[2024] KETAT 341 (KLR)

Modern Ways Limited v Commissioner of Customs and Border Control (Tax Appeal 1551 of 2022) [2024] KETAT 341 (KLR) (8 March 2024) (Judgment)

Neutral citation: [2024] KETAT 341 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1551 of 2022

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

March 8, 2024

Between

Modern Ways Limited

Appellant

and

Commissioner of Customs and Border Control

Respondent

Judgment

Background 1. The Appellant is a private limited company incorporated in Kenya whose core activity is the manufacture and distribution of mineral supplements for ruminant livestock and distribution of a variety of other animal health products from a variety of partner companies.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 laws of Kenya. Kenya Revenue Authority is an agency of the Government for the collection and receipt of all revenue as provided under Section 5 (1) of the Act. Under Section 5(2) of the Act with respect to the performance of its function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws. The Respondent in this matter is mandated with the management and control of customs including the collection, accounting and general administration of customs revenue on behalf of the Government of Kenya pursuant to Section 5 of the East Africa Community Customs Management Act, 2004(hereinafter ‘EACCMA,2004’).

3. On 29th July 2022, the Respondent issued audit findings through a letter informing the Appellant that it declared the wrong tariff on imports relating to licking blocks for animals and thus demanded principal taxes amounting to Kshs 23,866,730. 00. The total amount demanded included Import duty of Kshs. 13,259,294. 00 and Value Added Tax (VAT) of Kshs. 10,607,436. 00 in respect of the period 2017 to 2022.

4. The Appellant objected to the Respondent’s audit findings through a letter dated 29th July 2022 which was sent through an electronic mail dated 1st August 2022.

5. On 2nd August 2022, the Respondent issued a notice amending the demanded tax to Kshs 21,750,376. 00 in respect of the years 2017 to 2022. The amended demand comprised of Kshs. 12,083,542. 00 in respect of Import duty and Kshs. 9,666,834. 00 in respect of VAT on imports.

6. The Appellant further responded to the audit findings through a letter dated 2nd August 2022 on classification of Vitalblock as a salt. On 17th August 2022, the Appellant issued a letter to the Respondent requesting a tariff ruling based on the characteristics of Vitalblock.

7. The Respondent issued a ruling on 9th September 2022 and shared the same with the Appellant via an electronic mail dated 21st September 2022.

8. Aggrieved by the Respondent’s objection decision/ruling on tariff classification, the Appellant moved the Tribunal on 18th November 2022 to admit the Notice of Appeal out of time. The Tribunal granted its prayers through its orders issued on 9th December, 2022 and deemed the late Notice of Appeal as having been duly filed on 18th November, 2022.

The Appeal 9. The Appeal is premised on the following grounds contained in the Appellant’s Memorandum of Appeal dated and filed on 20th December 2022:a.That the Respondent erred in law and in fact in classifying the Vitalblock, licking blocks for animals, imported by the Appellant as Salt under HS Code 2501. 00. 90 of the Harmonised Commodity Description Coding System (Common External Tariff).b.That the Respondent erred in law and in fact in disregarding Note 1 to Chapter 25 of the Harmonized Commodity Description and Coding System [hereinafter HS Code] (Common External Tariff) 2022 which specifically excludes products obtained by mixing from classification under Chapter 25. c.That the Respondent erred in law and fact in assessing and demanding for additional taxes on import duty applied to HS Code 2501. 00. 90.

The Appellant’s Case 10. The Appellant’s case is set out in its Statement of Facts dated and filed on 20th December 2022.

11. The Appellant stated that the Respondent issued audit findings through a letter dated 29th July 2022 informing the Appellant that it declared the wrong tariff on import on licking blocks for animals, hence demanding payment of taxes of Kshs. 23,886,730. 00 as Import duty and VAT from 2017 to 2022.

12. The Appellant stated that it responded to the audit findings through its letter dated 29th July 2022 objecting to the Respondent’s findings and providing supporting information disqualifying the Respondent’s recommended classification. The Appellant provided proof that the product was obtained from mixing salt and other minerals.

