[2024] KETAT 1600 (KLR)

Sheffield Systems Limited v Commissioner of Customs and Border Control (Tax Appeal E057 of 2024) [2024] KETAT 1600 (KLR) (Commercial and Tax) (25 November 2024) (Judgment)

Neutral citation: [2024] KETAT 1600 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal E057 of 2024

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, AK Kiprotich & G Ogaga, Members

November 25, 2024

Between

Sheffield Systems Limited

Appellant

and

Commissioner of Customs and Border Control

Respondent

Judgment

Background 1. The Appellant is a limited liability company registered in the Republic of Kenya and is engaged in the business of importation, supply, fabrication and distribution of end to end kitchen, laundry and cold-room equipment; and also offers innovative products and services through concept development, designing, sourcing, fabrication and installation to after-sales service.

2. The Respondent is a principal officer appointed under the provisions of Section 13 of the Kenya Revenue Authority Act, and the Authority is charged with the responsibility of among others, assessment, collection, receipting and accounting for all tax revenues as an agency of the Government of Kenya, and the administration and enforcement of the statutes set out under the Schedule to the Act.

3. On 26th September, 2023, the Respondent issued a demand notice for Kshs. 76,065,220. 00 to the Appellant

4. The Appellant objected to the demand notice vide a letter dated 24th October, 2023.

5. The Respondent issued a review decision to the Appellant on 23rd November, 2023 in which it vacated part of the demand resulting in a tax liability amounting to Kshs. 71,502,492. 00.

6. The Appellant being aggrieved by the Respondent‘s review decision lodged a Notice of Appeal to the Tribunal dated 4th January, 2024 and filed on 19th January, 2024.

The Appeal 7. The Appellant filed its Memorandum of Appeal on 19th January, 2024 setting out the following grounds of Appeal;i.That the Respondent erred in assessing the tax payable by incorrectly analysing the Appellant's foreign purchases against CIF declared, leading to an erroneous assessment of tax liability.ii.That the Respondent erred by exclusively considering negative variances in the analysed foreign purchases against CIF declared for 2018, 2019, and 2021, aggregating to Kshs. 85,889,587. 00, while disregarding a more substantial positive variance in the year 2020, totaling Kshs. 184,222,681. 00 which, without prejudice, could also be used to the advantage of the Appellant.iii.That the Respondent erred in assessing the tax payable by the Appellant by applying the incorrect classifications in respect of the Appellant's products. Specifically:a.The Respondent erred in fact and in law by relying on a Tariff Ruling dated 23rd January, 2023 (identified as KRA/CBC/BIA/THQ/039/01/23) and concluding that the Vorante M229 imported by the Appellant between the years 2018 to 2022 had been classified incorrectly. This error has led to the Respondent seeking additional taxes amounting to Kshs. 1,506,450. 00. b.The Respondent erred in concluding that the steel sheets imported by the Appellant are flat rolled products of iron, of non-alloy steel of a width of 600 mm or more, clad/plated or coated as described in the EACCET. The Appellant maintains that its products as received from its suppliers are neither clad nor plated or coated and therefore the classification proposed by the Respondent is wrong.iv.That the Respondent outrightly contravened the doctrine of legitimate expectation that rests a presumption on the Respondent to follow certain procedures at arriving at the tax liability and the benefits that accrue from it.v.That the Respondent erred in law and in fact in finding that the Appellant has underpaid taxes even though they are fully aware the Appellant remitted the full amount to the Respondent through their agents.vi.That the demand by the Respondent for extra taxes from the Appellant in respect of “underpayment of taxes” is unjustified, unmerited and without any legal basis.vii.That the Respondent acted capriciously and is motivated by extraneous considerations in issuing the various tax demands.

Appellant’s Case 8. The Appellant set out its case based on the following documents:i.Its Statement of Facts filed on 19th January, 2024. ii.Its written submissions dated 23rd September, 2024 and filed on 24th September, 2024. iii.The Witness statement of Arwinder Sadhu dated 9th September, 2024 and filed on 10th September, 2024 that was admitted in evidence under oath on 10th September, 2024.

