The laboratory report, if at all exists, had never been served upon the Appellant.d.That the Respondent acted unreasonably, capriciously and motivated by malice and extraneous considerations in issuing the tax demands.d.That the Respondent erred in facts and in law in carrying out a Post Clearance Audit in contravention to the provisions of Sections 235(1) and 236 of the East African Community Customs Management Act (EACCMA, 2004), 2004. f.That the Respondent erred in law in relation to the computation of import duty, Value Added Tax (VAT) and interest.f.That the Respondent’s alleged claim of underpayment of import duty is inaccurate as the goods were lawfully cleared by the Respondent during importation.e.That the Respondent outrightly contravened the doctrine of legitimate expectation that rests a presumption on the Respondent to follow certain procedures at arriving at a tax liability and benefits that accrue from it.i.That by the Respondent demanding extra taxes from the taxpayer with respect to ‘undervaluation’ was unjustified, unmerited and without any legal basis.

The Appellant’s Case 10. The Appellant’s case is set out in its Statement of Facts dated 3rd October 2022 and filed on 6th October 2022 and in the witness statement of Zhang Hainan dated 5th May, 2022 and filed on the 11th May, 2023 that was admitted in evidence under oath on the 27th September, 2023.

11. The Appellant imported plastic films from China, declared and paid all the relevant duties as provided by the law under the supervision of proper officers at the entry point.

12. That the goods were verified and cleared by the verifying proper officer agreeing with transactional values, HS Code and tariff declared after confirming with the Valuation and Tariff officers.

13. The Appellant averred that the entries were received, verified, valuated and passed by a proper officer and all the duties that arose were duly paid by the Appellant.

14. That the Respondent picked the Appellant for Post Clearance Audit without informing the Appellant of the same, added the duty to be paid and only informed the Appellant via a letter dated 16th June 2021.

15. That the Appellant objected to the assessment prompting the Respondent to draw samples from the consignment, carried out a laboratory test leading to the Respondent’s decision of 21st September 2021, which decision has never been shared with the Appellant.

16. That consequently, the Appellant engaged private laboratory experts from Chenxuhui (Foshan) Trading Co. Ltd., SGS and Kenya Bureau of Standards who carried out chemical analysis of the same sampled consignment and confirmed the Appellant had declared the correct tariff.

17. The Appellant averred that after two months and without communication on the findings, the Respondent on 17th August 2021 issued the Appellant with a second demand of Kshs. 7,138,942 despite the Appellant’s objection.

18. That the demand was issued without an objection decision contrary to Section 51(11) of the Tax Procedures Act, No. 29 of 2015 (hereinafter ‘TPA’).

19. Further, that the demand also contravened Section 51(4) of the TPA requiring the Respondent to immediately notify the taxpayer in writing where its notice of objection has not been validly lodged.

20. The Appellant stated that without formal communication, from the Respondent, the Appellant had no reason not to believe that its objection had been allowed. The Respondent sent the final demand letter on 12th October 2021 and by that time, the director of the Appellant was indisposed with Covid-19 and was unable to discharge his duty.

21. That no objection decision has ever been issued to the Appellant via mail or electronic mail. The Appellant only knew that a decision had been made when the Appellant’s accounts were frozen and tax was demanded.

22. That the Respondent invoked the provisions of Section 284A of the EACCMA, 2004 but did not allow the Appellant to enjoy its privileges under the law.

23. The Appellant stated that it applied to the Tribunal via Misc.219/2022 requesting the Tribunal to allow the Appellant’s late appeal application, which was granted.

24. That the objection was not handled diligently by the Respondent because all documents needed for the review by the Respondent were provided by the Appellant, the Respondent failed to look at the objection and request for further documents which the Appellant was willing to avail.

25. The Appellant averred that it endeavored to settle this issue speedily, but the Respondent is stuck on its calculations despite the Appellant providing necessary documents and calculations towards the same.

26. That the Appellant thus prayed that the Tribunal sets aside the additional assessment by the Respondent and that the tariff be declared to conform with the findings of the three international standards companies to attract a duty of 10%.

Appellant’s prayers 27. In line with the above grounds, the Appellant made the following prayers to the Tribunal:a.That the Appeal be allowed.b.Based on the laboratory findings of SGS, KEBS and Chenzuhui (Foshan) Trading Company Ltd., the tariff code be confirmed as 3920. 43. 10 with an import duty of 10%.c.That the demand for Kshs. 7,132,9452 together with interest and resultant penalties be set aside and in place thereof, the Tribunal finds that there is no tax payable.d.Costs be borne by the Respondent.

Respondent’s Case 28. The Respondent’s case is premised its Statement of Facts dated and filed on 4th November 2022 and the witness statement of Benard Oyucho dated and filed on the 13th March, 2023 that was admitted in evidence under oath on the 27th September, 2023.