13. That the Respondent amended the tax to Kshs. 21,750,376. 00 being Import duty and VAT on animal products imported by the Appellant and notified the Appellant on 2nd August, 2022. On the same date, i.e.; 2nd August, 2022, the Appellant responded to the Respondent’s audit findings by providing further grounds supporting its classification of Vitalblock as a licking block for animals.

14. That to support its accurate classification under HS Code 2309. 90. 90, the Appellant provided references to the HS Code in respect of East African Community Common External Tariff, 2022 version (hereinafter ‘EACCET,2022’) and the Kenya Standard KS 458:2016.

15. The Appellant averred that it shared the supporting documents requested by the Respondent including documents from the manufacturer, physical samples and additional descriptive details. The Appellant then issued a letter to the Respondent dated 17th August 2022 requesting a tariff ruling based on characteristics of Vitalblock and subsequently delivered samples to the Respondent’s premises with additional supporting documents.

16. That in its tariff ruling on Vitalblock dated 9th September 2022 the Respondent upheld its decision for classification of Vitalblock as a salt under HS Code 2501. 00. 90 of EACCET, 2022.

17. The Appellant contended that it provided the Respondent with a 10kg sample of Vitalblock as well as a copy of the Vitalblock label which had information on product composition, instructions for use in conformity with the Kenya Standards KS 458:2016 together with a product sheet and material safety data.

18. That the Appellant also provided the manufacturing process demonstrating how Vitalblock is manufactured by mixing salt and other mineral compounds in measured quantities. The Appellant further demonstrated that the mixed salt and mineral products would thereafter be agglomerated directly by compression to form the final block as a finished product.

19. The Appellant obtained pre-verification certificate of conformity for Vitalblock in accordance with Kenya KS 458:2016 which prescribes requirements for the composition of common salt and mineral supplements for livestock.

20. The Appellant stated that the composition was in accordance with the law, before the products were imported into Kenya. If Vitalblock did not meet the pre-verification procedures and local testing for classification under KS 458:2016, on the basis that it was salt as alleged by the Respondent, the Appellant would have been required to reference Kenya Standard (EAS) 35:2021 for salt locally. The Appellant would also have been required to reference CODEX STAN 150-1985 Standard for Food Grade Salt globally, for a product in powder form with 97% sodium chloride as the majority element in the product.

21. That whilst Note 1 to Chapter 23 of EACCET,2022 under Heading 23. 09 provides for products for the specific consumption of animals, Note 1 to Chapter 25 of EACCET 2022 states that Chapter 25 covers only products which are in their crude state. The Appellant also averred that the headings of Chapter 25 do not apply to products obtained by mixing.

22. The Appellant stated that Vitalblock is a mineral feed supplement, manufactured by mixing salt and measured doses of copper, zinc, selenium, iodine and manganese to provide nutritional benefit to livestock. The Appellant provided a document showing the manufacturing process showing how salt and premixes are mixed.

23. The Appellant further stated that Vitalblock complied with the legal definition and composition of a mineral supplement block under Kenya Standard KS 458:2016 and conforms to Section 3. 3.1 of this Standard which provides that the mineral supplement (salt blocks) shall be in the form of compressed solid blocks or bricks containing predominantly but not exclusively salt.

24. The Appellant stated that Note 1 to Chapter 25 excludes products obtained by mixing and maintained that Vitalblock is strictly manufactured for the consumption of animals and cannot be classified under Chapter 25 on the sole basis that it contains sodium chloride. It includes additional products mixed with salt.

25. The Appellant averred that excess consumption by an animal of some minerals, mostly trace elements, can poison the livestock, for this reason, the Vitalblock label specifically recommends the amount of minerals to be ingested. Vitalblock has additional compounds intentionally added and not occurring naturally in salt to meet the nutrient content contained in the Vitalblock product sheet.

