[2023] KETAT 967 (KLR)

Kenchic Limited v Commissioner of Customs & Border Control (Tax Appeal 1323 of 2022) [2023] KETAT 967 (KLR) (24 November 2023) (Judgment)

Neutral citation: [2023] KETAT 967 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1323 of 2022

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

November 24, 2023

Between

Kenchic Limited

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

Background 1. The Appellant is a limited liability company duly incorporated in Kenya and is in the business of breeding and supply of poultry and poultry products in East and Central Africa, its main business activity being the production of broiler and layer day old chicks.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, mandated as an agent of the Government of Kenya with the responsibility of assessing, collecting and accounting for all the tax revenue, and is also mandated with the responsibility of the administration and enforcement of the statutes set out in the schedule to the said Acts.

3. The dispute herein arose out of the Respondent ‘s review decision issued to the Appellant on 18th August 2021 classifying the Appellant’s imported consignment as pre-fabricated buildings under HS code 9406. 90. 90 and confirming a tax liability of Kshs. 41,064,504. 00.

4. The Appellant contended that the imported consignment were breeder houses correctly classifiable under tariff code 8436. 29. 00 and being aggrieved by the Respondent’s decision filed the Appeal herein.

The Appeal 5. The Appellant filed its Memorandum of Appeal on 4th November 2022 and set out the following grounds of Appeal;i.The Respondent erred in law and fact by purporting to confirm taxes in relation to the consignment of Entry No. 2019MSA7125245 supplied by C. Lines S.A, which was subject of a review application dated 18th March 2019, when as a matter of fact, the said review application had been deemed as allowed by operation of Section 229 (5) of the East African Community Customs Management Act, 2004 (ECCMA).ii.The Respondent erred in law and fact in its review decision dated 18th August 2021 in relation to the Big Dutchman consignments of Entry Nos 2019MSA143141; 2019CD146690 and 2019CD167253 by reneging on its position as expressed in the tariff ruling dated 23rd January 2020 reference No. CUS/V&T/tari/gen/018/2020, wherein the Respondent had confirmed that a consignment similar to Big Dutchman consignments, imported by the Appellant was classifiable under HS code 8436. 29. 00. iii.The Respondent erred fundamentally in law and in fact in purporting to find that the consignments herein were classified under HS code 9406. 90. 90 and not HS code 8436. 29. 00 contrary to the evidence placed before it and the clear demonstration of the said commodities as fitting within the later HS code.

The Appellant’s Case 6. The Appellant has set out its case on thea.Statement of Facts dated and filed on 4th May 2022. b.The witness statement of Duncan Kamiti filed on 27th July 2023 and adopted as evidence in chief by the Tribunal on 5th September 2023. c.Written submissions dated 19th September 2023 and filed on 20th September 2023,

7. The Appellant stated that being desirous of importing certain poultry related equipment for its business contracted C-Lines SA to supply it with the equipment described as “poultry keeping equipment/Broiler houses 15 by 120 Meters”, which was shipped and declared under entry number 2019MSA7125245 under Tariff Code HS 8436. 29. 00 on 12th January 2019. The Appellant also imported specialized brooders from Big Dutchman International of South Africa which were described as “complete poultry for Kenchic Breeder houses” and declared under entry numbers 2019MSA143141 dated 9th October 2019; 2019MSA146690 dated 18th October 2019; and 2019ICD167253 dated 18th December 2019.

8. The Appellant stated that from the foregoing, there were two consignments classified as follows;i.The Big Dutchman Consignments being entries 2019MSA143141, 2019ICD146690, and 2019ICD167253 which were primarily equipment for poultry keeping breeder houses; and,ii.The C-Lines consignment being entry number 2019MS7125245 which was primarily the poultry keeping house itself i.e., brooders/broiler house.

9. The Appellant stated that shortly thereafter, the Respondent indicated to the Appellant of its intention to audit the said declaration leading to several correspondence between the Appellant and the Respondent in this regard. Central to these engagements was the Respondent’s contention that the consignment in question ought to have been classified under HS code 9406. 90. 90. The bone of contention between the parties hereto is that the Respondent on the one hand in its review decision dated 18th August 2021 found that all these four consignments were classifiable under tariff code 9406. 90. 90 which relates to prefabricate houses and would thus attract an import duty at 35 % and VAT at 16%. On the other hand, the Appellant has consistently held the position that the consignments ie. the Big Dutchman consignments and the C-Line consignments are classifiable under tariff code 8436. 29. 00 which corresponds to poultry keeping equipment and brooders.

10. The Appellant further stated that subsequently, the Respondent in a letter dated 21st February 2019, issued the Appellant with a tariff ruling titled “Tariff Classification of Industrial Poultry Building”, wherein the Respondent concluded that;“Based on the above information, the industrial poultry building is classified under HS code 9406. 90. 90”.

11. The Appellant aggrieved by the said Tariff Ruling, applied for a review under the provisions of Section 229 of the EACCMA on 18th March 2019. The Appellant in the application for review registered dissatisfaction with the tariff ruling dated 21st January 2019 and contended;“We wish to bring to your attention, the Explanatory Notes to heading No.8436 part (ii)(d)which says that: - large industrious equipment, equipped with devises for feeding line, feeding trough, including clean floors for collecting eggs are all included in 8436 ...”.

12. The Appellant further stated that the Respondent vide a letter dated 30th June 2021 demanded taxes in the sum of Kshs. 37,640,220. 00 from the Appellant, despite failing to respond to the Appellant’s Application for Review as required under the timelines stipulated under Section 229 (4) of EACCMA.