9. The Appellant stated hat the Respondent’s demand notice amounted to Kshs.76,065,220. 00 and was due to the below alleged issues:-i.Transactional value of identical goods, particularly with respect to a boiler imported by the Appellant under Entry No. 23MBA1M402943359;ii.Analysis of foreign purchases against CIF declared;iii.Mis-classification of Vorante M229;iv.Mis-classification of coated stainless-steel sheets; andv.Underpayment of taxes.

Transactional value of identical goods, particularly with respect to a boiler imported by the Appellant under Entry No. 23MBA1M402943359 10. That the claim on transactional value of identical goods, particularly with respect to the boiler imported by the Appellant under Entry No.23MBA1M402943359, was vacated by the Respondent in its review decision dated 23rd November, 2023 and has thus abated.

Analysis of Foreign Purchases Against CIF Declared 11. That in its review decision dated 23rd November, 2023, the Respondent upheld its view in regard to analysis of foreign purchases against CIF declared on the basis that it had done a summation of all the payments to the Appellant's foreign suppliers as per the Appellant's purchase ledger and had compared the same with the yearly CIF as declared by the Appellant in the Respondent's Customs systems. The Respondent alleged that the comparison returned a variance as demonstrated in table below:Year Purchase Ledger Total CIF (Kshs) Variance

2018 307,564,931. 00 299,664,915. 00 (7,900,016. 00)

2019 311,973,069. 00 243,781,304. 00 (68,191,795. 00)

2020 169,737,825. 00 353,960,506. 00 184,222,681. 00

2021 139,243,929. 00 129,446,153. 00 (9. 797,776. 00)

2022 Incomplete data 142,984,581. 00

Total 85,889,587. 00

12. That based on the above variance, the Respondent assessed a total tax liability of Kshs. 25,337,428. 00.

13. That while demanding for the above taxes, all that the Respondent did was to plant figures on a letter and did not furnish a comprehensive analysis or breakdown elucidating the methodology and underlying schedules employed to arrive at the figures in question, notwithstanding the Appellant's request for such information via email which the Respondent would have downloaded and emailed to the Appellant.

14. The Appellant submitted that it does not know how the figures were arrived at and as such was unable to undertake a reconciliation of its purchase ledger against the half-baked information provided by the Respondent.

15. That finally, the Respondent has exclusively considered the negative variances for the years 2018, 2019 and 2021 aggregating to Kshs. 85,889,587. 00 while disregarding a more substantial positive variance in the year 2020 totaling Kshs.184,222,681. 00 which, without prejudice, could also be used to the advantage of the Appellant.

16. That in conclusion therefore, without the critical information as requested by the Appellant, it was challenging to respond sufficiently to the demand raised by the Respondent. It was the Appellant's assertion that the Respondent's action in raising the demand of Kshs. 25,337,428. 00 and stipulating that the Appellant has underdeclared taxes without elaborating, explaining and enumerating the basis of the assertion and the rationale used at arriving to this position or even evidence in support of the same, constitutes a breach of the Appellant's right to fair administrative action.

Mis-classification of Vorante M229 17. That in its review decision dated 23rd November, 2023, the Respondent upheld its view in relation to mis-classification of Vorante M229 on the basis that in between the years 2018 to 2022, the Appellant imported Vorante M229 and applied the wrong classification and consequently, the Respondent sought for additional taxes amounting to Kshs. 1,506,450. 00 relying on a Tariff Ruling identified as KRA/CBC/BIA/THQ/039/01/23, dated 23rd January, 2023.

18. It was the Appellant's position that by relying on the Ruling which was issued after the transactions in question, the Respondent attempted to retrospectively apply the law which is against known legal principles. That the Ruling cannot. therefore, form the basis for which the Respondent sought additional taxes.

