[2024] KETAT 160 (KLR)

Premier Solar Solutions Limited v Commissioner of Customs & Border Control (Tax Appeal 984 of 2022) [2024] KETAT 160 (KLR) (9 February 2024) (Judgment)

Neutral citation: [2024] KETAT 160 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 984 of 2022

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

February 9, 2024

Between

Premier Solar Solutions Limited

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

Background 1. The Appellant is a company incorporated in Kenya and carrying on the business of distributing solar PV solutions to clients.

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

3. The Respondent vide a letter dated 21st April 2022 issued the Appellant with desk audit findings premised on a desk audit of importations covering the period January 2017 to April 2022.

4. The Appellant vide a letter dated 23rd May 2022 objected to the desk audit findings.

5. On 31st May 2022 the Respondent issued a tariff classification ruling wherein it stated that the various articles imported by the Appellant were classified under the wrong H.S Code 7610. 90. 00.

6. On 3rd June 2022 the Respondent issued a demand notice to the Appellant for the sum of Kshs. 7,810,358. 00 being Omport duty and VAT due.

7. On 29th June 2022 the Appellant objected to the demand notice.

8. On 5th July 2022 the Respondent upheld the demand notice.

9. On 26th July 2022 the Appellant applied for a review of the Respondent’s decision.

10. The Respondent rendered its review decision dated 10th August 2022.

11. Aggrieved by the review decision, the Appellant filed a Notice of Appeal dated 25th August 2022.

The Appeal 12. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated 7th September 2022 and filed on 9th September 2022:a.That the impugned decision is illegal and unlawful as it failed to appreciate that the Appellant correctly declared its importations under HS Code 7610. 90. 00 as per the EAC Common External Tariff 2017 (2017 EAC/CET) which attracts an import duty at 0% for the period under assessment.b.That the impugned decision is arbitrary, devoid of legal or factual basis as it is premised on an erroneous tariff ruling dated 31st May 2022 which improperly classified the Appellant’s articles under Heading 76. 16 of the 2017 EAC/CET whereas the Appellant’s articles are provided for under Heading 76. 10. c.That by issuing the impugned demand notice as well as the impugned decision, the Respondent has acted unreasonably and failed to take into account proper classification as per the 2017 EAC/CET.d.That the Respondent erred in law by purporting to impose additional taxes upon the Appellant without justification contrary to the law and in breach of the Appellant's legitimate expectation.e.That even if it were to be said arguendo that the said tariff ruling which resulted to the impugned decision indicated the correct tariff (which is denied), it would still be illegal and unconstitutional for the Respondent to enforce compliance with the impugned decision for the following reasons:i.That the Respondent having cleared consignments of aluminum structures and parts of structures under H.S Code 7610. 90. 00 at the duty rate of 0% for several years and having verified all the relevant entries and confirmed the same to be correct, and thereby allowed the relevant consignments to be released to Appellant, the Respondent is estopped from purporting to argue that the Appellant or its clearing agents had used wrong H.S Code.ii.That Respondent having been an active participant in the clearance process, and having made all the requisite clearance decisions, cannot now distance itself from such decisions and purport to put the blame on the Appellant on the premise of a wrong classification.f.That the impugned tax decision violates the Appellant's Constitutional right to transparency, accountability, legitimate expectation and right to fair administrative action in tax administration.

Appellant’s Case 13. The Appellant’s case is premised on the following documents filed before the Tribunal: -a.Appellant’s Statement of Facts dated 8th September 2022 and filed on 9th September 2022 and the documents attached thereto.b.Appellant’s Written Submissions dated 26th July 2023 and filed on the same date.

14. The Appellant averred that in the ordinary course of business, it deals in aluminum structures and parts of structures. That for the period commencing January 2017, the Appellant imported aluminum structures attracting an Import duty of 0% as classified under H.S Code 7610. 90. 00.

15. That to the Appellant's consternation, the Respondent vide a letter dated 21st April 2022 issued the Appellant with desk audit findings premised on a desk audit of importations covering the period January 2017 to April 2022. That in the said letter, the Respondent cited alleged mis-declaration and wrongly referenced H.S Code 7616. 99 which attracts Import duty at 25% and VAT at the standard rate.

