[2025] KETAT 178 (KLR)

L’oreal East Africa Limited v Commissioner of Customs & Border Control (Tax Appeal E577 of 2024) [2025] KETAT 178 (KLR) (21 March 2025) (Judgment)

Neutral citation: [2025] KETAT 178 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E577 of 2024

CA Muga, Chair, BK Terer, EN Njeru, E Ng'ang'a & SS Ololchike, Members

March 21, 2025

Between

L’oreal East Africa 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 CAP 486 Laws of Kenya whose principal activity is marketing and distribution of personal care products within East Africa.

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

3. Upon conducting a Post Clearance Audit (hereinafter “PCA”) in respect to the September 2018 to September 2023 review period, the Respondent citing non-compliance due to under valuation of imports and royalties as well as tariff misclassification, proceeded to demand principal taxes totaling Ksh 409,483,062. 00 in a demand notice dated 1st February 2024. On 20th March 2024, the Appellant lodged an application for review.

4. In its review decision dated 18th April 2024, the Respondent reviewed downwards, the short-levied duty liability to Ksh 11,250,507. 00 comprising wrong royalties of Kshs 3,371,877. 00 and tariff misclassification of Kshs 7,888,630. 00. The Appellant conceded to wrong royalties and proceeded to pay the same on 22nd May 2024.

5. The Appellant being aggrieved by the Respondent’s review decision dated 18th April 2024 re-classifying its disputed products under HS Code 3304. 99. 00 filed its notice of appeal dated 29th May 2024 on even date at the Tribunal.

The Appeal 6. The Appeal was predicated upon the following grounds as laid-out in the Memorandum of Appeal dated 30th May 2024 and filed on even date.i.That the Respondent erred in fact and in law on the baseless attempt to invoke the provisions of Section 230 of the East African Community Customs Management Act, 2004 (hereinafter “EACCMA”).ii.That the Respondent erred in fact and in law on the interpretation of General Interpretative Rules (GIRs) 1 and 6, Chapter Notes(CNs) as well as the World Customs Organization (WCO) Explanatory Notes(ENs) on the correct HS Code classification applicable to the following Appellant’s products (Collectively referred to as the Disputed Products); Cerave SA Smoothing Cleanser;

Cerave Acne Control Cleanser;

La Roche Posay Effaclar H Iso-Biome Cleanser Crème Lavante;

Garnier Even & Matte Micellar Cleansing Water;

Garnier Pure Active Intensive Charcoal 3 in 1 Wash;

La Roche-Posay Effaclar Foaming Gel Cleanser;

Garnier Pure Active Clay 3 in 1 Wash;

L’Oréal Paris Revitalift Replumping Gel Wash;

Cerave Hydrating Cream-To-Foam Cleanser;

La Roche Posay Lipikar Cleansing Bar;

Lipikar AP+ Gentle Foaming Cleansing Oil; and

Garnier Pure Active Micellar Charcoal Jelly Water.iii.The Respondent erred in fact and in law by failing to appreciate international standards on the treatment of organic surface-active products and preparations such as the disputed products and further erred in deviating from such international standards without any cogent justification and reasons.iv.In the alternative and without prejudice to the foregoing, the disputed products are prima facie classifiable under two Headings each by virtue of either being a mixture made up of different materials and substances as per GIR 2(b) or by virtue of the phrase “any other reason” as required under GIR 3. v.In the alternative and without prejudice to the foregoing, the disputed products are rightly classifiable under the HS Code 3401. 30. 00 either by applying GIR 3(a) and GIR 6 or applying GIR 3(b) and GIR 6. vi.That the Respondent violated the Appellant’s right to fair administrative action and natural justice by making its decision without drawing and testing any samples of the disputed products.

Appellant’s Case 7. The Appellant’s case was premised on its Statement of Facts dated 30th May 2024 and filed on even date together with the witness statement of Mr. Philippe Rapold which was admitted by the Tribunal as evidence-in-chief, on 29th January, 2025.

