[2023] KETAT 156 (KLR)

Suntory Beverage and Food Kenya Limited v Commissioner Customs & Border Control (Appeal 832 of 2021) [2023] KETAT 156 (KLR) (17 March 2023) (Judgment)

Neutral citation: [2023] KETAT 156 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 832 of 2021

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, AK Kiprotich & Jephthah Njagi, Members

March 17, 2023

Between

Suntory Beverage And Food Kenya Limited

Appellant

and

Commissioner Customs & Border Control

Respondent

Judgment

Background 1. The Appellant is a limited liability company duly incorporated and registered in Kenya under the Companies Act. Its principal business activity is the manufacture, importation and sale of beverages. The Appellant is a subsidiary of Suntory Group, a multi-faceted food and beverage company founded in 1889.

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

3. The Respondent vide a letter dated 15th September, 2021 issued a desk audit demand amounting to Kshs. 83,898,601. 00 based on classifying assorted fruit compounds imported by the Appellant from the declared tariff code 2106. 90. 20 to tariff code 2009. 89. 00 in relation to various customs entries over the period 2016-2019. The details are given in the table below:Description Assessed tariff 2009. 89. 00 Declared tariff 2106. 90. 20 Demanded taxes

Customs value (Kshs) 244,460,427 244,460,427

Import Duty rate 25% 10%

Import Duty (Kshs) 61,115,106 24,446,042 36,669,064

VAT rate 16% 16% 0

VAT (Kshs) 48,892,085 43,025,035 5,867,050

Interest (Kshs) 41,362,486 - 41362,486

Total Taxes and Interest (Kshs)

83,898,601

4. The Appellant responded to the assessed taxes vide an application for review letter dated 14th October, 2021. The Respondent issued its Review Decision vide a letter dated 10th November, 2021 upholding the demand of Kshs. 83,898,601. 00 being Import Duty of Kshs. 36,669,064. 00 VAT of Kshs. 5,867,050. 00 and Interest of Kshs. 41,362,486. 00

5. Aggrieved by the Respondent’s review decision, the Appellant filed a Notice of Appeal on 9th December, 2021.

The Appeal 6. Based on the Memorandum of Appeal dated 21st December 2021 and filed on 22nd December, 2021, the Appellant premised its appeal on the following grounds: -a.That the Commissioner erred by confirming a decision without confirming the composition of the product thus contravening the provisions of Section 229 of the EACCMA.b.That the confirmed decision was issued without due consideration of additional information adduced by the Appellant in its application for review to support the tariff classification in contention.c.That the Respondent referred to description of cargo in one copy of a bill of lading document issued by the transporter for purposes of acknowledging receipt of cargo for shipment, to justify alleged tariff classification under tariff heading 20. 09. d.That the Appellant was in full compliance with the tax provisions, particularly under the EAC Common External Tariff, 2017 in determining the tariff classification of goods declared for customs tax purposes.e.That the Respondent erred in law by disregarding the HS Explanatory notes (ENs) which are the official text that expound of tariff classification and which classify strawberry base, peach base and black- current peach base compounds preparations of a kind used in manufacturing of beverages classified under tariff code 2106. 90. 20. f.That the Respondent erred in fact and failed to recognize explanations and evidence adduced by the Appellant in support of facts peculiar to this case, thereby confirming the assessment.g.That the Respondent has issued tariff rulings on identical products which are aligned to the tariff code used by the Appellant during the time of importation and declaration of the products imported, in the years 2012 and 2013. h.That binding tariff rulings issued by other jurisdictions regarding the HS classification of the same product indicate the applicable tariff to be 2106. 90. 20.

Appellant’s Case 7. The Appellant’s case is premised on the hereunder filed documents and proceedings before the Tribunal:i.The Appellant’s Statement of Facts dated 21st December, 2021 and filed on 22nd December, 2021 together with the documents attached thereto.ii.The Appellant’s written submissions dated 18th July 2021 and filed on 22nd July, 2021 together with the authorities annexed thereto.

8. The Appellant stated that the basis for the Kshs. 83,898,601. 00 assessment was the General Interpretative Rules (GIRs) as cited in the East African Community Common External Tariff (EACCET) and the Explanatory Notes (ENs) which upon consideration based on GIR 1 and the ENs, the assorted fruit compounds were reclassified by the Respondent under Fruit juices (including grape must) and vegetable juices, unfermented and not containing added spirit, whether or not containing added sugar or other sweetening matter. 2009. 89. 00 “Other juice of any other single fruit or vegetable” for juice of any other single fruit; and

2009. 90. 00 “Mixtures of juices” for mixture of juices Which both attract import duty at an ad valorem rate of 25%.

