[2024] KETAT 1437 (KLR)

Match Masters Limited v Commissioner of Customs & Border Control (Tax Appeal E933 of 2023) [2024] KETAT 1437 (KLR) (4 October 2024) (Judgment)

Neutral citation: [2024] KETAT 1437 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E933 of 2023

RM Mutuma, Chair, T Vikiru, Jephthah Njagi, M Makau & D.K Ngala, Members

October 4, 2024

Between

Match Masters Limited

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

1. The Appellant is a private limited company incorporated in Kenya whose principal activity is the manufacturing of match boxes.

2. The Respondent is a principal officer appointed pursuant to Section 13 of the Kenya Revenue Authority Act (KRA), Act No. 2 of 1995, and KRA is empowered to enforce and administer provisions of written laws set out in Section 5 as read together with the First Schedule of the KRA Act.

3. On 4th August 2023, the Appellant communicated with the Respondent, formally seeking an Advance Tariff Ruling for foldable packaging material designed for safety matches coated with combustible substances.

4. On 10th August 2023, the Respondent issued a Tariff ruling which classified the Appellant’s product under HS Code 3606. 90. 00 based on Note 2 to Chapter 36, which pertains to Explosives; pyrotechnic products; matches; pyrophoric alloys; certain combustible preparations.

5. On 17th November 2023 the Appellant was issued with a letter wherein the Respondent officially revoked the Advance Tariff Ruling and substituted the classification with HS Code 4819. 20. 10.

6. The Appellant objected to the revocation of the advance Tariff ruling on 28th November 2023.

7. The Respondent rendered its decision on the Appellant’s objection on 4th December 2023 affirming its revocation of the Advance Tariff Ruling.

8. The Appellant, being aggrieved by the Respondent’s decision rendered on 4th December 2023 affirming the revocation of the Advance Tariff Ruling, lodged this Appeal at the Tribunal vide its Notice of Appeal dated and filed on 16th December 2023.

The Appeal 9. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated and filed on 16th December 2023:a.That the Respondent erred in fact and law by issuing the Applicant with a revocation of an Advance Tariff Classification Ruling for the foldable packaging material for safety matches coated with combustible chemical substances before the lapse of the 12 months period mandated by the law;b.That the Respondent erred in law and fact by disregarding the provisions of Section 248A of the East African Community Customs Management Act (EACCMA), 2004, which stipulate that Advance Rulings issued by the Commissioner under the specified clause are mandated to be binding on the Commissioner for a period of 12 months from the date of issuance;c.That the Respondent erred in law and fact by failing to appreciate that Section 248A does not include any provisions for the revocation of an Advance Ruling. Additionally, the section docs not confer upon the Commissioner the authority to revoke an Advance Ruling before the conclusion of the twelve-month period; and,d.That the Respondent erred in law and fact by failing to appreciate guidance from the World Customs Organization (WCO) and the World Trade Organization (WTO) stipulating that advance rulings can only be revoked or invalidated only where the advance ruling was based on incomplete, incorrect, false, or misleading information.

The Appellant’s Case 10. The Appellant’s case is premised on its;a.Statement of Facts dated 16th December 2023 and filed on 18th December 2023 together with the documents attached thereto; and,b.Written submissions dated and filed on 27th August 2024.

11. The Appellant averred that it diligently provided the Respondent with all necessary information about the product under review, including samples for thorough analysis. That the samples provided to the Respondent at the time of requesting the Advance Ruling were sufficient to clearly establish the nature of the product and its intended uses.

12. The Appellant averred that in its Tariff ruling issued on 10th August 2023, the Respondent had properly adhered to the legal framework delineated in Section 248A of the EACCMA. That the ruling contained a clause which stated that revocation was only permissible in instances where incomplete, incorrect, false or misleading information has been provided.

13. The Appellant further averred that the inclusion of the statement “Kindly Note that Advance Rulings are valid for a period of 12 months from the date of issue as per Section 248A of the EACCMA 2004” in the Ruling clearly indicates that the Respondent read, understood, and relied on the law when considering the Appellant's application for an Advance Ruling.