8. According to the Appellant, the Respondent reclassified its disputed products under HS Code 3304. 99. 00 thus subjecting them to excise duty and Value Added Tax resulting in Ksh 7,888,630. 00 as additional taxes. The Appellant proceeded to expound on its grounds as stated in its Memorandum of Appeal as follows;a.That the Respondent erred in fact and in law on the baseless attempt to invoke the provisions of Section 230 of the EACCMA.

9. The Appellant termed the Respondent’s averment that it was either provided with no information or was misinformed regarding the make-up of royalties included in the royalties’ monthly ledger figures, as baseless since the Respondent neither provided email evidence or any name of Appellant’s official who provided any falsified information as claimed in the review decision letter yet all requested information was provided accordingly.

10. It was the Appellant’s case that had the Respondent adhered to fair administrative action and natural justice, the Appellant would have provided clarification required but instead the Respondent issued demand notice for colossal sums of Ksh 409,483,062. 00 that were later reduced to Ksh 11,260,507. 00 upon provision of supporting documentation and points to a desperate attempt of the Respondent to explain away the narrative of alleged lack of provision of information by the Appellant.b.The Respondent erred in fact and in law in her interpretation of the General Interpretative Rules (GIRs) 1 and 6, the Chapter Notes as well as the World Customs Organization (WCO) Explanatory Notes (EN) on the correct HS Code classification applicable to the disputed products.

11. The Appellant stated that the Respondent erred in law and in fact as it gave no reason for disregarding the provision of Heading 34. 01 when reclassifying the disputed products under HS Code 3304. 99. 90 upon applying GIR 1 and 6 as well as WCO ENs to Heading 33. 04. That had the Respondent considered all the provisions, it would have found that the disputed products should have rightly been classified under tariff code 3401. 30. 00 upon applying GIR 1 and 6.

12. The Appellant stated that the disputed products are cleansers meant for use as washes for the skin and are made up of a combination of various materials and substances and contain various organic surface-active agents (surfactants) which give the products their cleansing efficacy. The surfactants are well labelled in the product catalogues and their effective cleansing is due to surfactant molecules that have a unique structure with distinct parts- ‘a head’ and ‘a tail’.

13. That while the ‘head’ was hydrophilic attracting water, the ‘tail’ was hydrophobic with affinity to oil, greasy substances and dirt which it surrounds by forming micelles or emulsions allowing the skin to be washed away and without the surfactants, the product’s cleansing efficacy would not work as intended. Thus, surfactants are a key and active ingredient for the disputed products.

14. According to the Appellant, GIR 1 provides that classification should be according to terms of Headings and relevant Chapter Notes (CNs), that had the Respondent considered CN 1(b) that provides “soap or other products of Heading 34. 01,” or WCO EN III to Heading 34. 01 that provides “Organic surface-active products and preparations for washing the skin, in the form of liquid or cream and put up for retail sale, whether or not containing soap.” The Respondent should not have classified the disputed products under Chapter 33 since Heading 34. 01 applies to organic surface-active products and preparations such as the Appellant’s products.

15. In similar fashion, the Appellant held that had the Respondent considered the WCO’s HS Committee’s classification opinions of the 60th Session held in October 2017, it would have classified the product under Heading 34. 01 as was held in a classification dispute of similar products in the USA. The Appellant placed reliance on the holding of the High Court case in Commissioner of Investigations and Enforcement v Mombasa Maize Millers Limited [TAT E103 of 2021]“It was further persuaded by the Respondent’s reliance on the WCO opinion during the 59th HS Committee in March 2017 in the classification of silo plants where WCO classifies silo plants under Chapter 84 as opposed to Chapter 94 as the Commissioner had done.”c.The Respondent has failed to appreciate International standards

16. The Appellant stated that Kenya employs coding/tariff classification system adopted from the HS, an internationally standardized system of names and numbers to classify traded products which was similarly adopted by EAC member states when they signed the East African Community Treaty (EAC Treaty) on 30th November 1999. The Appellant cited the following cases to buttress this position; Commissioner of Investigations and Enforcement v Mombasa Maize Millers Limited [TAT E103 of 2021].

Sollatek Electronics Kenya Limited.