13. In response to the letter dated 30th June 2021, the Appellant vide a letter dated 21st July 2021 brought to the Respondent’s attention, another tariff ruling dated 29th January 2020 which was issued in relation to another past consignment of similar description by the exporter, “Big Dutchman” and of the same description titled; “Poultry Equipment System for Broiler Breeder”, wherein the Respondent had on the contrary confirmed that the consignment subject thereto was classifiable under HS code 8436. 29. 00.

14. The Appellant stated that the Respondent vide its letter of 18th August 2021 issued its review decision and confirmed its demand and called for immediate payment of the sum of Kshs 41,064,504. 00.

15. That the Respondent further issued an agency notice addressed to Equity Bank on 26th August 2022 demanding for the immediate payment of the sum of Kshs. 42,183,806. 00 as principal tax, penalties and interest.

16. The Appellant on 3rd August 2022 filed an application under certificate of urgency to stay the enforcement and implementation of the agency notice pending the hearing and determination of its Appeal. Subsequently the Tribunal vide the Ruling dated 21st October 2022 lifted the Agency Notice and granted the Appellant leave to file an appeal out of time, allowing the filing of the instant Appeal.

17. In its Memorandum of Appeal, the Appellant has relied on the ground that the Respondent erred in law and fact by purporting to confirm taxes in relation to the equipment imported under customs Entry Number 2019MSA7125245 supplied by C.Lines SA, which is the subject of a review application dated 18th March 2019, when as a matter of fact, the said Application for Review had been deemed as allowed by operation of Section 229(5) of EACCMA.

18. The Appellant averred that in reneging on its earlier Ruling in regard to similar consignments, the Respondent erred and abrogated the Appellant’s right to fair administrative action.

19. The Appellant cited the case of Republic vs. Kenya Revenue Authority Exparte Mkopa Kenya Ltd (2018) eKLR, in which the High Court expounded the principle of legitimate expectation as applied in the case of Keroche Industries Ltd vs. KRA & 5 others (2007) KLR 240.

20. The Appellant further cited the cases of;a.Ecobank Kenya Ltd vs. Commissioner of Domestic Taxes (2012) eKLR.b.R vs. Commissioners of Inland Revenue exparte MFK Underwriting Agencies & others (1990) 1 All ER 91, andc.Republic vs. Kenya Revenue Authority Exparte Majid Al Futtaim Hypermarkets Ltd (2020) eKLR, where Lady Justice Nyamweya held;-“104. The Respondent’s decision to issue new demand notices after it had expressly allowed the exparte applicant to use the HS code 8418. 69. 20 to classify the goods it was importing on the grounds the code was not applicable, and in the absence of any changes to the applicable schedules it had previously applied or other justifiable reason, defeats logic.In addition, the use of the said HS code was also expressly allowed for under EACCMA CET in the circumstances of the exparte Applicant’s imports. This court therefore finds that the demand notices by the Respondent dated 30th January 2019, 2nd May 2019, 4th June 2019, and 19th August 2019 were unreasonable and not legally justified.”

21. The Appellant averred that where the Respondent pronounced its position on a consignment of a description similar to that of the Big Dutchman consignments, as classifiable under HS code 8436. 29. 00, then automatically that meant that the Big Dutchman’s consignments of customs entry numbers 2019MSA143141, 2019ICD146690, and 2019ICD167253 were properly classified under HS code 8436. 29. 00.

22. The Appellant asserted that for the foregoing reasons, the Tribunal finds that legitimate expectation created by the Respondent vide its letter dated 23rd January 2020 was breached.

23. The Appellant submitted that it was not permissible in law for the Respondent to demand taxes with respect to the C-Line consignment, or even confirm the same in its review decision of 18th August 2021, when it is apparent that the Respondent had defaulted in determining the Appellant‘s application for review on C-Line Ruling dated 18th March 2019. It contented that the said application having been allowed by dint of the operation of the law, Section 229(5) of EACCMA.

24. The Appellant further submitted that it is settled law that failure to render a review decision within the stipulated statutory timeline prohibits the Commissioner from demanding taxes where a review application had been lodged in connection thereto. It cited the cases of Republic vs. Commissioner of Customs Services ex-parte Unilever Kenya Ltd (2012) eKLR, and Vivo Energy Kenya Ltd vs. Commissioner of Customs and Border Control, Kenya Revenue Authority & Anor (2020) eKLR to buttress this submission.

25. It was a further submission of the Appellant that in view of the foregoing case law, both the demand notice dated 30th June 2021, as well as the review decision dated 18th August 2021 as issued by the Respondent, are void void ab initio to the extent that they demand and confirm taxes specifically with respect to the C-Line consignment (Entry Number 2019MSA7125245).

26. The Appellant also submitted that though the Respondent has in its averments purported that it advised the Appellant to make a formal application for review after the demand notice , the Respondent had no such powers to issue any other decision including the demand notice of 30th June 2021, upon the lapse of the 30 days from 18th March 2019 as the Appellant’s application for review on the said C-Line consignment dated 18th March 2019 had been allowed by operation of the law.

27. The Appellant also submitted that it had filed a second review application dated 21st July 2021 in respect of all the four consignments in response to the demand notice of 31st June 2021. It asserted that this second application for review did not in itself sanitize the Respondent’s indolence and failure to issue a review decision within 30 days in response to the application for review on C-Line consignment dated 18th March 2019, which had been allowed by operation of the law (Section 229 (5) EACCMA). In respect of the second application for review, the Respondent rendered a review decision on 18th August 2021.

28. The Appellant also averred that the Respondent fundamentally erred in law and in fact by stating that the equipment in question herein was to be classified under HS code 9406. 90. 90 instead of HS code 8436. 29. 00, and particularly in relation to the Big Dutchman consignments.