29. The Respondent relied on Section 236 of the EACCMA, 2004 in its response to the first four grounds of appeal, reiterating the its power to verify the accuracy of the entry of goods or documents. The Respondent averred that it was within its mandate to perform the post clearance audit and classify the PVC heat shrink consignment wrongly classified under tariff code 3919. 90. 10 to tariff 3920. 49. 00 under the East Africa Community Common External Tariff (hereinafter ‘EACCET’).

30. The Respondent asserted that the classification of goods in the nomenclature is guided by the General Interpretation Rules (GIR) as cited in the EACCET,which are read together with the Explanatory Notes to the Harmonized System.

31. The Respondent averred that Heading 39. 20 covers other plates, sheets, film, foil and strip, of plastics, non-cellular and not reinforced, laminated, supported or similarly combined with other materials. That the Heading includes plates, sheets, film, foil and strip, plastics of Poly Vinyl Chloride materials. The Respondent asserted that the heat shrink film imported by the Appellant was unprintable and of polymers of vinyl chloride, this is a chemically modified polymer, in accordance with Explanatory Notes to Chapter 39.

32. The Respondent averred that the Subheading Notes to Chapter 39(1)(a)(3) classifies chemically modified polymers in the subheading named “Other” provided that the chemically modified polymers are not more specifically covered by another subheading. The Respondent as guided by General Interpretation Rules 1 and 6, averred that the applicable tariff code for the heat shrink film under review is 3920. 49. 00 attracting an import duty rate of 25%.

33. The Respondent averred that the Appellant misdeclared the PVC heat shrink film consignment resulting in short levy of taxes and interest thereof hence why the demand was upheld. The Respondent averred that its actions were in adherence to Section 235 of EACCMA,2004 mandating the proper officer within five years from importation, exportation, transfer or manufacture of goods, require the owner of the goods to produce documents related to the goods.

34. The Respondent stated that the burden of proof lies on taxpayers and the same was not discharged by the Appellant after the post clearance audit conducted by the Respondent. The same was not discharged by the Appellant who disregarded the requests made by the Respondent.

Respondent’s prayers 35. The Respondent therefore prayed that the tax demand notice be upheld and the Appeal be dismissed.

Parties’ Submissions 36. The Appellant’s written submissions were dated 17th October 2023 and filed on 19th October 2023 whilst those of the Respondent were dated 17th October 2023 and filed on 18th October, 2023.

37. The Appellant identified two issues for determination which it submitted on as follows:a.Whether the Respondent’s decision to uplift the Appellant’s tax obligation to 25% by reclassification of its goods under HS code 3920. 49. 00 is justified.

38. The Appellant submitted that at all material times it has been remitting its taxes as required by the law and that it was established during the hearing that it is not in contention that the Appellant’s goods were classified under an erroneous HS Code 3919. 90. 10 imposing tax obligation of 10%.

39. The Appellant averred that vide letter dated 3rd August 2021 addressed to the Respondent, it acknowledged the said error and proceeded to declare the products under HS code 3920. 43. 10 on its subsequent consignment of 16th August 2021.

40. The Appellant submitted that its decision to declare the PVC shrinkable film sleeves under the revised tariff was because the same are colourless, clear, unprinted and contain plasticizer content of more than 6% as evidenced by the manufacturer’s report. The Appellant further submitted that upon rectification of the HS Code to 3920. 43. 10 the products still attract duty of 10% which is the same amount that was submitted under HS Code 3919. 90. 10 and as such no tax is due and payable.

41. The Appellant averred that the Respondent’s decision to re-classify the Appellant’s product under HS Code 3920. 49. 00 which attracts a duty of 25% was arrived at through a post clearance desk audit followed by a laboratory analysis test.

42. The Appellant submitted that the contention is based on a scientific report and can only be determined by applying the law to the said report.

43. The Appellant averred that the report was critical that the Tribunal in its Ruling of 23rd September 2022 acknowledged that in its absence, it was impossible to ascertain whether the decision of the Respondent was justified and thus correct. The Respondent was given an opportunity to produce the said report containing the laboratory findings but failed to do so. The Respondent instead furnished the Tribunal with correspondence in the form of an Internal Memo dated 20th September 2021.

44. The Appellant argued that a post clearance desk audit was conducted by the Respondent finding that the products should be classified under the tariff that attracts a duty of 25%. It submitted that a desk audit is usually conducted by physical inspection and analysis. The Appellant submitted that the PVC shrinkable film sleeves are colourless, clear and unprinted and this analysis alone cannot purport to classify the products under the HS Code 3920. 49. 00 which specifically requires the content of plasticizers to be ascertained as being more than 6%.

45. The Appellant posited that the latter can only be done through a scientific laboratory analysis test yet the Respondent had already concluded on the re-classification through the desk audit and even proceeded to make demand of tax arrears vide letter dated 16th June 2021.

46. That it was after an objection raised by the Appellant that the Respondent drew some samples from the Appellant’s consignment in order to conduct a laboratory test analysis that would justify its decision to reclassify the products and on 21st September 2021, the Respondent communicated to the Appellant upholding its decision to re-classify its products, basing the said decision on the laboratory analysis report purportedly indicating the total percentage in weight of the content of plasticizers in the sample to be 3. 61%.