19. Additionally, the Appellant disputed having applied different classifications for the same product and the Respondent did not provide any evidence in support of the allegations.

20. The Appellant further contended that the classification that it used was as per the international classifications and also as per the products imported based on the description of the products by the suppliers.

21. That finally, by the Customs officers verifying the containers, examining the imported products, and subsequently clearing them for warehousing during the clearance process, the Respondent implicitly approved the declared taxes and tariff declarations as accurate and appropriate hence creating a legitimate expectation on the part of the Appellant.

Mis-classification of coated stainless steel sheets 22. That in its review decision dated 23rd November, 2023, the Respondent upheld its view that the Appellant inconsistently and interchangeably applied different tariff headings to declare the product in question. That as a result, the Respondent assessed extra taxes amounting to Kshs. 19,135,751. 00.

23. That the assessment was based on a misconception that the items imported by the Appellant are flat rolled products of iron or non-alloy steel of a width of 600mm or more, clad/plated or coated as described in the EACCET. The Appellant contended that its products, as received from its suppliers, are neither clad nor plated nor coated and therefore the classification proposed by the Respondent is obviously wrong.

Underpayment of taxes 24. That based on the demand notice dated 26th September, 2023 the Respondent averred that an analysis and comparison of import entries availed by the Appellant against the Respondent's Customs system reveal that taxes captured as paid on the entries were not tallying with the actual taxes paid in the Respondent's Customs system hence assessing the total tax liability to Kshs. 25,522,863. 00.

25. The Appellant confirmed that this is a matter under investigation by Kenya Revenue Authority and the Appellant has given sufficient information/documentation to demonstrate that the non-payment/underpayment of taxes was occasioned by a clearing agent (Ports Conveyors Limited). That it is therefore unjust to demand that the Appellant pays these taxes even before the investigations have been completed and a decision made on the party who is culpable.

26. That the Appellant actively cooperated and continues to cooperate with Kenya Revenue Authority in relation to the matter at hand.

27. That based on the statement issued by the Appellant in the investigations, it is clear that the funds in question were received by agents acting on behalf of the Respondent. That consequently, the Appellant asserted that any necessary follow-up regarding these funds should be conducted directly with the Respondent and its agents, excluding the Appellant from such proceedings.

28. Additionally, the Appellant averred that some of the entries indicated in the Respondent's Ruling and/or decision dated 26th September, 2023 did not belong to the Appellant and the Appellant is therefore a stranger to the same.

29. That as a result, the Appellant is aggrieved by the Respondent's decision for the reason that tax arrears demanded by the Respondent under this head are without basis.

Appellant’s Prayers 30. The Appellant prayed for the following reliefs:i.The decision of the Respondent dated 23rd November, 2023 be set aside.ii.A declaration that the Respondent erred in assessing the tax payable by the Appellant by incorrectly analysing the Appellant's foreign purchases against CIF declared.iii.A declaration that the Respondent erred by exclusively considering the negative variances of the analysed Appellant's foreign purchases against CIF declared for the years 2018, 2019 and 2021, aggregating to Kshs. 85,889,587. 00 while disregarding a more substantial positive variance in the year 2020 totaling Kshs. 184,222,681. 00. iv.A declaration that the Respondent erred by relying on a Tariff Ruling dated 23rd January, 2023 (KRA/CBC/BIA/THQ/039/01/23) and concluding that the Vorante M229 imported by the Appellant between the years 2018 to 2022 had been classified incorrectly.v.A declaration that the Respondent erred in concluding that the steel sheets imported by the Appellant are flat rolled products of iron or non-alloy steel of a width of 600mm or more, clad/plated or coated as described in the EACCET.vi.A declaration that the Respondent contravened the doctrine of legitimate expectation that rests a presumption on the Respondent to follow certain procedures at arriving at the tax liability and the benefits that accrue from it.vii.A declaration that the Respondent erred in law and in fact in finding that the Appellant has underpaid taxes.viii.The assessment of Kshs. 71,502,492. 00 be set asideix.Any other relief that this Honourable Tribunal may deem fit.