29. The Appellant further averred that not only did the Respondent confirm the three prior consignments of a similar character to be classified under HS code 8436. 29. 00, but also from a textual reading of Chapters 84 and 94 of EACCMA CET, it was clear the consignments are classifiable under HS code 8436. 29. 00.

30. The Appellant averred that in classifying items under the EAC/CET, in accordance with the General Interpretation Rules (GIRs), the essential character of a product is very key in determining the correct classification to be accorded to that product.

31. The Appellant asserted that the imported poultry equipment supplied by the Big Dutchman is essentialy poultry-keeping equipment such as feeding troughs, feeding chains, safeguard for feed chain drives, chain tensioners and other machinery to enable the operation of the feed chain.

32. The Appellant submitted that Chapters 84 and 94 of the EAC CET classify poultry keeping equipment and buildings as follows;a.Heading 84. 36: -“Other agricultural, horticultural, forestry, poultry keeping or bee-keeping machinery, including germination plants fitted with mechanical or thermal equipment; poultry incubators and brooders.”b.Heading 94. 06: -“pre-fabricated buildings.”

33. The Appellant submitted that the Big Dutchman ‘s consignments referred to are classifiable under the Heading 84. 36 and HS code 8436. 29. 00 for the following reasons;a.The consignments’ detailed descriptions in the invoices indicated that it comprised of poultry equipment and machinery, such as feeding troughs, feeding chains, safeguards for feed chain drives, chain tensioner, other machinery to enable the operation of the feed chain.b.The Appellant submitted photographic representation of the consignments to justify that indeed the consignments were poultry equipment and machinery therefore dispelling any notion that they are prefabricated buildings classifiable under Heading 94. 06 as alleged by the Respondent.c.In addition, thereto, it is trite law that in interpreting the EAC/CET, one must be guided by the General Interpretation Rules (GIR) for the classification of goods;“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 …”.d.Accordingly, based on GIR 1, only the terms of the headings and any relative section or Chapter Notes are binding. Reliance on titles of sections, chapters and sub-chapters is for ease of reference only and cannot be binding.e.The Appellant asserted that it imported three consignments of poultry equipment from the Big Dutchman as per invoice descriptions. It further asserted that the poultry keeping equipment consisted of feeding troughs, feeding chains, safeguards for feed chain drives, chain tensioner and other accessories machinery to enable operation of the feed chain.f.The Appellant asserted that the equipment was imported and presented in disassembled form, and the components were poultry keeping equipment, hence classifiable under HS code 8436. 29. 00 in accordance with GIR 2 (a) which provides; -“2(a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule) presented unassembled or disassembled”.g.Equally, Rule 6 of the GIR also provides;“For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related subheading Notes, and mutatis mutandis, to the above rules, on the understanding that only subheadings of the same level are comparable “.h.A review of Note (ii) of the Explanatory Notes to Heading 84. 36, provides that the heading generally covers; poultry keeping machinery; poultry incubators; and brooders which include, incubators, hatchers, brooders, rearing and laying units or “batteries” large installations equipped with automatic devices for filling the feeding troughs, cleaning the floors, and collecting the eggs.

34. The Appellant submitted that based on the above guidance and the supplier’s invoice descriptions, it suffices that the imported goods are poultry keeping machinery classifiable under HS code 8436. 29. 00.

35. It was also the Appellant’s submission that this equipment was imported and presented to the Respondent separately from the building that houses them as evidenced by the dates on their entries and as such could not be classified as prefabricated buildings contrary to the assertions by the Respondent that the correct classification of the equipment is under Heading 94. 06 which cover prefabricated buildings.

36. The Appellant also submitted that due consideration must be given to the purpose for which the consignments were being imported and asserted that in the instance case, the equipment and machinery were imported for purposes of poultry keeping which is in line with the terms of the Heading 84. 36 which covers, inter alia; “…. poultry keeping or bee keeping machinery...”.

37. To buttress its submission, the Appellant cited the case of Proctor & Allan (EA) Ltd vs. Commissioner of Income Tax (2014) eKLR.

38. By reason of the foregoing submissions, the Appellant prayed;a.The Appellant’s application for review dated 18th March 2019 be deemed to have been allowed by the operation of law.b.Sets aside the review decision dated 18th August 2021 and demand thereto.c.Finds the imported items are classifiable under HS code 8436. 29. 00, andd.The Appeal herein be allowed.

The Respondent’s Case 39. The Respondent has set out its case on thea.Statement of Facts dated 30th January 2023 and filed on 8th February 2023, andb.Written submissions dated 24th September 2023 and filed on 25th September 2023.

40. The Respondent stated that it conducted a post clearance audit on the import declarations of the Appellant for the period June 2016 to June 2021 on Import Duty, VAT and the accruing interest and penalties based on the import documents for poultry keeping equipment/broiler house.

41. The Respondent further stated that from the review, it noted that some entries for breeder houses were misdeclared under tariff code 8436. 29. 00 which attracts 0% import duty and 0% VAT instead of tariff code 9406. 90. 90 which attracts 35 % Import Duty and 16 % VAT.

42. The Respondent further stated that based on its findings, the Respondent applied the correct HS code 9406. 90. 90, on the misdeclared entries which yielded a tax liability amounting to Kshs. 37,640,220. 00 inclusive of 2% interest for each month in default and as a result, a demand dated 30th June 2021 was issued for the assessed taxes.

43. It stated that on 30th June 2021 the Appellant responded to the Respondent’s demand notice and contended that the classification was done with the Respondent’s agent ‘s guidance and promised to share the Tariff Ruling issued.

