[2024] KETAT 46 (KLR)

Kenya Biologics Limited v Commissioner of Customs & Border Control (Tax Appeal 1274 of 2022) [2024] KETAT 46 (KLR) (26 January 2024) (Judgment)

Neutral citation: [2024] KETAT 46 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1274 of 2022

Grace Mukuha, Chair, G Ogaga, E Komolo, Jephthah Njagi & T Vikiru, Members

January 26, 2024

Between

Kenya Biologics Limited

Appellant

and

Commissioner Of Customs & Border Control

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya under the Companies Act. The Appellant's principal activity is marketing and distribution of fertilizers and crop protection products.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and KRA is charged with the responsibility of among others, assessment, collection, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. The dispute arose from a desk review conducted by the Respondent on import entries of the Appellant for the period July 2016 which revealed instances of use of wrong tariff classification on some of the Appellant’s imports particularly micronutrient preparations and Tutrack sticky papers.

4. According to the Respondent, the audit revealed that the Appellant classified the micronutrient preparations and Tutrack sticky papers under Heading 31. 05 and 38. 08 instead of 38. 24 and 39. 19/48. 11, respectively.

5. The Appellant objected to the findings vide its letter dated 25th February 2022 in support of its use of the declared tariff codes contrary to the Respondent’s assertions.

6. The Respondent issued its review decision on 15th March 2022 after taking into consideration the Appellant’s objection and consequently revised the assessment from Kshs. 16,119,665. 00 to Kshs. 5,239,264. 00

7. The Appellant aggrieved by the Respondent’s review decision filed the instant Appeal on 29th September 2022.

The Appeal 8. The Appeal is premised on the following grounds stated in the Memorandum of Appeal dated 24th October 2022 and filed on 28th October 2022:-i.That the Respondent erred in law and in fact by finding that the Appellant’s imports, which were classified as fertilizers under Chapter 31 ought to have been declared under Chapter 38 as micro-nutrients.ii.That the Respondent erred in law and in fact by failing to give any due consideration to the evidence by the manufacturer of the products which provided the identity, description and use of the Appellant’s products as ‘fertilizer’ and the applicable HS codes.iii.That the Respondent erred in law and in fact by subjecting the statutorily exempted supplies to a VAT liability of Kshs. 5,239,263. 00. This is a contravention of the First Schedule of the VAT Act, which declares fertilizer as exempt.iv.That the Respondent erred in law and in fact by making an unjustified assumption that the Appellant’s products had a ‘small amount’ of nitrogen, phosphorus or potassium without any laboratory analysis of the Appellant’s products.v.That the Respondent erred in law and in fact by finding that the Appellant’s imports, which have a nitrogenous element, should be classified under Heading 31. 02 (mineral and chemical fertilizers, nitrogenous) but ought to be classified under Heading 38. 24 (prepared foundry moulds or cores; chemical products and preparation of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included).vi.That the Respondent erred in law by failing to apply the General Interpretation Rules for the classification of goods (GIR). Specifically, the Respondent contravened the rules by:-a.Failing to examine the language of the tariff heading of Chapter 31 against the products in question;b.Failing to examine chapter notes and section notes to establish the products in question were not expressly excluded from Chapter 31. c.Failing to determine that subheadings applied by the Appellant 3102. 99. 90 and 3105. 99. 90 provided the most specific description of the goods.vii.That the Respondent erred in law and in fact by failing to appreciate that the preferred subheading, 38. 24 is a residual heading. The chapter notes and wording of the subheading have expressly indicated that it caters for goods not elsewhere specified.viii.That the Respondent being an administrative body exercising quasi-judicial authority by reaching a decision that is manifestly wrong was in gross violation of the Appellant’s Constitutional right to fair administrative action.

Appellant’s Case 9. The Appellant’s case is premised on:-a.The Appellant’s Statement of Facts dated 24th October 2022b.The Appellant’s Submissions dated 13th June 2023 and filed on 16th June 2023 together with the documents attached thereto.

10. The Appellant averred that at all material times, it is trite that the tariff classification ought to be based on the sample imported and the information available in relation to the said sample.