17. The Appellant averred that it was a fact that the Harmonized System is an international standard classification widely accepted for commodities and Harmonization thus crucial for fair international trade and it would not make sense for Kenya to have a different classification for the same product when compared to other jurisdictions because the world is governed by the same principles of the WCO. The Appellant placed reliance on a document termed “An Informed Compliance Publication, March 2008” which is a publication by the United States Customs and Border Patrol (USCBP) as guidance to its taxpayers regarding the customs interpretation and application of Heading 33. 04. This particular edition is titled, “What Every Member of the Trade Community Should Know About: Beauty and Skin Care Products of Heading 3304” provides thus;“Exclusions:Skin care cleansing products containing surfactants are excluded from classification in Chapter 33. Heading 3401. 30, Harmonized Tariff Schedule of the United States (HTSUS), provides for Organic surface-active products and preparations for washing the skin, in the form of liquid or cream and put up for retail sale, whether or not containing soap.”

18. Similarly, the Appellant in affirming how other jurisdictions classify cleansers that contain organic surface-active agents as active components relied on Tribunal Rulings in India and cited the case of Mul Dentpro Pvt. Ltd. Vs. CCE Vapi reported in 2007 (218) ELT 435 (Tri. Ahmd.), that “a product by the name of Pears Face Wash, which was produced on the principle of surface-active agents was held to be classifiable under Heading 34. 02” and the case of Hindustan Lever Ltd. Vs. CCE Chennai reported in 2008 (228) ELT 374(Tri. Chennai), that; “a face wash being a preparation wholly or partly consisting of organic surface-active agents and used for applying on skin and washing off was held to be a washing preparation falling under sub- Heading 3402. 90. ” The Appellant asserted that in both cases, the classification was under Chapter 34 rather than Chapter 33 by virtue of wholly or partly containing surface-active agents.

19. The Appellant appreciated that even though the tariff rulings and publication from the United States availed to the Tribunal were not binding on Kenya, the Harmonized System being a widely accepted global system facilitating international trade and the Appellant being a global conglomerate, these material were availed as persuasive precedent to the Tribunal being proof that in its ruling, the Respondent deviated from accepted international standards without providing justifiable reasons, or any reasons at all for its deviation. The Appellant held that these essentially organic surface-active products or preparations are classified under Heading 34. 01. d.In the alternative and without prejudice to the foregoing, the disputed products are prima facie classifiable under two Headings by virtue of either being a mixture made up of different materials and substances as per GIR 2 (b) or by virtue of the phrase “any other reason” as required under GIR 3.

20. The Appellant held that the disputed products are made up of a combination of various materials and substances including organic surface-active agents (surfactants) which give them their cleansing efficacy and other substances as contained in the aforementioned product catalogues therefore, the disputed products being mixtures made of various materials and substances and also by virtue of their various functions were prima facie classifiable under two tariff Headings of the East African Common External Tariff (EACCET) namely:“Heading 33. 04Beauty or make-up preparations and preparations for the care of the skin (other than medicaments), including sunscreen or sun tan preparations; manicure or pedicure preparations.Heading 34. 01Soap; organic surface-active products and preparations for use as soap, in the form of bars, cakes, moulded pieces or shapes, whether or not containing soap; organic surface-active products and preparations for washing the skin, in the form of liquid or cream and put up for retail sale, whether or not containing soap; paper, wadding, felt and nonwovens, impregnated, coated or covered with soap or detergent.”

21. According to the Appellant, the Respondent reclassified its disputed products and gave no reason as to why it disregarded the provisions of Heading 34. 01 and the respective ENs despite the fact that it was clear that the disputed products could also be classifiable under this Heading. Further, that even if GIRs must be applied sequentially, it did not mean that they are to be applied in total disregard of the other Rules. In defending this position, the Appellant cited the case of Kenya Breweries Limited v Commissioner of Customs & Border Control (2020) eKLR where the Tribunal agreed with the Court holding in Canadian Court in Puratos Canada Inc V Canada (Customs and Revenue) (2004) CA CITT that:“'The General Rules for the Interpretation of the Harmonized System referred to in section JO of the Customs Tariff originated in the International Convention on the Harmonized Commodity Description and Coding Systems. They are structured in cascading form so that if the classification of the goods cannot be determined in accordance with Rule 1, then regard must be had to Rule 2 and so on.... The above legislation requires the Tribunal to follow several steps before arriving at the proper classification of goods on an appeal: first to examine the schedule to see if the goods fit prima facie within the language of a Tariff Heading; second, to see if there is anything in the Chapter or Section notes that precludes the goods from classification in the Heading; and third, to examine the Classification Opinions and the Explanatory Notes to confirm classification of the goods in the Heading.”