44. The Appellant subsequently sent a Tariff Ruling to the Respondent’s post clearance unit on 1st July 2021 whereon the Appellant was advised to make a formal application for review to enable the Respondent make a formal response.

45. The Respondent also stated that in compliance thereto, the Appellant made an application for review with attachments to the Respondent on 21st July 2021, which application referred to the Respondent’s demand notice dated 30th June 2021.

46. The Respondent further stated that upon review of the said application for review form the Appellant, it issued a review decision on 18th August 2021 in which it concluded that the correct HS code for “Poultry equipment system for broiler breeder” is 8436. 29. 00 only if it is imported as complete system. However, if it is imported as broiler houses, then it is to be classified as pre-fabricated buildings classifiable under HS code 9406. 90. 90, because buildings for poultry keeping are not classifiable in heading 84. 36 as they do not meet the terms of the Heading, since they are not poultry keeping machinery.

47. The Respondent averred that it issued its review decision on 18th August 2021 which was within 28 days, to the Appellant’s address as provided for in the iTax portal which they have not denied and the Appellant has in fact based its Appeal on the contents of the review decision issued by the Respondent.

48. The Respondent averred that on the issue of the tariff classification, upon physical verification of the imported goods, the Respondent noted that the imported consignments were fabricated poultry houses complete with equipment.

49. It further averred that the Explanatory Notes to Chapter 94 particularly Note 4 classifies prefabricated houses under Heading 94. 06. The Explanatory Note further expounds that prefabricated buildings may or may not be equipped.Chapter 94, Note 4 provides;“4. For the purposes of heading 94. 06, the expression “prefabricated buildings” means buildings which are finished in the factory or put up as elements, presented together, to be assembled on site, such as housing or worksite accommodation, offices, schools, shops, sheds, garages or similar buildings.”

50. The Respondent stated that in the Appeal herein, a review of the imports indicate that the poultry houses are equipped with feeders and egg collection systems.

51. In its submissions, the Respondent stated that according to the GIR 1, the classification shall be determined according to the terms of the Heading and any relative Section or Chapter Notes and that the rules of classification clearly provide that the HS classifications should be read not to distort the true classification but to give it meaning.

52. The Respondent further submitted that from GIR1, the first rule provides that, the most specific description can only be found from the scientific analysis of the product or the physical analysis of the product.

53. The Respondent further submitted that in the Appeal herein, having determined that the Appellant imported prefabricated structure for purposes of rearing chicken, the next item would be to determine what the correct classification for the imported products is.

54. The Respondent cited the definition of the word “prefabricated structure “in the Black’s Law Dictionary as, “Any structure, or article that is created before being brought to the site where it is properly assembled, or installed thereafter”.

55. The Respondent also cited the definition of “prefabricated buildings “in Chapter Note 4 to Chapter 94 as;” For the purposes of Heading 94. 06, the expression prefabricated buildings “means buildings which are finished in the factory or put up as elements, presented together, to be assembled on site, such as housing or worksite accommodation, offices, schools, shops, sheds, garages or similar buildings”.

56. The Respondent further submitted that Chapter 94 covers furniture, bedding, mattresses, mattress supports, cushions and similar stuffed furnishings, lamps and lighting fittings, not elsewhere specified or included; illuminated signs, illuminated name plates and the like, prefabricated buildings.

57. The Respondent further submitted that according to the Explanatory Notes to Chapter 94. 06. 90: -i.This heading cover prefabricated and greenhouses, also known as “industrialized buildings”, of all materials.ii.These buildings, which can be designed for a variety of uses, such as housing, worksite accommodation, offices, schools, shops, sheds, garages and greenhouses, are generally presented in the form of: -a.Complete buildings, fully assembled, ready for use.b.Complete buildings unassembled.c.Incomplete buildings, whether or not assembled, having the essential character of prefabricated buildings.ii.In the case of buildings presented unassembled, the necessary elements may be presented partially assembled (for example walls, trusses) or cut to size (beams, joints, in particular) or in some cases, in indeterminate or random lengths for cutting on the site (sills, insulation).iii.The buildings of this heading may not be equipped. However, only built-in equipment normally supplied is to be classified with the buildings. This includes electrical fittings (wiring, sockets, switches, circuit-breakers, bells etc), heating and air conditioning equipment (boilers, radiators, air conditioners etc), sanitary equipment (baths, showers, water heaters etc), kitchen equipment (sinks, hoods, cookers etc) and items of furniture which are built in or designed to be built in (cupboards etc).iv.Material for the assembly or finishing of prefabricated buildings (eg. Nails, glues, plaster, mortar, electrical wiring and cables, tubes and pipes, paints, wallpaper and carpeting) is to be classified with the buildings, provided it is presented therewith in appropriate quantities. “

58. It was also a submission of the Respondent that Explanatory Note to Tariff Code 8436 covers: other agricultural, horticultural, forestry, poultry keeping or bee keeping machinery, including germination plant fitted with mechanical or thermal equipment, poultry equipment and brooders.

59. The Respondent further submitted that Tariff Code 8436. 29. 00 covers: other machinery, not falling in heading 84. 32 to 84. 35, which is of the type used on farms (including agricultural schools, co-operatives or testing stations), in forestry, market gardens, or poultry -keeping or bee-keeping farms or the like.