14. The Appellant submitted that Section 248A of the EACCMA does not explicitly outline circumstances under which an Advance Ruling can be revoked. That additionally, it does not confer upon the Commissioner the authority to revoke an Advance Ruling before the conclusion of the twelve-month period.

15. The Appellant posited that it must be noted that subsection 4 of Section 248A of the EACCMA is couched in mandatory terms which clearly provide that the decision issued under subsection 3 shall be binding on the Commissioner and the Applicant for a period not exceeding twelve months.

16. The Appellant submitted that WTO Agreement on Trade Facilitation (WTO Agreement) includes in its Article 3, provisions on Advance Rulings, which are binding decisions by customs, at the request of the person concerned, on specific aspects of goods, in particular the classification and origin of the goods in preparation for importation or exportation.

17. The Appellant submitted that WCO’s guidelines on Advance Rulings in accordance with the provisions of standard 9. 9 of the Revised Kyoto Convention also define the term as follows;“The expression "binding ruling" (or "advance ruling") generally designates the option for customs to issue a decision, at the request of the economic operator planning a foreign trade operation, relating to the regulations in force. The main benefit for the holder is the legal guarantee that the decision will be applied.”

18. The Appellant submitted that the standard 9. 9 of the Revised Kyoto underscores that the primary purpose of Advance Rulings is to facilitate the planning of trade operations by providing applicants with certainty and stability, by ensuring that the decision will be applied as issued, Advance Rulings offer economic operators a critical legal guarantee.

19. The Appellant averred that this guarantee is essential for making informed decisions, managing risks, and maintaining smooth and predictable trade flows, and that any deviation from this practice, such as the premature revocation of an Advance Ruling, undermines this objective and can disrupt the very trade operations that these rulings are designed to support.

20. The Appellant averred that the WTO agreement further imposes the following obligations on Member States:a.To issue an advance ruling in a reasonable, time-bound manner to an applicant that has submitted a request in writing containing the necessary information; or to explain in writing the relevant facts as to why an advance ruling has been declined;b.To guarantee the advance ruling for a reasonable period of time and to be bound by it;c.To publish requirements for how an applicant may apply for an advance ruling and for how long it shall be valid; and how an applicant may request a review of an advance ruling; and,d.To publish such advance rulings as may be of interest to other traders.

21. The Appellant submitted that the basic elements of the procedure in relation to Advance Rulings can be summarized as follows;a.The request must supply the administration with all the information required (detailed description of the goods, information enabling the determination of the origin or the customs value of the goods, possible inclusion of samples, plans, various documents, e.t.c.). Should the request contain inaccurate or incomplete information, the ruling based on such information could be revoked.b.The ruling must be issued by the competent authority in writing within a specified period.c.The ruling is binding on the administration following its issue and is valid for a specified period. However, in some cases (issuing of a new regulation, amendment of the interpretation of the nomenclature at international level, etc.), this decision ceases to be valid. The ruling may also be made binding on the Applicant.d.Only the holder of the binding ruling can call upon its application, provided that he/she demonstrates that the goods presented, and the goods described in the decision correspond in every respect.e.These decisions are generally made public (except from confidential information) to ensure transparency and equality of treatment of operators as well as the uniform application of the regulations.

22. The Appellant submitted that the WCO Technical Guidelines on Advance Rulings for Classification, Origin & Valuation on Advance Rulings (Technical Guidelines) only permit the revocation of a ruling if inaccurate or incomplete information has been furnished by the taxpayer and in this instance these conditions have not been met.

23. The Appellant cited the following provisions from the Technical Guidelines on annulment of advance rulings on classification, origin and valuation;“24. An advance ruling may be annulled if it was given on the basis of incomplete incorrect, false or misleading information provided by the applicant.Where pursuant to paragraph 25, an advance ruling is annulled, the applicant to whom the advance ruling was issued shall be notified of the annulment in writing. This notification shall set out the relevant facts and basis for the decision. An annulment of an advance ruling takes effect from the date on which the advance ruling was issued.”

24. The Appellant submitted that the Respondent confirmed that the sample and information provided by the Appellant were accurate and sufficient. Further the Appellant submitted that the Respondent admitted that the error in issuing the Advance Ruling was solely its mistake, with no fault on the part of the Appellant.