47. The Appellant averred that the imaginary laboratory report was fabricated by the Respondent in order to correspond with the decision of the post clearance desk audit and it does not depict the true picture of the imported products.

48. The Appellant submitted that without prejudice to the foregoing, assuming that the report existed and actually indicated the content of plasticizers to be less than the required 6% in weight, then the product cannot fall under the HS Code 3920. 49. 00 since the same only deals with products having plasticizers content of 6% and above. The Appellant cited that the EAC/CET provides as follows:“-of polymers of vinyl chloride

--containing by weight not less than 6% of plasticisers

3920. 43. 10 ---unprinted kg 10%

3920. 43. 90 ---other kg 25%

3920. 49. 0 -- other kg 25%”

49. The Appellant argued that the heading covers plastic film containing plasticizers weighing above 6% while the Respondent’s purported laboratory report gave 3. 61% w/w of plasticizers. It therefore submitted that as such the product cannot fall under the said HS code relied upon by the Respondent. The Appellant claimed that Foshan Trading Company Limited, the manufacturers of the said PVC shrinkable film sleeves attested through a report that their product comprises of plasticizer content of more than 6% attracting duty of 10% under the HS code 3920. 43. 10.

50. The Appellant contended that it provided the Respondent with all relevant documentation including a laboratory report and that during the hearing, there was no report that was presented by the Respondent to corroborate its assertion that the said products should be classified under HS code 3920. 49. 00.

51. That the Respondent’s witness when prompted further on cross examination insisted that the letter dated 21st September 2021 was a report and no further documentation needed to be produced to justify the decision of the Respondent.

52. The Appellant submitted that at the close of the Respondent's case during hearing, the Respondent acknowledged that the letter to the Appellant dated 21st September 2021 did not constitute a laboratory report, and the Tribunal proceeded on its own motion to grant leave to the Respondent to file the said laboratory analysis report within 7 days. However, the Respondent on 4th October 2023 filed supplementary list of documents attaching an internal memo from the Chief Manager Inspection and Testing Center to the Chief Manager PCA dated 20th September 2021 communicating the purported laboratory results of the samples that were taken from the Appellant’s consignment.

53. The Appellant submitted that the Memo was not a laboratory analysis report as it was signed by a person not an expert in laboratory analysis and what was relayed was an extract of findings from a report that was prepared after lab testing. Further, the Appellant had presented the Tribunal with what a lab report would look like from an international laboratory, SGS, and what the Respondent presented to the Tribunal does not resemble this likened report.

54. That the SGS report availed, only tested for one plasticizer (DINP) weighing 2. 556%, the Appellant’s witness clarified that the sample contained other plasticizers and cannot only be made of one type of plasticizer. Further, the original manufacturer, Foshan Trading Co. LTD, prepared a letter confirming that its products contain plasticizer content of more than 6% in weight and thus falls under HS Code 3920. 43. 10.

55. That the Respondent while relying on the SGS report testified that the Appellant’s SGS report indicated plasticizer content of 2. 556% which is lower than what the Respondent report had indicated being 3. 61%. The Appellant submitted that it submitted to the Tribunal a detailed report from SGS dated 12th July 2021. The Appellant claimed that the said report demonstrates to this Tribunal how a laboratory report should appear and further indicates the percentage of different plasticizers in weight that were detected in the sample drawn from the Appellant’s consignment as; DINP 2. 556%, DNOP 3. 615% and DIOP 1. 961%.

56. The Appellant submitted that the Memo from the Respondent dated 20th September 2023 does not amount to a laboratory analysis report and as such, cannot be relied on by this Tribunal in reaching its decision. The Appellant submitted that failure to produce the said report by the Respondent despite several opportunities given to it by the Tribunal can only infer that the same either does not exist or if it does, then it must have information detrimental to the case of the Respondent. The Appellant relied on the case of BK v J D Patel & another [2014] eKLR when faced with a similar issue of ascertaining whether there actually existed a laboratory report or not the Court stated that:“That the 1st Defendant was not a pathologist is not in doubt. Whereas he asserted that the HIV test was conducted on his directions, he was not the one who carried out the test. According to him, he relied on the laboratory report from MP Shah Hospital. However, that report was never produced in evidence. The plaintiff, however, went for HIV screening which turned out to be negative. Confronted with this allegation, it was incumbent upon the 1st Defendant to secure the laboratory report which he relied on if it existed to show that his report was based on tests properly undertaken as he alleged. In the absence of the said laboratory report and in the absence of any plausible explanation why the same was never produced this Court would be left with no alternative but to draw adverse inference that either the said laboratory report did not exist or that if it existed, its contents were adverse to the 1st Defendant’s case. See Ndungu vs. Coast Bus Co. Ltd [2002] 2 EA 462. ”