22. The Appellant asserted that it was clear the Respondent’s review decision failed to follow the required procedure so as to arrive at the correct classification for the disputed products. This is because in the review decision, the Respondent applied GIR 1 and 6 while only looking at the provisions of Heading 33. 04 and related WCO Explanatory notes whereas GIR 1 would have required the Respondent to also look at Heading 34. 01 given that the composition of the disputed products was a mixture or the provisions of GIR 3 specifically in reference to the phrase “or for any other reason, goods are, prima facie, classifiable under two or more headings”. The cited GIR 1 as supported by WCO ENs XIII to GIR 2 provides as follows;“GIR 1: The titles of Sections, Chapters and sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the Headings and any relative Section or Chapter Notes and, provided such Headings or Notes do not otherwise require, according to the provisions of GIR 2 – 6)”.WCO ENs XIII: As a consequence of this Rule, mixtures and combinations of materials or substances, and goods consisting of more than one material or substance, if prima facie classifiable under two or more Headings, must therefore be classified according to the principles of Rule 3. ”

23. The Appellant held that the Respondent erred in law and in fact by applying GIR 1 and 6 instead of applying the provisions of GIR 3 and considering the provisions of Heading 34. 01 and relied on the case of Davis & Shirtliff Limited v Commissioner of Customs & Border Control [TAT 368 of 2021] where the Tribunal held as follows:“Based on the foregoing, the Solar Water Heaters are potentially classifiable under two Headings, namely 84. 19 and 85. 16. The goods can function as a solar heating system and also as electric water heaters. They have all the characters of a solar water heater and also the characteristics an electric water heater. Rule 1 cannot be used to classify the goods because it results into two possible classifications”e.In the alternative and without prejudice to the foregoing, the disputed products are rightly classifiable under HS Code 3401. 30. 00 and by applying GIR 3 (a) and GIR 6.

24. The Appellant averred that the disputed products could be deemed classifiable under two Headings and as such the Respondent should have relied on the provisions of GIR 3 as GIR 2 (a) deals with articles that are incomplete or unfinished thus not applicable and since the Rules apply sequentially, the Appellant considered GIR 2 (b) 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. ”

25. Additionally, GIR 3 (a) provides as follows:“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.”

26. It was the Appellant’s case that there was no doubt that Heading 34. 01 provides a more specific description of the disputed products than Heading 33. 04 since Heading 33. 04 refers to “preparations for the care of the skin” which is a general reference to the category to which the disputed products may belong. Further, that while applying the Rules, a Heading which names the actual product should be given preference to one which only names a category to which the product could belong. Similarly, a Heading that describes the whole product should be used in preference to one which describes part of it. However, where two Headings both only refer to part of the materials or substances contained in the mixed or composite product, then the rule cannot be used to pick which Heading to apply even if one seems more specific or detailed than the other.

27. The Appellant held that because GIR 3 (a) only makes reference to the use of the descriptions in the Headings, the second part of GIR 3 (a) exempts from application of GIR 3 (a) a particular product when two or more Headings each refer to part only of the materials or substances contained in mixed or composite goods and that whereas Heading 34. 01 refer to organic surface active agents that make up the disputed products, Heading 33. 04 does not refer to any material or substance contained in the disputed products. Therefore, the proper heading is 34. 01 where consideration is not given to any Section or Chapter Notes and cited the Tribunal’s holding in the case of Sollatek Electronics Kenya Limited v Commissioner of Customs & Border Control [TAT 142 of 2022].a.In the alternative and without prejudice to the foregoing, the disputed products would still be rightly classifiable under HS Code 3401. 30. 00 by applying GIR 3 (b) and GIR 6

28. The Appellant averred that if for any reason the Tribunal was to find that Headings 33. 04 and 34. 01 were equally specific in relation to the disputed products, then the provisions of GIR 3 (b) that provides as follows should apply:“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.”