9. It averred that in its response to the assessed taxes vide an application for review, it justified the tariff classification of the fruit compound under 2106. 90. 20 declared based on the following grounds;a.The compound preparations imported by the Appellant are classifiable under tariff 2106. 90. 20 based on the GIRs of the EACCET and the World Customs Organization (WCO) Customs Nomenclature Interpretative Explanatory Notes. The imported compounds are preparations of a kind used in manufacturing of beverages and meet the approved fruit concentrate standards under Normative Standard.b.The Respondent did not consider Explanatory Notes (EN) to Heading 2106 that justify classification of the imported product under the heading.c.Prior to 6th February 2018, “blackcurrant concentrate” and “blackcurrant compounds” had a KRA Customs ruling referenced 2012/CUS/V&T/TARI/RUL/301 (Blackcurrant Concentrate) dated 31. 05. 2012 classifying both products under tariff code 2106. 90. 20, which the Appellant applied in its customs declarations until the aforesaid date. The contents/ingredients of the concentrates and compounds have never changed since the tariff ruling issued in 2012. d.The product specification sheets obtained from the supplier indicate the compounds are “MSD10827 Strawberry base”, “MSD10842 peach base” and “MSD10841 black-currant-apple base”.

10. That in TAT Appeal No. 282 of 2020, Kenya Breweries Limited vs. Commissioner of Customs and Boarder Control, it was determined that similar products are classified under tariff code 2106. 90. 20.

11. The Appellant submitted that the Respondent issued a review decision vide a letter dated 10th November, 2021 in which it communicated its decision to uphold the demand notice of Kshs. 83,898,601. 00 based on the following main considerations;i.That the Bill of Lading to entry number 2017MSA6748955 indicated code from the manufacturer under Heading 20. 09. an analysis was conducted and a tariff ruling issued, that showed the consignment belonged to Heading 20. 09, as indicated on the Bill of Lading and that the taxes due were paid without protest.ii.That the contention is between Chapter 20 and Chapter 21. Goods of Heading 20. 09 can be presented concentrated and provided they retain their original character, the fruit or vegetable juices of this heading may contain substances of the kinds such as flavors, stabilizers, sugar, standardizing agents, whether these results from the manufacturing process or have been added separately.iii.That the products reviewed by the Respondent and issued with tariff ruling under Section 248A of the EACCMA were fruit concentrates. The Respondent indicated the Appellant was at liberty to seek clarification from the authority but failed to do so. The tariff rulings were only binding on the applicants and the Commissioner for a period of 12 months and were later revoked and replaced with another tariff ruling as guided by Section 248A(4) of the EACCMA, 2004 and the WTO TFA Article 3 on Advance Rulings.iv.That reference to Tax Appeal No. 282 of 2020, Kenya Breweries Limited vs. Commissioner of Customs and Border Control relates to a different product, a fermented alcoholic beverage (apple cider concentrate) and not an apple concentrate (unfermented) hence not comparable with the products under dispute in both their constituent composition and use.

12. That the Appellant averred that it had determined the correct and applicable tariff code in accordance with the General Rules for Interpretation of the Harmonized System. That the EACCET 2017 which is used in determining theHS codes for various imported goods is a codification of the World Customs Organization Harmonized System. The General Rules for Interpretation govern the classification of goods under the Harmonized Commodity Description and Coding System (HS).

13. That specifically, the Appellant relied on the following General Interpretative Rules (GIR):“General Interpretative Rule 1 (GIR 1)”That GIR 1 provides that,“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…”

14. That the Compounds comprise the following:Strawberry base contains:Composition66. 13% water, 17. 6% strawberry juice concentrate, 9. 8% acidifier citric acid (E330), 6. 4% flavoring and 0. 07% preservative potassium sorbate (E202). The Product specification sheet indicates the strawberry base has a brix value of 23. 3 and titratable acid (as anhydrous) of 10. 4g in 100g of the base. That the brix is uncorrected for acidity.Peach base contains:Composition40. 03% water, 25. 1% flavoring, 24. 8% peach juice concentrate, 10. 0% acidifier citric acid (E330), 0. 07% preservative potassium sorbate (E202) and 0. 052% potassium sorbate (expressed as free acid). The product specification sheet indicates the peach base has a brix value of 38. 4 and total titratable acid (as anhydrous) of 10. 5g of the base. That the brix is uncorrected for acidity.Blackcurrant-apple base contains:Composition59. 4% blackcurrant juice concentrate, 16. 13% water, 13. 3% apple juice concentrate, 6. 4% flavoring, 4. 7% acidifier citric acid (330), 0. 07% preservative potassium sorbate (E2002) and 0. 052% potassium sorbate (expressed as free acid). The product specification sheet indicates the blackcurrant-apple base has a brix value of 55. 8 and total titratable acid (as anhydrous) of 14. 3g in 100g of the base. That brix is uncorrected for acidity.