57. Further, that the Memo was not prepared by the maker of the laboratory analysis report and the content therein cannot be subjected to verification by the Appellant as the same holds no evidentiary value. The Appellant asserted that the report remains mere allegation and relies on the case of Kenneth Nyaga Mwige vs Austin Kiguta & 2 others (2015) eKLR to support its argument, where it was stated that:“The mere marking of a document for identification does not dispense with the formal proof thereof. How does a document become part of the evidence for the case" Any document filed and/or marked for identification by either party, passes through three stages before it is held proved or disproved. First, when the document is filed, the document though on file does not become part of the judicial record. Second, when the documents are tendered or produced in evidence as an exhibit by either party and the court admits the documents in evidence, it becomes part of the judicial record of the case and constitutes evidence; Mere Admission Of A Document In Evidence Does Not Amount To Its Proof; admission of a document in evidence as an exhibit should not be confused with proof of the document. Third, the document becomes proved, not proved or disproved when the court applies its judicial mind to determine the relevance and veracity of the contents – this is at the final hearing of the case. When the court is called upon to examine the admissibility of a document, it concentrates only on the document. When called upon to form a judicial opinion whether a document has been proved or disproved or not proved, the Court would look not at the document alone but it would take into consideration all facts and evidence on record……a document is not proved merely because it has been marked for identification. Once a document has been marked for identification, it must be proved. A witness must produce the document and tender it in evidence as an exhibit and lay foundation for its authenticity and relevance to the facts of the case. Once this foundation is laid, the witness must move the court to have the document produced as an exhibit and be part of the court record. If the document is not marked as an exhibit, it is not part of the record. If Admitted Into Evidence And Not Formally Produced And Proved, The Document Would Only Be Hearsay, Untested And An Unauthenticated Account.”

58. The Appellant submitted that in the absence of the said report, despite it being referred to in various communications, the same remains hearsay and cannot be relied upon in determining this matter, the Respondent has failed to discharge its burden of proof that had shifted from the Appellant during the hearing. It therefore submitted that the Respondent’s act of secrecy goes against the grains of Section 219 of the EACCMA, 2004.

59. The Appellant relied on section 30 of the Tax Appeals Tribunal Act, No. 40 of 2013 (hereinafter ‘TAT’) which places the burden of proof on the taxpayer to submit all the necessary documentation to support its case and that once the taxpayer adduces evidence that discharges his burden, then the burden shifts to the Respondent.

60. The Appellant asserted that it had indeed submitted all necessary documents and the onus of proof shifted to the Respondent to prove that its assessment was accurate by providing this Tribunal with the laboratory report whose findings informed his decision. The Appellant relied on the case of Mbuthia Macharia v Annah Mutua Ndwiga & another Civil Appeal No. 297 of 2015 [2017] eKLR where the issue of burden of proof was addressed as follows:“The legal burden is discharged by way of evidence, with the opposing party having a corresponding duty of adducing evidence in rebuttal. This constitutes evidential burden. Therefore, while both the legal and evidential burdens initially rested upon the Appellant, the evidential burden may shift in the course of trial, depending on the evidence adduced. As the weight of evidence given by either side during the trial varies, so will the evidential burden shift to the party who would fail without further evidence?"}

61. The Appellant contended that Sections 107, 108, and 109 and 112 of the Evidence Act, Cap 80 of Kenya’s Laws (hereinafter ‘Evidence Act’) provide for both the legal and evidential burdens, further relying on the case of Anne Wambui Ndiritu v Joseph Kiprono Ropkoi & another where the court held:“As a general proposition the legal burden of proof lies on the party who invokes the aid of the law and substantially asserts the affirmative of the issue. That is the purport of Section 107 (l) of the Evidence Act Cap 80. ...There is however the evidential burden that is cast upon any party the burden of proving any particular fact which he desires the court to believe in its existence. That is captured in sections 109 and 112 of the Act. ' (our emphasis)”

62. The Appellant submitted that the Respondent invited the Tribunal to believe in the existence of a lab report that led to the decision of reclassifying the Appellant’s products under HS code 3920. 49. 00 which attracts a tax obligation of 25% but does not discharge its evidential burden by providing the said report. The Appellant further relied on the case of Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] eKLR where it was stated that:“Once the taxpayer has made out a prima facie case to prove the facts, the onus then shifts to the Revenue Authority to rebut the prima facie case. If the Revenue Authority cannot provide any evidence to prove their position, the taxpayer will succeed……….However, where the assumptions made by the Revenue Authority are exclusive and peculiarly within its knowledge, a corrective measure must be applied to the typical onus of proof. If the taxpayer has no knowledge with respect to the assumptions made by the Revenue Authority, it would be unfair to require the taxpayer to disprove them. This was the holding in Canada v Anchor Pointe Energy Ltd. However, decided cases are in agreement that the burden of establishing the facts justifying the assessment of the penalty is on the Revenue Authority.”

63. The Appellant therefore submitted that it had discharged its burden by establishing a prima facie case and thus urged the Tribunal to allow its Appeal as prayed.