25. The Appellant averred that this admission underscores the Respondent’s incompetence in managing the matter and its lack of understanding of the consequences of its decision, making the revocation of the Advance Ruling unwarranted.

26. The Appellant submitted that the Respondent however claims that the Advance ruling was revoked in line with paragraph 28, 29 & 31 of the Technical Guidelines which provide as follows:“Modification revocation or invalidation of advance rulings on classification, origin and valuation.28. Where an advance ruling is modified, revoked or invalidated, the applicant to whom the advance ruling was issued shall be notified in writing of:a.Any modification, revocation or invalidation of the advance ruling;b.The effective date of modification, revocation or invalidation;c.The relevant facts; andd.the basis of modification, revocation or invalidation.Effect of modification, revocation or invalidationThe guidelines further outline the effect of modification, revocation or invalidation of advance rulings as follows:A modification, revocation or invalidation of an advance ruling on classification, origin or valuation shall be effective:a.From the date on which the modification, revocation or invalidation is issued; andb.In the case of modification and revocation, until such date as may be specified in the notice given.Retroactive application of modification, revocation or invalidationA modification, revocation or invalidation of an advance ruling on classification, origin or valuation may be applied with retroactive effect only where the advance ruling was based on incomplete, incorrect, false or misleading information.”

27. The Appellant averred that although the Respondent is relying on the Technical Guidelines to justify the revocation of the Advance Ruling, it is important to note that none of these guidelines provide a valid basis for such a revocation.

28. The Appellant opined that the guidelines outline the procedures and effects of modifying, revoking, or invalidating an Advance Ruling, but they do not establish any grounds for doing so in this case.

29. The Appellant submitted that the guidelines specifically allow for retroactive application of revocation only when the Advance Ruling was based on incomplete, incorrect, false, or misleading information conditions that do not apply here.

30. The Appellant submitted that the Respondent breached Section 248A of the EACCMA by revoking the Advance Ruling before the 12-month period required by law had expired.

31. The Appellant posited that the premature revocation of the Advance Ruling by the Respondent, therefore, constitutes an act that is inconsistent with the legitimate expectation established by the initial issuance of the ruling, and that such an action not only undermines the Appellant’s trust in the predictability and stability of the tax administration process but also represents an unfair and potentially abusive use of power.

32. The Appellant relied on the case of R vs. Inland Revenue Commissioners, Ex parte MFK Underwriting Agencies Ltd [1990] 1 W.L.R. 1545“Prima facie, taxpayers’ only legitimate expectation is that they will be taxed according to statute, and not according to concession or wrong view of the law. The onus is, therefore, upon the taxpayer seeking to rely on a legitimate expectation to justify that claim by pointing to a set of facts that show: The Revenue Authority conducted itself so as to give rise to a reasonable expectation on the part of the taxpayer that they would be treated in a particular way.

Given that legitimate expectation, it would, in all the circumstances, be unfair and an abuse of power for the Revenue Authority to act inconsistently with that legitimate expectation.”

33. The Appellant submitted that considering the principles established in the MFK Underwriting case, the Respondent’s decision to revoke the Advance Ruling before the expiration of the 12-month period without valid grounds or clear statutory authority is unjustifiable, and that it violates the fundamental principle that taxpayers are entitled to rely on the legal decisions made by the Revenue Authority, especially when those decisions are critical for their business planning and compliance.

34. The Appellant submitted that the revocation of the Advance Tariff Ruling has imposed significant financial consequences for the Appellant, affecting their future importations from suppliers.

Appellant’s Prayers 35. The Appellant prayed that the Tribunal finds that;a.This Appeal be allowed with costs;b.This Honourable Tribunal issues orders declaring the revocation of the Advance Ruling dated 17th November 2023 by the Respondent as arbitrary, illegal and in contravention of Section 248A (4) of the EACCMA;c.The Advance Ruling issued by the Respondent on 10th August 2023 referenced KRA/CBC/BIA/ ADV /796/08/2023 be upheld; and,d.The Tribunal grant such other orders as it may deem fit.