15. That GIR has therefore been used to classify this product by the terms of heading 2106: Food preparations not elsewhere specified or included since the product is not listed specifically within any other Chapter in the EAC CET 2017. “General Interpretative Rule 3 (GIR 3)”That GIR 3 Provides that:“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.”

16. That GIR 6 should be used to classify the goods to subheading level. In accordance with GIR 6, and WCO Explanatory Notes to Heading 2106, the product is correctly classified under 2106. 90. 20, EAC CET, 2017

17. That the Explanatory Notes (EN) to heading 2106 specify that the heading includes;“(7)Non-alcoholic or alcoholic preparations (not based on odoriferous substances) of a kind used in the manufacture of various non-alcoholic or alcoholic beverages. These preparations can be obtained by compounding vegetable extracts of heading 13. 02 with lactic acid, tartaric acid, phosphoric acid, preserving agents, foaming agents, fruit juices, etc. the Preparations contain (in whole or in part) the flavoring ingredients which characterize a particular beverage. As a result the beverage in question can usually be obtained simply by diluting the preparation with water, wine or alcohol, with or without the addition, for example, of sugar or carbon dioxide gas. Some of these products are specifically prepared for domestic use, they are also widely used in industry in order to avoid the unnecessary transport of large quantities of water, alcohol, etc. as presented, these preparations are not intended for consumption as beverages and thus can be distinguished from the beverages of chapter 22. ”

18. The Appellant averred that it provided additional documents to the Respondent following the assessment including product specification sheets which justified the application of GIRs 1, 3 and 6.

19. The Appellant stated that other jurisdictions have issued Binding Tariff Rulings (BTI) relating to the product based on the same interpretation. That the rulings provide precedence on the tariff treatment of the product in World Customs Organization subscribing member countries. The Appellant listed tariff rulings from USA and Spain as evidence of BTI’s that indicate the product to be classified under heading 2106.

20. That based on the BTI’s from the referred jurisdictions, it is internationally accepted that the tariff code 2106. 90. 00 applies to fruit juice compounds in a concentrated form for use in the preparation of soft drinks each serving as a base ingredient to certain soft drinks and containing the flavoring ingredients which characterize a particular beverage. That they are unfit for immediate consumption at the time of importation and its manufacturing process is similar to those of the products assessed by the Respondent.

21. That in Tax Appeal No 282 of 2020, Kenya Breweries Limited vs. Commissioner of Customs and Boarder Control on the proper tariff classification of apple concentrate, it was held that the General Interpretative Rule 1 (GIR 1) is the foremost rule of classification. For legal purposes, classification is determined by the terms of the headings, the section or chapter notes where relevant, and, if necessary and allowable, the other GIRs. That the Tribunal did not agree that Apple Concentrate is a beverage as the Appellant used it as raw material in the manufacture of Cider, an alcoholic beverage. The Tribunal therefore found that the correct classification was at HS code 2106. 90. 00.

22. The Appellant averred that its product similar to the apple concentrate are not ready to drink juices as they undergo further processing to produce juices.

23. The Appellant stated that the Respondent relied on one instance where the Bill of Lading (B/L) document issued by the transporter erroneously indicated the transported goods to be products of tariff heading 2009 instead of 2106 does not justify the assessment issued by the Respondent. That whereas this was an acknowledged error in the document used for customs clearance, the anomaly is an insufficient condition for determination of tariff classification of the transported products. The better reference for customs purposes would be the HS Code issued on the commercial invoice from the supplier or certificate of origin or certificate of conformity.

24. The Appellant averred that several transaction documents were required for lodging the customs entry which includes commercial invoice, bill of lading, import declaration form, certificate of conformity and certificate of origin. That the B/L is a document issued to facilitate the transporter of goods and hand over the transported goods to the consignee and is not relied upon in the classification of goods. That the transporter does not have all relevant information to accurately determine the HS classification of the product transported.

25. That the applicable Kenya Standard for the product is KS EAS 174:2007 Black Currant Concentrate (preserved exclusively by physical means) and it prescribes the specifications for black currant concentrate preserved exclusively by physical means. The Appellant contended that product entries 2016MSA5982728, 2016MSA6231630, 2016MSA6285342, 2017MSA6508773 and 2017MSA6748955 met the minimum standard of black currant concentrate.