16. The Appellant opposed to the findings presented by the Respondent, vide a letter dated 23rd May 2022, objected to the desk audit findings and noted the description of the aluminum articles imported, an analysis of the parts of article the Appellant deals with and the key classification issues.

17. That on 31st May 2022 the Respondent issued a tariff classification ruling based on the wrong assessment, wherein it stated that the various articles imported by the Appellant were classified under the wrong H.S Code.

18. That it is on account of the foregoing that on 3rd June 2022 the Respondent issued a demand notice to the Appellant for the sum of Kshs. 7,810,358. 00 being alleged Import duty and VAT due.

19. That the Appellant objected to the demand notice on 29th June 2022 due to the misconceived classification wherein the Appellant explained at length the inconsistencies of the classification.

20. That on 5th July 2022 the Respondent noted the mitigating factors but nonetheless upheld the impugned demand notice and the wrong tariff classification.

21. That on 26th July 2022 the Appellant through its Advocates applied for a review of the Respondent’s decision.

22. That the Respondent rendered its review decision dated 10th August 2022.

23. Dissatisfied with the review decision, the Appellant filed a Notice of Appeal dated 25th August 2022.

24. The Appellant submitted that the only issue for determination in this matter is whether the impugned ruling gives the correct classification

25. The Appellant submitted that the operational tax regime in Kenya is based on self-assessment. That the taxpayer assesses self, declares what is due and pays the tax to the authorities. That the assessment of self, as was in the Appellant's case, is an implication of the provisions of statute that set out the various tax classes and the classification of articles subject to taxation by way of clear description.

26. That simplicity as a tax cannon, remains to be at the heart of the operational regime. That is to say, the provisions in tax statutes and description of goods of various kinds have to be set out in terms most intelligible and clear.

27. That it is on account of the foregoing reality and principles of tax law that the Appellant posited that indeed the process regarding the articles in question was similar.

28. That the Appellant was dealing in aluminum structures and parts of structures in its ordinary course of business and imported the same which were the subject of 0% import duty as aptly classified under H.S Code 7610. 90. 00.

29. That whereas the Respondent, through its submissions remains adamant at otherwise demonstrating that the articles did not form the scope of what is envisaged under H.S Code 7610. 90, the Appellant through its objection letter dated 23rd May 2023 gave a meticulous breakdown of what was imported.

30. That whereas the Respondent rehashed its position vide its submissions, the Appellant in demonstrating a misapprehension on the part of the Respondent, unequivocally submitted that the imports were for aluminium structures and accessories for the installation of solar panels.

31. That the structures ought to be as classified under H.S Code 7610. 90 as they are aluminum walkways, aluminum steps walkways, non-anodized C-chanel and specialized solar module mounting structures. That all these items are structures per the description of what a structure is.

32. That a structure makes reference to interrelated elements in a material object; usually looked at from the point of view of the whole rather than a single part.

33. That based on such description, the Appellant submitted that structures cannot therefore work in isolation, they are arranged to form the “end product”.

34. That even if it were to be looked at from the point of view that the imported Aluminum articles are parts of structures, the Appellant submitted that they would still be part of the non-exhaustive list under Heading 7610.

35. That the basis for the foregoing position is that the subject aluminum articles do not work in isolation as they are mounted onto roofs which are in of themselves structures.

36. The Appellant further submitted that even if the Respondent's classification were to be looked at without any further reference to other Headings, the articles would not be classifiable under subheading 7604. 10. That the aforementioned Heading and the explanatory notes thereunder make reference to aluminum rods, bars and alloys.

37. That it is trite law that tax laws ought to be interpreted strictly and any ambiguity in tax law should be made in favor of the taxpayer therefore the Respondent cannot purport to depart from an already established Harmonized Commodity Description and Coding System by straining the meaning while referring to the articles, and inferring that they are in the nature of bars, rods and/or alloys or as further described under Chapter 74 Note l(d) of Subheading 7604. 10. The Appellant submitted that the Respondent's stance at the classification of the imported articles is therefore grossly misguided.