60. The Respondent further submitted that from the foregoing and in line with the first rule of interpretation which requires one to look at the most specific description of the item which can only be found from the scientific analysis of the product or the physical analysis of the product, it is the Respondent’s submission that HS Code 9406. 90. 90 best covers the structure imported by the Appellant for reasons that: -i.The imported structure imported by the Appellant was a complete building, parts thereof which were imported as unassembled.ii.The beams, joints and roofing materials all come cut into size and ready for assembling as provided in the quotation and invoices from C-Lines International and Big Dutchman International.iii.The structure has been described in the Appellant ‘s Memorandum of Appeal as “structure in 100 % in galvanized steel and composed of C, Z, AND L shaped profiles to do the columns, purlin and truss. The steel frame is fully bolted in situ by 8. 8- quality hexagonal galvanized bolts.”iv.The structure had built-in equipment such as electrical fittings, heating, air conditioning equipment and generators etc which ensure that at any given time there is an optimum temperature for rearing of the chicken.v.A prefabricated building can be used not only for housing purposes for humans but can be used for various uses such as hospitals, animal pens (as in this case) or for hospitals; all that matters is what the structure is being imported for.vi.In the illustration of how the structure would look like upon assembly, it has been described “Industrial Poultry Buildings “properly classified under HS code 9406. 90. 90.

61. The Respondent submitted that from the foregoing, an application of the GIR; Rule 1 on the most specific description, Rule 2 on the essential character of the article, and Rule 3 on the Heading that occurs last as the most appropriate classification for the poultry keeping structure is HS code 9406. 90. 90 which the Respondent prays that the same be upheld.

62. The Respondent submitted that its review decision was issued on time in accordance with the prescribed legal requirements, and that the taxes amounting to Kshs. 41,064,504. 00 are due and payable.

63. The Respondent further submitted that its review decision was based on information available to it and its best judgement which the Appellant has failed to prove was erroneous, thus the Respondent’s decision was rendered in accordance with the law.

64. To buttress its submission, the Respondent cited the case of The Commissioner for Her Majesty ‘s Revenue and Customs TC/2017/02292 Salima Khalid (Appellant) vs. The Commissioner for Her Majesty ‘s Revenue and Customs (Respondent).

65. It also cited the case of Kenya Revenue Authority vs. Man Diesel & Turbo Se, Kenya (2021) eKLR.

Respondent’s Prayers 66. Reasons wherefore, the Respondent prayed for:-a.That its review decision dated 18th August 2021 be upheld, andb.The Appeal herein be dismissed with costs.

Issues For Determination 67. The Tribunal having carefully considered the pleadings and submissions of the parties is of the considered view that the Appeal herein distils into the following issues for determination;i.Whether the Respondent’s Review Decision dated 18th August 2021 regarding the Appellant’s Consignment subject of Customs Entry Number 2019MSA7125245 imported from C-Line SA was validly issued.ii.Whether the Respondent was justified in classifying the Appellant’s imported consignments under HS code 9406. 90. 90 instead of 8436. 29. 00.

Analysis And Determinationi.Whether the Respondent’s Review Decision dated 18th August 2021 regarding the Appellant’s Consignment subject of Customs Entry Number 2019MSA7125245 imported from C-Line SA was validly issued.

68. The Appellant has averred that on the 12th January 2019, it imported a consignment of poultry house/brooder/broiler house from C-Lines SA of South Africa and proceeded to clear the same on the Respondent’s Simba system by lodging the requisite Form C17 B which was assigned Entry Number 2019MSA7125245.

69. The Appellant further averred that this C-Line consignment was described in the import and entry documents as “poultry keeping equipment/broiler house”, and declared under the EAC CET HS code 8436. 29. 00.

70. Shortly thereafter the Respondent began a post clearance audit exercise and expressed the view that the C-Line consignment ought to have been cleared under the HS code 94. 06. 90. 90, but the Appellant sought to have the matter resolved amicably through the Respondent’s internal mechanism, and wrote to the Respondent a letter dated 25th January 2019 requesting for arbitration on the classification dispute. In response to this letter, the Respondent vide its letter of 28th January 2019 held that the consignment was a prefabricated equipped poultry house, and as such the same ought to be declared under HS code 9406. 90. 90 and not HS code 8436. 29. 00.

71. Dissatisfied with the Respondent’s letter of 28th January 2019, the Appellant formally applied for a Tariff Ruling vide its letter dated 30th January 2019 (Application for Tariff Ruling for C- Line consignment), and sought to persuade the Respondent to classify the consignment under HS code 8436. 29. 00.

72. The Respondent vide its letter dated 21st February 2019, issued a Tariff Ruling titled “Tariff Ruling on Classification of industrial poultry buildings”, wherein it concluded in regard to the Appellant’s C-Line consignment that; “Based on the above information, the industrial poultry building is classified under HS code 9406. 90. 90”.

73. The Appellant dissatisfied with the Respondent’s aforesaid Tariff Ruling dated 21st February 2019, on 18th March 2019 applied for a review of the Tariff Ruling on the C-Line consignment in line with Section 229 of EACCMA.

74. The Appellant averred that there was no response, comment or communication from the Respondent until 30th June 2021, when the Respondent wrote demanding taxes in the sum of Kshs. 37,640,220. 00. The demand was taxes in respect of 4 consignments, one of which was the C-Line consignment which was subject of a pending Application for Review.

75. The Appellant submitted that the Respondent having failed to issue a review decision in connection with the application for review on the C-Line consignment Ruling dated 18th March 2019 it was not open in law for the Respondent to demand taxes vide its letter dated 30th June 2021, with respect to this specific C-Line consignment (Entry Number 2019MSA7125245). The Respondent’s decision on the C-Line consignment was issued 395 days late, there was an inordinate delay.

