[2024] KETAT 1011 (KLR)

Reesewood Enterprises Limited v Commissioner of Customs and Border Control (Tax Appeal 287 of 2022) [2024] KETAT 1011 (KLR) (12 July 2024) (Judgment)

Neutral citation: [2024] KETAT 1011 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 287 of 2022

RM Mutuma, Chair, B Gitari, EN Njeru, M Makau & AM Diriye, Members

July 12, 2024

Between

Reesewood Enterprises Limited

Appellant

and

Commissioner Of Customs And Border Control

Respondent

Judgment

1. The Applicant is a limited liability company incorporated under the Companies Act 2015 and is a registered taxpayer. Its main form of business is in the importation of Hot rolled Sheets, Steel beams, hot rolled checkered plates, Brown Sugar, and white sugar.

2. The Respondent is established under the Kenya Revenue Authority Act, Cap 469 Laws of Kenya. The Kenya Revenue Authority (“KRA”) is an agency of the Government of Kenya for assessing, collecting, and accounting for all revenue.

3. The Respondent conducted a post-clearance desk audit of the Appellant’s transactions which was completed and sent to the Appellant on 22nd October 2019 alleging that the Appellant had wrongly classified imported products as tariff 7216. 33. 90, attracting an import duty of 0% and VAT of 16% instead of 7228. 70. 00 which attracts an import duty of 25% and VAT of 16% and demanded import duty of Kshs. 6,584,690. 00.

4. The Appellant responded vide a letter dated 31st October 2019 rejecting the audit findings and referred to the Manufacturer’s Mill Test Certificate and KEBS Certificate of Conformity which confirmed Heading 7216. 33. 90 as the correct classification for the products.

5. The Respondent, on 13th November 2019 dismissed the Appellant’s letter on the basis that the Manufacturer’s Mill Test Report did not include the important alloy elements like Boron and could not be relied on and informed the Appellant that samples of the subject items were subjected to laboratory analysis at its inspection and testing center and a Tariff Ruling ref: CUS/V&T/TARI/RUL/177/2019 of 15th April 2019 was issued which classifies the items under Heading 7228. 70. 00.

6. There ensued more correspondences between the parties which culminated in the Respondent sending a demand on 28th April 2020 confirming the demand. The Appellant consequently filed a Notice of Appeal on 8th June 2020.

7. The Appellant further filed its Notice of Appeal and Memorandum and Statement of Facts but the same was successfully objected to by the Respondent and struck out for being time-barred in the Tribunal’s judgement dated 13th October 2023.

8. The Appellant consequently filed an Application for Review of the judgment of 13th October 2023 on the grounds that there was an error apparent on the face of it. The Tribunal issued a Ruling on the same dated 23rd February 2024 in favour of the Appellant. The Appeal proceeded to be heard on its merits.

The Appeal 9. The Appellant initially put forth it’s case in the Memorandum of Appeal and Statement of Facts dated 18th March 2022 and filed on 28th March 2022, Subsequently, the Appellant file Amended Memorandum of Appeal and Statement of Facts on 1st November 2022.

10. The Appellant’s case is premised on the following grounds listed in the Memorandum of Appeal: -a.The persistent decision of the Respondent to classify the items under Heading 7228 instead of 7221 without sharing concrete evidence of the basis for the classification is inconsistent with the letter and the spirit of the East African Community Customs Management Act as well as the Constitution of Kenya.b.In any case, the items are technically not classifiable under Heading 7228. The Explanatory Notes to the Customs Nomenclature have a clear preference for Heading 7221 as being the most appropriate heading for the classification of the goods.c.Furthermore, the persistent refusal by the Respondent to avail the alleged laboratory analysis report makes the authenticity of its existence doubtful and seriously compromises any possible credibility and reliability of the report.d.The Respondent having unconditionally released the goods to the Appellant upon examination of the same cannot be allowed to make a U-turn one year later to demand extra duty on the goods when it had the opportunity to do so prior to the release of the goods.e.The Respondent’s action is therefore an abuse and misuse of authority, unreasonable, irrational, procedurally unfair, unjustified, and void.f.It is therefore in the interest of justice, transparency, accountability, and good governance that the Respondent is in this particular case compelled to strictly adhere to the previous provisions of the law and technical guidelines on the classification of goods for customs purposes.g.On account of the manner in which the Respondent has with total impunity denied the Appellant access to critical information regarding the demand, the demand should be dismissed in total without considering its merits.h.The Honourable members of the Tribunal should decide for instilling professional discipline and accountability and condemning arrogant disregard of fair administrative action.

The Appellant’s Case 11. The Appellant’s case is premised on the following documentsa.Statement of Facts dated and filed on 1st November 2022 together with the documents attached thereto;b.Supplementary written submissions dated and filed on 11th December 2022;c.Second Supplementary submissions dated 21st March 2023 and filed on 23rd March 2023; and,d.Response to the Respondent’s written submissions dated and filed on 30th April 2024;

12. The Appellant stated that it declared its imported steel beams from China on import entry number 2018MSA7076041 under customs tariff number 7216. 33. 90 and paid the corresponding duty and other charges. Subsequently the Appellant averred that it presented the declaration to the Respondent for review and approval prior to the release of the goods in accordance with the procedure for clearance of goods through customs.

13. The Appellant contended that the requisite approval for the declaration was given by the Respondent upon which goods were physically examined to confirm the accuracy of the declaration and subsequently released by the Respondent on the basis of the presentation of all the necessary documents.

14. The Appellant averred that the Respondent in its letter of 22nd October 2019 ref: HQ/PCA/RRI/083/19, informed the Appellant that the declaration of the items under Heading 7216. 33. 90 was wrong and that the correct Heading was 7228. 70. 00 and demanded an extra duty of Kshs. 6,584,590. 00.

15. The Appellant stated that it wrote a letter to the Respondent on 31st October 2019 explaining the basis of the declaration per the Mill Test Certificate and KEBS which confirmed Heading 7216. 33. 90 as the correct tariff classification for the items but the Respondent dismissed the letter through its letter ref: HQ/PCA/RRI/083/19 dated 13th November 2019 stating that the Mill Test Report did not include importation of alloy elements like Boron and thus could not be relied on and that samples of the items were subjected to laboratory analysis at the Respondent’s Inspection and Testing Centre after which a Tariff Ruling ref: CUS/V&T/TARI/RUL/177/2019 of 15th April 2019 classifying the items under Heading 7228. 70. 00 was issued.

16. The Appellant further averred that it wrote to the Respondent on numerous occasions, on 25th November 2019, 3rd January 2020, 28th February 2020, 23rd March 2020, 7th April 2020, and 28th April 2020 requesting the evidence in the form of the laboratory analysis report to be availed to it but the Respondent forwarded its ruling of 15th April 2019 ref: CUS/V&T/TARI/RUL/177/2019 instead and in its subsequent correspondences with the Appellant on 13th December 2019, 13th February, 3rd March, 10th March, 30th March, and 27th April 2020 the Respondent reiterated the taxes due including penalties and interest and demanded payment for the same.

17. The Appellant submissions were presented under the following headings;i.Tariff Classification of the Appellant’s goods; and,ii.Legality or Otherwise of the Respondent’s actions.

18. The Appellant submitted that the Respondent was wrong in classifying the goods under tariff number 7228. 70. 00 instead of 7216. 33. 90. The Appellant stated that Classification of the goods under tariff number 7228. 70. 00 according to the Respondent, was consequential to laboratory test analysis performed on a sample of the items by the Respondent’s inspection and testing centre. While the inspection and testing centre can be the basis of Tariff Ruling, the same must be arrived at in accordance with the Rules for the Interpretation of the Harmonized System otherwise known as GIRS.

19. The Appellant cited that the opening statement in the explanatory notes to the Nomenclature, states that “classification of goods in the nomenclature shall be governed by the following principles”. The principles are the General Interpretation Rules for the Classification of Goods (GIRs). The GIR rule 1 states that;“the titles of sections, chapters and subchapters 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- GIR rules 2, 3, 4 and 5. ”

20. In its submissions the Appellant stated that in effect, the GIRs stipulates that it moves sequentially to the next rule, only if the previous one cannot classify an item, that is the legal way to classify items.

21. The Appellant averred that the choice of tariff number 7228. 70. 00 without doubt was arrived at from information gathered from the laboratory analysis and after invalidating GIR rule 1, which the Appellant had used. It stated that while there is no doubt to the fact that the Respondent has the right to perform such analysis, the Respondent has failed to avail evidence of the alleged analysis for the Appellant’s review with its suppliers, and did not incorporate the Appellant in the process as required by law, specifically Section 41 of the Customs Act.