38. The Appellant submitted that it is important to note that the Respondent vide its submissions has failed to satisfactorily tender good explanation and/or reason for the belated post clearance audit and the subsequent demand.

39. That while it is not in dispute that Section 135(3) of the EACCMA allows the Respondent to make such a demand within 5 years, the Respondent has however tarried in making their finding by awaiting until the tail end before making such a demand.

40. The Appellant submitted that there ought to be sufficient reason(s) backing such delay as the Respondent cannot simply stand behind the time limit provided for then awake from its slumber when such period is about to lapse and put its foot at the door and make demand without sufficient reason.

41. The Appellant cited the decision of the Court of Appeal in Fleur Investments Limited vs. Commissioner of Domestic Taxes & Another -Civil Appeal No. 158 of 2017 (unreported), wherein while considering the absence of a rational explanation for a conduct/decision in question, such as in this case, adopted with approval the High Court's decision in Republic vs. Institute of Certified Public Accountants of Kenya ex parte Vipichandra Bhatt TIA J V Bhatt & Company Nairobi HCMA No. 285 of 2006.

42. Analyzing the said decision, the Court stated that: -“It was held that in the absence of a rational explanation, one must conclude that the decision challenged can only be termed irrational within the meaning of the Wednesbury unreasonableness, was in bad faith and constitutes a serious abuse of statutory power since no statute can ever allow anyone on whom it confers a power to exercise such power arbitrarily and capriciously or in bad faith."

43. The Appellant submitted that in the absence of a satisfactory explanation as to why the post clearance audit and resulting demand for short levied duty was made after such a long time, such a demand, despite being misplaced can only be perceived to be irrational and not in tandem with the kind of efficiency and expediency that is envisaged under Article 47(1) of the Constitution.

44. The Appellant submitted that legitimate expectation arose as a result of the clear classification of the articles that were subject to importation. That moreover, the belated audit and demands thereto were evident acquiescence, approval, authority and knowledge of the Respondent.

45. That in R (Bibi) v. Newham London Borough Council [2002] 1 WLR 237 succinctly set out the three practical questions for the Court to pose in ascertaining whether a claim based on legitimate expectation is properly grounded and these are:a.What has the public authority, whether by practice or by promise committed itself;b.Whether the authority has acted or proposes to act unlawfully in relation to its commitment;c.What should the court do?

46. That in the current matter, the Respondent by accepting the Appellant’s goods over time and by clearing the articles under the Heading HS Code 7610. 90 created a promise.

47. That additionally, the classification of the articles under a set category imposed the tax liability that is to accrue on a taxpayer and the Respondent is expected to adhere to the commitment to demand from such classification.

48. That the Respondent, however, went on to act unlawfully in relation to the commitment by retrospectively changing the heading of the article's classification.

49. That in light of the circumstances, the court should therefore find it unreasonable that the impugned decision was entered and further annul it in favour of the Appellant.

50. That the principle of legitimate expectation was elaborated upon in the case of Keroche Industries Limited vs. Kenya Revenue Authority & 5 Others Nairobi [2007] eKLR where 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 different 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."

51. The Appellant submitted that the clear classification of HS Code 7610. 90 should be the basis upon which it is taxed not by inference or arbitrary conduct of the Respondent.

Appellant’s Prayers 52. The Appellant prayed for orders that the Honourable Tribunal:a.Allows this Appeal.b.Annuls the Respondent’s review decision as well as the demand notice.c.Awards costs to the Appellant.

The Respondent’s Case 53. The Respondent’s case was premised on the following documents filed before the Tribunal.a.The Respondent’s Statement of Facts dated 7th October 2022 and filed on 11th October 2022 and the documents attached thereto.b.The Respondent’s Written Submissions dated and filed on 11th April 2023 together with the legal authority attached thereto.

54. The Respondent averred that the legal force governing HS tariff classification is premised on the WCO Harmonized Commodity Description Coding System principles of General Interpretative Rules (GIRs) of classification, which was adopted and codified by the East African Community Partner States through the Common External Tariff (CET) book.