76. The Appellant relied on the provisions of Section 229 (4) & (5) of EACCMA, which provide that:-(4)The Commissioner shall, within a period not exceeding thirty days of the receipt of an application under subsection (2), and any information the Commissioner may further require from the person lodging the application, communicate his or her decision in writing to the person lodging the application stating reasons for the decision.(5)Where the Commissioner has not communicated his or her decision to the person lodging the application for review within the time specified in subsection (4) the Commissioner shall be deemed to have made a decision to allow the application”.

77. This Tribunal has painstakingly pored over the pleadings, supporting documents and submissions filed by the Respondent and has not gleaned any relevant material controverting the foregoing averments from the Appellant on this particular consignment which is the subject of the application for review referred to, though it is an important question to be answered. In this regard, the Tribunal has no other recourse than to address the issue on the basis of the averments made by the Appellant.

78. The cited Section 229 of EACCMA provides the legislative frame work for appeals under the matters related to Customs. Section 229 (1) of the ECCMA enables any person directly affected by the decision or omission of the Commissioner or any other officer on matters relating to Customs to lodge an application for review of that decision within 30 days of the date of the decision. The application once lodged becomes subject of the provisions of Section 229 of the ECCMA as may be applicable.

79. The Tribunal having considered the averments made by the Appellant and the supporting documents is satisfied that the Tariff Ruling issued by the Respondent on 21st February 2019 fits the description of the decisions which an aggrieved party may seek a review under Section 229(1) and (2) of EACCMA.

80. In the case of Republic vs. Commissioner of Customs Services Ex-parte Unilever Kenya Limited (2012) eKLR, Justice Weldon Korir stated as thus:-“The Implication of the Respondent ‘s non-communication within the statutory period of 30 days is that the ex-parte applicant did not owe the taxes demanded by the demand notice 9th February 2011…The law as is it is presumes that by failing to communicate a decision by 16th April 2011 , the Respondent was telling the ex-parte applicant that its appeal against the tax demand contained in the notice dated 9th February had been allowed and the ex-parte applicant did not owe the respondent any tax in respect of that particular demand .”

81. In the same vein, in the instant Appeal, by failing to communicate a decision on the Appellant’s application for review dated 18th March 2019 within 30 days. i.e. by 17th April 2019, its application for review against the Respondent’s Tariff Ruling dated 21st February 2019 was deemed allowed and the Appellant did not owe the Respondent the tax demanded subject to that Ruling, as the Respondent shall be deemed to have made a decision to allow the application under Section 229 (5) of EACCMA.

82. The Tribunal is of the view that after the lapse of the statutory 30 days period, the Respondent had no power vested under the relevant statutory provisions to issue any further decision such as a demand or even review decision, as the Appellant’s application had been deemed allowed.

83. In light of the foregoing the Respondent’s demand notice dated 30th June 2021, as well as the review decision dated 18th August 2021 are void to the extent that they apply to the demand and confirmation of taxes specific to the subject C-Line consignment identified by Entry Number 2019MSA7125245, the same having been allowed by operation of the law.

84. In view of the foregoing, the Tribunal finds and holds that the Respondent’s review decision dated 18th August 2021 regarding the Appellant’s consignment subject of Entry Number 2019MSA7125245 imported from C-Lines SA was not validly issued.ii.Whether the Respondent was justified in classifying the Appellant’s imported consignment under the HS code 9406. 90. 90 instead of HS code 8436. 29. 00.

85. The thrust of the Appeal in respect of this second in issue crystallizes into two aspects namely;a.That the Respondent’s review decision dated 18th August 2021 breached the Appellant’s legitimate expectation in relation to the Big Dutchman consignments of entry numbers: - 2019MSA143141; 2019ICD146690; and 20191CD167253 by reneging on the position expressed in the Tariff Ruling dated 23rd January 2020 confirming consignment similar to Big Dutchman imported by the Appellant as classifiable under HS code 8436. 29. 00. b.That the consignments imported by the Appellant were correctly classifiable under Tariff HS code 8436. 29. 00 not 9406. 90. 90.

86. The Tribunal will proceed to consequently analyze the above referred twin matters in order to determine whether the Respondent’s classification was justified.a.On whether the Respondent breached the Appellant’s legitimate expectation.

87. The Appellant averred that the Respondent vide its letter dated 30th June 2021, included three consignments which had been referred to as “Big Dutchman consignments” identified by entry numbers 2019MSA143141; 2019ICD146690; and 2019ICD167253.

88. The Appellant in response made a second application for review via a letter dated 21st July 2021, in which it referred to, and annexed thereto a copy of the Tariff Ruling dated 23rd January 2020. In the said Tariff Ruling, while dealing with a consignment of a description similar to that of the “Big Dutchman”, the Respondent confirmed that such a consignment also belonging to the Appellant herein, was also classifiable under HS Code 8436. 29. 00. The Appellant averred that the consignment was described as “poultry equipment system for broiler breeder”, a description akin to the three Big Dutchman consignments, which were described as “complete poultry equipment for brooder houses + shipping container”.

89. The Appellant further avers that as a result of the Respondent’s Tariff Ruling, it relied on the said ruling and proceeded to import and declare its goods on the basis that the Respondent, having ruled that a similar consignment was classifiable under HS code 8436. 29. 00, then automatically the Big Dutchman consignments, with the same description, were classifiable under the same HS code.

90. The Appellant also submitted that the Respondent ought not to be allowed to deviate from its Ruling to the detriment of the Appellant, as the Tariff Ruling was an express promise to the Appellant which caused the Appellant to rely on it, and created a legitimate expectation in its favour.