Respondent’s Case 31. The Respondent’s case is premised on the hereunder documents and proceedings before the Tribunal:-a.The Respondent’s Statement of Facts dated 28th February, 2024. b.The Witness statement of Jack Awinda dated 13th August, 2024 and filed on the same date that was admitted in evidence under oath on 10th September, 2024.

32. That the Respondent sought to check the Appellant's compliance with relevant Customs laws pertaining to imports and exports for the period 2018 to 2022.

33. That the Respondent issued the Notice of Intention to conduct a field audit on 13th February, 2023. That the opening meeting was held on 1st March, 2023 at the Appellant's premises along Mombasa Road and the audit commenced thereafter.

34. That the Respondent's audit findings were communicated to the Appellant through a letter dated 19th September, 2023 requiring the Appellant to respond within 7 days.

35. That the Respondent averred that the audit revealed instances of non-compliance as summarized below:i.Undervaluation – Kshs. 4,562,728. 00ii.Under declaration of Customs values – Kshs. 25,337,428. 00iii.Tariff misclassification – Kshs. 20,642,201. 00iv.Underpayment of taxes – Kshs. 25,522,863. 00

36. That the Respondent objects to each ground of the Appellant's Appeal and presents the following facts to the Honourable Tribunal:-

Under-declaration of Customs values 37. It was the Respondent’s position that foreign purchases by a taxpayer should fairly give a reflection of the Customs value, that is, the transaction value of the goods being imported.

38. That where huge and unexplained differences are encountered, the Appellant was given an opportunity to give an explanation of the huge variances between the foreign payments vis-a-vis the Customs value declared. That no response was given to the Respondent.

39. That from the breakdown of the foreign purchases provided by the Appellant and Customs value, it was clear that there are some undeclared foreign remittances, indicative of under declaration of Customs value. That the same was brought to charge and relevant Customs duties and taxes tabulated and demanded.

Tariff Misclassification Vorante M229 40. That the Respondent's audit established that the Appellant's consignments of Vorante M229 were misclassified under various tariff codes 39072. 00, 39093. 00 and 390931. 00 instead of the correct and applicable tariff code of 3909. 50. 00 which attracts import duty at the rate of 10% and VAT at 16%.

41. That the Respondent’s tariff ruling dated 23rd January, 2023 expressly confirmed to the Appellant the classification of the product.

Coated stainless steel sheets 42. That the Respondent found that the consignments of “flavour powder type beef spice” were misclassified under tariff 3302. 10. 00 instead of tariff code 2103. 90. 00.

43. That from the various tariff rulings presented in the Appellant's review application, the Respondent noted that they were advance rulings, which are binding to a party for 12 months from date of issuance.

Underpayment of taxes 44. That the Appellant confirmed that there was underpayment of taxes as captured by the Respondent's Customs systems when checked against the import entries. That there was an attempt to shift blame to the Appellant's clearing agent.

45. The Respondent stated that a duly authorised agent acts on behalf of an owner and the duty to ensure that correct declarations are done and payment of relevant taxes paid lies with the owner of the goods.

46. That Sections 234 and 236 of EACCMA gives the Respondent powers to call for documents and conduct a post clearance audit on import and export operations within a period of five years from the date of importation or exportation.

47. That where the aforementioned audit reveals that taxes were short levied, the Respondent has the duty to collect the amount short levied.

Respondent’s Prayers 48. The Respondent prayed that the Tribunal:i.Upholds that the Respondent's decision to uplift taxes was proper and in conformity with the provisions of the law.ii.Dismisses the Appeal with costs.