26. The Appellant contended that a separate standard, KS 2640:2016 Fruit juices and nectars – Specification, specifies requirements for fruit juices, fruit nectars, concentrated fruit juices and all other products relating and similar to fruit juice and intended for direct human consumption or for further processing. That a similar updated standard, KS EAS 948:2019 Fruit juices and nectars – Specification, specifies requirements, sampling and test methods for fruit juices, nectars and fruit puree and concentrated fruit puree intended for direct human consumption or for further processing.

27. Regarding legitimate expectation, the Appellant referred to Section 248A of the EACCMA which it averred prescribes the manner in which the Respondent should issue an advance tariff ruling. That Section 68(4) (a) of the TPA expressly precludes the review of a ruling from operating retrospectively. That any retrospective application of the law is thus unlawful and amounts to abuse of powers on the part of KRA. It averred that Section of the TPA provides that the effective date of withdrawal of a private ruling was from the date the Commissioner communicates the withdrawal to the tax payer. The Appellant contended that the retrospective withdrawal of the private ruling was in contravention of existing legislation and thus unlawful.

28. To support its case, the Appellant relied on the case of Commissioner of Income Tax vs. Pan African Paper Mills (E.A) Limited [2018] Eklr in which it averred was a tax decision by the Court of Appeal.

29. The Appellant contended that a person may have a legitimate expectation of being treated in a certain was by an administrative authority even though there is no other legal basis upon which he could claim such treatment. That the expectation may arise either from a representation or promise made by the authority, including an implied representation, or from consistent past practice or policy. In all instances the expectation arises by reason of the conduct of the decision-maker and is protected by law on the basis that principles of fairness, predictability and certainty in administration should not be disregarded and that a legitimate expectation should not be disregarded and that a legitimate expectation should not be disappointed.

30. That in Communication Authority of Kenya & 5 others vs. Royal Media Services Limited & 5 Others [2014] eKLR the Supreme Court, after acknowledging that a public body can create legitimate expectation, qualified the statement by saying that for legitimate expectation to arise, there must be express, clear and unambiguous promise given by a public authority; that the expectation itself must be reasonable; that the representation must be one that the decision-maker was competent to make; and the representation must be one that the decision-maker was competent to make; and that there cannot be a legitimate expectation against clear provisions of the law or the Constitution.

31. That R (BIBI) vs. Newham London Borough Council [2001] EWA Cin 607, [2002] WLR 237, it was held that failure to consider a legitimate expectation is a failure to consider a relevant consideration and this would in turn call for the courts intervention in assuming jurisdiction and giving the necessary relief.

32. That Misc Civil Appli 743 of 2006 Keroche Industries Limited vs.8 Kenya Revenue Authority & 5 Others, it was held that “It has been established that legitimate expectation can only operate within the law and it can only be relied on when the law has been complied with. It cannot, however be relied on to shield a person from paying tax. An abrupt change as was intended in this case, targeter at a particular company or industry is certainly abuse of power. Stated simply, legitimate expectation arises for example where a member of the public as a result of a promise or other conduct expects that he will be treated in one way and the public body wishes to treat him or her in a different way. In this case the applicant did not expect an abrupt change of tariff where the process of manufacture of its products had not changed. Public authorities must be held to their practices and promises by the courts and the only expectation is where public authority has a sufficient overriding interest to justify a departure from what has been previously promised.”

33. That based on the aforementioned precedence, the doctrine of legitimate expectation is applicable to this matter since the issuance of tariff rulings following customs clearance of previous shipments and concurrence from the Respondent to apply the ruling prospectively bars the Respondent from assessing past consignments.

34. The Appellant responded to the Respondent’s reasons to deny application for review of the assessment decision as follows;a.That the Respondent relied on one instance where the bill of lading (B/L) document issued by the transported erroneously indicated the transported goods to be products of tariff heading 2009 instead of 2106 does not justify the assessment issued by the Respondent. Whereas this is an acknowledged error in the document used for customs clearance, the anomaly is an insufficient condition for the determination of tariff classification of the transported products. The better reference for customs purposes would be the HS Code issued on the commercial invoice from the supplier or certificate of origin or certificate of conformity.b.That the compounds product composition are not ready for consumption and must be processed further to include water, sugar, acidity regulators (citric acid), vitamin C, flavoring, preservative (potassium sorbate) and various coloring in order for the finished product to be ready for consumption.c.The Appellant contended that the EACCMA amendment introducing advance rulings was gazette on 15th November, 2019 and was not in force in order to be applicable in this matter which was in 2018. That in addition, the WTO Trade Facilitation Agreement from where the advance ruling provision originated and which Kenya ratified in 2015 and therefore applicable but it does not contain a timeline for validity of the advance tariff ruling but leaves it open to member states to legislate on that aspect.d.That the Appellant considered past tariff classification disputes on concentrates/compounds and beverages and the referred matter has comparables in so far as the current matter is concerned.