11. The Appellant maintained and demonstrated that for all intents and purposes, the products in question are used and described as ‘fertilizers’ as demonstrated by the certificate of analysis dated 7th March 2022 from the manufacturer of the products, Futureco, Bioscience, expressly indicates the elements composition of each fertilizer.

12. The Appellant averred that without a doubt, each of the products contains nitrogen and amino acids as elements. That according to Robert W Howarth, in reference Module in Earth Systems and Environmental Sciences, 2021, nitrogen is in all amino acids. These elements play a nutritional role in plants as they are readily absorbed, transported, and utilized as a source of nitrogen and carbon for plants.

13. The Appellant asserted that in addition to the above nutritional role, the fertilizers in question are not used to improve the condition of soil but play multiple roles in:-i.Uptake and assimilation of nutrientsii.Plant signalingiii.Stimulating plant metabolism immediately; andiv.Although primarily serving as nutrients for the plant, specific amino acids can play additional roles as bio stimulants.

14. The Appellant stated that to confirm the manufacturer’s identity of the products, the Safety Data Sheet by the manufacturer has identified the uses of the above products as ‘fertilizers’. That in light thereof, the Respondent’s assertion that the products are ‘micronutrients preparations applied to seed or to soil to assist in seed germination and plant growth' is erroneous and unfounded as it is contrary to the manufacturer’s product label description which expressly lists the products as fertilizers and indicates the use is that of ‘fertilizers’ and not ‘micronutrient correctors’.

15. The Appellant averred that it is noteworthy that no laboratory analysis was conducted by the Respondent on the above products. As such, the Respondent did not satisfy itself of the chemical composition of the product, and the HS Code classification. Consequently, there was no merited consideration to classify the Appellant’s fertilizers as micronutrients.

16. The Appellant averred that there is only one main issue of determination in this Appeal which is whether the imported products were rightly classified under Chapter 31.

17. The Appellant explained that the classification of goods by dint of Section 4 (1) of the East Africa Community Customs Management Act (EACCMA) provides that: -“the Directorate shall, in relation to management and administration of customs, coordinate and monitor (a) administration of common external tariff.”

18. The Appellant averred that the classification of goods in the East African Community is done pursuant to the East Africa Community Common External Tariff hereinafter, (CET or the HS code). That the classification under the Harmonized System is done in line with the General Interpretation Rules hereinafter, GIR.

19. To properly arrive at the correct classification, the Appellant averred that one must be guided by the terms of the heading, the notes applicable, the chapter subheadings read against the GIR. That the GIR ought to be applied sequentially, in a hierarchal order, from the first to the last of the six (6) rules.

20. The Appellant averred that the products Vigoral Mol Vitalem Forte, FitoMaat, Bioradicante, Golden Fer and Defender Ca hereinafter, (‘the products’), are all fertilizers.

21. The Appellant asserted that the physical characteristic of the product has been defined as fertilizers by Futureco Bioscience, the products Manufacturer, through a certificate of conformity and certificate of analysis made available by the Appellant.

22. The Appellant averred that Chapter 31 of the HS Code provides for ‘fertilisers’. The provision of Rule 1 of the GIR provides: -“the titles of sections, chapters and sub-chapters are provided for ease 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 for not otherwise require, according to the following provisions.”

23. The Appellant stated that without prejudice to the above arguments, it draws the attention of the Tribunal to provision in Rule 2 (b) of the GIR of the Harmonized System which provides as follows: -“Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of Rule 3. ”

24. It was the Appellant’s position that the products are organic fertilizers and are the final product as per the details provided by the manufacturer on the preparation process. Rule 2 (b) is therefore applicable to the products in issue.

25. The Appellant stated further that Rule 3 as referred above provides as follows;“When by application of Rule 2 (b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows;a.The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.b.Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3 (a), shall be classified as they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.c.When goods cannot be classified by reference to 3 (a) or 3 (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration”

26. The Appellant submitted that with respect to Rule 3 as above mentioned, the reading of Rule 3 (a) the heading that provides the most specific and preferred description is Chapter 31 and the Appellant reiterated the same based on the product description from the manufacturer and the product use as outlined by the Appellant.