(b) Whether the Appellant owes any additional taxes to the Respondent. 64. The Appellant submitted that during the hearing, it was confirmed that there was an error in classifying the PVC films under HS code 3919. 90. 10 which attracted 10% duty. However, upon self-declaration and reclassification by the Appellant under HS code 3920. 43. 10, as demonstrated by the combined declaration and certificate form E dated 16th August 2021, the same also attracted a duty of 10% therefore no tax obligation is outstanding and due.

65. Further, that since the purported re-classification by the Respondent is shrouded in mysteries and ambiguity it amounts to a nullity as evinced herein hence the imposed additional taxes and penalties to the tune of Kshs. 7,138,942. 00 are unwarranted. The Appellant relied on the case of Keroche Industries Limited Vs Kenya Revenue Authority & 5 Others [2007|eKLR where it was held that:“…the taxman is not permitted to go on a frolic of his own to impose tax not specifically permitted.”

66. The Appellant submitted that the Respondent having failed to prove the legitimacy of the re-classification of the plastic films under HS code 3920. 49. 00, it failed to demonstrate any liability on the part of the Appellant.

67. The Appellant submitted that, contrary to the averments of the Respondent, Sections 234 and 235 of the EACCMA,2004 do not grant the Respondent unlimited powers to impose fabricated tax figure but are merely provisions empowering it to request for documents from the owner or importers of goods to assist him in making an informed decision. The Appellant further relied on the case of Russell (Inspector of Taxes) Vs. Scott [19431 AC 422 at 433 where the Court held that:“……it is that the subject is not to be taxed unless the word of the taxing statute unambiguously imposes tax upon him. It is necessary that this maxim should on occasion be reasserted and this is such an occasion…Applying the same reasoning in Keroche Breweries (Supra), to the matter before this court, it does not matter that the Respondent say and think they are owed over a billion Kenya Shillings – what matters is whether the amount is lawfully due and whether the law allows its recovery? It is not a question impression or perception of what is owed, instead it is what if anything, is owed under the relevant law and whether its assessment and recovery is permitted by the applicable law. If rightly due, the huge amount notwithstanding the court must uphold the right of recovery regardless of its consequences to the Applicant and if not due under the law it must not hesitate to disallow it in order to uphold both the law and the integrity of the rule of law.”

68. The Appellant therefore stated that the tax arrears demanded are not lawfully due and thus cannot be recovered by the Respondent as it has failed to justify with precision its decision to uplift the tax obligation by reclassifying the Appellant’s products under HS Code 3920. 49. 00.

69. The Respondent’s analysed the two issues for determination that it had identified in its written submissions as outlined below:

(a) Whether the Respondent had the mandate to perform a PCA on the Appellant’s imports. 70. The Respondent submitted that it is charged with the duty of collecting and administering revenue under various laws including the EACCMA,2004 which the Appellant does not dispute. The Respondent asserted that Section 235 and 236 of the EACCMA, 2004 gives the Respondent powers to call for documents and to conduct a PCA on the import and export operations of a taxpayer within a period of five years from the date of importation or exportation.

71. Consequently, the Respondent has a statutory duty to carry out PCAs on the import declarations made by taxpayers by verifying the accuracy of the entry of goods or documents and thus operated within its mandate. The Respondent submitted that the Appellant failed to demonstrate that the audit contravened the above Sections.

72. The Respondent relied on the Appellant’s self-declaration during importation but Section 135(1) of the EACCMA,2004 was enacted to deal with the possibility of exploitation of the system by unscrupulous importers. The Respondent relied on the case of Bharat General Agency v Kenya Revenue Authority [2020] eKLR where the Court held that the Respondent therein was within its mandate to demand extra tax from a PCA.

(b) Whether the Respondent erred in concluding the lab results of the sample drawn. 73. The Respondent submitted that the Appellant requested for a laboratory analysis upon issuance of the demand and that the tests were conducted in the Respondent's laboratory and the obtained results were communicated to the Respondent via an Internal Memo. The communication with the composition of the sample tested was filed in the Tribunal on 4th October 2023. The Respondent claimed that it had communicated to the Appellant that it could pick the results at the Sameer Park Offices which the Appellant failed to do so.

74. The Respondent submitted that following the testing and the results, the Respondent issued a decision which provided the basis for the re-classification of the goods containing a summary of the reason for the conclusion that was arrived at in making the decision based its lab results on the plasticizer content as per the rules of classification.

75. The Respondent submitted that the Appellant provided three laboratory results before this Tribunal and the samples that were drawn to confirm the results cannot be verified nor has the Appellant attempted to verify the same.On the contrary, the sample tested by the Respondent was taken in the presence of the parties and tests conducted within the Respondent’s mandate and power.

76. The Respondent posited that the first analysis was presented by the Appellant from Chenxuhui (Foshan) Trading Co. Limited which is not a lab located in Kenya bringing to question the authenticity of the sample. It was submitted that the analysis also provides a mere statement that the plasticizer content was above 6% with no other information.