26. The Appellant stated that it applied the correct tariff classification for Vitalblock and subsequently paid the correct amount of taxes in full. The Appellant therefore stated that it was in the best interest of justice that the Tribunal intervenes to safeguard its interest.

Appellant’s Prayers 27. The Appellant stood to suffer irreparable economic loss and similar interruption with future shipments unless the relief herein is granted. In this regard the Appellant prayed that:a.The Respondent’s demand notice dated 2nd August 2022 and tariff classification dated 9th September 2022 be set aside.b.The Appeal be allowed with costs to the Appellant.c.Any other orders that the Tribunal would deem fit.

Respondent’s Case 28. In response to the Appeal the Respondent stated as follows in its Statement of Facts dated and filed on 27th January, 2023:

29. The Respondent stated that it issued audit findings on 29th July 2022 informing the Appellant that it declared the wrong tariff on imports relating to licking blocks for animals. The findings were made on the basis that animal feeding preparations classified under Heading 23. 09 of EACCET, 2022 are often put up in the form of agglomerated pellets.

30. That the agglomerated pellets were made either directly by compression or by addition of a binder (molasses, starchy substances etc.) in a proportion not exceeding 3% by weight, which the Respondent stated was not the case in the Vitalblock.

31. The Respondent in its audit findings stated that the HS Code 2309. 90. 00 applied by the Appellant was applied incorrectly, the findings were made pursuant to Sections 235 and 236 of EACCMA, 2004 which give the Respondent power to issue amended assessments.

32. That the incorrect application was made for various licking blocks for animals attracting 10% import duty and instead the Respondent recommended HS Code 2501. 00. 90 that attracts 35% import duty, hence the assessment for additional taxes. The tariff classification of Vitalblock as salt under Heading 25. 01 was based on the sample tested, predominantly containing sodium chloride in the form of compressed blocks with small quantities of trace elements.

33. That these Vitalblocks are for use as salt licks for animals, classified in EACCET, 2022 HS Code 2501. 00. 90 as salt. The Respondent averred that Heading 25. 01 covers classification of salt including table salt and denatured salt and pure sodium chloride, whether in aqueous solution or containing additional anticaking or free agents; sea water. The heading includes the classification of salts, which by nature have been subjected to a process mainly from powder salt to solid blocks with other additives.

34. The Respondent stated that the Appellant’s products are generally compressed blocks containing predominantly sodium chloride (salt) and compounds of other minerals. HS Code 2309. 90. 90 was therefore the incorrect classification of the Appellant’s product. HS Code 2309. 90. 90 is for other preparations of a kind used in animal feeding, obtained by processing vegetable or animal material to such extent that they have lost their essential characteristics of the original material.

35. That the animal feeding preparations under this Heading are often put up in the form of pellets. The Respondent averred that the salt licks are clearly excluded in the said Chapter as they are not obtained from processing vegetable or animal materials but from mainly powdered salt. In addition, the animal feeding preparations under Heading 23. 09 are often in the form of pellets. HS Code 2309. 90. 90 of various licking blocks for animals was applied attracting 10% import duty instead of HS Code 2501. 00. 90 which attracts 35% import duty.

Respondent’s Prayer 36. The Respondent asserted the fact that the Appellant was thus wrong in its tariff classification and prayed that the Tribunal upholds the Respondent’s decision to classify the Appellant’s product under HS Code 2501. 00. 90 of EACCET, 2022.

Submissions of the Parties 37. The Appellant’s written submissions were dated and filed on 15th March, 2023 and its Supplementary Submissions were dated 26th April, 2023 and filed on 27th April, 2023. Both its submissions and supplementary submissions were adopted by the Tribunal. The Respondent’s written submissions were dated 19th April, 2023 and filed on 20th April ,2023:

38. The Appellant identified the following 3 issues for determination:a.Whether the Respondent erred in law and in fact in classifying the Vitalblock, licking blocks for animals imported by the Appellant as Salt under HS Code 2501. 00. 90 of the Harmonised Commodity Description and Coding System (Common External Tariff).b.Whether the Respondent erred in law and in fact in disregarding Note 1 to Chapter 25 of the Harmonised Commodity Description and Coding System (Common External Tariff) 2022 which specifically exclude products obtained by mixing from classification under Chapter 25. c.Whether the Respondent erred in law an in fact in assessing and demanding for additional taxes on import duty applied to HS Code 2501. 00. 90.