27. The Appellant posited that without prejudice to the above argument, should Rule 3 (a) not be applicable then Rule 3 (b) also be provided a justifiable basis for the classification. The Appellant submitted that the fact that the products in dispute are organic fertilizer the presence of low nitrogen, phosphorous and potassium give the product its essential character as an organic fertilizer.

28. The Appellant emphasised that it is important to note that Chapter 31 is silent as to levels of nitrogen, phosphorous or potassium. As such, the level of the elements is not the key to determinant of the products that fall under the said classification.

29. The Appellant in support of the above argument sought to reiterate that it is well founded by way of scientific research that the organic fertilizers have inherently lower nitrogen, phosphorous and potassium concentration as compared to chemical-based fertilizers.

30. The Appellant stated that the Respondent averred that the products are micronutrients as they contain small amounts of fertilizing elements – nitrogen, phosphorous and potassium – but not as essential constituents. As such, it classified the products under Hs Code 38. 24. 99. 90.

31. The Appellant contended that surprisingly, the Respondent concluded that the products had small amounts of nitrogen and made an assessment on the said basis, without conducting any laboratory analysis.

32. At the onset, the Appellant prayed that the Tribunal holds that in the absence of any laboratory testing by the Respondent, any decision based on the chemical composition of the Appellant’s product is arbitrary and unjustified.

33. The Appellant submitted that with reference to the nature of the products, the classification of the products under Heading 38. 24 is misinformed and made without due regard to the provisions of the General Rules for the interpretation of the Harmonized system.

34. In addition, the Appellant relied on the decision of this Honourable Tribunal in the case of Lachlan Kenya Limited verses Commissioner of Customs and Border Control where in the Tribunal observed that the Heading 38. 24 is a residual heading which covers “prepared binders for foundry moulds or cores; chemical products and preparations of chemical or allied industries (including those consisting mixtures of natural products), not elsewhere specified or included”. It is the Appellant’s position that the products in dispute fall under the interpretation or rules 1,2b,3a, and 3b and such are properly placed under chapter 31 classification without need to refer to the residual heading (chapter 38. 24)”

35. The Appellant further averred that in the above case, the Tribunal also expressed itself in the same decision to the effect stating that “the Respondent erred by purporting to classify the product under the rule 3c when it can correctly be classified under rule 3 (a) and 3 (b). The Tribunal made the finding that the Respondent in the case erred in classifying Nitro zinc under HS code 3824. 99. 00 and therefore the Appeal had merit and succeeded.

36. The Appellant stated that to further emphasize the above argument the decision in Lachlan Kenya Limited verses Commissioner of Customs and Border control provided that residual Heading 38. 24 can only be used where the goods are not specified elsewhere and thus if the product matches the description of Chapter 31 then they are not excluded.

37. The Appellant averred that having established that the products in dispute are defined as fertilizers as per the manufacturer’s description of the product and are used as fertilizers as per the users provided by the Appellant on the products, it was therefore the Appellant’s position that the chapter heading that provides the most specific description of the products in dispute is chapter31 as the wording of the title of the Chapter is ‘Fertilizer’.

38. As such, the Appellant submitted that should Rules 1, 2 (b) and 3 (b) be inapplicable in the product interpretation then Rule 4 which provides as follows can be used a basis of classification; “Goods which cannot be classified in accordance with the above Rules shall be classified under the heading appropriate to the goods to which they are most akin.”

39. The Appellant submitted that nothing in Chapter 38 relates to or refers in language, use or functionality, description of the Appellant’s products. That the classification is against the holding in the case of Cape Brandy Syndicate Vs Inland Revenue of Commissioner [1921] 1 KB where it was held;“In a Taxing Act, one has to look merely at what is stated. There is no room for any intendment. There is no equity about tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can look fairly at the language used.”

40. The Appellant drew the attention of the Tribunal to the language of the residual heading, where the products are primarily chemical based products that have no discernible correlation with the Appellant’s products, which are organic fertilizer.

41. To the above, the Appellant noted that the heading of the chapter as miscellaneous chemical products is a description that is not befitting the Appellant’s products.

42. The Appellant submitted further that without prejudice to the above argument, that organic fertilizers are said to have lower nitrogen, phosphorous and potassium concentration as compared to chemical-based fertilizers.