35. That the sole purpose of this Appeal was to enable the Tribunal make an informed and well-reasoned appeal decision.

Appellant’s Prayers 36. The Appellant prayed that the Tribunal allows the Appeal and;a.Sets aside and annuls the review decision by the Respondent.b.Determines that the declared tariff classification was correct.c.Orders that the Respondent pays the costs of this Appeal.d.Make such other orders that it may deem appropriate

Respondent’s Case 37. The Respondent’s case is premised on the following documents:-a.Its Statement of Facts dated 21st January, 2021 and filed on 24th January 2022 together with the documents attached thereto.b.The Respondent’s written submissions dated 19th September 2022 and filed on 12th October, 2022.

38. The Respondent stated its Post Clearance Audit Section conducted a desk audit of the import transactions by the Appellant for the period 2016 to 2019 in line with the provisions of Sections 235 & 236 of the EACCMA, 2004. That the audit revealed incidences of non-compliance to the provisions of the EACCET 2017 on tariff classification.

39. The Respondent stated that specifically the importer misclassified imported consignments of assorted fruit concentrates compounds under tariff heading 2106 instead of 2009.

40. The Respondent stated that classification of goods in the nomenclature was guided by General Interpretation Rules (GIR) as cited in the EACCET. That these are read together with the Explanatory Notes (ENs) to the Harmonized Commodity Description and Coding System that constitute the official interpretation of the Harmonized System at the International level.

41. That the expression “provided such headings or notes do not otherwise require under GIR 1” is intended to make it clear that the terms of the headings and any relative Section or Chapter Notes are paramount, and are the first consideration in determining classification.

42. It averred that Heading 2009 covers fruit juices (including grape must) and vegetable juices, unfermented and not containing added spirit, whether or not containing added sugar or other sweetening matter. The heading includes the classification of fruit and vegetable juices.

43. According to the Respondent, it drew a sample from the consignment under entry number 2017MSA6748955 for analysis and tariff determination following suspicion of deliberate misclassification. The sample was said to be fruit base concentrate classifiable under tariff head 2009.

44. That further analysis of the Appellant’s data showed that the Appellant started using the advised tariff Heading 2009 for subsequent importations and it also concurred with the lab findings and vowed to communicate the same to its handlers to ensure full compliance.

45. Regarding the Appellant’s contention that it contravened provisions of Section 229 of EACCMA, the Respondent stated that the review decision issued to the Appellant responded to all grounds by the Appellant, hence this claim was erroneous. The Respondent invited the Tribunal to consider the contents of the Respondent’s review decision.

46. The Respondent further stated that the products under review were all imported for the period between 2016 to 2019, and hence only documentary evidence and description provided by the importer (Appellant) were during post clearance audit. That a fresh lab analysis was not possible since the products pertained a past period, earlier than 2021.

47. The Respondent contended that a review of the Appellant’s subsequent importations of identical products shows that it classified the products under heading 2009 without protest, not an advance tariff ruling that is provided for under Section 248(A) of the EACCMA, 2004.

48. The Respondent stated that it checked all the information provided, but none was sufficient to warrant a departure of the amount demanded. That a further analysis of the Appellant’s data did not collaborate its evidence for the following reasons;a.The Appellant’s additional information was not sufficient to absolve it from the misclassification. For instance, the Appellant relied on GIR 3(c) yet heading 2009 provides the most specific description of its imported concentrates, hence GIR 3(c) cannot be relied, as the GIR must be followed sequentially.b.Secondly, in its subsequent importations of identical concentrates the Appellant has been using tariff heading 2009. c.Thirdly, the unreferenced letter from the importer dated 15th March, 2018 addressed to the Chief Manager V&T unit on appeal for tariff classification stated one of the reasons as:“that the tariff ruling CUS/V&T/TARI/RUL/055/2018 of 20th February, 2018 can only take effect on future shipments and could not be applied retrospectively”d.The Appellant also provided another letter dated 9th April, 2018, agreeing to the new classification by the Respondent on the blackcurrant concentrate as per the outcome of the lab analysis, and hence communicated to all their logistics and import handling team on the same.e.The Appellant then settled the taxes without protest.f.The Appellant’s objection (application for review) letter also stated that Strawberry base contains 66. 13% water. This shows that the essential character of this should be water with flavors. That a review of the Applicant’s data shows that they have classified such under heading 2202. this attracts import duty at the rate of 25% same as 2009. However, there was no way to verify that this information was true position, given that their past consignment had given unreliable evidence, and it was only when a lab analysis was undertaken that the correct position and classification was determined.