39. The Appellant submitted as hereunder on the issues it had identified for determination:

40. That Vitalblock is a mineral feed supplement, manufactured by mixing salt with measured doses of premixes containing iodine, selenium, copper, zinc and manganese to provide a nutritional benefit when ingested by livestock. The Appellant also submitted that animals should be fed with the mineral in the right proportions and quantities, as the ratio has an impact on the animal. The Appellant also submitted that excessive consumption of some minerals, mostly trace elements can poison the livestock. The Vitalblock label thus recommends the amount to be ingested.

41. That the mineral components are intentionally added in measured doses by mixing and processing to form Vitalblock, thus disqualifying classification under Chapter 25 wherein the Explanatory Note expressly disqualifies products obtained by mixing and subjected to processing.

42. That Vitalblock is strictly manufactured for consumption of animals and cannot be classified under Chapter 25 on the sole basis that it contains sodium chloride. Furthermore, Vitalblock meets the definition contained in the Respondent’s demand notice where the Respondent defined animal licking blocks as “the salt licks are hard pressed for animals to just lick…”

43. That the processing is not denaturing as alluded by the Respondent but intentionally mixing added compounds for therapeutic and nutritional benefit.

44. The purpose of the EACCET, 2022 is to set out the applicable import duty rate for goods imported outside the East African Community. The Appellant averred that Kenya is a signatory to the World Customs Organization (hereinafter ‘WCO’). The Appellant buttressed its position on the case of Republic v Commissioner General & Another ex-parte Awal Ltd [2008] eKLR where the court stated that:-“In the end I must conclude that looking at the material placed before me and the submissions tendered by learned counsels, that the Respondent had the statutory duty to impose duty according to the tariff classification provided by law under the Customs and Excise Act and under the Harmonised Commodity Description and Coding System provided by the World Custom Organization explanatory notes in which Kenya is a signatory.”

45. The Appellant submitted that Explanatory Note 1 of Chapter 25 of the EACCET,2022 states that:-“the products of this Chapter may contain an added anti-dusting agent, provided that such addition does not render the product particularly suitable for specific use rather than for general use.”

46. That in view of the quoted Explanatory Note, the Appellant submitted that the products classified under Chapter 25 are products suitable for general use whereas Vitalblock is a product specifically produced for consumption of specific livestock.

47. That Vitalblock is a product used in animal feeding, obtained by processing salt and premixes to an extent that the salt loses the essential characteristics of the original composition, in line with Heading 23. 09. Vitalblock cannot be classified under HS Code 2501. 00. 90 due to the fact that Note 1 to Chapter 25 of the EACCET, 2022 specifically excludes products obtained by mixing.

48. In response to the Respondent’s assertion that Chapter 23 only applies to vegetable or animal material, the Appellant avowed that Heading 23. 09 of the EACCET,2022 provides for classification of premixes used in the manufacture of animal feeds. The Appellant relied on HS Code 2309. 90. 10 which states as follows:“2309. 90. 10 ---Premixes used in the manufacture of animal and poultry feeds kg 0%”

49. That Chapter 23 includes products of a kind used in animal feeding and that the Chapter applies to mineral premixes used in the manufacture of animal feeds. The Appellant also submitted that the Kenya Bureau of Standards has gazetted standards which apply to all parties operating in the animal manufacturing industry in Kenya and that there is a recommended standard for animal feed premixes for use in compounding animal feeds in Kenya and for mineral supplements and licking blocks for livestock.

50. That the Kenya Standard KS 458:2016 which is the Kenya Standard on Common Salt and Mineral Supplements Specification was gazetted into law under the Standards Act, Cap 496 of Kenya’s laws (hereinafter ‘Standards Act’).