43. The Appellant sought to rely on the research titled Organic fertilizers as a route to controlled release of nutrients by Hitha Shaji and LinMathew that supports this argument.

44. The Appellant submitted that with respect to the above argument, the fact that the products in dispute have low amounts of nitrogen, phosphorous and potassium concentration does not justify them being classifiable under Chapter 38 which is a residual heading applicable where products in question are (“not elsewhere specified”). It is also generally agreed based on research that the organic fertilizers have lower nitrogen, phosphorous and potassium concentration. That this does not disqualify them from being fertilizers, as the Respondent averred.

45. It was the Appellant’s position that micronutrient preparation as opposed to fertilizers are meant to provide plants with elements they lack and are used to correct or prevent micronutrient deficiencies. The Appellant quoted a research that support this argument.

46. Further the Appellant submitted that the products in dispute do not improve the condition of soil which has deficiencies.

47. It was therefore the Appellant’s submission that the products by dint of their natural composition, cannot fall under Chapter 38 as they are indeed organic fertilizers and therefore classifiable under Chapter 31.

48. The Appellant submitted that it had been declaring its said obligations and planning its taxes based on the feedback given by the Respondent over the course of more than Five (5) years.

49. The Appellant stated that it did not conceal or knowingly mis-declare the products to avoid its tax obligations. It was therefore the Appellant’s position that the Respondent had created a legitimate expectation on the Appellant to the effect that its goods were exempted from VAT in accordance with the First Schedule to the VAT Act.

50. The Appellant implored the Tribunal to note that the interest levied against it is equal to the tax assessed. The total VAT obligation is Kshs. 5,239,262. 02 wherein Kshs. 2,619,631. 51 is VAT and an equal amount- of Kshs. 2,619,631. 51 is the interest.

51. It was the Appellant’s submission that the imposition of high interest liability should be frowned upon. The Appellant relied on the case of Kenya Revenue Authority v Universal Corporation Ltd [2020] Eklr which cited the case of Pharmaceutical manufacturing and 3 others v KRA and others v KRA and 2 Others [2014] Ekrl the Court stated; -“However, where the taxing authority goes to sleep and as a result lulls the taxpayer into a false sense of security that the taxes in question would not be demanded, as a result of which the tax payer loses recourse which would have been legally available to it had the tax been demanded promptly, it may well be unfair and unjust for the demand to be sustained.”

52. The Appellant therefore submitted that as the Respondent had failed to administratively capture the alleged applicable code in good time, the Respondent should be estopped from levying interest as held by this Tribunal in the case of TAT No. 11 of the 2021 Jumbo Steel Mills Limited versus Commissioner of Customs & Border Control.

53. The Appellant stated that it was cognizant that the Rule 1 of the General Interpretative Rules of interpretation of the Harmonized System provides that:-“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;

54. That for the reason that the products contain mixtures of various elements, the Appellant relied on guidance from Rule 2 (b) which states that: -“Any reference to a heading or substance shall be taken to include a reference to mixtures or combination of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principle of Rule 3. ”

55. Further, the Appellant noted that Rule 3 referred to above provides that:-“When by application of Rule 2 (b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:(a)The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.(b)Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3 (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.(c)When the goods cannot be classified by reference to 3 (a) or 3 (b), they shall be classified under the heading which occurs last in numerical order among those which merit consideration.”

56. That by dint of Rules 1, 2 (b), 3 (a) cited above, the Appellant maintained the position that: -a.The most specific and preferred description of the nitrogenous fertilizers is Chapter 31;b.The Appellant’s products are not excluded by the Chapter 31 Notes,c.All the fertilizers have a nitrogenous element; chapter 31. 02 (Mineral or Chemical fertilizers, nitrogenous) provides the most specific description.d.As the products contain other elements not defined, subheading 3102. 90. 00 – (Other, including mixtures not specified in the foregoing subheadings) provides the most specific description.

57. Without prejudice to the application of Rules 1, 2, (b), 3 (a) the Appellant invoked Rule 4 which provides: -‘Goods which cannot be classified in accordance with the above Rules shall be classified under the heading appropriate to the goods to which they are most akin.’