22. Further it stated that it classified the items as, “Angles and sections of iron or non-alloy steel”, specifically as H-Sections falling under 7216. 33. 90, according to GIR rule 1, stated earlier, in which Heading number 7216 and tariff number 7216. 33. 90 refer to H sections which are the items the Appellant imported as confirmed by the Respondent’s letter ref: HQ/PCA/RRI/083/19 of 22nd October 2019. The heading, also provides the most specific description of the items as provided under GIR 3(a) which states inter alia that, “The heading which provides the most specific description shall be preferred to headings providing a more general description.” This, it stated, is therefore the most appropriate tariff heading of the items both in terms of physical structure and composition as well as legal guidance.

23. The Appellant stated that among the exclusions under Heading 7216, are Hollow drill bars of Heading 7228. Therefore the Respondent’s insistence on classifying the items under 7228. 70. 00 which is for, “other bar and rods of other alloy steel, angles, shapes and sections of other alloy steel, hollow drill bars and rods of alloy or non-alloy steel specifically under, Angles, shapes and sections”, and which coincidentally, is among the exclusions of the importers preferred heading raises eyebrows and required to be proven beyond any reasonable doubt by providing witnessed evidence that includes joint or independent sample testing by other credible quality certification organizations.

24. The Appellant submitted that angles, shapes and sections are defined in Note 1 (n) to chapter 72 as “products having a uniform solid section along their whole length which do not conform to any of the definitions at (ii), (k), (l) or (m)…” under Note 1, Angles, shapes and sections of iron or non-alloy steel are classified under Heading 7216 and these are the items the Appellant imported.

25. Furthermore, the Appellant submitted that its classification was necessitated by the manufacturer’s mill test certificate showing chemical composition of the structural steel it imported. According to this literature, its products have chemical elements as reflected in the mill test certificate. It stated that the chemicals used for the production of the products are carbon (ranging between 0. 22% to 0. 25%max), Manganese (1. 60% max), phosphorous (ranging between 0. 04% to 0. 05% max), Sulphur (0. 05%max) and Silicon (0. 05% max).

26. The Appellant averred that under ArticlesofBase Metals(part B of section XV of the Explanatory Notes) which states;“In accordance with Note 7, base metal articles containing two or more base metals are classified as article of that metal that predominates by weight over each of the other metals, except where the headings otherwise require.”

27. Further the Appellant stated that;“in calculating the proportions of metals present for the purposes of this rule, it should be noted that:(1)All varieties of iron or steel are to be regarded as the same metal(2)An alloy is regarded as being entirely composed of that metal as an alloy of which it is classified.”

28. The Appellant submitted that under Note 1 (f) of the Chapter Notes 72, the term, “Other alloy steel” is introduced According to this Note, and “other alloy steel” is defined as;“Steels not complying with the definition of stainless steel and containing by weight one or more of the following elements in the proportion shown:0. 3% or more of aluminium0. 0008% or more of boron0. 3% or more chromium0. 3% or more of cobalt0. 4% or more of copper1. 65% or more of manganese0. 08% or more molybdenum0. 3% or more of nickel0. 06% or more of silicon0. 05% or more of titanium0. 3% or more of tungsten (wolfram)0. 1% or more of vanadium0. 05% or more of zirconium0. 1% or more of other elements (except Sulphur, phosphorous, carbon and nitrogen) taken separately.”

29. The Appellant stated that the definition of “other alloy steel” given above necessitates a look at the steel used to manufacture the H beam, which are the subject of this dispute. From the Supplier, it averred that carbon, manganese, phosphorus, silicon and sulphur have been used in the product. It stated that when the percentages given, such that onlyone of these elements makes the steel into “other alloy steel”, the following is noted:a.The product has manganese, but of 1. 60%, less than the 1. 65% mentioned above.b.The product has silicon, but of 0. 05%, less than 0. 06% mentioned above.c.The product has carbon, Sulphur and phosphorus, whose percentages are not included.

30. The question that the Appellant then quipped is, does “taken separately” mean that the three elements are excluded from the last condition for “other alloy steel” or does it mean that for these three, the percentage is irrelevant hence their presence makes the steel qualify as other alloy steel, or as alloy or non-alloy steel? That it observed was not clear!

31. It observed that the Respondent’s insistence on the bringing in the other elements not included in the production of the items on the basis of a unilateral process, and its refusal to avail a copy of their laboratory test analysis report, so that it may take up the matter with the suppliers if indeed they shipped to it what it had not required, smacks of malice.

32. The Appellant averred that the respondent had merely stated that Heading 7216 covers angles, shapes and sections of iron or non-alloy steel, and that “it is evident from the heading and applying GIR 1 that your alloyed H beams are not classifiable under this heading”. The Respondent, it said, has in this case talked about “evident” which it has completely failed to avail. The Appellant in this case, questioned how the tariff heading and ‘applying GIR 1’ becomes evident for the Respondent’s argument?

33. It further stated that the Respondent has also merely stated that its H beams fall under Heading 7228 covering bars and rods of other alloy steel. Here again, it stated that the Respondent has failed to demonstrate its claim.

34. Further the Appellant stated that the Respondent’s assertion actually supports its classification of goods under Heading 7216 as read with Rule 3 (a) of the GIRs. This, it stated, is because once again, the heading provides a more specific description of its goods that reflects the actual physical items it imported i.e. Angles, shapes and sections in H beams shape. Heading 7228 on the other hand it stated refers to bars, rods, angles and sections but not H beams the Appellant imported. It asserted that its goods are therefore most appropriately classified under Heading 7216 and not 7228 being desperately advanced by the Respondent.

35. The Appellant stated that a part from the fact that the tariff number 7228. 70. 00 preferred by the Respondent is technically wrong, it should be noted that under Section 41 of the East African Customs Management Act, hereinafter referred to as the Act, the Respondent may carry out physical examination of the goods in the process of Customs clearance in order to determine accuracy of the declarations made including tariff classification which is the subject of this dispute.

36. In this connection, it confirmed that its goods were examined by the Respondent while still physically under the Respondent’s control and eventually released to them by the Respondent on account of the Respondent being satisfied with its declarations, that included quality, description, tariff classification, value, rate of duty and total tax liability on the goods.

37. The Respondent stated that the full length of procedure for release of imported cargo by the Respondent in line with the Act, East African Community Regulations herein referred to as ‘the regulations’ and the Customs departmental instructions with respect to cargo imported by sea, like the case of its cargo entails the following:i.Cargo report- Section 24 (1) of the Act;ii.Cargo entry- Section 34 (1) of the Act;iii.Examination of cargo- Section 1 of the Act; and,iv.Release of cargo- Section 33 (4) of the Act.

38. In order to ensure full protection and collection of revenue and compliance with the Act, it stated that all imported goods have to be reported under Section 24 of the Act. Section 24 (1) of EACCMA states that;“The master or agent of every aircraft or vessel, whether laden or in ballast, shall, except where otherwise provided in any regulation, make a report on the prescribed form to a proper officer at any port or other place especially allowed by the proper officer of the aircraft or vessel, and of its cargo and stores, and of any package for which there is no bill of lading.”

39. It stated that upon report, such goods have to be entered under Section 2 (2) (a) as read with Section 34 (1) of the Act; Section 2 (2) (a) of the Act states that,“Goods shall be deemed to be entered when the entry in the prescribed manner is made and lodged by the owner and any duty due or deposit required under this Act in respect of the goods has been paid, or security has been given for compliance with this Act.”

40. It averred that entry here means that the owner of the goods or his agent makes a self-assessment declaration of the particulars of the goods including description, quality, value, tariff classification, duty rate and total duty and tax liability in case of home use goods like its goods, then present the declarations together with evidence of payment of the self-assessed duty and tax to the Respondent for review and approval, so that if the entry is passed, the declarations are approved.

41. On the other hand, the Appellant stated that Section 34 (1) of the Act states that;“save as otherwise provided in the customs laws, the whole of the cargo of an aircraft, vehicle or vessel which is unloaded or to be unloaded shall be entered by the owner within twenty-one days after the commencement of discharge or in the case of vehicles on arrival or such further period as may be allowed by the proper officer, either for-a.Home consumption;b.Warehousing;c.Transshipment;d.Transit; ore.Export processing zones.”

42. The Appellant stated that after entry, the goods are physically examined under Section 41 of the Act to determine accuracy of the declarations. Section 41 of the Act it averred states that;“Goods entered under section 34, may in the presence of the owner, be examined by the proper officer to take account and examine the accuracy of the entry made”.

43. Lastly, it stated that upon being satisfied with the declarations on examination, the Respondent in the case of goods imported for home use, like its goods, releases the goods to the owner upon which they are removed from Customs control under Section 33 (4) of the Act. Section 33 (4) of the Act states that;“goods shall not be removed from any part of a Customs area or from a transit shed or a Customs warehouse unless such goods have been duly reported and entered and authority for their removal or delivery has been given by the proper officer.”