91. In the case of Republic vs. Kenya Revenue Authority Ex-parte Mkopa Kenya Ltd [2018] eKLR the principle of legitimate expectation was expounded, where it was held as follows:-“…legitimate expectation is based on not only on ensuring that legitimate expectations by the parties are not thwarted, but on a higher public interest beneficial to all including the Respondents, which is, the value or the need of holding authorities to promises and practices they have made and acted on and by ding so upholding responsible public administration. This in turn enables people affected by such promises to plan their lives with a sense of certainty, trust, reasonableness, and reasonable expectation. An abrupt change as was intended in this case, targeted at a particular company or industry is certainly abuse of power.Simply stated, legitimate expectation arises for example where a member of the public as a result of a promise or other conduct expects that he will be treated in one way and the public body wishes to treat him or her in a different way. …Public authorities must be held to their promises and practices by the courts and the only exception is where a public authority has a sufficient overriding interest to justify a departure from what has previously been promised …In order to ascertain whether or not the respondents decision and the intended action is an abuse of power, the court has taken a fairly broad view of the major factors such as the abruptness , arbitrariness, oppressiveness and the quantum of the amount of tax imposed retrospectively and its potential to irretrievably ruin the applicant. All these are traits of abuse of power. Thus, I hold that the frustration of the applicant’s legitimate expectation based on the application of the tariff amounts to abuse of power.”

92. In the case of Ecobank Kenya Ltd vs. Commissioner of Domestic Taxes (2012) eKLR, the High Court also pointed out the need for the Respondent to administer tax laws in a fair and predictable manner as follows:-“…The Appellant and other business people have a right of certainty and predictability in the applicability of conduct, rules, policies, and procedures which underlie the proper regulation of economic activities. This right necessarily militates against policies, regulations and procedures which are haphazardly resorted to by public regulatory bodies without adequate notice to those whose conduct or behavior is to be regulated. In an environment of business, that certainty and predictability is so crucial that to deny the same amounts to a denial of an economic right. Now, when such haphazard regulation affects a citizen‘s income, the effect will be felt well beyond the comfort or discomfort of the two parties before the court. It is an issue which a court of law must tread carefully, and where possible, restore the rights of the Appellant and to reduce, as far as possible, the cascading negative impacts on all the parties associated with that income”.

93. The Tribunal is satisfied that the Respondent vide its Tariff Ruling contained in the letter dated 23rd January 2020, held the position that the Tariff Classification for poultry equipment system/Broiler breeders is the HS code 8436. 29. 00 in accordance with the General Rules of Interpretation. This then by extension afforded the Appellant a promise from the Respondent that its future similar imported consignments, will be classified similarly.

94. The Appellant thus had a right to expect predictability and certainty from the Respondent in the application of the said classification policy going forward. In essence, legitimate expectation was established.

95. By reason of the foregoing, the Tribunal is satisfied that legitimate expectation was created by the Respondent vide its letter to the Appellant dated 23rd January 2020, and the Respondent thus breached the Appellant’s right to that legitimate expectation when it fell back on its promise and in the review decision dated 18th August 2021, then purporting to reclassify the Appellant’s subject consignments under HS code 9406. 90. 90.

96. In light of the foregoing, the Tribunal finds and holds that the Respondent breached the Appellant’s right to legitimate expectation by classifying the Appellant’s imported consignments Entry Numbers :2019MSA143141; 2019ICD146690; and 2019ICD167253, under Hs code 9406. 90. 90, whilst the Appellant had classified and entered the consignments under tariff code 8436. 29. 00 based on the legitimate expectation created and made through the Respondent’s Tariff Ruling dated 23rd January 2020. b.On whether the consignments imported by the Appellant were correctly classifiable under tariff HS code 8436. 29. 00 or 9406. 90. 90.

97. The Appellant has averred that the Respondent fundamentally erred in law and fact by stating that the subject three imported consignments were classifiable under Tariff Code 9406. 90. 90.

98. The underlaying stratum of this issue hinges around whether the consignments in question consists of “poultry keeping equipment and brooders” provided for under tariff code 8436. 29. 00 or “prefabricated houses” provided for under Tariff Code “9406. 90. 90. ”

99. In its Statement of Facts, the Respondent did not provide re-classification, however in the review decision dated 18th August 2021, it stated that the sole reason for its reclassification is that under the Explanatory Note to Heading 94. 06, the heading states that prefabricated buildings may or may not be equipped.

100. To ascertain the tariff code applicable to particular goods, one has to look at the General Interpretation Rules for classification of goods which sets out the principles of interpretation in conjunction with the various chapters, describing the goods in totality. In this regard, in seeking to classify goods under a correct tariff code one must apply the General Rules of Interpretation of the Harmonized System, which provides the Common External Tariff, 2017, in totality.

101. Rule 1 (1) of the General Rules for the Interpretation of the Harmonized System provides as follows:-“The titles of sections, chapters and sub-chapters are provided for ease of reference only; For legal purposes, classification shall be determined according to the terms of the headings and any relative section, or chapter notes and, provided such headings or notes do not otherwise require, according to the following provisions”.

102. The Appellant averred the Heading of Tariff code 8436. 29 best fits the description of the consignment i.e. “Poultry keeping”, as the consignment falls squarely under this Heading as the Appellant’s consignments are strictly for chicken rearing.

103. The interpretation rules provide that in seeking to classify goods, one must look at the most concise heading that most accurately describes the goods. The Rules therefore calls for one to look at the headings and chose the most concise.

104. The Appellant has averred that it imported poultry keeping machinery and that the structure imported to house the poultry are brooders and function to ensure optimum atmospheric conditions for the growth of poultry, which the Respondent has sought to classify under HS code 9406. 90. 90 as pre-fabricated houses.