58. The Appellant averred that the Respondent’s classification of the above products as micronutrients is akin to stating that they do not have nitrogen as a fertilizing element, which is factually incorrect.

59. The Appellant stated that it respectfully disputed the Respondent’s decision to classify the products to Chapter 38 titled ‘miscellaneous Chemical products’ for the following reasons: -a.The Chapter heading is not the specific description of the Appellant’s products, which are fertilizers. This, is foremost in the contravention of Rule 1 of GIR. The Appellant’s imports are not micronutrients as they have fertilizing element, Nitrogen classified under chapter 31. b.The chapter Notes to Chapter 38 expressly state that the subheading 38. 24 does not apply to separate chemically defined elements or compounds, to mean it is a residual subheading. The Appellant’s products (Nitrogenous fertilizers) have been defined under the chapter 31 and as such, they do not fall under this category.c.Secondly, the preferred sub-heading 38. 24 (prepared binders for foundry moulds or cores; chemical products and preparation of the of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included; contravenes Rule 1 and Rule 3 of the GIR as it does not give the most specific description or goods akin to the Appellant’s products.d.To buttress, the wording of the above subheading is clear that it should only be referenced in the event the goods are not specified or included elsewhere. The Appellant’s goods are perfectly provided for under subheading 3102. 90. 00. e.Moreover, on purely interpretative basis, it is worth noting that nothing in Chapter 38 relates or refers in language, use or functionality, description of the Appellant’s products. Therefore, to subject the Appellant’s products under this chapter would be against the holding of the case of Cape Brandy Syndicate Vs Inland Revenue Of Commissioner {1921} 1KB 64 where it was held; -‘In a Taxing Act, one has to look merely at what is clearly stated. There is no room for any intendment. There is no equity about tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.

60. Additionally, the Appellant relied on and associated fully with the Judgment delivered on 1st April 2021 by this Tribunal in the case of Lachlan Kenya Limited verse Commissioner of Customs and Border Control wherein the Tribunal observed: -“Paragraph 68- The Respondent argued that the product (Nitro Zinc-own emphasis) was classifiable in Chapter 31 and Chapter38 and therefore pursuant to GIR 3 (c), it was classifiable under Chapter 38 because it occurs last in numerical order among those which equally merit consideration.Paragraph 69- The heading 38. 24 is a residual heading which covers prepared binders for foundry moulds or cores; chemical products and preparations of chemical or allied industries (including those consisting mixtures of natural products), not elsewhere specified or included.Paragraph 70- The tribunal was of the view that even if the product was potentially classifiable in two headings, then it could not be classified under heading 38. 24 on the basis of GIR 3 (c) because it would have been specified elsewhere. …..Furthermore, fertilizers themselves are specified in Chapter 31. Paragraph 74- Based on the foregoing, The Tribunal made the finding that the Respondent erred in classifying Nitro Zinc under HS 3824. 99. 00 and therefore the Appeal has merit and succeeds.”

61. Without prejudice to the above arguments, the Appellant prayed that the Tribunal takes judicial notice of the interest levied against it of Kshs. 2,619,631. 51 which amount is equal to the principal VAT demanded.

62. The Appellant averred that Article 47 of the Constitution as well as Section 4 (1) of the Fair Administrative Actions Act, 2015 provide that: -‘every person has the right to administrative action which is expeditious, efficient, lawful, reasonable and procedurally fair…’

63. The Appellant averred that the Respondent’s quest to impose an interest liability so high and punitive against the Appellant should be frowned by this Honourable Tribunal. The Appellant relied on the case of Republic v Kenya Revenue Authority Ex Parte Cooper K- Brands Limited [2016] Eklr where Odunga J. stated; -“However, where the taxing authority goes to sleep and as a result lulls the taxpayer into a false sense of security that the taxes in question would not be demanded, as a result of which the taxpayer loses recourse which would have been legally available to it had the tax been demanded promptly, it may be well unfair and unjust for the demand to be sustained.

64. The Appellant asserted that the Respondent having failed to administratively capture the alleged applicable tariff code in good time, should be estopped from levying any interest as held by this Honourable Tribunal in the case of TAT No. 11 of 2021 Jumbo Steel Mills Limited versus Commission of Customs & Border Control.