29. Additionally, that the essential character of the Appellant’s products which is the organic surface-active agents (surfactants) is as provided for by WCO EN VIII to GIR 3(b) that provides thus:“The factor which determines essential character will vary as between different kinds of goods. It may, for example, be determined by the nature of the material or component, its bulk, quantity, weight or value, or by the role of a constituent material in relation to the use of the goods”

30. The Appellant averred that removal of the surfactants from the product meant they would not function as intended, which is as a cleanser or wash thus the disputed products would be classifiable as organic surface-active products or preparations for washing the skin, in the form of liquid or cream and put up for retail sale under Heading 34. 01 and specifically under HS Code 3401. 30. 00 by virtue of applying GIR 3 (b) and GIR 6. The Appellant placed reliance on the Latvian case of Kurcums Metal v Valsts ieņēmumu dienests Case C-558/11 where the Court stated the following in relation to the issue of determining essential character under GIR 3 (b):“Under that general rule, in carrying out the tariff classification of goods it is necessary to identify, from among the materials of which they are composed, the one which gives them their essential character; this may be done by determining whether the goods would retain their characteristic properties if one or the other of their constituents were removed.”g.Violation of the Appellant's right to fair administrative action and natural justice

31. The Appellant asserted that the Respondent did not request for any samples to subject them to testing thus it was unclear what the Respondent relied on to arrive at their review decision meaning that the review decision was arbitrary and in contravention of the provisions of Article 47 of the Constitution of Kenya, 2010 (hereinafter “the Constitution”) which entitles every person to "administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair.”

32. The Appellant cited the case of Republic v Kenya Revenue Authority Ex Parte Universal Corporation Ltd [2016]eKLR regarding statutory powers to undertake reviews that;“I agree with the position taken by the Respondent that the Customs Officer is supposed to verify the accuracy of the entries made by the clearing agent within the shortest time possible in order to facilitate the release of the goods and mitigate the accrual of demurrage and customs warehouse rent hence the reason for conferment of the powers under Section 235 and 236 of the EACCMA to conduct Post Clearance Audits to verify the accuracy of the entries after the goods have been released from Customs control. However, the exercise of statutory power must be so exercised in a manner that is fair and just to the people against whom the same is being exercised.”

Appellant’s Prayer 33. The Appellant sought the following prayers from the Tribunal:a.That the Appeal be allowed with costs.b.That the Respondent’s review decision dated 18th April 2024 be annulled and set aside.c.That the Tribunal finds that the disputed products and any products containing organic surface-active agents as active ingredients are correctly classifiable under tariff 3401. 30. 00d.Any other orders the Tribunal may deem fit.

Respondent’s Case 34. The Respondent replied to the Appeal through its Statement of Facts dated 3rd July 2024 and filed on 4th July 2024 where in refuting Appellant’s assertions it stated as follows;a.The Respondent erred in the baseless attempt to invoke the provisions of Section 203 of the EACCMA.

35. That it conducted a comprehensive audit against the Appellant with a view to ascertaining relevant customs declaration compliance as well as other requirements under applicable import or export laws.

36. That the audit established noncompliance with GIRs of the harmonized system for misclassified goods of Heading 34. 01 tariff code 3401. 30. 00 which attracts Import Duty of 35% and reclassified the same under Heading 33. 04 tariff code 3304. 99. 00 which attracts Import Duty at 35% and Excise Duty at 15% and VAT at the standard rate. As a result, the Respondent on 1st February 2024 demanded the uplifted short levied taxes amounting Ksh 8,822,346. 00 pursuant to Section 135 of the EACCMA that was later reviewed downwards to Ksh 7,888,630. 00.

37. The Respondent averred that during the audit exercise it severally requested for Royalties ledgers but was never supplied and that even the Appellant’s own objection of 20th March 2024 conceded that the ledgers adduced had calculation errors and requested for a recalculation to establish any pending liability. The Respondent held that Section 203(c) and (h) of the EACCMA provides that;“(c)penalizes individuals who refuse to answer questions or provide false or incorrect statements when questioned by customs officers.(h)penalizes individuals who counterfeit, falsify, or knowingly use falsified documents required by or used for customs purposes.”

