[2024] KETAT 1245 (KLR)

Sunpower International Limited v Commissioner of Customs and Border Control (Tax Appeal E437 of 2023) [2024] KETAT 1245 (KLR) (23 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1245 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E437 of 2023

E.N Wafula, Chair, Jephthah Njagi, E Ng'ang'a & G Ogaga, Members

August 23, 2024

Between

Sunpower International Limited

Appellant

and

Commissioner of Customs and Border Control

Respondent

Judgment

Background 1. The Appellant is a private limited liability company incorporated in Kenya. Its main form of business is in the installation and servicing of industrial solar plants, fiberglass-reinforced PPR piping systems, and photovoltaic solar systems.

2. The Respondent is a principal officer under Section 13 of 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 tax revenue.

3. The Respondent conducted a desk review of customs on the Appellant’s consignments of aqua hot storage tanks for the period between August 2021 to August 2022.

4. The Respondent found that the aqua hot storage tanks imported by the Appellant had been misclassified under tariff codes 8404. 10. 00 and 8419. 90. 00 which attract Import duty and VAT of 0% when the applicable tariff classification for Aqua Hot Water tanks is 8516. 10. 00, which attracts Import duty of 25% and VAT of 16%.

5. The Respondent issued a demand notice to the Appellant on 24th February 2023.

6. The Appellant applied for a review vide a letter dated 7th June 2023 which was rejected by the Respondent on 20th June 2023 for being late thereby upholding its position on the reclassification of the tariff.

7. Being dissatisfied with the review decision, the Appellant filed a Notice of Appeal dated 4th August 2023.

The Appeal 8. The Appeal is premised on the following grounds listed in the Memorandum of Appeal dated 3rd August 2023 and filed on 4th August 2023:-a.That the Respondent’s demand notice dated 24th February 2023 and the review decision dated 20th January 2023 is arbitrary, unlawful, and therefore null and void.b.That at the time of the importation of the Aqua Hot water tanks which are solar water heating tanks, the taxpayer correctly classified the dual water heating system under tariff code no. 8419. 19. 00 and accordingly, the Commissioner erred in law and fact in classifying the coil solar water heating system under tariff Code 8516. 19. 00. c.That there is no dispute that the Aqua hot-water tanks and accessories imported are designed to operate purely on the solar system. Therefore, there is no basis whatsoever as to why the Commissioner has chosen to employ HS Code 8516. 16 slotted for electrical components. Accordingly, the Respondent erred in law and in fact in classifying the water heating system as electrical instead of solar.d.That Respondent erred in law and in fact in failing to recognise that the East Africa Community Common External Tariff 2017 version clearly states that HS Code 8516. 10. 00 is meant for electric instantaneous or storage water heaters and immersion heaters which read as under.i.Electric instantaneous or storage water heaters and immersion heaters -u 25%ii.-Electric space heating apparatus and electric soil heating apparatus:e.That the aqua hot water storage tank being imported by the Appellant is not an electric instantaneous or storage water heater but purely a solar water heater storage tank.f.That the Commissioner’s decision leading to the demand is contrary to established principles of interpreting the tax code and the Respondent erred in law and fact in failing to resolve the issue in favour of the taxpayer by employing HS Code 8419. 19. 00 which is zero-rated.g.That the Respondent erred in law and in failing to hold that aqua hot water storage solar heating panel did not fall among those equipment classified under Chapter 85 of the East Africa Community Common External Tariff 2017 version and that even if the Respondent wanted to employ the ejusdem generis rule, still the imported goods could not be grouped among those specified under Chapter 85. h.That the Respondent erred in law and fact in failing to recognize that the fresh assessments and demands made would exert unnecessary and illegal expenses on the Appellant who already sold the goods based on a zero-rated coding.i.That the Respondent erred in law and in fact by failing to consider that its conduct of re-coding the items meant that Kenya would adopt its special unique HS coding contrary to the universal standard set by the Harmonised Commodity Description and coding system developed by the World Customs Organisation (WCO) and accordingly, its conduct is discriminatory since the Appellant is assessed on a different scale as compared to every other person across the globe.j.That the Appellant erred in law and fact by imposing a principal tax of Kshs. 3,883,901. 00.

Appellant’s Case 9. The Appellant’s case was premised on:a.Statement of Facts dated 3rd August 2023 and filed on 4th August 2023. b.Appellant’s written submissions dated 7th June 2024 and filed on 10th June 2024 together with the authorities attached thereto.