44. In this regard, it averred that its goods were duly reported, entered, examined and delivery granted by the Respondent under Section 33 (4) of the Act. It stated that examination of goods is a critical stage of this process. It further stated that the law under Section 41 of the Act requires that goods are examined by the Respondent in the presence of the owner. The purpose of this it stated, is to ensure transparency, openness and accountability, and to build confidence and trust between the Customs authorities and the owner of the goods. It stated that any action taken by the Respondent including laboratory testing, intended for examination of the physical nature and composition of any imported goods in order to determine accuracy of declaration made MUST therefore accord to the provision of Section 41 of the Act that requires witnessing by the owner. It averred that laboratory analysis is without doubt part of the process of examination of goods under Section 41 of the Act which must be performed with full involvement of the owner.

45. It averred that for the Respondent to flatly refuse to share with the Appellant the alleged laboratory test analysis report as evidence upon which it based its Tariff Ruling and demand of extra duty is a direct violation of its right to fair administrative action and therefore illegal. It averred that communicating to it a ruling based on evidence but refusing to share with it the evidence is a serious breach of good faith and MUST make the purported analysis null, void and invalid.

46. The Appellant averred that the Respondent, had in its statement of facts sadly stated that the laboratory analysis report was an internal memo that could not be shared with it, the owner of the goods, directly affected by the report, and who could use the same report as a basis of review of the matter with the suppliers, when in contrast, in compliance with Section 41 of the Act, the Respondent should have invited the Appellant to delegate an expert witness to the process of laboratory test analysis. This, it stated, did not happen. Instead, it stated that the Respondent allegedly conducted a second unilateral verification of the goods by way of laboratory test analysis without involving the Appellant.

47. It stated that the Respondent, has supported its decision to deny the Appellant access to evidence by asserting that this is in conformity with Section 248 A of the Act, as well as World Trade Organization (WTO) technical guideline on advance ruling. This assertion, it stated, is absurd since both Section 248 A of the Act and WTO guidelines refers to advance ruling on classification, where a person intending to import goods make an application to the Respondent for advance ruling to enable him or her make informed decision on the intended importation. This, it stated, was not the case with the matter before the Tribunal. In this case, it stated that its goods were subjected to the alleged laboratory analysis after importation, on the Respondent’s own initiative. It stated that the Respondent’s action was therefore not provided for by Section 248 A or the WTO guidelines as alleged by the Respondent.

48. The Appellant cited Section 248 A which states as follows:“248A (1) A person intending to import goods, may take a written application to the Commissioner for advance ruling on any of the following:a.Tariff classificationb.Rules of originc.Customs valuation248A (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.248A (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 application.248A (4) The decision issued under subsection (3) shall be binding on the Commissioner and the applicant for a period not exceeding twelve months.”

49. It averred that the procedure was only applicable to a situation where a person “intends to import goods and would want the Commissioner to furnish them with the correct tariff classification to enable them make a decision to import with the knowledge of applicable duty beforehand.” This, it stated, did not apply to a situation where goods were subjected to review of self-assessed declarations including tariff classification on arrival. It stated that it did not apply for advance ruling on tariff classification. This, it emphasized, did not happen and there could never be any evidence to the contrary. The WTO guidelines on advance ruling quoted by the Respondent too, it stated, did not apply to the Appellant’s goods for the same reason.

50. The Appellant equated the effort employed by the Respondent to block it from accessing the crucial information about its goods with a case of a medical doctor who refers one to a Hospital laboratory, then upon conclusion of the test, communicates to the patient a written information on the disease the patient is suffering from but refuses to give him a copy of the laboratory test analysis report for his own record, on the basis that it is the Hospital’s internal confidential memo that cannot be accessed by the patient, who is the person directly affected by the result. This, it stated, cannot be acceptable and raises serious questions as to the authenticity of the test in the first place.

51. It stated that information conveyed by a Tariff Ruling or a letter communicating laboratory test results is quite different from detailed scientific information and analytical background and basis of such information. It was its view that this was a fundamental right for a person affected by such information who must therefore fully access the basis of such information under Section 4 (1), (2) and (3) of the Access to Information Act, 2016. In this connection, it stated that several requests placed by it for the Respondent to avail laboratory analysis report to it for review were blatantly declined without any justification in law, and in violation of Section 4 (1) of the Fair Administrative Action Act, 2016.

52. The Appellant referred to the Respondent’s statements of facts in which the Respondent stated that it drew samples on Customs entry numbers 2018MSA7004453 and 2018MSA6979248 which they tested and found to be containing Boron levels of 0. 0012%. The Respondent, it stated, also stated in paragraph 31 of its statements of facts that subsequent to the test, a Tariff Ruling was issued to the Appellant on 15th April 2019, which in paragraph 32, the Respondent says the Appellant never objected to. This, it stated, was a very misleading averment.

53. First and foremost, the Appellant stated that Customs entry numbers 2018MSA6979248 and 2018MSA7004453 were not subject to this dispute. These, it stated, were entries whose imports it fully paid additional duty under duress after serious harassment, in which the Respondent threatened to suspend its Customs agent’s (S.K. AMIN LTD) license. Instead, it stated, the Customs entry whose imports are subject to this matter is 2018MSA7076041; which it in frustration referred to consultants (Sirro and Associates Limited), to handle hence this Appeal. Further, it stated that the said tariff ruling was only availed to it in November 2019, six months later after the averred laboratory test on intervention of the consultants.

54. Moreover, the Appellant stated that a formal demand of additional duty by the Respondent was made on 22nd October 2019 to which it swiftly responded within the timelines on 31st October 2019, as a consequence of which an Objection Decision was made by the Respondent on 13th November 2019, which it again responded to on 25th November 2019, within the prescribed timeline. The issue of non-objection of anything, it stated, does not therefore arise in this matter.

55. Meanwhile, it submitted proof of payment of additional duty in respect of Customs entry number 2018MSA6979248 via email of 10th November 2022 to Faith Onyango, Counsel for the Respondent at 3:29 pm. Consequently, it stated, the Respondent through Moses Luande for the Commissioner, in the same email thread, confirmed on 11th November 2022 at 12:37 pm that indeed payment of taxes amounting to Kshs. 1,436,103. 00 together with penalty and interest of Kshs. 90,890. 00 all amounting to Kshs. 1,526,993. 00, in respect of goods imported against Customs entry number 2018MSA6979248 was already fully paid, as a consequence of which replacement of the entry with entry number 2018MSA7076041 was therefore acceptable to the Respondent.

56. On the question of test, the Appellant noted that in the Respondent’s supplementary statements of facts dated 19th April 2022, replying affidavit dated 10th November 2022 and its supplementary statement of facts dated 5th December 2022 it is clear that goods imported vide entry number 2018MSA7076041 were after all not subjected to the much-touted laboratory test. This, it stated, is demonstrated by the fact that there is completely no reference in all of the Respondent’s presentations of goods against entry number 2018MSA7076041 as having been subjected to any laboratory test.

57. The Appellant stated that in the Respondent’s statement of facts, the Respondent, refers to testing of samples drawn from entry numbers 2018MSA7004453 and 2018MSA6979248. In paragraph 8 of its replying affidavit, the Respondent once again refers to testing of samples drawn from entry numbers 2018MSA7004453 and 2018MSA6979248. In paragraph 7 of its supplementary statement of facts, the Respondent yet again refers to testing samples drawn from entry numbers 2018MSA7004453 and 2018MSA6979248. Further, the Respondent’s Tariff Ruling contained in its letter ref: CUS/V&T/TARI/177/2019 of 15th April 2019 also make reference to only testing of sample drawn from entry number 2018MSA6979248.

58. The Appellant averred that the Respondent stated that its mill test certificate did not include important alloying elements like Boron. It stated that the wording of the Respondent’s statement in the letter i.e. “important alloying elements like Boron were not included in the report” begs the question as to whether it was proper for the Respondent to dismiss the manufacturer’s mill test certificate through a report and a communication contained in a Tariff Ruling or letter without having involved it in the process of testing, which is examination under Section 41 of the Act. It wondered about who told the Respondent that its parameters of testing are superior to the manufacturer’s to make it unilaterally dismiss the manufacturer’s mill test report.

59. It stated that this is a case of word against word that could only be satisfactorily and fairly dealt with by involvement of both parties and not the dictate of one party! It therefore urged the Honourable Tribunal to dismiss and condemn the dictatorial and unilateral conduct of the Respondent in this case and quash the alleged laboratory test report being adduced by it. It stated that the secretive circumstances surrounding the test including terming it an internal memo which cannot be availed to the Appellant makes it tainted with doubtful authenticity and legality.