51. That the products classified under HS Code 2309. 90. 00 as premixes used in the manufacture of poultry and animal feeds are defined under Kenya Standards 2500:2022 and 2508:2022 relating to dairy cattle feed premix. The Appellant further submitted that it provided the Respondent with a certificate of laboratory analysis showing less than 96% salt, issued based on UKAS accredited methods.

52. That it provided the Respondent with a 10kg sample of Vitalblock along with sufficient information and the manufacturer workflow diagram and process flowchart which demonstrated that premixed mineral compounds are introduced to mix with the salt, water is also added, and the mixture is subjected to additional processing and compression. The Respondent did not provide the Appellant with its laboratory analysis of Vitalblock but if there was to be a laboratory analysis, the testing laboratory must be accredited by Kenya Accreditation Service as an accredited inspection and testing centre.

53. That Explanatory Note IV-2309-1 under the General Interpretive Rules (GIR) to Heading 23. 09 states that the characteristic features of preparations classified under Heading 23. 09 include protein rich nutrients or mineral and functional nutrients whilst Explanatory Note IV 2309-2 specifically provides for premixes as compound compositions consisting of additives.

54. That Explanatory Note IV 2309-3 under the GIR to Heading 23. 09 refers to preparations of a kind used in animal feeding are preparations that include several mineral substances.

55. That it met the criteria for classification of Vitalblock under Heading 23. 09, EACCET, 2022. The Appellant further submitted that over the period Vitalblock was imported, it had bought salt (table salt from Kensalt Ltd) as a raw material for the production of its own powder mineral supplements. It was clear that the Respondent was opposed to the Appellant’s classification under HS Code 2309. 90. 90 because it attracts a lower tax rate at 10% than the proposed 35%.

56. It did not dispute the power of the Respondent to uplift taxes but that the Respondent should not abuse its powers conferred under Section 135(1) of the EACCMA, 2004.

57. The Appellant buttressed its case by citing the Supreme Court decision in Petition No.20 of 2020 [E021 of 2020] Kenya Revenue Authority v Export Trading Company Limited in which it was held that the Authority acted unfairly in demanding additional taxes from a taxpayer and that demand for payment of additional customs duties was irrational. The Appellant also relied on the case of Beta Healthcare International Ltd v Commissioner of Customs Services [2010] eKLR where the court held that it is the duty of the court to examine the process that the Respondent used to reach the decision that is being challenged by the applicant, to check for any illegality in the process.

58. That Vitalblock contains several mineral substances with salt as a carrier and buttressed its position by citing Animix Limited v Commisisoner of Customs and Border Control TAT Appeal 516 of 2021 in which the Tribunal held as follows:“In the circumstances and after considering the Chapter Notes, Explanatory Notes, product description, the intended use of the product and detailed case laws, the Tribunal determined that the product imported by the Appellant is classifiable under Tariff Code 2309. 90. 90. ”

59. It discharged its responsibility under Section 56 of the TPA and Section 30 of the Tax Appeals Tribunal Act No. 40 of 2013 (hereinafter ‘TAT’).

60. The Respondent identified a single issue for determination which was:Whether the Respondent’s tariff classification, the demand notice and the objection decision should be upheld.

61. The Respondent analysed this issue for determination by submitting as hereunder.

62. That in order to classify a product, regards needed to be taken to the WCO General Interpretive Rule (GIR), which are applied sequentially from Rule 1 to 6 and those of EACCET. The Explanatory Notes to the HS Code also constitute the official interpretation of Harmonised System at the international level and are an indispensable complement to the system.

63. The Respondent submitted that the Explanatory Notes must be read together with the EACCET as well as the General Interpretive Rules, EACCET cannot be read in isolation and in the absence of the Explanatory Notes.

64. That on tariff classification cases, reference to any other source of law, including Fertilizers and Animal Foodstuffs Act, CAP 345 of Kenya’s Laws (hereinafter ‘FAF’) which has been relied on by the Appellant to persuade the thinking of the Tribunal is inapplicable in so far as it is inconsistent with the heading of a Chapter, relative Section or Chapter and Explanatory Notes to the HS Codes.