Respondent’s Case 36. The Respondent’s case is premised on its;a.Statement of Facts dated and filed 17th January 2024 together with the documents attached thereto;b.The witness statement of Bernard Oyucho dated and signed on 27th May 2024 and filed 29th May 2024 adopted as evidence in chief on 18th July 2024; and,c.Written Submissions dated and filed on 7th August 2024.

37. The Respondent submitted that the Advance Rulings are guided by 248A EACCMA, which provides that:“The Commissioner will offer an Advance Ruling upon application by the Appellant provided that the Appellant provides all the necessary information so as to aid the Commissioner in making the ruling.”

38. The Respondent submitted that Section 248A does not provide for alteration or amendment of an Advance Ruling as such it relied on the provisions of WCO guidelines on Advanced Rulings.

39. The Respondent submitted that Section 248A of the East African Community Customs Act provides:“(1)A person intending to import goods may make a written application to the Commissioner for advance binding rulings on any of the following-a.tariff classification;b.rules of origin; orc.Customs valuation.(2)Subject to subsection (1) and upon direction -from the Commissioner, the applicant shall furnish to the Commissioner Sufficient information that may be used to make the decision.3. The Commissioner shall within thirty days of receipt of the sufficient information issue an advance ruling or give reasons for the inability to issue an advance ruling on the application.4. The decision issued under subsection (3) shall be binding on the Commissioner and the applicant for a period not exceeding twelve months.”

40. The Respondent submitted that the WCO guidelines under paragraph 28, 29 and 31 provide for the grounds of revocation, alteration or amendment of Advance Rulings as follows;“Modification, revocation or invalidation of advance rulings on classification. origin and valuation28. Where an advance ruling is modified, revoked or invalidated, the applicant to whom the advance ruling was issued shall be notified in writing of:(a)any modification, revocation or invalidation of the advance ruling;(b)the effective date of the modification, revocation or invalidation;(c)the relevant facts; and(d)the basis for the modification, revocation or invalidation.Effect of modification, revocation or invalidation29. A modification, revocation or invalidation of an advance ruling on classification, origin or valuation shall be effective:(a)from the date on which the modification, revocation or invalidation is issued; and(b)In the case of modification and revocation, until such date as may be specified in the notice given.30. Subject to paragraph 31, a modification or revocation of an advance ruling shall be applied only with respect to goods that are imported or exported on or after the effective date of modification or revocation and are the subject of the advance ruling”

41. The Respondent averred that Custom Matters are governed by EACCMA, 2004 and in cases where EACCMA is insufficient, the applicable rules would be the International Treaties and guidelines.

42. The Respondent submitted that Article 2 (5) of the 2010 Constitution of Kenya, provides;“The general rules of international law shall form part of the law of Kenya.”

43. The Respondent relied on the case of Tarmal Industries Limited vs. Commissioner of Customs and Excise (1968) 1 EA 471 (HCT);“The Defendant/appellant Company used to import into Tanzania caustic alkali and fatty acids. The company decided to use a substitute, namely sodium salts off atty acids in pellet form packed in plastic or paper packages. A sample of the pellets was sent to the Commissioner of Customs and Excise for examination, he was asked to rule whether the substance might be imported duty free under tariff item 108 (h) of the Customs Tariff Ordinance of Tanzania. On May 15, 1965, the Commissioner ruled (without making any analysis) by letter to the company that sodium salts of fatty acid pellets were duty free. Acting on this assurance the company ordered a large quantity of the pellets, which were imported duty free between November 1965 and October 1966. At the end of October 1966, an investigation officer of the customs took a sample of the substance, and the Government Chemist evaluated it. Later, the Commissioner claimed the sum of TShs. 1,939,499/w from the company as customs duty payable on the substance imported between November 1965 and October 1966. Georges, C.J. held, inter alia, that: "although in normal circumstances the doctrine of estoppel would apply, there is no estoppel against a statute; and although the Commissioner initially erred in deciding the substance was not dutiable and possibly was negligent not to have analyzed the sample sent by the defendant for examination, under s. 118 of the East African Customs Management Act 1952 the Commissioner was bound to correct the matter and levy duty on the basis that the substance had always been dutiable."