60. The Appellant cited the Respondent’s statement that it “has been revealed that steel originating from China is prone to alloying”. It averred that the Respondent did not however state when, who, why and how this was revealed to it and whether the revelation occurred before or after release of the Appellant’s goods. This, it stated, is a very important question because Section 41 and 241 of the Act requires that the Respondent:1. Examines imported goods in the full knowledge and presence of the owner, where examination, as already stated elsewhere in this submission must sensibly include any method of examination including laboratory test (Section 41).2. Draw samples when the goods are still subject to Customs control (Section 241).

61. The Appellant stated that the Respondent’s averment that it agreed “to the release of the goods pending drawing of samples”, for goods whose samples were at the Respondent’s disposal in a Customs area throughout the clearing process raises eyebrows and has been totally rejected by the Appellant. The Appellant averred that goods imported against customs entry 2018MSA7076041 were unconditionally released to it before being ambushed later by the Respondent demanding samples at its (the Appellant’s) private go down. It stated that the Respondent failed to present evidence confirming that such agreement was ever entered with the Appellant. In any case, it stated that even if there was such agreement, the Respondent was duty bound by law to involve the Appellant in the laboratory test process through expert representation or mutually accepted independent testing.

62. It stated that the assertion by the Respondent describing the position of the Appellant that the goods went through the entire Customs procedures prior to release as a false allegation is in itself false and deliberately mischievous because the goods were physically examined against Customs entry declarations, which takes place at the tail end of Customs documentation and clearing procedure. It reminded the Respondent that no goods can be released from Customs control before going through the entire Customs procedure which includes entry under Section 2 (2) (a) and 34 (1) of the Act and examination under Section 41 of the Act. In this connection, it stated that Section 33 (4) of the Act states once again that;“goods shall not be removed from any part of a Customs area or from a transit shed or a Customs warehouse unless such goods have been duly reported and entered and authority for their removal or delivery has been given by the proper officer”.

63. It stated that the Respondent’s statement is therefore a lie and should simply be treated as such.

64. The Appellant urged the Tribunal to note that under Section 41 of the Act, the Respondent is not compelled to examine the goods and can therefore proceed on the basis of risk analysis and release goods to the owner upon entry of the same under Section 34 (1) of the Act. This procedure, it stated, is however only applicable to importers or customs agents, who have been listed by the Respondent as “Authorized Economic Operators” which it is not. Its goods, it stated, were therefore subjected to physical examination under Section 41 of the Act.

65. It stated that the law envisages that examination of goods under Section 41 of the Act, is performed prior to release of the same and that this is the circumstance in which samples are ordinarily drawn for laboratory testing under Section 241 of the Act. Section 241 of the Act states that;“the proper officer may take samples of any goods subject to Customs control for such purposes as the Commissioner may deem necessary; and any such samples shall be disposed of and accounted for in such manner as the Commissioner may direct”.

66. It is therefore according to it expected that where the Respondent opts to examine the goods under Section 41 of the Act, the Respondent should go the full length of examination including drawing samples for laboratory analysis under Section 241 of the Act.

67. In this connection, the Appellant asserted that the Respondent should have subjected the samples to joint, open and verifiable laboratory test analysis process involving both parties. This, it stated, is the only way proper justice would be dispensed. It rejected in total the secretive and unilateral manner in which the purported post importation examination was conducted and abhorred its alleged results. It stated that pre-clearance examination under Section 41 of the Act which formed the basis of release of the goods and gave rise to legitimate expectation in its favour, before the Respondent followed the goods to its private go down and took samples for test, should be held as the final examination.

68. It stated that the second examination purportedly carried out under Section 236 (d) of the Act should be rejected and the corresponding demand declared null and void and invalid. Examination of goods under Section 236 (d) of the Act, it stated, should only apply where imported goods skipped examination under Section 41 of the Act. This, it stated, is the spirit of the law.

69. The Appellant cited the Respondent’s quotation of Sections 135, 235 and 236 of the Act, the law that mandates it to demand short levied revenue. It stated that the provisions are not intended to plant inefficiency in the tax collection regime. It stated that it fully surrendered its goods to the Respondent for vetting, a process which it had completely no say nor control over. The Respondent, it stated, then acted under the law at Sections 2 (2) (a), 34 (1), 41 and 33 (4) of the Act which resulted to unconditional release of the goods to the Appellant that gave the Appellant certainty around its goods and business. The provisions of Section 235 and 236 of EACCMA, it stated, should not be subject to abuse by the Respondent. The provisions, it stated, should only apply in circumstances where the Respondent has discovered:1. Clear fraud; and,2. Information not possible to notice at entry and examination stage.

70. In any case, it stated, application of the two provisions (Section 235 and 236) is limited by Section 4 (1) of the Fair administrative action Act which calls for reasonable and procedurally fair administrative action.

71. It stated that the Respondent who passed entry declarations and physically examined and released the goods to it cannot be allowed to make additional demand of duty one year later after release of the goods, when the goods are already sold at prices not factoring the additional tax as a cost. In any case, it stated, laboratory testing is not audit envisaged under Sections 235 and 236 of the Act because, it is part of the process of examination under Section 41 of the Act. It stated that the Respondent’s actions compromised efficient working of the Customs envisaged under Section 5 (1) of the Act and took away certainty from the taxpayer and yet certainty is one of the most important cannons of taxation.

72. The Appellant cited that Adams Smith, the respected classical economist who listed certainty as a critical cannon of taxation. Smith stated that;“certainty is meant to protect the taxpayers from unnecessary harassment by the tax officials. The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person. The taxpayers should not be subject to arbitrariness and discretion of the tax officials, since that breeds a corrupt tax. With a scope of arbitrariness, even an honest tax machinery, will become unpopular.”

73. It stated that the Respondent conducts Customs business first and foremost in accordance with both the Act and the regulations, which are the legal instruments of procedure; and the departmental instructions. Departmental instructions are permanent administrative instructions given by the Commissioner of Customs to officers outlining procedure and actions to be taken by officers to effect the Act and the regulations on the ground.

74. The Appellant stated that Chapter II part 1 (2) of the Departmental Instructions, gives the purpose for examination of goods by specifically stating that;“Once entries have been duly passed, the entered goods may be examined by officers of Customs who have to take care that the following requirements of the law are fulfilled:a.That the goods agree with the entry description as regards quantity, value, description, tariff classification, rates of duty and duties paid;b.That the goods are not prohibited imports;c.That if the goods are restricted imports the conditions relating to the restriction have been complied with;d.That any discrepancies between the entry and the goods are accounted for before the goods are released;e.That all entries presented are acted upon in accordance with the entry;f.That an accurate record is made of each examination performed. (A copy of this part of D.I is attached)

75. The Appellant argued that Part 1 (2) (a) above is particularly important in this case because it is clear that the instruction is that examination performed upon passing of entry is to ensure that any discrepancies between the declaration on the entry and the physical goods are accounted for before the goods are released. This, it stated, is in conformity with Sections 41 and 241 of the Act which envisages examination of goods and taking of samples by the Respondent while goods are still subject to the Respondent’s control. This, it stated, is to ensure and guarantee certainty for the owner of the goods, as well as accountability and appropriate action on any discrepancies in good time prior to release and costing and sale of goods.

76. It stated that it fully surrendered the goods to the Respondent to do all manner of verification including taking samples for laboratory analysis under Section 241 of the Act prior to release of the goods, and averred that the Respondent indeed carried out the necessary verification of the goods under Section 41 of the Act and released the goods to the Appellant. It stated that it had no control over the Respondent’s verification process and would not have any reservations whatsoever on the decision of the Respondent to give the goods a clean bill of health with respect to entry declarations including tariff classification and duty rate.

77. Consequently, it stated that it sold the goods without factoring any additional duty element and moved on. For the Respondent to turn around one year later and ambush it with additional demand of duty on the basis that tariff classification of the goods was wrong, it stated, was an affront to Section 4 (1) of the Fair Administrative Action Act, and should therefore be rejected in total. It stated that prices of goods are marked to take care of all costs including taxes, and that is part of the reason for which the procedure of clearance of goods through Customs is so tightly controlled by the Respondent to ensure that all duties and taxes are correctly collected. It quipped, “after releasing the goods to the Appellant and letting the Appellant likewise mark the prices of the goods for sale without the element of duty as a cost, where would the Respondent expect it to raise money from for payment of additional duty one year later?” It stated that it acts as an agent of the Respondent for collection and remittance of duty. But in this particular case, it averred that the Respondent never notified it of any additional duty to be paid on the goods at the time of examination and release.

78. The Appellant stated that unless the Respondent demonstrated a case of deliberate fraud on the part of the Appellant, the demand should be dismissed with costs to it. The demand, it stated, lacked merit in administrative fairness and should be rejected by the Tribunal. The procedure of report, entry, examination and authority for delivery of goods under Section 24, 34 (1), 41, 33 (4) as well as Sections 41 and 241 of the Act, it stated, is intended to create certainty and predictability to business void of decisions based on whimsical discretion.