65. Rule 1 provides that classification shall be determined as follows:“to the terms of the heading and any relative section and Chapter Notes, provided that such headings or notes do not otherwise require, according to the following provisions.”

66. That the expression “provided such headings or notes do not otherwise require” is intended to make it quite clear that the terms of the headings and any relative Section or Chapter Notes are primary. This means that they are the first consideration in determining classification. The product would correctly be classified in accordance with a particular Chapter unless the Notes or Headings expressly state otherwise.

67. The Respondent submitted that those headings cannot be excluded to include goods which might fall there by reason of operation of Rule 2(b). It submitted that the Notes to Rule 1 state as follows:“(III) The second part of this Rule provides that classification shall be determined:a.according to the terms of the headings and any relative Section or Chapter Notes, andb.where appropriate, provided the headings or Notes do not otherwise require, according to the provisions of Rules 2,3,4 and 5. ”

68. It submitted that Note V to Rule 1 clarifies as follows:-“(a)The expression “provided such headings or notes do not otherwise require” is intended to make it quite clear that the terms of the headings and any relative Section or Chapter Notes are paramount i.e., they are the first consideration in determining classification. For example, in Chapter 31, the Notes provide that certain headings relate only to particular goods. Consequently, those headings cannot be extended to include goods which otherwise might fall there by reason of the operation of Rule 2(b).”

69. The Respondent further it submitted that Heading 25. 01 of EACCET,2017 covers classification of salt including table salt and denatured salt and pure sodium chloride whether in aqueous solution or containing added anti-caking or free agents or sea water and relied on Chapter 25-Salt: Sulphur: earths and stone: plastering materials, lime and cement Note 1 in which it was stated as follows:“Except where their context or Note 4 to this Chapter otherwise requires, the headings of this Chapter cover only products which are in the crude state or which have been washed (even with chemical substances eliminating the impurities without changing the structure of the product), crushed, ground, powdered, levigated, sifted, screened, concentrated by floatation, magnetic separation or other mechanical or physical process (except crystallisation), but not products which have been roasted, calcined, obtained by mixing or subjected to processing beyond that mentioned in each heading.”

70. It submitted that the heading includes the classification of salt, which by nature have been subjected to a process mainly from powder salt to solid blocks with other additives. The Appellant’s products are generally compressed blocks containing predominantly sodium chloride (salt) and compound of other minerals.

71. That the HS Code 2309. 90. 90 is not the correct classification of the Appellant’s product and is for other preparations of a kind used in animal feeding, obtained by processing vegetable or animal materials to such an extent that they have lost essential characteristics of the original material, other than vegetable waste, vegetable residues and by-products of such processing. The animal feeding preparations of this heading are often put up in the form of pellets.

72. That salt licks are clearly excluded in the said Chapter as they are not obtained from processing vegetable or animal materials but from mainly powder salt. It averred that pellets are said to be products that have been agglomerated either directly by compression or by addition of binder in a proportion not exceeding 3% by weight and this is not the case with the Appellant’s product.

73. It submitted that HS Code 2309. 90. 90 of various licking blocks for animals was applied attracting 10% Import duty, instead of HS Code 2501. 00. 90 which attracts 35% import duty.

74. That the Appellant was wrong in its tariff declaration and that was a move intended to deny it the correct Import duty payable of 35% and VAT of 16% under Tariff 2501. 00. 90.