77. The Respondent contended that the second test was allegedly conducted by SGS and the same provided a list of plasticizers which were tested. It was confirmed by the Appellant’s witness that the same provided that Diisononyl Phthalate (DINP) had a percentage content of 2. 556% reiterating the Respondent’s position that the content was below 6%. The Respondent claimed that the lab does not provide results for the purpose of classification and therefore the same cannot be relied on without verification.

78. The Respondent submitted that the purpose of the third results presented by the Appellant conducted by Kenya Bureau of Standards (hereinafter ‘KEBS’) was to ascertain standards and not for classification purposes as the results did not show any result on plasticizer content.

79. The Respondent submitted that the Appellant failed to discharge its burden of proof to show its lab results are reliable over the Respondent’s verifiable results. It relied on the case of case of Primarosa Flowers Limited V Commissioner of Domestic Taxes [2019] eKLR where the court placed the burden of proof on a party that is bound to prove existence of any facts.Further, that failure to obtain the results from the Respondent was negligence on the part of the Appellant.

b. Whether the Respondent’s decision to reclassify the imported consignments of PVC heat shrink film imported by the Appellant, that were wrongly classified under tariff code 3919. 90. 10, which attracts Import Duty at 10% was valid. 80. The Respondent submitted that it is imperative to note that the classification of goods in the nomenclature is guided by GIR as cited in the EACCET which are read together with the Explanatory Notes.

81. The Respondent contended that according to GIR1, classification shall be determined according to the terms of the Headings and any relative Section or Chapter Notes. The Appellant had imported what was described as PVC heat shrink film and the contention that arose was whether the goods were classified correctly regardless of whether the goods were being imported by the Appellant for a long period of time.

82. The Respondent posited that Heading 39. 20 covers other plates, sheets, film, foil and strip, of plastics, non-cellular and not reinforced, laminated, supported or similarly combined with other materials. These apply to Poly Vinyl Chloride materials as below:“- Of polymers of vinyl chloride: Containing by weight not less than 6% of plasticisers: 3920. 43. 10 --- Unprinted 3920. 43. 90 --- Other Sub-Heading 3920. 49. 00 – Other”

83. The Respondent argued that the heat shrink film imported by the Appellant was unprintable and of polymers of vinyl chloride- a chemically modified polymer, in accordance with Explanatory Notes to Chapter 39 which reads:“1. - Within any one heading of this Chapter, polymers (including copolymers) and chemically modified polymers are to be classified according to the following provisions:(a)Where there is a subheading named “Other” in the same series:3. Chemically modified polymers are to be classified in the subheading named“Other”, provided that the chemically modified polymers are not more specifically covered by another subheading.”

84. The Respondent thus submitted that the applicable tariff code under EACCET for the heat shrink film under review was 3920. 49. 00 which attracts import duty at the rate of 25% and the Appellant mis declared the PVC heat shrink film consignment. The Respondent relied on the decision by the European Court of Justice in Bioforce GmbH v Oberfinanzdirektion München (Case 177/91) [1993] ECR 45 where the court laid down settled legal principles for determining the tariff classification of goods stating as follows:“... the decisive criterion for the tariff classification of goods for customs purposes is to be sought, regard being had to the requirements of legal certainty, in their objective characteristics and properties, as defined by the wording of the headings of the Common Customs Tariff."

85. The Respondent submitted that it properly classified the product in question taking into consideration the objective characteristics, properties and the wording of the heading as discussed above. It further relied on the case of Upper Tribunal in EP Barrus, Kubota (UK) Ltd v HMRC [2013] UKUT 449 (TCC) which summarized the criteria to be adhered to in classification disputes stating that:“(1)The decisive criterion for the classification of goods for customs purposes is in general to be found in their objective characteristics and properties as defined in the wording of the relevant heading of the CN and of the notes to the sections or chapters…2. The relevant criteria must be apparent from the external characteristics of the goods so that they can be easily appraised by the customs authorities…3. By the examination of the external characteristics the main purpose of the product must be inferred. It does not matter if there are other purposes for the product…4. The CNENs and HSENs should be used as an aid to interpretation as can specific classification regulations, but the latter only in relation to products identical to those specifically classified…5. Marketing materials and a product’s targeted use are not to be taken into account…”

Issues For Determination 86. Having carefully considered the parties pleadings the documentation availed and the evidence adduced the Tribunal is of the considered view that this Appeal distils into a single issue for determination as outlined below.Whether the Respondent’s decision to re-classify the Appellant’s imported PVC heat shrink under HS Code 3920. 49. 00 attracting import duty of 25% was justified.

Analysis And Findings 87. Having identified the issue that requires its determination, the Tribunal will proceed to analyse it hereinunder.

88. The dispute between the parties herein was initiated by the customs post clearance desk audit that the Respondent conducted on the Appellant in 2021 pursuant to Sections 235 and 236 of the EACCMA,2004. It covered the period 2016 to April 2021; the Appellant contended that the Respondent acted in contravention of the provisions of Sections 235(1) and 236 of the EACCMA, 2004, in conducting a PCA on the Appellant.

89. The Tribunal notes that the Respondent on its part asserted that under Sections 235 and 236 of the EACCMA, 2004 it 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.