38. According to the Respondent, figures provided at the audit stage, and during the review stage had discrepancies that were attributed to the errors and there were no correspondences availed prior notifying of any changes given that changes also affect taxes payable on Royalties. Further, that even though the royalties ledger figures per month included royalties paid towards direct exports, local production and direct imports from affaires products, the Appellant did not make any comment on this during presentation of the audit findings, but only arose at the review stage despite having acknowledged at the audit exercise that all ledger figures related to importation contrary to Section 203 of EACCMA in spite of repeated requests for accurate ledgers.

39. That the implication of this was that there was intent on the part of the Applicant to mislead customs authorities which justified the Respondent’s actions as couched under Section 203 of EACCMA to ensure compliance with the law and prevent future occurrences of similar offenses as there was lack of provision of requested information.b.The Respondent erred in the interpretation of GIR 1 and 6 as well as the WCO Explanatory Notes on the correct HS Code classification applicable.

40. The Respondent held that since GIR 1 stipulates classification is primarily determined by the terms of the headings and any relevant section or chapter notes and since the Appellant’s products in question, such as 'Cerave Acne Control Cleanser,' are primarily designed for skincare and beauty purposes and are formulated to cleanse, protect, and enhance the skin, the description provided by Heading 33. 04 that covers “Beauty or make-up preparations and preparations for the care of the skin (other than medicaments), including sunscreen or sun tan preparations; manicure or pedicure preparations” provided the most appropriate classification as directed by GIR 6 that classification at the subheading level must be determined according to the terms of those subheadings and any related notes.

41. Moreover, that 'Cerave Acne Control Cleanser' and similar products are marketed and sold as skincare preparations other than medicaments having therapeutic purposes, specifically for cleansing and maintaining skin health as they contain ingredients like benzoyl peroxide, hyaluronic acid, and niacinamide, which are common in skincare products designed to treat and prevent acne while maintaining skin moisture and health; and that CN 3 to Chapter 33 provides“Headings 33. 03 to 33. 07 apply, inter alia, to products, whether or not mixed (other than aqueous distillates and aqueous solutions of essential oils), suitable for use as goods of these headings and put up in packings of a kind sold by retail for such use.”

42. That this was as contrasted with Heading 34. 01 that pertains to the following:“Soap; organic surface-active products and preparations for use as soap, in the form of bars, cakes, moulded pieces or shapes, whether or not containing soap; organic surface-active products and preparations for washing the skin, in the form of liquid or cream and put up for retail sale, whether or not containing soap.”

43. The Respondent asserted that the reclassification to tariff code 3304. 99. 00 was substantiated by the explicit terms of the headings and supported by the chapter notes, and clarified by the WCO ENs together with primary function, usage, and packaging of these beauty products which align with the descriptions under Heading 33. 04 that reflect their true nature and purpose in accordance with the GIRs and international classification guidelines.c.The Respondent erred by failing to appreciate international standards on the treatment of organic surface-active products and preparations such as the disputed products and further erred in deviating from such international standards without any cogent justification and reasons.

44. The Respondent held that Kenya, as a sovereign state, retains the authority to interpret and apply international classification rules based on local context and facts presented and that the present reclassification decision was guided by the EACCMA, GIRs and the World Trade Organization Trade Facilitation Agreement (WTO TFA), thus ensuring compliance with international standards while considering specific circumstances and product information.

45. Further, that tariff rulings specific to the Appellant are issued after thorough analysis and compliance with the GIRs that is why the Respondent evaluated the nature, use, and presentation of the products in question, such as 'Cerave Acne Foaming Cleanser,' and determined the appropriate Heading as 33. 04 relating to beauty or skincare preparations rather than Heading 34. 01. d.The disputed products are prima facie classifiable under two Headings each by virtue of either being a mixture made up of different materials and substances as per GIR 2(b) or by virtue of the phrase “any other reason” as required under GIR 3 and whether the disputed products are rightly classifiable under HS Code 3401. 30. 00 by applying GIR 3(a) and GIR 6.