55. That classification of goods in Kenya is governed by the East African Community Common External Tariff (EAC CET). That the tariff system is applicable to Countries belonging to the East African Community.

56. That further, the said EAC CET is read together with the Explanatory Notes to the Chapter guided by the General Interpretation Rules.

57. That it is imperative to note that tariff classification in Kenya is governed by the East Africa Community Customs, Common External Tariff 2017 read together with its Explanatory notes, guided further by the General Interpretation Rules of classification and also based on the sample material presented and material information availed.

58. That the goods for tariff determination for this case and purposes is classified as presented at the time of importation.

59. That this tariff system is premised on the World Customs Organization Harmonized Commodity description coding system and its principles of general interpretative Rules (GIRs) of classification.

60. That further, the said EAC CET is derived from and informed by the International Convention on the Harmonized Commodity Description and Coding System to which Kenya and indeed all members of the East African Community are signatories.

61. That following the sequence of events, the Respondent exercised due diligence by involving the Appellant in the deliberation on this matter with no success.

62. The Respondent averred that Kenya's tax regime operates a self-declaration regime whereby, the taxpayer makes declarations and pays taxes on the items that they import themselves or through their agents. That this creates a legitimate expectation that the taxpayer will pay the correct taxes.

63. The Nature of Kenya's tax regime has been recognized by the Courts as espoused in Commissioner of Domestic Services v Galaxy Tools limited [2021] eKLR, which stated:“This country operates under a self-assessment tax regime. Under this regime, the tax paver assesses self and declares what he considers to be taxable income on which he then pays tax to the authorities. For this reason, the tax laws are coached in a manner that gives the tax authorities wide powers and discretion in ascertaining ex-post facto, what taxable income is.”

64. That in the event that the taxpayer defaults in this expectation, the law under Sections 135, 235, 236 & 249 of the East African Community Customs Management Act, 2004 (EACCMA) allows the Commissioner to conduct post clearance audit and demand short levied taxes.

65. That Sections 235 and 236 of the EACCMA give the Respondent powers to call for documents and conduct a Post Clearance Audit (PCA) on the import and export operations of a taxpayer within a period of five years from the date of importation or exportation.

66. That where the PCA reveals that taxes were short levied, or erroneously refunded, Sections 135 and 249(1) of EACCMA empower the Respondent to recover any such amount short levied or erroneously refunded with interest at a rate of two percent per month for the period the taxes remain unpaid.

67. That it is on this legal foundation that the Respondent carried out the audit on the Appellant and in application of Sections 135 and 249 of EACCMA, issued the demand notice of Kshs. 7,810,358. 00.

68. The Respondent averred that no legitimate expectation arose as it was the duty of the Appellant to correctly declare the imports. That the sheer volume of activity that goes on in customs makes the clearance process greatly dependent on the honesty and integrity of the taxpayer. That the Appellant failed to correctly declare its imports hence the Respondent was correct in conducting a post clearance audit pursuant to Sections 235 & 236 of the EACCMA and demand the short levied taxes as per Sections 135 and 249 of the EACCMA.

69. That on the right to transparency, right to fair administrative action and accountability, the Respondent stated that all decisions made were properly communicated to the Appellant.

70. That further the Appellant's objection was considered on merit and the results of the consideration were properly communicated.

71. The Respondent averred that additional taxes imposed were done pursuant to Sections 135 and 249 of EACCMA. That the taxes were arrived at after the audit of the Appellant's aluminium articles of imports.

72. That the findings revealed that the Appellant wrongly classified the aluminium articles under Heading 76. 10 instead of the correct Heading of 76. 16.

73. That the Respondent therefore invoked Sections 135 and 249(1) of EACCMA to impose the taxes. That the Respondent was therefore enforcing provisions of the law in imposing the taxes.

74. The Respondent averred that the Appellant in the letter dated 23rd May 2022 defined structure as;a.A building or other object constructed from several parts.b.A structure is an arrangement and organization of interrelated elements in a material object or system. Or the object or system so organized.c.Something built or constructed.d.A complex system considered from the point of view of the whole rather than any single part.

75. The Respondent stated that the Appellant's importations did not qualify as structures nor parts of a structure. That as defined above, a structure comprises of many different parts integrated together to form one distinguishable object "the structure".