Issues For Determination 49. The Tribunal, having considered the pleadings and evidence adduced by the parties is of the considered view that the issues that crystalizes for its determination are:-i.Whether the Respondent was justified in uplifting the CIF value of foreign purchasesii.Whether the Respondent was justified in reclassifying Vorante M229 imported by the Appellantiii.Whether the Respondent was justified in reclassifying the stainless steel sheets imported by the Appellantiv.Whether the Respondent was justified in demanding taxes based on underpayment of taxes by the Appellant’s clearing agent

Analysis And Determination 50. The Tribunal, having identified the issues that fall for its determination, proceeds to analyse them as follows:-

Whether the Respondent was justified in uplifting the CIF value of foreign purchases 51. The Appellant averred that all that the Respondent did was to plant figures on a letter and did not furnish the Appellant with a comprehensive analysis or breakdown elucidating the methodology and underlying schedules employed to arrive at the figures in question, notwithstanding the Appellant's request for such information via email which the Respondent would have downloaded and emailed to the Appellant.

52. The Appellant further submitted that it does not know how the figures were arrived at and as such was unable to undertake a reconciliation of its purchase ledger against the half-baked information provided by the Respondent.

53. On its part, the Respondent argued that from the breakdown of the foreign purchases provided by the Appellant and Customs value, it was clear that there were some undeclared foreign remittances, indicative of under declaration of Customs value.

54. The Tribunal has reviewed the parties’ pleadings and submissions and notes that while the Appellant argued that it was unable to respond to the Respondent’s allegations due to lack of information from the Respondent, it did not, on its part, provide any Customs documentation to demonstrate what items it imported and that it paid taxes on the basis of actual purchase prices of the items it imported.

55. Section 30 of the Tax Appeals Tribunal Act squarely place the burden of proof upon a taxpayer to discredit any tax assessment or decision. The Section provides as follows:“In any proceeding before the Tribunal the appellant has the burden of proving-a.where an appeal relates to an assessment, that the assessment is excessive; orb.in any other case, that the tax decision should not have been made or should have been made differently.”

56. In the instant case, the Tribunal notes that the Appellant did not provide any evidence to show that it indeed declared, accounted for and paid Customs duties on its imports based on the actual CIF in a bid to disprove the Commissioner’s uplift of the Appellant’s CIF values.

57. Further, the Tribunal posits that failure by the Appellant to discharge its burden of proof would result in the confirmation of the tax assessed against it as was stated in the Kenya Revenue Authority vs. Man Diesel & Turbo Se, Kenya [2021] eKLR where it was stated as follows:“The party that carries the burden of proof must produce evidence to meet a threshold or “standard” in order to prove their claim. If a party fails to meet their burden of proof, their claim will fail. “Burden of Proof” at the Tax Court is somewhat unique. At the Tax Court, a taxpayer is required to disprove an assessment by the Commissioner. In other words, a Taxpayer challenging a tax assessment will need to collect and present evidence in order to disprove the Commissioner’s position. This is the basic principle.”

58. The Tribunal therefore concludes that the Appellant did not rebut the Commissioner’s position on uplift of CIF values on foreign purchases by the Appellant.

Whether the Respondent was justified in reclassifying Vorante M229 imported by the Appellant 59. The parties disagreed on the Customs classification of the Appellant’s imported product - Vorante M229. The Appellant argued that it properly classified the item under tariff sub-headings 39072. 00, 39093. 00 and 390931. 00 while the Respondent contended that the correct tariff code was 3909. 50. 00

60. The Appellant did not provide any documents in relation to the importation of this product. The only document it provided was an extract of Section VII of the Common External Tariff handbook that describes the commodities under this Section to be “plastics and articles thereof; rubber and articles thereof”.

61. The Tribunal posits that without the source documents from the foreign suppliers of the products as well as the Customs documents used for importation of the same, it is unable to classify the product as it has no basis to determine what the product is or its composition thereof.

62. The Tribunal makes reference to Section 30 of the Tax Appeals Tribunal Act that places the burden of proof on the Appellant to prove its case.

63. Notably, on the instant classification issue, the Appellant did not provide any documents or evidence to support its case and therefore failed in rebutting the Respondent’s position.