46. The Respondent asserted that the disputed products could be classified under two headings due to their composition. That applying GIR 1 and 6 and the ENs to Chapter 33, the disputed products are appropriately classifiable under tariff code 3304. 99. 00. e.The Respondent violated the Taxpayer’s right to fair administrative action and natural justice by making its decision without drawing and testing any samples of the disputed products.

47. The Respondent held that it complied Fair Administrative Action Act, CAP 7L of the Laws of Kenya (hereinafter “FAAA”) when it issued this specific tariff ruling based on comprehensive evaluations and consultations with the tariff unit and the same was communicated to the Appellant, providing them with clear guidelines on the classification of their products. The reclassification decision was equally guided by the GIRs and was based on an in-depth analysis of the product descriptions and available information, both of which are legitimate and recognized methods for tariff classification. Further, that GIRs allow for classification based on the description and use of products, even without physical sampling, especially when reliable information is readily available.

48. That the Appellant’s products in question, such as the 'Cerave Acne Control Cleanser' and 'spot control mask,' have well-documented uses and compositions that are publicly available and their detailed product descriptions and specifications can be accessed from manufacturer websites and other reliable sources which was publicly available information and provided sufficient basis for the Respondent to make an informed classification decision.

49. The Respondent stated that it issued specific tariff rulings for the products in question, which were made after careful consideration of the product descriptions, compositions, and uses. The Appellant was notified of these rulings and had the opportunity to respond or provide additional information, fulfilling the requirements of procedural fairness. Thus, the Respondent’s actions were consistent with the provisions of EACCMA, which allows for classification decisions based on comprehensive reviews of product information and compliance with the GIRs.

50. In conclusion, the Respondent asserted that its reclassification decision was lawful, reasonable, and procedurally fair as the Appellant was adequately informed and guided on the classification of their products, ensuring compliance with the principles of fair administrative action and natural justice.

Respondent’s Prayers 51. The Respondent sought the following prayers:i.That the Tribunal upholds the review decision of 18th April 2024. ii.That the Tribunal finds the taxes due and unpaid together with interest thereon.iii.That the Tribunal dismiss the Appeal with costs.

Parties’ Written Submissions 52. Further, the Tribunal directed the parties to file and serve upon each other with their written submissions on or before 12th February 2025.

53. The Appellant’s written submissions were dated and filed on 12th February 2025 wherein the Appellant submitted on exactly similar issues for determination verbatim as stated in its Statement of Facts. The Tribunal considered the same but will not rehash them. The Respondent’s written submissions were dated and filed on 14th February 2025 and the Tribunal will not consider the same as they were filed outside the timelines as directed by the Tribunal.

Issues For Determination 54. The Tribunal having carefully considered the parties’ pleadings, documentation and the Appellant’s submissions adduced before it notes that the two issues arising for its determination are as follows:i.Whether the Respondent erred in re-classifying the Appellant’s products from tariff code 3401. 30. 00 to tariff code 3304. 99. 00. ii.Whether the Respondent’s review decision dated 18th April 2024 was justified.

Analysis and Findings 55. The Tribunal having established two issues for determination proceeds to analyze them as follows:

i. Whether the Respondent’s erred in reclassifying Appellant’s products from tariff code 3401. 30. 00 to tariff code 3304. 99. 00. 56. The genesis of the instant dispute was the PCA conducted by the Respondent in respect of the September 2018 to September 2023 review period that ultimately led to the review decision dated 18th April 2024 wherein the Respondent reclassified the Appellant’s products from tariff code 3401. 30. 00 to tariff code 3304. 99. 00 citing tariff misclassification and wrong royalties that yielded short levied duties of Ksh 11,250,507. 00 pursuant to Section 230 of EACCMA. The Appellant sought to Appeal against this decision vide it notice of appeal dated and filed on 29th May 2024 having conceded and settled royalties amounting to Kshs 3,371,877. 00 on 22nd May 2024 that were part of the review decision but contested the balance of tariff misclassification amounts of Ksh 7,888,630. 00.