76. That the different parts must be integral to the structure itself. That this means that without that component, then there cannot be a structure to speak of.

77. That Tariff code 7610. 10. 00 covers:-“aluminium structures (excluding prefabricated buildings of heading 9406) and parts of structures (for example, bridges and bridge- sections, towers. lattice masts. roofs. roofing frameworks. doors and windows and their frames and thresholds for doors. balustrades, pillars and columns): aluminium plates. rods, profiles, tubes and the like, prepared for use in structures.”

78. The Respondent stated that the aluminium articles imported by the Appellant are not structures. That this is because individually, they are not an amalgamation of parts of a structure. That moreover, they are not parts of a structure as they are not prepared for use in structures. That they are imported as stand-alone aluminium articles and are merely placed on structures but are not themselves part of the structure.

79. That the aluminium articles not being structures or part of structures, cannot be classified under Heading 76. 10.

80. That further, the fact that the Appellant describes itself as dealing in aluminium structures does not influence the classification of the aluminium Articles. That the General Interpretation Rules govern and guide the classification of products. That it was these rules that informed the decision of the Respondent in reference to the classification of the aluminium articles.

81. That this being said, the decision to classify the Aluminium articles under Heading 76. 16 was therefore the correct decision.

82. The Respondent stated that the Appellant failed to correctly declare the aluminium articles under HS Code 7616. 99. 00.

83. The Respondent stated that the Tariff ruling dated 31st May 2022 correctly classified the aluminium articles under HS Code 7616. 99. 00.

84. The Respondent stated that guided by the General Interpretation Rules, the aluminium articles were correctly classified under HS Code 7616. 99. 00.

85. The Respondent submitted that the following should be the issues for determination by the Tribunal:-a.Whether the Respondent erred in classifying the Appellant's aluminium articles under H.S code 7616. 99. 00. b.Whether the Respondent's decision breached the right of legitimate expectation.c.Whether the Respondent breached the principle against retrospective application of the law?

a. Whether the Respondent erred in law and fact in classifying the Appellant's aluminium articles under HS Code 7616. 99. 00? 86. The Respondent submitted that the classification of goods in Kenya is governed by the East African Community Common External Tariff (EAC CET) which codified and adopted the World Custom Organization Harmonized Commodity Description Coding System and its principles of General Interpretative Rules (GIRs) of classification of goods.

87. That in the Republic V Commissioner General & Another Ex-Parte Awal Ltd [2008] eKLR the Court stated that:“It is also 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). They are the generalized rules of interpretation of harmonized systems in classification of goods in nomenclature issued by the world customs organization to which Kenya is a signatory. The H.S Code assists the customs Department in the interpretation of the tariff classification. I will apply the interpretation provided for under the customs and Excise Act plus the rules of H.S. Code to determine this dispute."

88. That this was affirmed by the High Court in Beta Healthcare International Ltd V Commissioner Of Customs Services [2010] eKLR“Kenya is a signatory to the International Convention on the Harmonized Commodity Description and Coding System. Kenya became a contracting party to the convention on 29th January 1988. The entry into force of the convention came into effect in Kenya on 1st January 1989. "

89. The Respondent submitted that the EAC CET is derived from and informed by the International Convention on the Harmonized Commodity Description and Coding System to which Kenya and all member states of the East African Community are signatories.

90. The Respondent submitted that the Appellant's imported solar water heating systems are classifiable under Chapter 76 (1) (b) of the East African Community Common External Tariff (EAC CET) which provides as follows:-''Aluminium alloysMetallic substances in which aluminium predominates by weight over each of the other elements, provided that:i.the content by weight of at least one of the other elements or of iron plus silicon taken together is greater than the limit specified in the foregoing table; orii.the total content by weight of such other elements exceeds 1%."

91. That Heading 7610. 10. 00 covers aluminium structures as provided below:“aluminium structures (excluding prefabricated buildings of headings 9406) and parts of structures (for example, bridges and bridge sections, towers, lattice masts, roofs, roofing frameworks, doors and windows and their frames and thresholds for doors, balustrades, pillars and columns); aluminium plates, rods, profiles, tubes and the like, prepared for use in structures.”