Appellant’s Prayers 65. In light of the above, the Appellant prayed that this Honourable Tribunal makes the following orders; -a.That this Appeal be allowed as prayed;b.That the Commissioner erred by re-classifying the products under HS Codes; 3824. 99. 90, that the Tribunal be pleased to find and declare that the products are fertilizers and classifiable under Chapter 31c.That the Respondent’s demand of Kshs. 5,223,479. 00 inclusive of interest be vacated;d.The costs of the Appeal be awarded to the Appellant.

Respondent’s Case 66. The Respondent’s case is premised on the hereunder filed documents:-a.The Respondent’s Statement of Facts dated 2nd November 2022 and filed on 2nd December 2022. b.The Respondent’s Written Submissions dated 18th July 2023 and filed on 19th July 2023.

67. The Respondent averred that the dispute arose from a desk review of import entries of the Appellant for the period July 2016 which revealed instances of use of wrong tariff classification on some of the Appellant’s imports particularly micronutrient preparations and Tutrack sticky papers

68. The Respondent submitted that the Appellant classified the micronutrient preparations and Tutrack sticky papers under Heading 31. 05 and 38. 08 instead of 38. 24 and 39. 19/48. 11, respectively.

69. The Respondent stated that the Appellant objected to the findings vide its letter dated 25th February 2022 in support of its use of the declared tariff codes contrary to the Respondent’s assertions.

70. The Respondent averred that it issued its review decision on 15th March 2022 after taking into consideration the Appellant’s objection and consequently revised the assessment from Kshs. 16,119,665. 00 to Kshs. 5,239,269. 00.

71. The Respondent listed the following issues for determination by this Tribunal: -a.Whether the Appellant’s imports which it classified as fertilizers under Chapter 31 ought to have been declared under Chapter 38 as micro nutrientsb.Whether the identity description and use is that of a fertilizer as declared by the Appellantc.Whether the imports are VAT exempt

72. The Respondent stated that to prove that the Appellant’s imports were wrongly classified under Heading 31. 05 and 38. 08 it sought to entirely rely on the classification of goods in the common external tariff of the East African Community together with the General Interpretation Rules for the classification of goods read together with the World Customs Organization’s harmonized commodity description and coding system explanatory notes which are the official interpretation of the harmonised systems at international level.

73. The Respondent averred that the description, identity and use of the product cannot be categorized as fertilizer under Heading 31. 05 and 38. 08.

74. The Respondent averred that the imports are not VAT exempt supplies as claimed by the Appellant.

Respondent’s prayers 75. The Respondent prayed that this Honourable Tribunal: -a.Finds that this Appeal lacks merit and the same be dismissed with costsb.Upholds the Respondent’s review decision dated 15th March 2022

Issue for Determination. 76. After perusing the pleadings and documentation produced before it, the Tribunal is of the view that the following is the main issue for determination: -

Whether the Respondent erred in classifying the Nitrozinc fertilizer under HS Code 38. 24 Analysis And Findings 77. Having identified the issue that calls for its determination, Tribunal proceeded to analyse it as hereunder.

78. The gist of the dispute was that the Appellant classified the goods at Heading 31. 02. 90 while the Respondent classified them at Heading 38. 24 and specifically 3824. 90. 00. There was no dispute that the product is used in agriculture to enhance soil fertility. Chapter 31 of the HS covers fertilizers while 38 covers miscellaneous chemicals.

79. In determining the applicable HS Code, the Tribunal was guided by the General Rules of Interpretation of the Harmonized Code reproduced as hereunder:-“General Rules for The Interpretation of The Harmonized SystemClassification of goods in the Nomenclature shall be governed by the following principles:1. The titles of Sections, Chapters and sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions :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.(b)Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of Rule 3. 3.When by application of Rule 2 (b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:(a)The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.(b)Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3 (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.(c)When goods cannot be classified by reference to 3 (a) or 3 (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.4. Goods which cannot be classified in accordance with the above Rules shall be classified under the heading appropriate to the goods to which they are most akin.5. In addition to the foregoing provisions, the following Rules shall apply in respect of the goods referred to therein:(a)Camera cases, musical instrument cases, gun cases, drawing instrument cases, necklace cases and similar containers, specially shaped or fitted to contain a specific article or set of articles, suitable for long-term use and presented with the articles for which they are intended, shall be classified with such articles when of a kind normally sold therewith. This Rule does not, however, apply to containers which give the whole its essential character;(b)Subject to the provisions of Rule 5 (a) above, packing materials and packing containers presented with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision is not binding when such packing materials or packing containers are clearly suitable for repetitive use.6. 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 at the same level are comparable. For the purposes of this Rule the relative Section and Chapter Notes also apply, unless the context otherwise requires.”