49. The Respondent averred that the description the Appellant refers to here is under entry number 2017MSA6748955. The information from the manufacturer’s invoice showed that the actual classification of the imported compound was heading 2009. That it is common knowledge that the manufacturer is privy to full information on composition of the products they supply. The same information was replicated in the Bill of Lading (BL) copy, which ruled out the margin of error as alleged by the Appellant.

50. That the Appellant did not comply with GIR on classification for shipments between 2016 and 2019. However, the Appellant started full compliance from 2020 as demonstrated earlier from the shipments in 2020-2021.

51. The Respondent stated that the classification of goods in the nomenclature was guided by the General Interpretation Rules (GIR) as cited in the EAC/CET. That these are read together with the Explanatory Notes (ENs) to the Harmonized Commodity Description and Coding System that constitute the official interpretation of the Harmonized system at the international level.

52. That according to GIR1, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided the heading or notes do not require otherwise, according to GIRs 2 through 6. That the expression “provided such heading or Notes do not otherwise require under GIR 1” is intended to make it clear that the terms of the headings and any relative Section or Chapter Notes are paramount, and are the first consideration in determining classification.

53. That heading 2009 covers fruit juices (including grape must) and vegetable juices, unfermented and not containing added spirit, whether or not containing added sugar or other sweetening matter. The Appellant’s consignments of assorted fruit compounds are described as ‘fruit compounds/concentrates/bases’ in the declarations and the invoices attached.

54. The Respondent averred that following GIR 1 and 6, the applicable tariff code under the EAC/CET, 2017 for the assorted fruit compound concentrate fall under Heading 2009. that this is buttressed by subsequent importations classified under this heading by the importer (Appellant), and the concession letter that was in agreement with the tariff unit lab analysis on one of their mis-declared consignment.

55. Regarding the Explanatory Notes (ENs) to heading 2009 the Respondent submitted that the heading state that the juices of this Heading may be concentrated (whether or not frozen). That they further state that provided they retain their original character, the fruit or vegetable juices of this heading may contain substances of the kind such as, products added to preserve the juice or to prevent fermentation (e.g. Sulphur dioxide, carbon dioxide, enzymes, standardizing agents (e.g. citric acid, tartaric acid) etc., whether these results from the manufacturing process or have been added separately.

56. That further, the ENs to the same heading 2009 also outline that intermixtures of the juices of fruits or vegetables of the same or different types remain classified in this heading, as do reconstituted juices. That by contrast, the Appellant classified the fruit concentrates under heading 2006 which covers food preparations not elsewhere specified or included, more specifically under subheading 2106. 90. 20 that covers preparations of a kind used in manufacturing of beverages.

57. The Respondent added that Heading 2006 is only applicable, provided that items being classified are not covered by any other heading of the Nomenclature, and include preparations consisting of mixtures of chemicals (organic acids, calcium salts, etc.) with foodstuffs (flour, sugar, milk powder, etc.), for incorporation in food preparations either as ingredients or to improve some of their characteristics (appearance, keeping qualities, etc.).

58. That subsequent importations have been correctly classified without protest by the Appellant.

59. The Respondent submitted that Advance Tariff Rulings are issued by the Commissioner under the guidelines of WTO, Trade Facilitation Agreement under Article 3 & Section 248 (A) of the EACCMA, 2004. That they are issued on material evidence provided and found in a lab analysis. Such compound bases concentrates are items that require a lab analysis to find out the actual composition as was done on the importer’s consignment, which it wrote a letter agreeing to the findings by the Commissioner and stated that its subsequent shipments would follow the tariff guidance provided.

60. That the rulings are usually binding on the Commissioner and the Appellant for a period of 1 year, and may change based on new information provided that the Commissioner is of the view that warrants it in case wrong information was provided earlier.

61. The Respondent added that an Appellant cannot rely on another importer’s ruling, and it is at liberty to seek own advance tariff ruling if in doubt. In this case, it neither sought for a tariff ruling for subsequent consignments, and went ahead to use the guided tariff for future consignments, which was clear indication that it was in agreement with the reclassification.

62. Regarding rulings issued by other jurisdictions, the Respondent contended that the products under review were not in black and white and tangible things that one can tell the description based on merely looking at the product. They were consignments that require lab analysis to determine the actual composition for the proper classification.