92. The Respondent averred that this is because individually they are not an amalgamation of parts of a structure. Moreover, they are not parts of a structure, as they are not prepared for use in structures. They are imported as stand-alone aluminium articles and are merely placed on structures but are not themselves part of a structure.

93. The Respondent submitted that the decision to classify the aluminium articles under Heading 76. 16 was the correct one and further the Appellant failed to correctly declare the aluminium articles under HS Code 7616. 99. 00.

94. The Respondent submitted that guided by the General Interpretation Rules, the Appellant's aluminium articles were thus classifiable under HS Code classification 7616. 99. 00.

b). Whether the Respondent's decision breached the right of legitimate expectation? 95. The Respondent submitted that the Appellant's case was that the Respondent's decision constituted a fundamental breach of its legitimate expectation. The Respondent submitted that this was misguided for reason that there cannot be legitimate expectation against the clear provisions of statute or the law.

96. That in the case of the Republic v Kenya Revenue Authority; Proto Energy Limited (Exparte) (Judicial Review Application Eo23 of 2021) [2022] KEHC 5 (KLR) the Court stated:Para 66 ".....Discussing legitimate expectation, H. W. R. Wade & C. F. Forsyth:.:. states thus:- (Administrative Law, by H.W.R. Wade, C. F. Forsyth, Oxford University Press, 2000, at pages 449 to 450. )"It is not enough that an expectation should exist; it must in addition be legitimate ....First of all, for an expectation to be legitimate it must be founded upon a promise or practice by the public authority that is said to be bound to fulfil the expectation..... Second, clear statutory words, of course, override an expectation howsoever founded ..... Third, the notification of a relevant change of policy destroys any expectation founded upon the earlier policy"Para 67 Statutory words override an expectation howsoever founded. A decision maker cannot be required to act against clear provisions of a statute just to meet one's expectations otherwise his decision would be out rightly illegal and a violation of the principle of legality, a key principle in Rule of Law. There cannot be legitimate expectation against the clear provisions of a statute."

97. That the Supreme Court in considering the issue of legitimate expectation raised in Communications Commission of Kenya & 5 others v Royal Media Services Limited & 5 others [2014] eKLR had this to say at Paragraph 269. “The emerging principles may be succinctly set out as follows:a.there must be an express, clear and unambiguous promise given by a public authority;b.the expectation itself must be reasonable;c.the representation must be one which it was competent and lawful for the decision-maker to make ;andd.(d) there cannot be a legitimate expectation against clear provisions of the law or the Constitution.”

98. That based on the foregoing analysis, it is without doubt that the Tribunal should find that the Appellant's claim on legitimate expectation fails.

c). Whether the Respondent breached the principle against the retrospective application of the law? 99. The Respondent submitted that the Kenyan tax system is a self-assessment regime whereby a taxpayer is required to self-assess and submit the correct and applicable taxes to the Respondent.

100. That it acted within its power under Sections 235(1) and 236 of EACCMA, 2004 which empowers the Respondent to conduct a post clearance audit within 5 years and seek for documents to verify the correctness of the taxes declared and paid.

101. That Section 135 of the East African Community Customs Management Act, 2004 empowers the Respondent to demand for short levied taxes.

102. That in Pharmaceutical Manufacturing (K) Co Ltd & 3 others v Commissioner General of Kenya Revenue Authority &2 others [2017] eKLR the Court of Appeal stated:-“Furthermore, Section 135 (1) of the East African Community Customs Management Act, 2004 mandated the respondents, where any duty was short levied or erroneously refunded, to demand payment or a refund, as the case may be, from the person who should have paid the amount or to whom a refund was erroneously made. Such a person is required to pay the amount due upon receipt of the demand. The amount due is deemed to be due on the date on which the demand note is served upon him or her. The demand note must be followed by payment within thirty days of the date of such service, failing which a further duty of a sum equal to five percent of the amount demanded would be due and payable by that person by way of a penalty and a subsequent penalty. But no such demand may be made after five years from the date of the short levy or erroneous refund, as the case may be, unless the short levy or erroneous refund had been caused by fraud on the part of the person who should have paid the amount short levied or to whom the refund was erroneously made, as the case may be."