79. The Appellant stated that the Respondent’s administrative inefficiencies and wanting interpretation of the law it is supposed to protect and administer should not be allowed to be brought to bear on it or any other legitimate business for that matter.

80. It stated that the Respondent’s action in this matter was an infringement of its right to legitimate expectation caused by approval of entry declarations, examination of goods under Section 41 of the Act and release of the same under Section 33 (4) of the Act.

81. In this respect the Appellant relied on the case of Republic vs. Attorney General & Another Ex Parte Waswa & 2 Others [2005] 1 KLR 280 in which the Court held that;“The principle of a legitimate expectation to a hearing should not be confined only to past advantage or benefit but should be extended to a future promise or benefit yet to be enjoyed. It is a principle, which should not be restricted because it has its roots in what is gradually becoming a universal but fundamental principle of law namely the rule of law with its offshoot principle of legal certainty. If the reason for the principle is for the challenged bodies or decision makers to demonstrate regularly, predictability and certainty in their dealings, this in turn enables the affected parties to plan their affairs, lives and business with some measure of regularity, predictability, certainty and confidence. The principle has been very ably defined in public law in the last century but it is clear that is has its cousins in private law honouring trusts and confidences. It is a principle, which has its origins in nearly every continent. Trusts and confidences must be honoured in public law and therefore the situation where the expectations shall be recognized and protected must of necessity defy restrictions in the years ahead. The strengths and weaknesses of the expectations must remain a central role for the public law courts to weigh and determine”.

82. In any case, it asked, how long does it take to perform laboratory test analysis on a sample? One year? This, it stated, is a level of inefficiency that is unacceptable and in direct violation of Section 5 (1) of the Act that calls for the Respondent to ensure “efficient working of the Customs”. It stated that what the Respondent was basically telling the world is that the Appellant, who is on business and needed to sell its goods to earn income should have waited for the result of the alleged laboratory test for one year before selling its goods. Clearly, this, it stated, is an extremely retrogressive and a laissez-faire attitude that cannot be allowed to form part of this country’s way of conducting public service business. On this account alone, it urged the Tribunal to dispose of this matter in favour of the Appellant.

83. The Appellant stated that the Respondent’s action also violated the Appellant’s right to fair administrative action under Section 4 (1) of the Fair Administrative Action Act. It stated that the Respondent physically examined the goods against entry declarations including tariff classification while the goods were still under its control at the port and proceeded to unconditionally release the same to the Appellant. Moreover, it stated that the Respondent has failed to offer explanation as to why it had to wait for one year to come up with a different tariff classification.

84. The Appellant relied on the case of Export Trading Company (Petitioner) vs. Kenya Revenue Authority (Respondent) High Court petition number 148 of 2013 in which the Court held that;“It is in the performance of their duty that the Respondent was expected to verify the accuracy of the entries and the duty payable before clearance of the consignments in question. Having verified the entries in issue, rate applied and assessed duty as correct, legitimate expectation arose in favour of the petitioner that the assessed duty was correct and the Respondent cannot, in the circumstances of the case be seen to hide behind provisions of the Act in making a belated demand for tax”.

85. It drew the attention of the Tribunal to the fact that in the course of the tariff dispute, the Respondent had threatened the Appellant’s clearing agent with sanctions if they would not pay additional duty on 72MT of the H Beams imported against entry number 2018MSA6979248, and being the owner of the goods, it had to as a consequence pay Kshs. 1,526,993. 00 as demanded in order to protect the clearing agents, S.K. Amin.

86. The Appellant rejected the Respondent’s statement that the matter was previously before this Tribunal, and was determined. This, it stated, was not true. The matter, it stated, was not heard and determined. The correct position, which is indeed a fact, it stated, is that the matter was dismissed by the Tribunal on a technicality without considering merits of the case. The technicality, it stated, was later cured on advice by the Tribunal in the same judgment hence the fresh Appeal.

The Appellant’s prayers. 87. The Appellant’s prayers are for the Tribunal to find that the Respondent’s classification of the imports on HS code 7228. 70. 00 was incorrect.

The Respondent’s Case 88. The Respondent’s case is premised on the following documents;a.Statement of Facts dated and filed on 26th September 2022 together with the documents attached thereto;b.Supplementary Statement of Facts dated 5th December 2022 and filed on 6th December 2022;c.Written submissions dated 17th February 2022 and filed on 20th July 2023; and,d.Supplementary written submissions dated 23rd April 2024 and filed on 24th April 2024.

89. The Respondent stated that samples of the steel beams imported were subjected to laboratory analysis at the Respondent’s Inspection and Testing Centre and found to contain Boron 0. 0012% m/m upon which a tariff ruling was issued on 15th April 2019 and sent to the Appellant and their clearing agents on 13th December 2019.

90. It reiterated that the Appellant did not object to the Respondent’s decision and only swung into action several months later after Demand Notices were issued to them.

91. The Respondent averred that the goods were subjected to laboratory analysis and the results shown on an internal memo and the Tariff Rulings were shared with the Appellant’s clearing agents, since the lab analysis report is an internal memo from the Inspection and Testing Centre to the Valuation, Tariff & Rules of Origin Section consistent with Section 248 A of the East African Community Customs Management Act, 2004, WCO’s Technical guidelines on Advance Rulings for classification, origin, and valuation and WTO’s trade facilitation agreement.

92. It reiterated that its actions are lawful and procedural. It added that it has not denied the Appellant access to information since the Tariff Rulings mirror what is contained in the laboratory analysis reports sent to the taxpayer.

93. The Respondent averred that the Post Clearance Audit section issued a demand notice of Kshs. 6,584,690. 00 to the Appellant for tariff misdeclaration followed by Tariff Ruling dated 15th April 2019 which classified the imported steel beams under subheading 7228. 70. 00.

94. It reiterated that after tests at the Inspection and Testing Centre, the samples drawn from entries 2018MSA7004453 and 2018MSA6979248 were found to contain Boron levels of 0. 0012% and Note 1 (f) of Chapter 72 of the EAC CET gives the proportion of alloying elements that determines whether steel is alloyed or non-alloyed.

95. The Respondent stated that steel with boron content of 0. 0008% or more is classified as alloy steel. It added that Heading 72. 16 under which the Appellant classified their imports covers angles, shapes, and sections of iron or non-alloy steel whereas Heading 72. 28 under which the demand was issued covers angles, shapes, and sections of other alloy steel.

96. It cited Rule 1 of the General Interpretative Rules for the classification of goods and averred that the Appellant’s classification of the imported goods was wrong.

97. The Respondent averred that the Appellant’s Objection of 31st October 2019 contained Mill Test Certificates and SGS certificate of Conformity as evidence which in its Review Decision of 13th November 2019 the Respondent pointed out did not include important alloying elements like boron and thus cannot be relied on to draw conclusions on whether the imported steel was alloyed or non-alloyed.

98. The Respondent further stated that samples had been taken to the inspection and testing center and a tariff ruling issued on 15th April 2019, and that on 25th November 2019, the Appellant wrote to it requesting the laboratory analysis report which was replied to on 13th December 2019 wherein the Appellant was furnished with the tariff ruling in which the demand was based as the laboratory analysis report is an internal memo done by the inspection and Testing Centre to the Valuation, Tariff & Rules of Origin Section indicating the lab test findings based on which they issue a Tariff Ruling which was shared with the taxpayer and the laboratory analysis report mirrors that on the Tariff Ruling.

99. It was the Respondent’s case that Section 284 A of the East African Community Customs Management (Amended Act, 2019) which governs application for advance rulings on tariff classification, rules of origin, or customs valuation talks of the Respondent issuing rulings to the taxpayer, not laboratory test analysis report that is further buttressed by WCO Technical guidance on advance rulings for Classification, Origin and valuation and WTO’s Facilitation Agreement.

100. The Respondent contended that the Appellant wrote to it on 1st February 2020 requesting the laboratory test analysis report which it responded to on 13th February 2020 informing the Appellant that the same was an internal memo and what goes to the taxpayer is the tariff ruling.

101. It stated that it wrote to the Appellant on 10th March 2020 informing it of the interest that had been loaded to the principal amount and thus the amount due to the commissioner had been adjusted to Kshs. 9,089,745. 00 followed by a letter dated 27th April 2020 asking it to pay the demanded amount or risk enforcement measures being instituted without further reference to them.

102. The Respondent averred that from its day-to-day interactions with steel importers, it has been revealed that steel originating from China is prone to alloying because of commercial advantages that come with it as China has an export tax of 13% which accrues to non-alloyed steel, therefore, the Chinese manufacturers alloy the steel in order to gain the commercial advantage.