90. The Tribunal further notes the Respondent’s averment that the Appellant had failed to demonstrate that the PCAs conducted on the Appellant contravened the above Sections in any way. Sections 235 and 236 of the EACCMA,2004 are couched in the following terms:“235(1)The “proper officer” may, within five years of the date of importation, exportation or transfer or manufacture of any goods, demand for documents relating to the goods, to answer any question in relation to the goods; and to make declaration for audit purposes.236. The Commissioner shall have the powers to-a.verify the accuracy of the entry of goods or documentsb.question any person;c.inspect the premises of the owner of the goods or; ande.examine the goods.”

91. The Tribunal notes that Sections 235 and 236 of the EACCMA,2004 the Respondent is empowered to carry out PCAs on taxpayers within a period of five years from the date of importation or exportation. The Tribunal is also guided by the decision in the case of Bharat General Agency v Kenya Revenue Authority [2020] eKLR cited by the Respondent where the High Court held that the Respondent was within its mandate to demand extra tax from a post clearance audit.

92. In the absence of any evidence by the Appellant to demonstrate that the Post Clearance Audits conducted on it contravened the above Sections, the Tribunal notes that the Respondent had a right to carry out the PCA as it was acting within its statutory mandate under Sections 235 and 236 of the EACCMA,2004.

93. The Tribunal further notes that the Appellant had submitted that vide letter dated 3rd August 2021 addressed to the Respondent, it acknowledged the said error and proceeded to declare the products under HS code 3920. 43. 10 on its subsequent consignment of 16th August 2021 and that its decision to declare the PVC shrinkable film sleeves under the revised tariff was because the same are colourless, clear, unprinted and contain plasticizer content of more than 6% as evidenced by the manufacturer’s report.

94. The Tribunal equally notes the Appellant’s submission that upon rectification of the HS Code to 3920. 43. 10 the products still attract duty of 10% which is the same amount that was submitted under HS Code 3919. 90. 10 and as such no tax is due and payable. The Appellant further submitted that the Respondent’s decision to re-classify the Appellant’s product under HS Code 3920. 49. 00 which attracts a duty of 25% was arrived at through a post clearance desk audit followed by a laboratory analysis test.

95. The Tribunal notes from the above submissions that both parties agree that the product in issue falls for classification under Heading 39. 20 which cover the following:“other plates, sheets, film, foil and strip, of plastics, non-cellular and not reinforced, laminated, supported or similarly combined with other materials”.

96. The Tribunal is of the view that the dispute is whether the product is to be classified under 3920. 43. 10 as declared by the Appellant or under 3920. 49. 00 as reclassified by the Respondent. For purposes of the analysis, it is important to set out the relevant part of the HS Code which provides as follows:“39. 20 Other plates, sheets, film, foil and strip, of plastics, non-cellular and not reinforced, laminated, supported or similarlycombined with other materials.

- Of polymers of ethylene:

3920. 10. 10 --- Unprinted kg 10%

3920. 10. 90 --- Other kg 25%

- Of polymers of propylene:

3920. 20. 10 --- Unprinted kg 10%

3920. 20. 90 --- Other kg 25%

- Of polymers of styrene:

3920. 30. 10 --- Unprinted kg 10%

3920. 30. 90 --- Other kg 25%

- Of polymers of vinyl chloride:

-- Containing by weight not less than 6% of plasticisers:

3920. 43. 10 --- Unprinted kg 10%

3920. 43. 90 --- Other kg 25%

3920. 49. 00 Other kg 25%

97. The Tribunal notes that the main difference between the two codes is that for the product to be classified under 3920. 43. 10, it must contain by weight not less than 6% of plasticisers. This is the main contention between the parties in that for the Appellant to succeed, the product must contain over 6% plasticisers. If the plasticizers content is less than 6% then the product must fall for classification under 3920. 49. 00 in which case the Respondent’s re-classification must be upheld. The only way to determine the content of the plasticizer is through a laboratory test. The Tribunal has reviewed the laboratory test reports submitted by the Appellant.

98. The Tribunal observes that the Appellant has the burden of proving that the product has the required plasticisers content to be classified under the HS code declared by it. The Appellant submitted three laboratory test results. The first was that done by the KEBS which analysis did not give any plasticizer content and dealt with other matters relating to standards. The second laboratory analysis was from SGS. The initial scientific laboratory report from SGS tested for only one plasticizer (DINP) weighing 2. 556%.

99. The Tribunal further notes that the Appellant filed a supplementary detailed report from SGS dated 12th July 2021 which indicated the percentage of different plasticizers in weight that were detected in the sample drawn from the Appellant’s consignment. This supplementary report listed DINP at 2. 556%, DNOP at 3. 615%, and DIOP at 1. 961% which is a total plasticizer composition of more than 6%.

100. The Tribunal observes that the Respondent replied by contending that it was unclear where the sample tested by the Appellant was drawn from. The Respondent explained that it was the only one that drew a sample from the product and that this was done in the presence of the Appellant. The Respondent submitted therefore that the results from SGS could not be trusted.