103. The Respondent submitted that the Appellant is required at all times to correctly declare the goods it is importing and subject the same to the applicable HS Code for purposes of charging appropriate taxes.

104. That the Respondent has power and mandate to conduct a post clearance audit to verify taxpayer's declarations and demand for the short levied taxes.

Respondent’s Prayers 105. The Respondent prayed that the Tribunal finds that:-a.The Respondent correctly classified the aluminium articles under HS Code 7616. 99. 00b.The Appeal be dismissed with costs for lack of merit.

Issue for Determination 106. The Tribunal upon due consideration of the pleadings of the parties was of the considered view that the Appeal raises only one issue for its determination:Whether the Respondent erred in law and in fact in reclassifying the Appellant’s aluminium articles from tariff code 7610. 90. 00 to tariff code 7616. 99. 00

Analysis and Determination 107. The Tribunal having ascertained the issue for determination as set out above proceeded to deal with the same as hereunder.

108. The genesis of this Appeal is the review decision made on 10th August 2022 confirming that the Appellant’s aluminium structures, parts of structures and accessories for installation of solar panels should be classified under HS Code 7616. 99. 00 and not 7610. 90. 00 as the Appellant had done over the years.

109. The Appellant appealed against this decision indicating that it was dealing in aluminum structures and parts of structures in its ordinary course of business and imported the same which were subject of 0% import duty as classified under H.S Code 7610. 90. 00.

110. The Appellant argued that the structures it imported ought to be classified under H.S Code 7610. 90 as they are aluminum walkways, aluminum steps walkways, non-anodized C-chanel and specialized solar module mounting structures. That all these items are structures per the description of what a structure is.

111. The Appellant submitted that a structure makes reference to interrelated elements in a material object. That this is usually looked at from the point of view of the whole rather than a single part.

112. The Appellant submitted that structures cannot therefore work in isolation, they are arranged to form the “end product”. That even if it were to be looked at from the point of view that the imported aluminum articles are parts of structures, they would still be part of the non-exhaustive list under Heading 7610.

113. The Appellant further submitted that the subject aluminum articles do not work in isolation as they are mounted onto roofs which are in themselves structures.

114. The Appellant further submitted that even if the Respondent's classification were to be looked at without any further reference to other Headings, the articles would not be classifiable under subheading 7604. 10. The aforementioned Heading and the explanatory notes thereunder make reference to aluminum rods, bars and alloys.

115. The Appellant also submitted that it is trite law that tax laws ought to be interpreted strictly and any ambiguity in tax law should be made in favor of the taxpayer therefore the Respondent cannot purport to depart from an already established Harmonized Commodity Description and Coding System by straining the meaning while referring to the articles, and inferring that they are in the nature of bars, rods and/or alloys or as further described under Chapter 74 Note l(d) of Subheading 7604. 10. The Appellant submitted that the Respondent's stance at the classification of the imported articles is therefore grossly misguided.

116. The Appellant attached the letter of objection dated 23rd May 2022. In that letter, it had submitted the following documents:-a.A description of the items it had imported over the last 5 years prior to the Post Clearance Audit.b.Analysis of the heading 7610 Explanatory notes.c.Items classifiable under Heading 7610 as per the Heading Notes.d.Rules 2 and 3 of the Harmonised System Classification Rules.e.Nineteen (19), WCO Rulings similar to 76. 10 as per the Nomenclaturef.Twelve (12) United States Customs and Border Classification Rulings for Heading 76. 10. g.Images (photos) of the items imported.

117. Although the WCO rulings and the United States Customs and Border Classification Rulings for Heading 7610 are not binding, they demonstrate how other jurisdictions classify the items imported by the Appellant.

118. On the other hand, the Respondent indicated that the desk review audit was triggered “by intelligence received that there were persistent misclassification of Aluminium articles under HS Code 7610. ”

119. The Respondent averred that the Appellant in the letter dated 23rd May 2022 defined structure as:a.A building or other object constructed from several parts. A structure is an arrangement and organization of interrelated elements in a material object or system. Or the object or system so organized.b.Something built or constructed.c.A complex system considered from the point of view of the whole rather than any single part.