103. It reiterated that it has exercised due diligence by involving the Appellant in the deliberation of this matter with no success and in arriving at its decision, it analysed the law, and the product before it and had several meetings where both parties and their representatives attended and deliberated on the issue extensively.

104. The Respondent contended that no evidence has been adduced by the Appellant to show that the Respondent in arriving at its decision misapprehended the facts and evidence tabled before it therefore the Appellant cannot claim that the Tribunal failed to properly analyse and re-evaluate the facts and evidence when the Tribunal merely confirmed what the Appellant failed to negate.

105. The Respondent raised a Notice of Preliminary Objection in its Statement of Facts wherein it stated the following grounds:a.The Appeal is incompetent, legally unsuitable, and amounts to forum shopping and as such an abuse of the court process;b.The Tribunal lacks jurisdiction to hear the Application at this time on the grounds that there exists a statutory dispute resolution mechanism under Section 229 of the EACCMA which has not yet been exhausted by the Appellant;c.This Appeal is fatally defective as it offends the mandatory provisions of Section 9 (2), (3), and (4) of the Fair Administrative Actions Act, No. 4 of 2015;d.The Appellant has failed to file its Memorandum of Appeal within the statutory timelines in contradiction to Sections 52 (1) and 52 (2) of the TPA as read together with Part III of the Tax Appeals Tribunal thus in contravention of the law;e.The Appellant has failed to file an application seeking leave to file its Memorandum of Appeal out of time as in Section 13 (3) of the Tax Appeals Tribunal Act;f.The Application is therefore an abuse of the process and a waste of resources; and,g.Under the circumstances, this Appeal is a misconception and ought to be dismissed with costs to the Respondent.

106. In its Supplementary Statement of Facts dated and filed on 6th December 2022, the Respondent reiterated the following to further buttress its case.

107. It stated that it only confirmed payment of taxes amounting to Kshs. 1,436,103. 00 and penalties and interest totaling Kshs. 90,890. 00 for import entries No. 2019NBI754350 and 20192019NBI756472 which are not subject to the dispute in this Appeal.

108. The Respondent averred that vide demand letter dated 22nd October 2019, it demanded taxes amounting to Kshs. 6,584,690. 00 being Import Duty and VAT, in reference to the Applicant’s import entries for 2018 being entries No. MSA7076041 and MSA69679248 less penalties and interest.

109. It reiterated that the taxes that remain due and owing and subject to this dispute relate to goods imported vide entry no. 2018MSA7076041 made on 26th November 2022 being import duty amounting to Kshs. 9,318,941. 00 with penalties and interest and goods entry no. 2018MSA69679248 made on 13th August 2018 amounting to Kshs. 1,436,103. 18.

110. The Respondent stated that after tests at its Inspection and Testing Center from samples drawn from the two entries were found to contain boron levels of 0. 0012% Note 1 (f) of Chapter 72 of the EAC CET gives the proportion of alloying elements that determine whether steel is alloyed or non-alloyed and thus the correct classification for the goods that were imported by the Appellant is under HS Code 7228. 70. 00.

111. It further stated that the Appellant has not provided any proof that it paid the taxes due for the entry number which MSA69679248 it was allowed to substitute with import no. MSA7076041.

112. It maintained that all its actions in this matter are lawful and procedural and that the Respondent acted with restraint even when the Appellant failed to act according to the law.

113. In its submissions the Respondent identified six issues for determination, namely;i.What is the proper classification of the goods imported by the Appellant;ii.Whether the Appellant’s tax demand and decision were proper;iii.Whether the Appellant was informed of the outcome of the Laboratory results of the tested sample;iv.Whether the Appellant’s rights to fair administrative actions were violated;v.Whether the Appellant’s Appeal was filed within the statutory timelines; and,vi.Proper classification of the imported goods.

114. On the first issue of determination the Respondent cited the cases of Engineering Supplies 2001 Limited vs. Commissioner of Domestic Taxes and Keroche Breweries Limited vs. Commissioner of Domestic Taxes and submitted that the rules of classification provide that the HS Code should be read not to distort the true classification but to give it meaning.

115. The Respondent stated that it relied on the HS Rules of General Interpretation and reiterated that the most specific description can only be found from the analysis of what is the product and a review of the Appellant’s import entries for the 2018 period to October 2019 was conducted by the Respondent per Section 236 of the EACMA and indicated that the Appellant had instances of use of the wrong tariff classification of prime hot rolled H beams that the Appellant has been classifying under subheading 7216. 33. 90 instead of 7228. 70. 00.

116. It reiterated that it consequently issued a Demand Notice of Kshs 6,584,690. 00 to the Appellant based on tariff misdeclaration on 22nd October 2019 and that it further issued a tariff ruling through a letter dated 15th April 2019 where it classified the Appellant’s steel beams under subheading 7228. 70. 00 after it carried out tests at its inspection and testing center on the Appellant’s samples drawn from entries 2018MSA7004453 and 2018MSA6979248 where the Appellant’s consignment of H beams was found to contain Manganese 1. 45%m/m, Boron 0. 0012%m/m, and chromium 0. 016%m/m and thereby H beams are found to be an alloy steel.

117. It submitted that Note 1 (f) of Chapter 72 of the EAC CET has classified the proportions of alloying elements of alloyed and non-alloyed steel. The Appellant’s use of HS Code 7216. 33. 90 is a general specification of iron and non-alloy steel touching on their shape, angle, and sections. In contrast, the Respondent’s use of 7228. 70. 00 is specific as it touches on angles, shapes, and sections of other alloy steel.

118. Further the Respondent cited Rule six of the General Interpretation Rules for the classification of goods and asserted that steel with a boron content of 0. 0008% or more is classified as alloy steel, therefore, Heading 72. 16 under which the Appellant classified their imports covers angles, shapes, and sections of iron or non-alloy steel and thus it’s submission that Heading 72. 28 under which the demand for taxes was issued covers angles, shapes, and sections of other alloy steel which correctly classifies that goods which were imported by the Appellant herein.

119. It relied on Rule 1 of the GIR and maintained that the Mill Test Certificates that the Appellant availed did not include important alloying elements like Boron therefore they cannot be relied on to conclude whether the imported steel was alloyed or non-alloyed.

120. On the second issue of determination the Respondent relied on Section 135 of the EACCMA and submitted that it is mandated by law to demand any short levy of taxes per its Demand letter for the consignments of entry no. 2018MSA6979248 and 2018MSA7076041 amounting to Kshs. 6,584,690. 00 as principal tax due and owing. It added that it has demonstrated to the Tribunal the composition of the Appellant’s consignment of H Beams and that the same was properly classified by the Commissioner under Tariff Code No. 7228. 70. 00 and it was therefore proper to demand the short-levied taxes from the Appellant.

121. It relied on Section 30 of the Tax Appeals Tribunal Act and Section 223 (a) of the EACCMA together with the cases of Primarosa Flowers Ltd vs. Commissioner of Domestic Taxes [2019] eKLR where the court cited the case of Mulherin vs. Commissioner of Taxation [2013] FCAFC 115 approvingly; and the case of Nairobi TAT Appeal No. 55 of 2018 Boleyn International Limited vs. Commissioner of Investigations and Enforcement where the Tribunal cited approvingly the cases of Pierson vs. Belder (H.M. Inspector of Taxes)(1956-1960) 38 TC 387; and Norman vs. Golder 26 T.C. 293 in its submission that although the Appellant lodged an Application for Review of the demand letter, it failed to provide any proof to demonstrate that the Respondent’s Decision was erroneous, excessive, and or invalid.

122. The Respondent contended that the tax demand and tax decision were issued by the Respondent upon considering the material before it, laboratory test on samples of the Appellant’s imports as well as the Respondent’s best judgement and relied on the case of The Commissioner for Her Majesty’s Revenue and Customs TC/2017/02292 Saima Khalid vs. Commissioner for Her Majesty’s Revenue & Customs at paragraph 29.

123. On the third issue for determination the Respondent submitted that the Appellant wrote to it on 25th November 2019 requesting the laboratory analysis report for review and response to the demand letter and it furnished the Appellant with the tariff ruling upon which the demand was based.

124. It asserted that the only reason it does laboratory tests is to confirm the correct HS Code of a particular good and the results are analysed based on the Harmonised System of Classification that informs the Tariff Ruling which is the official laboratory result together with the recommended HS Code by the Technical team and is communicated to the taxpayer.

125. It reiterated that it shared with the Appellant its Tariff Ruling on numerous occasions as the results of the laboratory tests carried out on samples of the Appellant’s consignments contrary to the Appellant’s contention adding that the Appellant has not indicated to the Tribunal what had been omitted by the Respondent in the Tariff Ruling that needed to be considered for the Respondent to make further clarifications or comments.