Whether the Respondent was justified in reclassifying the stainless steel sheets imported by the Appellant 64. This dispute arose out of the parties’ disagreement as to the classification of the

Appellant’s imported stainless steel sheets. 65. The Appellant argued that its products were classifiable under tariff codes 7219. 33. 00, 7219. 34. 00 and 7219. 90. 00 while the Respondent averred that the products were classifiable under tariff code 7210. 90. 00.

66. The Appellant further contended that its products, as received from its suppliers, are neither clad nor plated or coated and therefore the classification proposed by the Respondent is obviously wrong.

67. The Respondent on its part, and in its Statement of Facts, stated that it found that the consignments of “flavour powder type beef spice” were misclassified under tariff 3302. 10. 00 instead of tariff code 2103. 90. 00. The Tribunal was astonished by the Respondent’s averment which seemingly referred to a product other than the one in dispute.

68. The Tribunal further notes that from the Respondent’s review decision, it averred that the Appellant’s products were classifiable under tariff code 7210. 90. 00.

69. The Tribunal gleaned through the parties’ pleadings and submissions and observed that the Appellant provided the following documents to support its position:i.A mill certificate.ii.An email from the foreign supplier showing the product tariff codes.iii.A graphical representation of the production process of the product.

70. The Tribunal notes, from the milling certificate, that the products in question consist of stainless steel cold rolled sheets. Further, the specifications of the products are as provided below:i.1. 20MM X 1220MMX2440MMii.1. 20MM X 1220MMX2440MMiii.2. 40MM X 1220MMX2440MM

71. From the email by the suppliers, the product specifications below were provided:i.0. 6MM X 1220MM X 2440MMii.1. 0MM X 1220MM X 2440MMiii.1. 2MM X 1220MM X 2440MMiv.1. 20MM X 1220MM X 3000MMv.1. 5MM X 1220MM X 2440MMvi.2. 0MM X 1220MMX2440MMvii.3. 0MM X 1220MMX2440MM

72. The Tribunal has studied the production flow chart of the stainless steel sheets and notes that there was no process depicted under which the items were clad, plated or coated.

73. With the above information, the Tribunal has referred to the East African Community Common External Tariff (EACCET) Handbook and has established that the items in question fall under Chapter 72 of the EACCET which classifies iron and steel products.

74. The Tribunal further relies on the General Interpretation Rules for the classification of goods in the Customs Nomenclature which provide as follows:“Classification of goods in the Nomenclature shall be governed by the following principles : 1. The titles of Sections, Chapters and sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions :

2. (a)Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled.(b)Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of Rule 3.

3. When by application of Rule 2 (b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows :(a)The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.(b)Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3 (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.(c)When goods cannot be classified by reference to 3 (a) or 3 (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.

4. Goods which cannot be classified in accordance with the above Rules shall be classified under the heading appropriate to the goods to which they are most akin.

5. In addition to the foregoing provisions, the following Rules shall apply in respect of the goods referred to therein :(a)Camera cases, musical instrument cases, gun cases, drawing instrument cases, necklace cases and similar containers, specially shaped or fitted to contain a specific article or set of articles, suitable for long term use and presented with the articles for which they are intended, shall be classified with such articles when of a kind normally sold therewith. This Rule does not, however, apply to containers which give the whole its essential character;(b)Subject to the provisions of Rule 5 (a) above, packing materials and packing containers presented with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision is not binding when such packing materials or packing containers are clearly suitable for repetitive use.

6. 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, to the above Rules, on the understanding 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.”