75. The decision to arrive at the confirmed assessments was justified and was in conformity with Section 235 and 236 and Section 135 of EACCMA, 2004 which provide as follows:-“235 (1)The proper officer may, within five years of the date of importation, exportation or transfer or manufacture of any goods, require the owner of the goods or any person who is in possession of any documents relating to the goods-a.to produce all books, records and documents relating to the goods, andb.to answer any question in relation to the goods, andc.to make declaration with respect to the weight, number, measure, strength, value, cost, selling price, origin, destination or place of transshipment of the goods, as the proper officer may deem fit…236The Commissioner shall have powers to-a.verify the accuracy of the entry of goods or documents through examination of books, records, computer stored information, business systems an all relevant custom documents, commercial documents and other data related to the goods…”135 (1)Where any duty has been short levied or erroneously refunded, then the person who should have paid the amount short levied or to whom the refund has erroneously been made shall, on demand by the proper officer, pay the amount short levied or repay the amount erroneously refunded, as the case may be, and any such amount shall be recovered as if it were duty to which to which the goods in relation to which the amount was short levied or erroneously refunded, as the case may be, were liable…”

Issues for Determination 76. On the basis of the pleadings, submissions and documents filed by both parties, the Tribunal finds that the single issue that calls for its determination is:

Whether the Respondent’s tariff re-classification should be upheld. Analysis andFindings 77. The Tribunal will now proceed to analyse this single issue as hereinunder:

78. The Tribunal observes that the Harmonized Commodity Description and Coding System classification of goods in the nomenclature is guided by General Interpretation Rules (GIR) as cited in the EACCET. This is to be read together with the Explanatory Notes (ENs) to the Harmonized Commodity Description and Coding System that constitutes the official interpretation at an international level.

79. The WCO GIR are the General Rules for the Interpretation of the Harmonized Systems. Rules 1 to 2 provide that:“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. ”

80. The Tribunal further notes that since Kenya is a member of WCO, GIR are applicable and cites the case of Commissioner of Customs and Excise v Export Trading Company Limited [2019] eKLR where it held as follows:“In this matter, we note the emerging jurisprudence on the role of the World Customs Organization in product classification in so far as enforcement of the EAC Customs Management Act is concerned.”

81. The Tribunal’s finding is that Respondent is authorised by the law to impose Import duty according to the tariff classification under the Harmonized Commodity Description and Coding System provided by the World Custom Organization. In Republic v. Commissioner General & Another Ex-Parte Awal Ltd [2008] eKLR the Court held as follows:-“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 Harmonised Commodity Description and Coding System provided by the World Custom Organization Explanatory Notes in which Kenya is a signatory.”

82. From the foregoing analysis it is clear that both the Tribunal and the Courts have always considered the headings of the codes in determining whether a consignment can fit. In Republic v Commissioner General & Another Ex-Parte Awal Ltd [2008] eKLR the Court held that:“It is imperative to note that the rules of interpretation of tariff classification are also provided for in the world customs organization explanatory notes of Harmonized commodity Description and coding systems (H.S. Code) ….I will apply the interpretation provided for under the Customs and Excise Act plus the rules of H.S. Code to determine this dispute. This court has been urged by the applicant to rule that the correct tariff heading is no. 2302. 20. 00. It is clear from tariff heading no. 2302. 20. 00 that it relates to residues and waste from food industries prepared animal fodder. The items are specified as bran, sharps and other residues derived from the sifting, milling or working of cereals or leguminous vegetables.”

83. The Tribunal finds that the Appellant’s contention was that the accurate classification for the product is under HS Code 2309. 90. 90. The Appellant provided references to the Harmonized Commodity Description and Coding System as provided in EACCET, 2022 and the Kenya Standard KS 458:2016.

84. The Tribunal also finds that according to the Appellant, the products classified under Chapter 25 are products suitable for general use whereas Vitalblock is a product specifically produced for consumption of specific livestock. The Tribunal further finds that according to the Appellant, Vitalblock is a product used in animal feeding, obtained by processing salt and premixes to an extent that the salt loses the essential characteristics of the original composition, in line with Heading 23. 09.

85. The Tribunal notes that according to the Appellant Vitalblock cannot be classified under HS Code 2501. 00. 90 due to the fact that Note 1 to Chapter 25 of the EAC CET specifically excludes products obtained by mixing.