57. The Tribunal notes that the bone of contention in the instant matter is tariff reclassification of Appellant’s disputed products with the Appellant having classified them under tariff code 3401. 30. 00 attracting 35% import duty whereas the Respondent reclassified the same under tariff code 3304. 99. 00 attracting Import Duty at 35% and Excise Duty at 15% and VAT at the standard rate. The Respective Headings to the codes provide as follows:3401 Soap; organic surface-active products and preparations for use as soap, in the form of bars, cakes, moulded pieces or shapes, whether or not containing soap; organic surface-active products and preparations for washing the skin, in the form of liquid or cream and put up for retail sale, whether or not containing soap; paper, wadding, felt and nonwovens, impregnated, coated or covered with soap or detergent.- Soap and organic surface-active products and preparations, in the form of bars, cakes, moulded pieces or shapes, and paper, wadding, felt and nonwovens, impregnated, coated or covered with soap or detergent:3304 Beauty or make-up preparations and preparations for the care of the skin (other than medicaments), including sunscreen or sun tan preparations; manicure or pedicure preparations.

58. Further, the two contending tariff codes provide as follows:3401. 30. 00- Organic surface-active products and preparations for washing the skin, in the form of liquid or cream and put up for retail sale, whether or not containing soap3304. 99. 00 - Other

59. The Tribunal notes that GIR 1 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…”

60. The Tribunal observes that whereas the Appellant held that its disputed products are cleansers meant for use as washes for the skin and are made up of a combination of various materials and substances and contain various organic surface-active agents (surfactants) which give the products their cleansing efficacy; the Respondent asserted that the products are primarily designed for skincare and beauty purposes and are formulated to cleanse, protect, and enhance the skin, a description provided by Heading 33. 04.

61. The Tribunal notes that it is not in dispute that the products are skin care products made up of a combination or mixture of substances. The Tribunal places reliance of GIR 2(b) and GIR 3 both of which provide as follows:“2(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, in so far 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.”

62. The Tribunal additionally notes that the Appellant’s assertion that its products active ingredient were surfactants was not controverted by the Respondent who relied on well-documented uses and compositions that are publicly available coupled with their detailed product descriptions and specifications accessed from manufacturer websites and other reliable sources which was publicly available information and provided sufficient basis for the informed classification decision. The Respondent admitted that it did not conduct laboratory tests.

63. The view of the Tribunal is that the Appellant’s product active ingredient i.e. surfactants, gives the product their essential character as provided for under GIR 3 (b) and this being the case, the Tribunal is inclined to agree that the Respondent erred in reclassifying Appellant’s products from HS Code 3401. 30. 00 to HS Code 3304. 99. 00 for the very reason that whereas Heading 34. 01 makes specific reference to the active ingredient of the Appellant’s products, Heading 33. 04 makes a general reference. The Tribunal associates with the following holding in the case of Republic-vs-Commissioner General & Another ex-parte Awal Ltd [2008] eKLR, which was quoted in the case of Associated Battery Manufacturers Limited-vs-Commissioner of Customs Services [2020] eKLR:“In the end I must conclude that looking at the material placed before me and the submissions tendered by learned counsels, the Respondents had the statutory duty to impose duty according to the tariff classification provided by law under the Customs and Excise Act and under the Harmonized Commodity Description and Coding System provided by the World Custom Organization explanatory notes in which Kenya is a signatory.”

ii. Whether the Respondent’s review decision dated 18th April 2024 was justified. 64. The Tribunal having established that the Respondent was in err in reclassifying the Appellant’s products from tariff code 3401. 30. 00 to tariff code 3304. 99. 00 equally finds that the Respondent’s review decision dated 18th April 2024 was not justified in the circumstances.

Final Decision 65. The upshot of the foregoing is that the Appeal herein is meritorious and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby allowedb.The Respondent’s review decision dated 18th April 2024 be and is hereby set aside.c.Each party to bear its own costs.

66. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 21ST DAY OF MARCH, 2025. …………………………………CHRISTINE A. MUGA - CHAIRPERSON…………………………BONIFACE K. TERER - MEMBER…………………………ELISHAH N. NJERU - MEMBER…………………………EUNICE N. NG’ANG’A - MEMBER…………………………OLOLCHIKE S. SPENCER - MEMBER