75. The Tribunal has reviewed all the Headings under Chapter 72 which are replicated below:“Heading H.S. Code/ Tariff No. Description 72. 19 Flat-rolled products of stainless steel, of a width of 600 mm or more.- Not further worked than hot-rolled, in coils:7219. 11. 00 -- Of a thickness exceeding 10 mm7219. 12. 00 -- Of a thickness of 4. 75 mm or more but not exceeding 10 mm 7219. 13. 00 -- Of a thickness of 3 mm or more but less than 4. 75 mm7219. 14. 00 -- Of a thickness of less than 3 mm- Not further worked than hot-rolled, not in coils:7219. 21. 00 -- Of a thickness exceeding 10 mm7219. 22. 00 -- Of a thickness of 4. 75 mm or more but not exceeding 10 mm7219. 23. 00 -- Of a thickness of 3 mm or more but less than 4. 75 mm7219. 24. 00 -- Of a thickness of less than 3 mm- Not further worked than cold-rolled (cold-reduced):7219. 31. 00 -- Of a thickness of 4. 75 mm or more7219. 32. 00 -- Of a thickness of 3 mm or more but less than 4. 75 mm7219. 33. 00 -- Of a thickness exceeding 1 mm but less than 3 mm7219. 34. 00 -- Of a thickness of 0. 5 mm or more but not exceeding 1 mm7219. 35. 00 -- Of a thickness of less than 0. 5 mm7219. 90. 00 - Other”

76. The Tribunal has established that based on the review of tariff codes under Heading 7219 and based on Rule 1 of the GIRs the products in question are described under Heading 7219 which classifies “flat-rolled products of stainless steel, of a width of 600 mm or more” and not under any other tariff heading under Chapter 72. Notably, the other GIRs do not apply to this products as Rule 1 provides the conclusive guidance for the said classification in which case the other Rules are then rendered inapplicable.

77. The Tribunal, as a result of the foregoing, confirms that the Appellant properly classified its stainless steel rolls.

Whether the Respondent was justified in demanding taxes based on underpayment of taxes by the Appellant’s clearing agent 78. The dispute under this issue arose out of the parties’ disagreement on the taxes paid to the Respondent.

79. The Appellant submitted that it provided the taxes payable to its clearing agent who did not submit the same in full to the Respondent.

80. The Tribunal notes that while the Appellant made averments that it provided money to its clearing agent that needed to be paid to the Respondent and that its clearing agent did not pay the taxes as expected, it did not provide any documentation to support this averment neither did it provide documentation to prove that it paid taxes to the Respondent.

81. The Tribunal reiterates the provisions of Section 30 of the Tax Appeals Tribunal Act that places the burden of proof in tax disputes on the Appellant.

82. The issue of burden of proof under Section 30 of the TAT Act was clarified by the High Court in Primarosa Flowers Ltd -vs Commissioner of Domestic Taxes (2019) eKLR, where it was held that:-“In tax disputes, the taxpayer must satisfy the burden of proof to successfully challenge the income tax assessment. The onus is on the taxpayer in proving that the assessment excessive by adducing positive evidence which demonstrates the taxable income on which tax ought to have been levied.”

83. As a result of the foregoing, the Tribunal finds that the Respondent was justified in assessing the taxes based on underpayment by the Appellant’s clearing agent.

Final Decision 84. The upshot of the foregoing analysis is that the Appeal is partially merited and the Tribunal accordingly proceeds to make the following Orders: -a.The Appeal be and is hereby partially allowed.b.The Respondent’s review decision dated 23rd November, 2023 be and is hereby varied in the following terms:-i.The Respondent’s uplift of the CIF value of foreign purchases by the Appellant be and is hereby upheld.ii.The Respondent’s reclassification of Vorante M229 imported by the Appellant be and is hereby upheld.iii.The Respondent’s reclassification of stainless steel sheets imported by the Appellant be and is hereby set aside.iv.The Respondent’s demand of taxes based on underpayment of taxes by the Appellant’s clearing agent be and is hereby upheld.c.The Respondent is hereby directed to recompute the tax assessment based on the Tribunal’s findings under (b) (i) to (iv) above within Thirty (30) days of the date of delivery of this Judgment.d.Each Party to bear its own costs.

85. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 25TH DAY OF OCTOBER, 2024ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMEBERDR. RODNEY O. OLUOCH - MEMBER MEMBERABRAHAM K. KIPROTICH - MEMBERGLORIA A. OGAGA - MEMBER