10. The Appellant stated that the Respondent issued a demand notice dated 24th February 2023 of Kshs. 4,505,320. 00 pursuant to Sections 235 and 236 of the EACCMA via an email of the same date which the Appellant did not receive.

11. The Appellant averred that the Respondent then called its offices on 27th April 2023 to find out whether it had received its email and followed up with an email on the same day stating that it was still awaiting a response.

12. The Appellant contended that it had a similar case under the Tribunal of TAT No. 179 of 2022 and informed the Respondent during the phone call that the matter was at the Tribunal and they could only await the decision but did not realise that the demand was for a different amount as opposed to the one whose decision had been received.

13. The Appellant averred that through its tax representative, it wrote to the Respondent via a letter dated 7th June 2023 informing it that the Tribunal had issued a Judgment on 12th May 2023 and the Appellant did not have any outstanding liability. It added that that was an oversight as the tax representative did not as well realise that this was a different case altogether and the letter was received duly by the Kenya Revenue Authority on even date.

14. The Appellant stated that the Respondent then issued a review decision on the demanded duties on 20th June 2023 explaining that they were two separate demands and the Judgment notice from the Tribunal did not cover the second case which deems the Appellant imported aqua hot water tanks using the HS Code 8419. 90. 00 and 8404. 10 yet the Respondent deems the correct HS code to be 8516. 10. 00.

15. The Appellant quoted HS Codes 8404. 10. 09; 8419. 90. 00; and 8516. 10. 00 of the East Africa Community Common External Tariff 2017 version and contended that it imports aqua hot water tanks single coil and can only be used for solar components and it is for this reason that the KEBS pre-export certificate of conformity classifies them as solar water storage tanks single coil.

16. The Appellant averred that the products it imported were purely solar water heater systems and do not have any electrical components and there is no reason as to why the Respondent would classify the solar systems in question under 8516. 10. 00.

17. The Appellant averred that the Respondent’s demand letter of 24th February 2023 stated that that the wrong classification of the HS code by the Appellant could be justified by the extra taxes paid by the Appellant after interception of the entry number 23MBAIM400545649 of the original version.

18. That the Respondent therefore deemed the extra payment of taxes by the Appellant as a sign of acceptance that he was using the wrong HS code. That further, it was important to note that the Appellant was under duress and it had to pay the extra taxes to be able to obtain its goods so that it could sell.

19. That the Appellant claimed that indeed nonpayment of the extra taxes meant that the Appellant was to continue to pay for the demurrage which was going to be an extra cost that would result in losses and that this was unfair to the Appellant.

20. The Appellant claimed that it paid the extra taxes under protest as per its letter dated 16th February 2023.

21. The Appellant stated that the Respondent’s review decision dated 20th June 2023 is arbitrary, unlawful, therefore null and void and that at the time of importation of the Solar water heating systems, the taxpayer correctly classified the solar water heating system under tariff Code 8419. 19. 00 and 8404. 10 accordingly, that the Commissioner erred in law and fact in classifying the dual water heating system under the tariff code no. 8516. 19. 00.

Appellant’s prayers. 22. The Appellant consequently prayed that the Tribunal:-a.Allows this Appeal and sets aside the review decision dated 20th June 2023. b.Finds that the Appellant is not liable to pay any taxes with regards to the Respondent’s impugned assessment and demand for the tax;c.The Respondent be condemned to bear the cost of this Appeal; andd.Be pleased to issue any other order favourable to the Appellant as it may deem just and fair to issue.

Respondent’s Case 23. The Respondent’s case was premised on:a.The Respondent’s Statement of Facts dated 25th October 2023 and filed on 26th October 2023;b.The Respondent’s Preliminary Objection dated and filed on 15th April 2024; andc.The Respondent’s Written Submissions dated and filed on 15th April 2024.

24. The Respondent stated that the Notice of Appeal is out of time in contradiction of Sections 13(1)(b) and 3 of the Tax Appeals Tribunal Act, 2013 and Rule 3(1)(b) of the Tax Appeals Tribunal (Procedure) Rules, 2015, thus is defective and the Appeal is therefore an abuse of the process of the Tribunal and a waste of resources.

25. The Respondent stated that the basis of its decision dated 20th June 2023 is premised on the late Objection review made by the Appellant without justifiable/reasonable cause and not related to the correct classification of the Appellant’s product aqua hot water tank.