44. The Respondent posited that it did not violate any law in the revocation of the advance tariff classification ruling as it was issued in line with Section 248A of the EACCMA, 2004 and the World Customs Organization (WCO) technical guidelines on advance tariff classification, valuation and origin ruling.

45. The Respondent relied on the case of Keroche Industries Limited vs. Kenya Revenue Authority & 5 Others Nairobi [2007] eKLR and Republic vs. Attorney General & Another Ex Parte Waswa & 2 Others [2005] 1 KLR;“280. In the former case the Court held that: ''... legitimate expectation is based 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 so doing upholding responsible public administration. This in turn enables people affected 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. Stated simply 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 dijje1·ent way ... Public authorities must be held to their practices and promises by the courts and the only exception is where a public authority has a sufficient overriding interest to justify a departure from what has been previously promised."

46. The Respondent submitted that a legitimate expectation cannot be an expectation against the clear provisions of a statute. That a decision maker cannot be expected to act against the clear provisions of a statute as that would be illegal and a violation of the principle of the rule of law.

47. The Respondent averred that as established by numerous case laws, before a person can rely on the doctrine of legitimate expectation, they must demonstrate that;a.There was an express, clear and unambiguous promise;b.The promise was not kept; that as a result; and,c.The decision made in breach of that promise affected him by depriving him of some benefit or advantage.

48. The Respondent posited that the expectation must itself be legitimate, reasonable and not contrary to the express provisions of the law.

49. The Respondent averred that its revocation letter dated 17th November 2023 expressly provided that the revocation does not affect importation done by the Appellant prior to the revocation of the advance ruling, thus it does not deprive off the Appellant any benefit or advantage.

50. The Respondent submitted that the Appellant failed to appreciate the fact that the Section 248A EACCMA, 2004 only seeks to provide the basic legal framework to operationalize the WCO technical guidelines on issuance of the advance rulings and that the advanced rulings are mainly governed by the WCO technical guidelines, which provides for the detailed operation of the advance tariff classification, valuation and origin ruling programmes. Therefore, it submitted that the two provisions of law should be read and interpreted together.

51. The Respondent averred that the decision to classify the product under HS Code 3606. 90. 00 was informed by the fact that the product is a component of matches that are correctly included in the scope of Chapter 36 as per the Explanatory Notes and the General Interpretation Rule 1, 2a and 6.

52. That however, during verification, the Respondent established that the description of the goods had changed from “match skillets for wooden matches” normally used in the import documents of the Appellant to ‘foldable packaging material for matches coated with combustible chemical substances’, therefore, the applied HS Code had also changed from HS Code 4819. 20. 10 to HS Code 3606. 90. 00.

53. The Respondent relied on the case of Petition 353 & 505 of 2017 (Consolidated): Pevans East Africa Limited & Bradley Limited t/a Pampazuka National Lottery vs. Chairman Betting Control and Licensing Board, Cabinet Secretary, Ministry of Interior, Commissioner General, Kenya Revenue Authority, Cabinet Secretary, Ministry of Finance, National Assembly, Speaker of the Senate. Attorney General, Betting and Licensing Board & National Sports Fund [2017] eKLR, where the court held that;“..As regards the issue of legitimate expectation, legitimate expectation would not be an expectation against the clear provisions of a statute. A decision maker would not be expected to act against the clear provisions of a statute as that would be illegal and a violation of the principle of the rule of law. As legislation that was lawfully enacted, the impugned legislation would override any expectation.”

54. The Respondent submitted that it cannot continue to apply an erroneously issued HS Code on the Appellant’s product and is therefore, justified to re-classify the product and apply the correct HS Code that was being used by the Appellant before it sought for the advance tariff ruling classification.

55. The Respondent averred that in any event, even if the advance Ruling was not revoked or altered, it lapses after a period of 12 months from the date of issuance and therefore, the advance ruling lapsed on or around 10th August 2024.