63. That the Kenya Revenue Authority was also an independent organization that has its laboratory to ensure objective classification for chemical compounds. That the Commissioner issued the Appellant with the reasons for classification, which it was in agreement without protest, and continued to use the new tariff as guided. This was in fact its basis to be granted waiver of penalty interest.

64. The Respondent averred that further, one of the Appellant’s consignment that was intercepted showed the correct tariff from the manufacturer on the invoice, which was confirmed by the Commissioner through a further testing analysis and a decision communicated to the Appellant, to which it was in agreement. That this was why the Tariff misclassification can only be cited for the period between 2016 to 2019.

65. That the Respondent had neither created nor breached any legitimate expectation towards the Appellant. That the allegations of the Appellant as laid out in its Memorandum of Appeal and Statement of Facts unless where in agreement by the Respondent were unfounded in law and not supported by evidence.

Respondent’s Prayers 66. The Respondent prayed that:a.This Tribunal to uphold the Respondent’s review decision dated 10thNovember, 2021. b.The Appellant’s Appeal be dismissed with costs.

Issue For Determination 67. After a careful consideration of the pleadings and submissions filed by the parties the Tribunal was of the view that the only issue for determination in this dispute was: “Whether the Respondent erred in classifying the Appellant’s imported concentrates under tariff Heading 2009. ”

Analysis And Determination 68. The genesis of the dispute was the Respondent’s desk audit on the Appellant’s imports of concentrates used in the manufacture of beverages which it determined that the same were classifiable under HS 2009. The import duty rate attached to this Heading was 25% as opposed to 10% attached to Heading 2106 which had been applied by the Appellant. Subsequently, the Respondent issued a demand for the resultant additional taxes amounting to Kshs. 83,898,601. 00

69. The parties entered into a partial consent vacating the entire amount relating to compounds in the sum of Kshs. 4,393,414. The amount relating to concentrates in the sum of Kshs. 79,505,187 was referred to the Tribunal for determination. The partial Consent dated 16th August, 2022 was endorsed as a partial Judgment by the Tribunal on the 7th, September, 2022.

70. It was the Respondent’s submission that it drew a sample from the consignment under entry number 2017MSA6748955 for analysis and tariff determination following suspicion of deliberate misclassification and found it be fruit base concentrate classifiable under tariff head 2009.

71. That further analysis of the Appellant’s data showed that the Appellant started using the advised tariff Heading 20. 09 for subsequent importations and it also concurred with the lab findings and vowed to communicate the same to its handlers to ensure full compliance.

72. The Appellant on the other hand, contended the compound preparations are classifiable under tariff 2106. 90. 20 based on the GIRs of the EACCET and the World Customs Organization (WCO) Customs Nomenclature Interpretative Explanatory Notes. The imported compounds are preparations of a kind used in manufacturing of beverages and meet the approved fruit concentrate standards under Normative Standard.

73. That Respondent did not consider Explanatory Notes (EN) to Heading 2106 that justify classification of the imported product under the heading. That Prior to 6th February, 2018, “blackcurrant concentrate” and “blackcurrant compounds” had a KRA Customs ruling referenced 2012/CUS/V&T/TARI/RUL/301 (Blackcurrant Concentrate) dated 31st May, 2012, classifying both products under tariff code 2106. 90. 20, which the Appellant applied in its customs declarations until the aforesaid date. The contents/ingredients of the concentrates and compounds have never changed since the tariff ruling issued in 2012.

74. The Appellant added that product specification sheets obtained from the supplier indicate the compounds are “MSD10827 Strawberry base”, “MSD10842 peach base” and “MSD10841 black-currant-apple base”.

75. Heading 2106 covers; “21. 06 Food preparations not elsewhere specified or included.” Under subheading 2106. 90. 20 it covers; “Preparations of a kind used in manufacturing of beverages and food”

76. Heading 2009 covers; “Fruit or nut juices (including grape must) and vegetable juices, unfermented and not containing added spirit, whether or not containing added sugar or other sweetening matter.”

77. The Appellant had stated that its product was a concentrate and was not ready to drink juices as it undergoes further processing to produce juices. In support of this arguments, the Appellant attached the Product Specification Certificates issued by the manufacturer. It averred that its supplier does not supply beverages/compounds/concentrates for human consumption until further processing is done on them.