120. The Respondent averred that the Appellant's importations did not qualify as structures nor parts of a structure. That as defined above, a structure comprises many different parts integrated together to form one distinguishable object "the structure".

121. That the different parts must be integral to the structure itself. That this means that without that component, then there cannot be a structure to speak of.

122. That Tariff code 7610. 10. 00 covers:-“aluminium structures (excluding prefabricated buildings of heading 9406) and parts of structures (for example, bridges and bridge- sections, towers, lattice masts, roofs, roofing frameworks, doors and windows and their frames and thresholds for doors, balustrades, pillars and columns): aluminium plates. rods, profiles, tubes and the like, prepared for use in structures.”

123. The Respondent stated that the aluminium articles imported by the Appellant were not structures. That this is because individually, they were not an amalgamation of parts of a structure. That moreover, they were not parts of a structure as they were not prepared for use in structures. That they were imported as stand-alone aluminium articles and were merely placed on structures but are not themselves parts of the structure.

124. That the Aluminium articles not being structures or parts of structures, cannot be classified under Heading 76. 10.

125. That further, the fact that the Appellant describes itself as dealing in aluminium structures does not influence the classification of the aluminium articles. That the General Interpretation Rules govern and guide the classification of products. That it was these rules that informed the decision of the Respondent in reference to the classification of the aluminium articles.

126. That the decision to classify the Aluminium articles under Heading 76. 16 was the correct decision.

127. The Tribunal has noted that both parties are in agreement that classification of goods imported into Kenya is governed by the East African Community External Tariff (EAC CET) 2017.

128. The Tribunal has looked at the headings of the HS codes in contention as stated in the 2017 East Africa Community External Tariff book and found the following description for Heading 7610:-“76. 10Aluminium structures (excluding prefabricated buildings of heading 94. 06) and parts of structures (for example, bridges and bridge-sections, towers, lattice masts, roofs, roofing frameworks, doors and windows and their frames and thresholds for doors, balustrades, pillars and columns); aluminium plates, rods, profiles, tubes and the like, prepared for use in structures.7610. 10. 00 - Doors, windows and their frames and thresholds for doors.7610. 90. 00 – Other”

129. The following is the description for Heading 7616. “76. 16Other articles of aluminium.7616. 10. 00 - Nails, tacks, staples (other than those of heading 83. 05), screws, bolts, nuts, screw hooks, rivets, cotters, cotter-pins, washers and similar articles.7616. 91. 00 -- Cloth, grill, netting and fencing, of aluminium wire7616. 99. 00. - Other”

130. The General Rules for Interpretation of the Harmonized System that govern the classification of goods under the Harmonized Commodity Description and Coding System (HS) give the steps to be followed in classification of goods.

131. General Rule No 1 states that:-“If a provision specifically and completely describes a product, then the product should be classified in that provision”

132. After analyzing the submissions, the General Rules of Interpretation and the items classified under the Headings indicated above the Tribunal is of the view that the Appellant’s aluminium structures, parts of structures and accessories for installation of solar panels are classifiable under Heading 7610. 90. 00 and not Heading 7616. 99. 00 as indicated by the Respondent.

133. In view of the above, the Tribunal finds that the Respondent erred in law and in fact in reclassifying the Appellant’s aluminium articles from Hs code 7610. 90. 00 to Hs code 7616. 99. 00.

Final Decision 134. The upshot of the above is that the Appeal as filed is merited and the Tribunal accordingly proceeds to issue the following Orders:a.The Appeal be and is hereby allowed.b.The Respondent’s review decision dated 10th August 2022 be and is hereby set aside.c.Each party to bear its own costs.

135. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF FEBRUARY, 2024. GRACE MUKUHA - CHAIRPERSONGLORIA A. OGAGA - MEMBERJEPHTHAH NJAGI - MEMBERDR. ERICK KOMOLO - MEMBERTIMOTHY VIKIRU - MEMBER