126. On the fourth issue of determination the Respondent relied on Article 47 of the Constitution of Kenya 2010 and submitted that it issued its demand letter, tariff ruling, and a review decision to the Appellant after it confirmed that the Appellant had misclassified its products and having carried out a laboratory test, it verified its position and thus none of the Appellant’s rights were violated.

127. It maintained that the Post Clearance Audit was done within the confines of Sections 235 and 236 of the EACCMA wherein it confirmed that there was a short levy of taxes which it is demanding within the set law and in the exercise of its statutory mandate as provided in the Constitution and in the exercise of its statutory mandate.

128. Further the Respondent cited Section 210 of the Constitution and relied on the case of Republic vs. Commissioner of Customs and Excise Ex-Parte Abdi Gulet Olus [2014] eKLR and submitted that the Appellant has not provided any evidence before the Tribunal demonstrating that its right to fair administrative actions was infringed by the Respondent and thus the demand for taxes due and owing was done according with the law and was rational.

129. It relied on the cases of Republic vs. National Land Commission Ex Parte Farmers Choice Limited [2020] eKLR where the court referred to the Ugandan case of Pastoli vs. Kabale District Local Canal and Others (2008) 2EA 300 at pages 300 - 304. It also asserted that having demonstrated to this Tribunal that it acted within the statutory mandate and the exercise of its authority was not arbitrary, in bad faith, biased, or discriminatory, the Appellant is not entitled to the orders sought.

130. In its Supplementary Submissions dated 23rd April 2023 and filed on 25th April 2024 the Respondent made reference to the occurrences in the Appeal after the submissions were filed wherein the Respondent reviewed its Ruling striking out the Appellant’s Appeal for being time-barred in favour of the Appellant.

131. On the fifth issue for determination the Respondent stated that it relied on Section 12 of the Tax Appeals Tribunal Act and submitted that whereas the Tribunal in its Ruling of 23rd February 2024 states that the Appellant filed its Appeal on 18th March 2022, the receipt for payment of filing fees shows that the documents were paid for on 2nd June 2022.

132. It asserted that the filing of the Appeal and payment of the filing fees ought to be done simultaneously per the strict provisions of Section 12 of the Tax Appeals Tribunal Act but the Appeal was filed on 18th March 2022 and payment was made on 2nd June 2022, two months and 16 days later.

133. It argued that it was not enough for the Appellant to file its Appeal within the 14 days timeliness given but the Appellant had an obligation to pay for the filing fees as stipulated in Section 12 of the TAT Act which it failed to do.

134. It asserted that the Appeal before the Tribunal is null and void and the Tribunal should dismiss it with costs.

135. On the sixth issue for determination the Respondent submitted that in order to determine whether the H Steel beams are alloyed or non-alloy, the composition of the product in issue must be looked at.

136. It cited Note 1 (d) (e), and (f) of Chapter 72 of the CET and reiterated that the Appellant provided Mill Test Certificates which under review did not list or highlight the main elements that prove that the consignment was stainless steel.

137. The Respondent asserted that it carried out a laboratory test on the samples of the consignment and came to the finding that the sample contained a base metal article of ferrous material (97. 72%m/m) containing chromium at 0. 017%m/m, Manganese content at 1. 3m/m and Boron at 0. 0012%m/m, and dimension (Height) of 176mm.

138. It contended that it also found that the sample was a newly produced hot rolled steel H-Beam which did not contain carbon or 10. 5 chromium for the sample to qualify as an alloy steel and having been confirmed to fall under the category of other alloyed steel, the correct classification was Heading 72. 28 which covers classification of other bars and rods of other alloy steel hollow drill bars and rods of alloy and alloy steel.

139. It added that it further found that the heading includes the classification of H, I, T capital omega Z and U channels usually produced by hot rolling, hot channels usually produced by hot rolling, hot drawing, and extrusion or hot forging of billets.

140. The Respondent argued that the findings show that the proper classification of the goods imported by the Appellant is 7228. 70 and not Tariff Code 7216. 33. 90 applied by the Appellant fails.

141. The Respondent submitted that the Appellant has not provided any proof to show that it paid the taxes due and owing with regards to import no. 2018MSA6979248 which the Appellant was allowed to substitute with import number MSA7076041.

142. Further the Respondent maintained that all its actions in this matter were lawful and procedural and that it acted with restraint even when the Appellant failed to act according to the law.

The Respondent’s Prayers 143. The Respondent prayed for orders that: -a.The H Steel beams imported by the Appellant are classified under subheading 7228. 70. 00;b.The taxes due and owing emanate from goods imported vide entries 2018MSA6979248 and MSA7076041;c.The amendment made by the Appellant does not change the fact that the taxes are still due and owing for goods imported under Import Entry 2018MSA6979248; and,d.This Appeal be dismissed with costs to the Respondent as the same is without merit.

Issues for Determination 144. After perusing submissions, prayers and documentation from respective parties in the dispute, the Tribunal is of the opinion that the following are the issues for its determination:i.Whether there is a proper Appeal before the Tribunal; and,ii.Whether the Respondent erred in classifying the Appellant’s goods under HS Code 7228. 70. 00 as ‘other alloy steel’.

Analysis and Findings 145. The Tribunal wishes to analyse the issues as herein-under:

i. Whether there is a proper Appeal before the Tribunal. 146. In analysing and determining this issue the Tribunal has looked at the issue from two points of view. The first one is whether the Appeal was filed by the Appellant within the statutory timeline. The actual filing was done on 18th March 2022 within the timeline given by the Tribunal but payment for the filing fees done in June 2022, which according to the Respondent was not in compliance with Section 12 of the Tax Appeals Tribunal Act which requires that filing fees for an Appeal against the decision of the Respondent is remitted before filing.

147. The Tribunal has considered this question and adopted the view that;a.The Appellant’s filing of March 18th 2022 was as a result of a Miscellaneous Application by it seeking judicial review by the Tribunal of the Tribunal’s decision to struck out its appeal on 13th October 2023. It was not a filing directly emanating from the decision of the Respondent.b.The timeline was not based on a statutory requirement but rather a special order by a sitting Tribunal.

148. The Tribunal therefore holds the view that the filing was properly done within the timeline as ordered by it, as a consequence of which the Appeal is therefore properly before it.

ii. Whether the Respondent erred in classifying the Appellant’s goods under HS Code 7228. 70. 00 as ‘other alloy steel’. 149. In analysing this issue the Tribunal will start by determining whether additional duty demanded by the Respondent was fully paid for goods imported against entry number 2018MSA6979248 leaving goods imported against entry number 2018MSA7076041 as the outstanding issue in the dispute.

150. The Tribunal has closely reviewed averments made by the Appellant in support of their claim that additional duty for goods imported against Customs entry number 2018MSA6979248 was fully paid against the Respondent’s position that this is not the case. The Appellant supported this by providing evidence by way of the Respondent’s internal email communications confirming the payment, and copied to the Appellant.

151. Paragraph 47 of the Appellant’s written submission dated 24th November 2022 and paragraphs 3, 4 and 13 of the Appellant’s Supplementary submission dated 11th December 2022 attests to this. In further support of this, the Appellant also availed the Respondent’s letter ref: CUS/V&T/TARI/GEN/166/2019 dated 25th October 2019 addressed to the Appellant’s Customs agents confirming payment of duty for the goods imported against entry number 2018MSA6979248.

152. This evidence having not been controverted by the Respondent, the Tribunal concludes that it is only goods imported against entry number 2018MSA7076041 that are in dispute before it.

153. Before delving into the issue of classification, the Tribunal additionally wishes to look on whether a laboratory test was done on samples of imports against entry number 2018MSA7076041 to cause reclassification of the goods on the basis of the test. The Tribunal has perused the Respondent’s documents before it including correspondences, statement of facts, submission and replying affidavit and found no reference to testing of samples drawn against entry number 2018MSA7076041. The Respondent’s Tariff Ruling ref: CUS/V&T/TARI/177/2018 of 15th April 2019 which formed the bastion of its decision to reclassify the imports too, on its face only refers to testing of samples for entry number 2018MSA6979248 and not samples for entry number 2018MSA7076041. It should be noted that the Respondent did not put on record the laboratory test.

154. Based on this, the Tribunal will not rely on the Respondent averred that it subjected the Appellant’s H beam steel imported against import entry numbers 2018MSA7004453 and 2018MSA6979248 and found that they contained Manganese at 1. 45% m/m, Boron at 0. 0012% m/m and chromium at 0. 016% m/m thereby the H beams were found to be alloy steel.

155. The Respondent stated that steel with boron content of 0. 0008% m/m or more, as was in the case of the Appellant’s H beam which its laboratory test established to be of Boron content of 0. 0012% m/m is classified as alloy steel and not iron or non-alloy steel of Heading 7216 under which the Appellant classified the items. The Respondent therefore asserted that its preferred Heading number 72. 28 for other alloy steel is the most appropriate classification of the items.