26. The Respondent reiterated that the Appellant’s grounds of Appeal were invalid and misguided as they were not aligned to the Respondent’s basis of its decision thus a Preliminary Objection had to be raised.

27. The Respondent relied on Section 236 of the EACCMA and contended that the review decision was correctly and unjustly arrived at with respect to the tariff classification of its imported items and consequential demands issued and that the Respondent was within its mandate to verify the accuracy of the goods imported by the Appellant and issue the demands on short-levied taxes.

28. The Respondent cited HS Code 8516. 19. 00 and averred that GIR 1 provided that classification shall be determined according to the terms of the Headings and any relative Section or Chapter Notes, provided the Headings and Notes do not require otherwise, according to GIRs 2 through 6 and thus the hot water storage tanks are classifiable in Heading 8516.

29. The Respondent stated that the Appellant’s product is used for storing hot water with immersion heating elements wherein water is heated gradually and that the water heaters have thermosiphon glass tubes and electrical heating elements.

30. The Respondent added that the water heaters are installed on the roof, terrace, or where sunlight is available and heats water which is later stored in an insulated storage tank for various uses. It added that the storage tanks vary in capacities of 120L, 200L, 300L, and 500L with the key provisions of affixing an electrical heating element; thermosiphon glass tubes for heating the water, a sensor pocket for affixing a sensor for water temperature regulation, a temperature and pressure provision for affixing a temperature and pressure valve.

31. The Respondent averred that the electrical heating is used when the heating process using solar is not sufficient.

32. The Respondent quoted Heading 8419 which covers machinery, plant or laboratory equipment, whether or not electrically heated (excluding furnaces, ovens, and other equipment of Heading 8514), for the treatment of materials by a process involving a change of temperatures such as heating, cooking, roasting, distilling, rectifying, sterilising, pasteurising, steaming, drying, evaporating, vaporising, condensing or cooling, other than machinery or plant of a kind used for domestic purposes; instantaneous or storage water heaters, non-electric.

33. The Respondent further quoted Heading 8516 which covers electric instantaneous or storage water heaters and immersion heaters; electric space heating apparatus and soil heating apparatus; electro-thermic hair-dressing apparatus (for example, hair dryers, hair curlers, curling tong heaters) and hand dryers; electric smoothing irons; other electrothermic appliances of a kind used for domestic purposes; electric heating resistors, other than those of Heading 8545.

34. The Respondent contended that the two possible Headings are to be considered per the provisions of GIR 3 as the legal basis of the classification as GIR 3(a) is not applicable because the heading refers to part of the system. It added that Rule (b) is not applicable as the heating system using solar power is not regarded as giving the essential character of the product, taking into consideration that even if the solar panel is removed, the product can still function as the electrical element.

35. The Respondent averred that Rule 3(c) is applicable in the classification of the Appellant’s product under Heading 8516 by application of GIR 1, 2, 3(c), and 6 and by dint of Rule 3(c), the Heading that occurs last shall be used.

36. The Respondent averred that in any case, the aqua water storage tank and accessories can be imported solely without the solar system and in such a case, it cannot qualify to be classified under Chapter 84 since it is not a machine, a plant or laboratory equipment as stated in those headings thus it is classifiable under Heading 8516.

37. The Respondent further averred that there is no HS Code 8419. 19. 00 which is zero-rated under EAC/CET and puts the Appellant to strict proof thereof.

38. On whether the Respondent’s Preliminary Objection has merit, the Respondent submitted that at the heart of the Preliminary Objection is the determination of whether there is a proper Appeal before the Tribunal and that the ground of the Preliminary Objection is premised on the fact that the Appellant had filed an Appeal without adhering to the mandatory rules of the Tribunal on filing the Appeal.

39. The Respondent argued that the Appellant was challenging the Respondent’s decision of 20th June 2020 and filed both the Notice of Appeal and Memorandum of Appeal on 4th August 2023 and therefore the Notice of Appeal was out of time.

40. The Respondent cited Section 13 of the Tax Appeals Tribunal Act and asserted that the Appellant ought to have filed a Notice of Appeal within 30 days from the date of the decision and filed a substantive appeal in 14 days but the Appellant failed to adhere to the timelines as the Notice of Appeal ought to have been filed by 19th July 2023.