78. The Appellant added that the Respondent relied on one instance where the Bill of Lading (B/L) document issued by the transporter erroneously indicated the transported goods to be products of tariff heading 2009 instead of 2106 which does not justify the assessment issued by the Respondent

79. It was not in dispute that the Appellant was in the business of manufacture and sale of beverages. The EACCET reserves a tariff line for preparations for manufacture of beverages and therefore applies intended use as a criterion for classification of food preparations. It was the view of the Tribunal that the Respondent ought to have first considered the purpose or use of the product before arriving at its decision.

80. The criteria for classifying products according to intended purpose is used to classify over 60 products copiously spread across the EAC nomenclature for example: Plasters specially calcined or finely ground for use in dentistry (Heading 2520)

Preparations with a basis of plaster for use in dentistry (Heading 3407).

Preparations for use on the hair (Heading 3305).

Shapes, sections, tubes and the like, prepared for use in structures, of iron or steel (Heading 7308).

81. The intended use is indeed one of “the terms of the headings” envisaged in GIR 1 which provides as follows;“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:” (emphasis added)

82. The Tribunal refers to the holding of the Canadian Court in Puratos Canada Inc vs. Canada (Customs and Revenue) where the court stated, inter alia, that;“the General Rules for Interpretation of the Harmonized System referred to in section 10 of the Customs Tariff originated in the International Convention on the Harmonized Commodity Description and Coding System. They are structured in cascading form so that, if the classification of the goods cannot be determined in accordance with Rule 1, then regard must be had to Rule 2 and so on….The above legislation requires the Tribunal to follow several steps before arriving at the proper classification of goods on an appeal: first to examine the schedule to see if the goods fit prima facie within the language of a tariff heading; second, to see if there is anything in the chapter or section notes that precludes the goods from classification in the heading; and third, to examine the Classification Options and the Explanatory Notes to confirm classification of the goods in the heading.”

83. The Tribunal further noted that the concentrates imported by the Appellant were to be used as raw material before it could be finally consumed. In Proctor & Allan (E.A) Limited vs. Commissioner of Income Tax [2014] the Court held that:“It is the conclusion of this court that in light of the Certificate of Analysis that were submitted by both the Appellant and the Respondent, the court had little choice but to look at the intended purpose of the vitamin premix with a view to establishing whether it had been classified under the correct Heading. The court finds that the purpose of the vitamin premix was to fortify or improve the vitaminic characteristics of the unimix. There was no justification or basis which would have required the Respondent to have re-classified the vitamin premix as had been contended by the Appellant. It was irrespective whether or not KRA could analyse and identify vitamins.”

84. Furthermore, GIR 3(a) provides as follows regarding classification;“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….” (emphasis added)

85. In the instant case, the Tribunal was of the view that the sub-heading that describes the concentrates more specifically is 2106. 90. 20 (Preparations of a kind used in manufacturing of beverages) as opposed to 2009. 89. 00 (Other fruit juices (including grape must) and vegetable juices, unfermented and not containing added spirit, whether or not containing added sugar or other sweetening matter).

86. The Tribunal further noted that the Respondent had issued a Tariff Ruling dated 6th February, 2018 classifying the concentrates under Tariff Heading 2009 as opposed to its earlier Tariff Ruling of 31st May 2012 which had classified the same under Tariff Heading 2106. Although the Respondent stated that it subjected the product sample to analysis prior to the decision, none of the test analysis was provided to the Tribunal to demonstrate what informed the shift in the tariff heading from the earlier Tariff Ruling of 2012 to the current one of 2018.

87. In the circumstances, after considering the Chapter Notes, Explanatory Notes and product description and intended use, the Tribunal determined that the classification of the product imported by the Appellant may be determinable using GIR (1) & (3a). In this regard, the Tribunal found that the concentrates imported by the Appellant answered the description of a preparations of a kind used in manufacturing of beverages and is described most specifically in tariff number 2106. 90. 20.

88. The upshot of the foregoing is that the Tribunal determined that the Respondent erred in classifying the concentrates imported by the Appellant under HS 20 09.

Final Decision 89. On the basis of the foregoing analysis the Tribunal determined that the Appeal has merit and the Orders that commend themselves are as follows:a.The Appeal be and is hereby allowed.b.The Respondent’s review decision dated 10th November, 2021 be and is hereby set aside.c.The Respondent’s Tariff Ruling dated 20th February, 2018 be and is hereby revoked.d.Each party to bear its own costs.

90. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 17TH DAY OF MARCH, 2023…………………………….ERIC N. WAFULACHAIRMAN.......................CYNTHIA MAYAKAMEMBER.......................GRACE MUKUHAMEMBER.......................ABRAHAM KIPROTICHMEMBER.......................JEPHTATH NJAGIMEMBER