The Respondent’s Prayers 56. The Respondent prayed that the Tribunal do:a.Dismiss the Appeal for lack of merit; and,b.Uphold the revocation decision dated 17th November 2023 and 4th December 2023 and 4th December 2023.

Issues for Determination 57. The Tribunal having carefully considered the filings and submissions made by the parties as well as the Respondent’s witness statement is of the considered view that the Appeal herein distils into one issue for determination;Whether the Respondent was justified in reclassifying the Appellant’s imported product under HS code 4819. 20. 10 instead of HS code 3606. 90. 00.

Analysis and Determination 58. The dispute giving rise to the Appeal herein arose out of the Respondent’s decision contained in its letter dated 4th December 2023 confirming its revocation of the advance Tariff Ruling issued to the Appellant on 10th August 2023. The impugned advance tariff ruling classified the Appellant’s import under HS 3606. 90. 00 while the revocation letter substituted the classification with HS Code 4819. 20. 10.

59. The Respondent averred that the revocation was informed by information that was gathered during a verification exercise after it had issued the tariff ruling. The Respondent submitted that the Advance Rulings are guided by Section 248A of the EACCMA.

60. That however, Section 248A does not provide for alteration or amendment of an Advance Ruling as such it relied on the provisions of WCO guidelines on Advanced Rulings.

61. The Respondent submitted that in revocation of its advance ruling it was guided by the WCO guidelines under paragraph 28, 29 and 31 which provide for the grounds of revocation, alteration or amendment of Advance Rulings.

62. It was the Respondent’s witness testimony that the Respondent’s basis of departure from its tariff ruling was that it had established that the Appellant had previously imported similar goods and classified them under HS Code 4819. 20. 00. That further the Appellant had changed the description of the goods from “match skillets for wooden matches” to “foldable packaging material for safety matches coated with combustible material”.

63. The Respondent postulated that based on the information that emerged from the review and in consideration of the explanatory notes to heading 48. 19 as well as the physical characteristics of the item, the correct HS Code was found to be 4819. 20. 10 as guided by GIR 3 (c) & 6.

64. The Respondent asserted that with the new information it could not continue to apply an erroneously issued HS Code on the Appellant’s product and that it was therefore justified to re-classify the product and apply the correct HS Code that was used by the Appellant before it sought for the advance tariff ruling classification.

65. On its part, the Appellant averred that in its Tariff ruling issued on 10th August 2023, the Respondent had properly adhered to the legal framework delineated in Section 248A of the EACCMA whereupon it reached the finding that the Appellant’s product was classifiable under HS Code 3606. 90. 00. That further, the ruling contained a clause which stated that revocation was only permissible in instances where incomplete, incorrect, false or misleading information has been provided.

66. The Appellant submitted that the WCO Technical Guidelines on Advance Rulings for Classification, Origin & Valuation on Advance Rulings (Technical Guidelines) only permit the revocation of a ruling if inaccurate or incomplete information has been furnished by the taxpayer and in this instance these conditions have not been met.

67. The Appellant averred that it diligently provided the Respondent with all necessary information about the product under review, including samples for thorough analysis. That the sample provided to the Respondent at the time of requesting the Advance Ruling were sufficient to clearly establish the nature of the product and its intended uses.

68. The Appellant submitted that the Respondent confirmed that the sample and information provided by the Appellant were accurate and sufficient. Further the Appellant submitted that the Respondent admitted that the error in issuing the Advance Ruling was solely its mistake, with no fault on the part of the Appellant making the revocation of the Advance Ruling unwarranted.

69. The Appellant relied on Section 248A of EACCMA in asserting that it had a legitimate expectation for the Respondent to be bound by the Tariff ruling for a period of twelve months. That further, the standard 9. 9 of the Revised Kyoto underscores that the primary purpose of Advance Rulings which is to facilitate the planning of trade operations by providing Applicants with certainty and stability, by ensuring that the decision will be applied as issued. Hence it had a legitimate expectation for the respondent to be bound by its tariff ruling.

70. The Appellant contended that based on the foregoing facts and pursuant to the afore stated classification Rules, the correct tariff classification for its product ought to be 3606. 90. 00 and not 4819. 20. 10 as contended by the Respondent.