41. The Respondent relied on Section 13(3) of the Tax Appeals Tribunal Act and submitted that upon the lapse of timelines, the Appellant had an option of seeking more time to be allowed to file its appeal but failed to do so and the Appellant cannot select at its own discretion when to file the appeal without leave being granted after a delay of over 4 years.

42. The Respondent reiterated that the Tribunal has the discretion to admit the late appeal if conditions for granting the same are met which include absence from Kenya, sickness or any other reasonable cause that may have prevented a person from lodging the appeal. Therefore, where a taxpayer is late in lodging an appeal, it is suicidal for him to prosecute the appeal unless and until leave is sought and granted by the Tribunal.

43. The Respondent maintained that the Appellant did not disclose any reason as to why there was such an inordinate delay and that, despite the delay, the Appellant equally did not find it necessary and proper to make an application so that the Appeal is admitted out of time or allowed more time to put in its appeal.

44. The Respondent relied the case of Nairobi H.C. Misc. Civil Application No. 81 of 2011 Republic v The Commissioner of Customs Services; Ex-parte: SDV Transami to buttress its position that the Appellant is guilty of inordinate delay and deliberately failed to seek an enlargement of time to file its appeal rendering the appeal as not properly before the Tribunal.

45. Further the Respondent relied on the cases of Nicholas Kiptoo Arap Korir Salat v IEBC & 6 Others [2013] eKLR, and Civil Appeal No. 142 of 2013 Dipack Kenya vs William Muthama Kitonyi (2018) eKLR where the court approvingly cited the case of Daphne Parry v Murray Alexander Carson [1963] EA 546 and reiterated that the Appellant had been indolent in prosecuting its Appeal and therefore the Tribunal ought not to aid it any further.

46. The Respondent posited that even if the Honourable Tribunal were to find that the delay is not inordinate, and being clothed with the discretion to admit appeals out of time, a further question must be asked whether there exists a reasonable cause disclosed by the Appellant in explaining the delay and none exists.

47. On whether the Respondent’s decision dated 20th June 2023 was correct the Respondent submitted that the basis of the Appeal is not in substance a decision related to the correct classification of the Appellant’s product, the aqua hot water tank.

48. The Appellant averred that the Appellant’s grounds of appeal were invalid and misguided as they are not aligned to the Respondent’s basis of its decision.

49. The Respondent reiterated that it issued a demand on 24th February 2023 and corresponded with the Appellant to respond to the demand if it were dissatisfied with the same. That it was only on 7th June 2023 did the Appellant lodge an application or review (over 4 months late).

50. The Respondent averred that in the late application for review, the Appellant alleged that it was misguided on the basis that the demand had been conclusively determined by a previous decision of the Tribunal which was erroneous and the Appellant could not provide any reason for the delay of lodging a late application for review and thus the same was rejected.

Respondent’s prayers 51. The Respondent prays for orders that this Tribunal:-a.Affirms the Respondent’s decision dated 20th June 2023. b.Dismisses this Appeal with costs.

Issues For Determination 52. The Tribunal having evaluated the pleadings and submissions of the parties is of the view that there are two issues that call for its determination:a.Whether the Respondents’ preliminary objection dated 15th April 2024 was merited?b.Whether the Respondent’s decision to re-classify the Aqua Hot water storage tanks under HS code 8516. 10 was justified?

Analysis And Findings 53. The Tribunal having determined the issues falling for its determination proceeds to analyse the same as hereunder.

a.Whether the Respondent’s preliminary objection dated 15th April 2024 was merited? 54. The Respondent vide its Notice of Preliminary Objection dated 15th April 2024 stated that the Appeal offended Section 13 of the Tax Appeals Tribunal Act. The Respondent argued that since the Appeal was lodged outside 30 days it should be dismissed.

55. The Tribunal is guided by Section 230 of the EACCMA which provides as follows:“(1)A person dissatisfied with the decision of the commissioner under section 229 may appeal to a tax appeals tribunal established in accordance with section 2312. A person intending to lodge an appeal under this section shall lodge the appeal within forty-five days after being served with the decisions, and shall serve a copy of the appeal on the commissioner.”

56. The Tribunal notes that the Respondent’s review decision was issued on 20th June 2023 and the Appeal was lodged on the 4th of August 2023, exactly 45 days after the Commissioner issued its review decision.

57. The Tribunal is of the considered view that the provisions of Section 230 of EACCMA are express and an unequivocal and finds that the Appeal was not filed out of time as submitted by the Respondent. Further, the Tribunal finds that Sections 13(1)(b) and 3 of the Tax Appeals Tribunal Act, 2013 and Rule 3(1)(b) of the Tax Appeals Tribunal (Procedure) Rules, 2015, are not applicable in this instant Appeal.