101. The last laboratory results by the Appellant were drawn from Chenxuhui (Fosan) Trading Co. Limited, the company that exported the product from China. The Tribunal notes that the report simply indicated that “the plasticiser content is greater than 6%. It be classified into HS Code 3929. 43. 10. ” The Respondent faulted this report on two fronts: first, it did not state the plasticiser content with exactitude (stating only that it was greater than 6%) and secondly, that the Chenxuhui (Fosan) Trading Co. Limited was not a laboratory but the manufacturer or supplier of the product in dispute. The Respondent submitted that this affected the reliability of this report.

102. The Tribunal observes that the Respondent drew a sample in the presence of the Appellant and the same was taken for laboratory testing. The Appellant submitted that it was never supplied with the laboratory report save for an Internal Memo dated 20th September 2021.

103. In addition, the Appellant, on several occasions requested the Respondent to supply it with the laboratory analysis to support its re-classification but the Respondent has failed to comply. At the hearing on 27th September 2023, the Respondent was directed by the Tribunal to file the laboratory analysis but only filed an Internal Memo on 4th October 2023 containing the analysis.

104. As already observed by the Tribunal, the determination of the applicable classification is dependent on the laboratory analysis. In the light of the circumstances of this case, the Tribunal must decide which laboratory analysis can be relied upon.

105. The report from KEBS did not analyze the level of plasticisers. Its basis was the standards of the plastic. As a result, the Tribunal will disregard it. The next report would be that from Chenxuhui (Fosan) Trading Co. Limited in China.The Respondent contended that this company was not a laboratory and this was not controverted by the Appellant. The laboratory report did not convey the exactitude of a laboratory analysis. The report was therefore of little probative value and the Tribunal will likewise disregard it. The Tribunal will therefore review two reports, one from SGS and the Internal Memo from the Respondent.

106. The Tribunal notes that it is the Appellant who through its letter dated 19th August 2022 requested the Respondent to undertake the tests. The Respondent drew the sample and undertook the tests and communicated the review decision vide the letter of 21st September 2021. In that letter the Respondent indicated that:“…following your request for a laboratory analysis of the product under review, your sample was found to be unprinted, clear, colourless sheet of poly vinyl chloride material with plasticiser content of less than 6% by weight classifiable under EAC/CET tariff code 3920. 49. 00. Please note that a copy of the tariff ruling will be dispatched to you by the Tariff unit in due course.”

107. The Tribunal has noted that this letter was sent through an electronic mail to the Appellant dated 16th June, 2021 and the parties exchanged correspondence after this on electronic mail. On the other hand, the Appellant’s first SGS laboratory analysis returned an initial plasticizer (DINP) content weighing 2. 556%. The Appellant further filed a supplementary detailed report from SGS dated 12th July 2021 which indicated the percentage of different plasticizers in weight that were detected in the sample drawn from the Appellant’s consignment.

108. The Tribunal notes that the Appellant had raised an issue with the fact that the Respondent’s laboratory was not availed to it and that it was only provided with an Internal Memo. As already observed Paragraph 114, the determination of the applicable classification is dependent on the laboratory analysis. Whereas the Respondent was entitled in law to undertake the laboratory analysis in order to determine the true nature of the chemical composition of the product and to determine the correct classification of the product based on such results, the Tribunal notes that the Respondent failed to comply with its order of 27th September, 2023 to provide the laboratory report of the analysis carried out to the Tribunal. The Respondent without any leave of the Tribunal or explanation for the default only filed an Internal Memo.

109. The Tribunal observes that an Internal Memo devoid of a detailed laboratory analysis report is insufficient evidence in establishing the true chemical composition of a product. As a result, the Tribunal will rely on the detailed laboratory report provided by the Appellant from SGS dated 12th July 2021 which indicated the percentage of different plasticisers in weight. This supplementary report listed DINP at 2. 556%, DNOP at 3. 615%, and DIOP at 1. 961% which is a total plasticiser composition of more than 6%.

110. The Tribunal finds that since the Respondent did not provide its detailed laboratory analysis report as ordered by the Tribunal, it lost the opportunity to rebut the evidence adduced by the Appellant to the effect that the plasticiser content in the said product is more than 6% as per the SGS laboratory analysis report.

111. The upshot is that the Tribunal finds and holds that the Respondent’s decision to re-classify the Appellant’s imported PVC heat shrink film under HS Code 3920. 49. 00 attracting import duty of 25% was not justified.

Final Decision 112. In light of the foregoing analysis, the Tribunal finds that the Appeal herein 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 the 21st September, 2021 be and is hereby set aside.c.Each party to bear its own costs.

113. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF MARCH, 2024. ERIC NYONGESA WAFULA.......................CHAIRMANDELILAH K. NGALA...........................MEMBERCHRISTINE A. MUGA...........................MEMBERGEORGE KASHINDI.............................MEMBERMOHAMMED A. DIRIYE..........................MEMBERSPENCER S. OLOLCHIKE.........................MEMBER