156. The Appellant on its part adduced a manufacturer’s mill test certificate giving the elements used to manufacture the H beam steel it imported. The elements included Manganese at 1. 60% m/m, Silicon at 0. 05% m/m and Sulphur, carbon and Phosphorus whose percentages were not given in the certificate and which were also excluded from the result of the Respondent’s laboratory test analysis.

157. According to the manufacturer’s certificate, Boron was not part of the elements used to manufacture the Appellant’s H beam steel.

158. In considering this matter, the Tribunal is guided by the General Rules of Interpretation of the Customs Nomenclature and the explanatory notes thereof. In this regard, GIR 1provides that “the titles of sections, chapters and subchapters 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.”

159. This in the Tribunal’s view means that terms of the heading is the first step for classification of goods, with precedence over reference to section or chapter notes particularly where an item is specifically mentioned in the heading.

160. This view is supported by GIR 3 (a) which states that;“The heading which provides the most specific description shall be preferred to headings providing a more general description.”

161. On its part, GIR 3(b) states that;“Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of material or component which gives them their essential character, in so far as this criterion is applicable.”

162. On the other hand, GIR 3 (c) states that;“when goods cannot be classified by reference to 3 (a) or 3 (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.”

163. GIR 6 also posits as follows;“for legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related subheading notes and mutatis mutandis, the above Rules, on the outstanding that only subheadings at the same level are comparable. For the purposes of this rule, the relative Section and Chapter Notes also apply, unless the context otherwise requires.”

164. According to Chapter Notes to Chapter 72 of the Explanatory Notes to Section XV of the Customs nomenclature;a.Under part (1) (d) of the notes, steel is described as Ferrous materials other than those of heading 73. 03 (with the exception of certain types produced in the form of castings) are usefully malleable and which contain by weight 2% or less f carbon. However, chromium steels may contain higher proportions of carbon.b.Under part (1) (e) of the notes, stainless steel is described as alloy steels containing by weight, 1. 2% or less of carbon and 10. 5% or more of chromium, with or without other elements.c.Under part (1)(f) of the notes, other alloy steel is described as steels complying with the definition of stainless steel and containing by weight one or more of the following elements in the proportion shown;0. 3% or more of aluminium0. 0008% or more of boron0. 3% or more chromium0. 3% or more of cobalt0. 4% or more of copper1. 65% or more of manganese0. 08% or more molybdenum0. 3% or more of nickel0. 06% or more of silicon0. 05% or more of titanium0. 3% or more of tungsten (wolfram)0. 1% or more of vanadium0. 05% or more of zirconium0. 1% or more of other elements (except Sulphur, phosphorous, carbon and nitrogen) taken separately.

165. The Appellant’s manufacturer’s mill test certificate which it avers was authenticated by the Kenya Bureau of Standards through SGS excludes Boron as part of the elements that made up the Appellant’s H beams.

166. The questions which then arise are; did Boron form part of the Appellant’s H beam steel as stated by the Respondent so that the items would be classified under HS Code 7228. 70. 00? Or was Boron excluded from being part of the items as stated by the Appellant so that they would be classified under HS Code 7216. 33. 90

167. The two contrasting conclusions led the Tribunal into determining the correct classification of the H beam imports on the basis of interrogation of adherence or otherwise by either party to the requirements of the law relating to declaration and examination of goods for Customs purposes.

168. Upon arrival of imported goods, the Appellant was under Section 34 (2) of the East African Community Customs Management Act required to deliver a Customs entry to the Respondent and furnish it with entry particulars including documentary evidence of the goods referred to in the entry.

169. Section 34 (2) of the East African Community Customs Management Act states that;“where entry is delivered to a proper officer, the owner shall furnish with the entry, full particulars supported by documentary evidence of the goods referred to in the entry.”

170. At this point, the Respondent carried the burden of credible proof that the Appellant H shape steel beams not only contained Boron, but also contained it at a quantity that would qualify them as 'other alloy steel'. This is particularly so because presentation of a test certificate excluding any positive revenue impacting element from being part of the imports would be fraudulent evasion of tax on the part of the Appellant, and yet the Respondent failed to provide evidence to the contrary.

171. In this regard, the Tribunal refers to Section 107 of the Evidence Act, CAP 480 of the Laws of Kenya which states that:“(1)Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.(2)When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person.”

172. The Respondent in this regard, is empowered under Section 41 of the Customs Act to examine and determine accuracy of such declaration. Section 41 of the Act states that;“Goods entered under section 34, may in the presence of the owner, be examined by the proper officer to take account and determine accuracy of the entry made.”

173. The laboratory test analysis the Respondent says it performed on the Appellant’s imports constitute examination of goods intended to determine accuracy of declaration under the said Section 41 of the Act.

174. In this particular instance however, the Tribunal observes that the Respondent failed to closely involve the Appellant in the process as required by law. The law under Section 41 of the Customs Act requires that such examination is performed in the presence of the owner, and the purpose of this is obvious; to ensure and uphold transparency and accountability through direct witnessing of, or expert representation in the process.

175. The Tribunal also notes that the Respondent has totally refused to avail actual laboratory test analysis report to the Appellant. Instead, the Respondent supplied the Appellant with a Tariff Ruling conveying information on the laboratory test analysis report and that it is only in April 2024 that the Respondent availed to the Appellant an internal memo equally conveying information on the test report. It is the Tribunal’s position that both do not represent actual laboratory test report that was dearly sought by the Appellant for review and comfort. The decision by the Respondent to use a unilateral examination process to vary classification of the Appellant’s goods is in the Tribunal’s view unreasonable and makes reclassification of the Appellant’s H beams unattainable.

176. The Respondent assigned two reasons for denying the Appellant the laboratory analysis report namely;a.That the report was an internal memo not available to third parties; and,b.That this was in accordance with Section 248 A of the Customs Act and W.T.O guidelines against availing such report to third parties.

177. The Tribunal has looked at the two reasons and concluded that first and foremost, a laboratory test report cannot be an internal memo; a laboratory test analysis report is a machine generated specification of ingredients of the subject matter with clear independent and detailed information on composition of the item including limits of allowed variances and the test machine type and logo.

178. The Tribunal has also noted that Section 248 A of the Customs Act is limited to advance tariff or valuation ruling by the Respondent on request by a prospective importer, on goods to be imported and not a ruling on goods already imported into the country and being subjected to the usual examination process. In any case, the owner of the goods for which an advanced ruling is issued cannot be a third party to be denied access to the information.

179. Likewise, the Tribunal observes that W.T.O guidelines on advance ruling could not prevent the Respondent from supplying the Appellant with the laboratory test analysis report as this was likewise not a case of advance ruling. The Tribunal therefore finds no reason why the Respondent would not avail to the Appellant the laboratory test report.

180. The Respondent has stated in all its submissions to the Tribunal and correspondences to the Appellant that its Tariff Ruling and the internal memo mirrors each other, and together mirrors the laboratory test report. In contrast however, it is the Tribunal’s observation that elements quantum information in its memo does not exactly mirror the tariff ruling. Specifically, manganese quantum in the H beam is given as 1. 45% m/m in the Respondent’s Tariff Ruling while the same is given as 1. 3% in the internal memo. This in the Tribunal’s view compromises integrity of the test and makes it unreliable. This direct evidence of discrepancy in the test information once again puts into doubt its credibility and authenticity.

181. In the absence of a legally and technically credible laboratory examination process, and with lack of evidence of goods imported against entry number 2018MSA7076041 having been subjected to the laboratory test, the Tribunal finds that the Appellant’s H beams are most appropriately classified under Heading 72. 16 and specifically Tariff number 7216. 33. 90

182. In any case, Heading 7216 specifically mentions H shape in its terms of heading in line with GIR 3 (a) and is therefore the preferred heading for the Appellant’s imports over Heading 7228 which has no specific mention of H shape in its terms of heading except in a conditional subheading narrative as pointed out in the Appellant’s response of 30th April 2024.

183. The Tribunal therefore finds that the Respondent erred in classifying the Appellant’s goods under HS Code 7228. 70. 00 as ‘other alloy steel’, thus the Appellant’s Appeal succeeds.

Final Determination 184. The upshot of this is that the Appeal is properly supported and the Tribunal consequently makes the following orders;a.The Appeal be and is hereby allowed;b.The Respondent’s decision dated 13th November 2019 be and is hereby set aside; and,c.Each party to bear its own costs.

185. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 12TH DAY OF JULY 2024ROBERT M. MUTUMA - CHAIRMANBERNADETTE M. GITARI - MEMBERELISHAH N. NJERU - MEMBERMUTISO MAKAU - MEMBERABDULLAHI DIRIYE - MEMBER