58. The Tribunal therefore finds that the Respondent’s Preliminary objection dated 15th April 2024 was not merited.

b. Whether the Respondent was justified to reject the late application for review 59. The Respondent based its decision dated 20th June 2023 on the late application for review made by the Appellant without justifiable/reasonable cause.

60. The Respondent on 20th June 2023 acknowledged receipt of the letter referenced NAMS/SIL/2023 dated 7th June 2023 wherein the Appellant had applied for review of a decision made by the Respondent in demand referenced KRA/CBC/RMD/PCA/2023 (DMD) dated 24th February 2023.

61. The Tribunal notes that the Appellant applied for review more than three months after the Respondent issued a tax demand.

62. It was the Appellant’s case that the reason for late application for review was that it was misguided on the Respondent’s demand issued on 24th February 2023 as it thought the demand dated 24th February 2024 was related to a matter that the Tribunal had rendered a decision dated 12th May 2023 with respect to classification for dual solar water heater.

63. The Tribunal notes that it is undisputed by the parties that the Respondent called the Appellant’s offices on 27th April 2023 to find out whether the Appellant had received its email communicating the tax demand dated 24th February 2023.

64. The Tribunal further notes the Respondent issued its review decision on 20th June 2023, stating therein that contrary to the Appellant’s reason for filing its review application late, that the matter the Appellant was referring to and the demand dated 24th February 2023 related to two separate issues and that the Tribunal’s Judgment did not cover the instant case.

65. The Tribunal also notes that even after the follow-up made by the Respondent on 27th April 2023, the Appellant only applied for review of the Respondent’s decision on 7th June 2023.

66. The Tribunal is guided by Section 229(1), (2) and (3) of the East African Community Customs Management Act (EACCMA) which provides as follows: -“(1)A person directly affected by the decision or omission of the Commissioner or any other officer on matters relating to Customs shall within thirty days of the date of the decision or omission lodge an application for decision or omission(2)The application referred to under subsection (1) shall be lodged with the Commissioner in writing stating the grounds upon which it is lodged.(3)Where the Commissioner is satisfied that, owing to absence from the Partner State, sickness or other reasonable cause, the person affected by the decision or omission of the Commissioner was unable to lodge an application specified in subsection (1), and there has been no unreasonable delay by the person in lodging the application, the Commissioner may accept the application lodged after the time specified in subsection (1).”

67. The Tribunal is also guided by the case of Republic v Kenya Revenue Authority & another Ex-Parte Kenya Nut Company Limited [2014] eKLR where the court observed that tax statutes must be strictly interpreted. It stated at Paragraph 40 as follows: -“the rules of interpreting tax statutes bars the Tax Authority or the tax payer from seeking to establish the intention of Parliament as such statutes should be interpreted strictly. In support of this submission the Respondents relied on Cape Brandy Syndicate vs. Inland Revenue Commissioner [1921] 1 KB 64. In that case it was held:“In a taxing Act one has to look merely at what is clearly stated. There is no room for any intendment. There is no equity about tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only lock fairly at the language used.”

68. It is therefore the Tribunals considered view that it was not until 7th June 2023 that the Appellant lodged an application for review of a decision issued on 24th February 2023. This was clearly outside the 30 days permissible timeline for the making of an application for review. Further, the Tribunal notes that the Appellant failed to provide a reasonable cause for its delay in applying for review in accordance with Section 229(3) of EACCMA. The manifest inordinate delay was inspite of the fact that the Appellant had even been reminded of the tax decision by the Respondent on the 27th April, 2024.

69. Based on the foregoing, the Tribunal is persuaded that the Respondent was justified to reject the late application for review by the Appellant.

Final Decision 70. The upshot of the foregoing analysis is that the Appeal lacks merit and the Tribunal accordingly proceeds to make the following Orders:-a.This Appeal be and is hereby dismissed.b.The Respondent’s decision dated 20th June 2023 be and is hereby upheld.c.Each party to bear its own costs.

71. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 23RD DAY OF AUGUST, 2024. ERIC NYONGESA WAFULACHAIRMANEUNICE N. NG’ANG’A JEPHTHAH NJAGIMEMBER MEMBERGLORIA A. OGAGAMEMBER