86. The Tribunal observes that on the other hand, the Respondent contended that Vitalblocks are for use as salt licks for animals, classified in EACCET,2022 HS Code 2501. 00. 90 as salt. The Tribunal also observed the averment by the Respondent that Heading 25. 01 covers classification of salt including table salt and denatured salt and pure sodium chloride, whether in aqueous solution or containing additional anticaking or free agents; sea water. The Heading includes the classification of salts, which by nature have been subjected to a process mainly from powder salt to solid blocks with other additives.

87. The Tribunal further notes that the Respondent’s argued that the Appellant’s products are generally compressed blocks containing predominantly sodium chloride (salt) and compounds of other minerals and that therefore HS Code 2309. 90. 90 was an incorrect classification of the Appellant’s product since HS Code 2309. 90. 90 is for other preparations of a kind used in animal feeding, obtained by processing vegetable or animal material to such extent that they have lost their essential characteristics of the original material.

88. The Tribunal observes that the Heading of Chapter 25 states as follows:“Salt; Sulphur; earths and stone; plastering materials, lime and cement”.

89. The Tribunal notes that the description to Heading 25. 01 states as follows:-“Salt (including table salt and denatured salt) and pure sodium chloride, whether or not in aqueous solution or containing added anti-caking or free-flowing agents; seawater.”

90. The Tribunal further observes that the Heading of Chapter 23 is:“Residues and waste from the food industries”.and the description of HS Code 2309. 90. 00 states:“Preparations of a kind used in animal feeding” .

91. Having reviewed the description Headings of Chapters 23 and 25 the Tribunal is of the view that the product, Vitalblock, leans more towards classification as provided under Note 1 of Chapter 23 which states as follows:“Heading 23. 09 includes products [emphasis ours] of a kind used in animal feeding, not elsewhere specified or included, obtained by processing vegetable or animal materials to such an extent that they have lost the essential characteristics of the original material, other than vegetable waste, vegetable residues and by-products of such processing.”as opposed to Note 1 of Chapter 25 which states:“Except where their context or Note 4 to this Chapter otherwise requires, the headings of this Chapter cover only products [emphasis ours] which are in the crude state or which have been washed (even with chemical substances eliminating the impurities without changing the structure of the product), crushed, ground, powdered, levigated, sifted, screened, concentrated by flotation, magnetic separation or other mechanical or physical processes (except crystallisation), but not products which have been roasted, calcined, obtained by mixing or subjected to processing beyond that mentioned in each heading.”

92. The Tribunal finds that whereas Note 1 of Chapter 25 covers only the stated products Note 1 of Chapter 23 states that the Chapter includes the stated products meaning therefore that the listing in Chapter 23 is not exhaustive. According to the Respondent, salt licks are clearly excluded from classification in Chapter 23 as they are not obtained from processing vegetable or animal materials but from mainly powder salt. However, the Tribunal finds that the list in Chapter 23 is not exhaustive and this means it may include other products that are obtained from materials other than vegetables and animal materials. The Explanatory Notes to Heading 23. 09 provide states:“Preparations of a kind used in animal feeding’

93. The Tribunal is of the view that Heading 23. 09 is applicable to the Appellant’s product. As such the Tribunal finds that Tariff Code 2309. 90. 90 would be the appropriate HS Code. As such the Tribunal finds that the Respondent’s tariff re-classification was incorrect and the additional assessment and demand for additional taxes on import duty and VAT from the Appellant is improper and not lawfully due.

Final Decision 94. In light of the foregoing analysis, the Tribunal finds the Appeal herein is merited and shall proceed to make the following Orders:-a.The Appeal be and is hereby allowedb.The Respondent’s review decision dated 9th September 2022 be and is hereby set asidec.Each party to bear its own costs.

95. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 8TH DAY OF MARCH, 2024. ERIC NYONGESA WAFULA - CHAIRMANDELILAH K. NGALA - MEMBERCHRISTINE A. MUGA - MEMBERGEORGE KASHINDI - MEMBERMOHAMED A. DIRIYE - MEMBERSPENCER S. OLOLCHIKE - MEMBER