71. The Tribunal perused through the documents presented by the parties and noted that the Respondent admitted to having all the information as well as samples of the product at the time of request for a tariff ruling to facilitate proper classification and that in its tariff ruling it clearly stated the basis for the classification. It stated in part:“Based on the above information foldable packaging material for safety matches coated with combustible material is considered to be an item composed of combustible material, classified in 2022 EAC/CET Code 3603. 90. 00. ”

72. The Tribunal observed from the submissions by both parties that neither the chemical composition nor the intended use of the product had changed, the Respondent’s only contention in this regard was that the Appellant had previously used a different product description and HS code prior to the Tariff ruling. There was no evidence pointing to provision of incomplete or inaccurate information by the Appellant at the time of seeking the tariff ruling.

73. It is the Tribunal’s considered view that the Respondent having confirmed receipt of sufficient information as well as product samples at the time of issuing the tariff ruling and having applied the rules of classification competently to arrive at the Tariff ruling must be estopped from vacating its ruling to the detriment of the Appellant without a justifiable reason.

74. The Respondent’s action of ignoring clearly laid out rules of classification while placing sole reliance on the Appellant’s classification of its imports prior to the tariff ruling as the basis for tariff revocation falls short of what is expected it being a diligent tax collector.

75. Courts have in the past held that past tariff rulings remain binding on the Respondent unless for good reason the same have to be departed from. In this regard, the Tribunal takes into consideration the holding in the case of R vs. Inland Revenue Commissioner, Ex-Parte Uniliver P/C [1996] Stc P 681 at page 690 in these words:“The categories of unfairness are not closed, and precedent should act as a guide and not as a cage.” This court is well aware of its limitations and would not interfere with the Respondent’s ability to change their taxation general policy from time and as it deems it fit. Indeed, this is why it exists. The court must take cognizance of the fact that the Respondents must have the flexibility in articulating and implementing that policy. It would be unreasonable for instance to expect the Respondents to be wedded to the same tariff policy forever, but they must be held to their bargain in adhering to consistency where the chemistry of the product has not changed at all. They cannot unilaterally rule that the tariff of a product which has not changed, and which has over the years been allocated a particular tariff should move to another different tariff. Such a change is arbitrary, oppressive and Wednesbury unreasonable. In the case in question the Respondent plucked from the air a tax liability of 1. 1 billion and placed on the shoulders of a company which on the evidence had paid taxes lawfully due under the applicable tariff during the relevant period.By rejecting the applicant’s decision to change the tariff as proposed, the court will be sending out a clear signal that legitimate expectation is based 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 so doing upholding responsible public administration. This in turn enables people affected 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. Stated simply 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. In this case the applicant did not expect an abrupt change of tariff where the process of manufacture or its products had not changed. Public authorities must be held to their practices and promises by the courts and the only exception is where a public authority has a sufficient overriding interest to justify a departure from what has been previously promised.”

76. The Respondent cannot unilaterally revoke a tariff ruling for a product without justifiable reason during the period which the tariff ruling has a binding effect on both parties. The Respondent must be held to its bargain in adhering to consistency where the chemistry of the product has not changed at all.

77. Tariff Rulings provide a basis upon which taxpayers plan their business affairs hence such an unjustified change is arbitrary, oppressive and Wednesbury unreasonable.

78. Consequently, the Tribunal finds that the Respondent erred in its decision to reclassify Appellant’s products from HS Code 3606. 90. 00 to 4819. 20. 00. The Appellant’s Appeal is therefore merited.

Final Decision 79. The upshot of the foregoing is that the Appeal succeeds. Consequently, the Tribunal makes the following Orders:a.The Appeal be and is hereby allowed;b.The Respondent’s Decisions dated 17th November 2023 and 4th December 2023 be and are hereby set aside; and,c.Each Party to bear its own costs.

80. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 4TH DAY OF OCTOBER 2024. ROBERT MUTUMA MUGAMBI - CHAIRMANDR. TIMOTHY B. VIKIRU - MEMBERJEPHTHAH NJAGI - MEMBERMUTISO MAKAU - MEMBER**DELILAH K. NGALA - MEMBER