105. The Appellant submitted that Tariff Code 8436. 29 makes reference to “poultry equipment and brooders”, unlike Tariff 9406. 90 which gives a rather general description of prefabricated houses;c.Heading 84. 36:“Other agricultural, horticultural, forestry, poultry keeping or bee-keeping machinery, including germination plants fitted with mechanical or thermal equipment; poultry incubators and brooders.”d.Heading 94. 06:“Prefabricated buildings.”

106. The Appellant adduced photographic representations of the consignments demonstrating that the same was meant for purposes of poultry keeping, and submitted that the poultry keeping equipment consisted of feeding troughs, feeding chains, safeguard for feed chain drives, chain tensioner and other machinery to enable operation of the feed chain. The poultry keeping equipment was imported and presented in disassembled form.

107. On the other hand, the Respondent has submitted that the Appellant imported a prefabricated structure/building for the purpose of rearing chicken which were delivered complete with ancillary equipment.

108. The Respondent further submitted that Note 4 to Chapter 94 states that;“For the purpose of heading 94. 06, the expression “prefabricated buildings” means buildings which are finished in the factory or put up as elements, presented together, to be assembled on site, such as housing or worksite accommodation, offices, schools, shops, sheds, garages, or similar buildings.”

109. The Respondent further submitted that Chapter 94 covers;“furniture, bedding, mattresses, mattress supports, cushions and similar stuffed- furnishings; lamps and lighting fittings, not elsewhere specified or included, illuminated signs, illuminated name plates and the like; prefabricated buildings”.

110. The Respondent asserted that from the foregoing and in application of the GIR Rule 1; on the most specific description. Rule 2; on the essential character of the article; and Rule 3; On the heading that occurs last, the most appropriate classification for the poultry keeping structure is HS 9406. 90. 90.

111. The Tribunal takes note of GIR 2 (a) which provides as follows:-“Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall be taken to include a reference to that article complete or finished (or failing to be presented as complete or finished by virtue of this Rule) presented unassembled or disassembled.”

112. Also, reference is made to Note (ii) to Tariff code 8436. 29, which provide as follows;(ii)Poultry Keeping Machines, Incubatorsand Brooders; these include –A.Incubators; These machines are fitted with devices permitting eggs, placed in trays, to be automatically turned in an atmosphere where temperature, air flow and air humidity conditions can be controlled. They may work in conjunction with a control system which may be linked to a personal ADP machine in order to optimize the incubation result. Some incubators, known as combi-incubators, incorporate hatcher functions.B.Hatchers. In these machines which incorporate devices for controlled heating and air circulation, the eggs are placed in baskets or special trays for hatching.C.Brooders. These are large appliances with heating and cooling devices, used for rearing young chicks.D.Rearing and laying units or “batteries”. These are large installations equipped with automatic devices for filling feeding troughs, cleaning the floors, and collecting the eggs.E.Egg candlers (or testers) with mechanical features (including photo -electric testers), other than static testing lamps. Those fitted with a sorting or grading mechanism are excluded.F.Sexing and vaccination equipment, enabling hatcheries to separate chicks of different sex and to vaccinate them”.

113. The Tribunal opines that based on the foregoing guidance, the supplier’s invoices descriptions, the photographic evidence produced, and the witness testimony of Mr. Duncan Kamiti, the imported equipment fits the description of poultry keeping machinery, rather than pre-fabricated housing as the Respondent has sought to classify the same. Imputing that it can be put to myriads of other uses, which is not practicable given the assortment of ancillary machinery and equipment appended to the housing unit, are all allied to poultry keeping.

114. The Tribunal is therefore satisfied that the Appellant’s imported equipment are concisely, poultry keeping machinery, and cannot be houses used for human dwelling, as per the proposition made by the Respondent. Tariff Code 8436. 29 which is allied with poultry keeping machinery and brooders gives the most concise and specific description of the goods and is more akin to the goods as described in the individual tariff.

115. Regard must also be given to the purpose for which the consignment is imported. in this case, the goods were imported for purpose of poultry keeping, which is in line with the terms of the Heading 84. 36 which covers “…poultry keeping or bee keeping machinery”.

116. In the case of Proctor & Allan (EA) Ltd vs. Commissioner of Income Tax [2014] eKLR, the Court held as thus:-“…the court had little choice but to look at the intended purpose of the vitamin premix with a view to establishing whether it had been classified under the correct heading. The court finds the purpose of the vitamin premix was to fortify or improve the vitamin characteristics of the unimix, there was no justification or basis which would have required the Respondent to have reclassified the vitamin premix as had been contended by the Appellant. It was irrespective of whether or not the respondent could analyze and identify the vitamins”.

117. In view of the case law above, the Tribunal is of the considered view that the description of the Appellant’s imported consignment, and the functionality thereof and the purpose of the importation having been disclosed, the same fits within the terms of the Heading 84. 36 and more particularly under the HS code 8436. 29. 00.

118. In light of the foregoing the Tribunal determines that the Appellant’s imported consignment was correctly classified under the HS code 8436. 29. 00.

119. The Tribunal having found and determined in favour of the Appellant in the issues arising herein, holds that the Respondent was not justified in classifying the Appellant’s imported consignments under HS code 9406. 90. 90, instead of 8436. 29. 00.

Final Decision 120. The upshot of the foregoing is that the Appeal is found to have merit 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 18th August 2021 and all the consequential demands therefrom be and are hereby set aside.c.The parties to bear their own costs.

121. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 24TH DAY OF NOVEMBER, 2023ROBERT M. MUTUMA - CHAIRPERSONMUTISO MAKAU - MEMBERELISHAH N. NJERU - MEMBERBONFACE K. TERER - MEMBERDR WALTER J. ONGETI - MEMBER