80. The Respondent argued that the product by its description could not be categorized as fertilizer under Heading 31. 05

81. The Tribunal notes that Heading 38. 24 is a residual heading which covers prepared binders for foundry moulds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified, or included.

82. The Tribunal was of the view that pursuant to GIR 1, GIR 2(b) and GIR (6), the product was classifiable under Chapter 31 as a fertilizer and specifically Heading 31. 02. Note 2 to Chapter 31 provides that: -“Heading 3102 applies only to the following goods, provided that they are not put up in the forms or packages described in heading 3105:(a)goods which answer to one or other of the descriptions given below:(1)sodium nitrate, whether or not pure;(2)ammonium nitrate, whether or not pure;(3)double salts, whether or not pure, of ammonium sulphate and ammonium nitrate;(4)ammonium sulphate, whether or not pure;(5)double salts (whether or not pure) or mixtures of calcium nitrate and ammonium nitrate;(6)double salts (whether or not pure) or mixtures of calcium nitrate and magnesium nitrate;(7)calcium cyanamide, whether or not pure or treated with oil;(8)urea, whether or not pure;(b)fertilisers consisting of any of the goods described in (a) above mixed together; (c) fertilisers consisting of ammonium chloride or of any of the goods described in (a) or (b) above mixed with chalk, gypsum or other inorganic non-fertilising substances;(d)liquid fertilisers consisting of the goods of subparagraph (a)(2) or (8) above, or of mixtures of those goods, in an aqueous or ammoniacal solution.”

83. Heading 3105 states that: -“For the purposes of heading 3105, the term ‘other fertilisers’ applies only to products of a kind used as fertilisers and containing, as an essential constituent, at least one of the fertilising elements nitrogen, phosphorus or potassium.”

84. The Tribunal notes that Respondent in its pleadings did not support its position with either relevant provisions of the law or material to persuade the Tribunal that its re-classification of the product was justified.

85. The Tribunal was guided by its holding in TAT 590 of 2022 Western Seed Company Limited vs. the Commissioner of Customs and Border Control where it held at Paragraph 90 that:-“The Tribunal was of the considered view that even if the product was potentially classifiable in two headings, then it could not be classified under Heading 3824 on the basis of GIR 3(c) because it would have been specified elsewhere. Furthermore, nitrogen and phosphates, which form the bulk of the content of the product as per both parties’ pleadings, are covered under Chapter 28 while sulphur is specified in Chapter 25. Furthermore, fertilizers themselves are specified in Chapter 31. ”

86. Based on the material provided by the Appellant in support of classification of its import as fertilizer under Heading 31, specifically 31. 02 and 31. 05 and in the absence of compelling arguments to the contrary by the Respondent, there is clearly no basis for re-classification of the imports under HS 38. 24.

87. The Tribunal reiterates its finding in Lachlan Kenya Limited Vs Commissioner of Customs & Border Control TAT 160 of 2019 and holds that the Respondent erred in classifying the Appellant’s imports under HS Code 38. 24. 99. 90 and therefore the Appeal has merit and must succeed.

Final Decision 88. The upshot of the foregoing is that the Appeal is meritorious and the Tribunal consequently makes the following Orders:-a.The Appeal be and is hereby allowed.b.The Commissioner’s review decision dated 15th March 2022 be and is hereby set aside.c.Each party to bear its own costs.

89. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF JANUARY, 2024GRACE MUKUHA - CHAIRPERSONGLORIA A. OGAGA - MEMBERDR. ERICK KOMOLO - MEMBERJEPHTHAH NJAGI - MEMBERTIMOTHY VIKIRU - MEMBER