[2024] KETAT 1125 (KLR)

Umbrella Steel Limited v Kenya Revenue Authority (Tax Appeal E816 of 2023) [2024] KETAT 1125 (KLR) (1 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1125 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E816 of 2023

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

August 1, 2024

Between

Umbrella Steel Limited

Appellant

and

Kenya Revenue Authority

Respondent

Judgment

Background 1. The Appellant is a registered Taxpayer and is a Company incorporated in Kenya and has its registered office at Mombasa.

2. The Respondent is established under the Kenya Revenue Authority Act, Cap 469 Laws of Kenya. Under Section 5 (1), the Respondent is an agency of the Government for the collection and receipt of all revenue. Further, under section 5 (2) with respect to the performance of its function under subsection (1), the Respondent is mandated to administer and enforce all provisions of the written laws as set out in Part 1 & 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. In July 2023, the Appellant, imported Punched Steel Heads (Caps) for roofing Nails identified as Entry No. 23MBAIM404073418 dated 18th July 2023. The Appellant declared the Punched Steel Heads under EAC Tariff HS Code 7326. 19. 00.

4. The Respondent rejected the entry and declined to pass it insisting that the imported Punched Steel Heads should be declared under EAC Tariff HS Code 7326. 90. 90.

5. The Appellant initially contested the HS Code 7326. 90. 90 via email dated 7th August 2023 and the dispute was then escalated to Tariff Unit for review and tariff classification guidance.

6. Upon review of the dispute and the information available, the items were identified as punched caps for roofing nails made of iron or steel. These findings were consistent with the description of the goods as provided by the importer. However, the HS classification was found to be at variance with the declared HS Code 7326. 19. 00.

7. Based on the findings on the nature of the goods and the description as provided by the importer, a tariff ruling letter was issued to the importer vide a letter dated 7th August 2023 classifying the product under HS Code 7326. 90. 90.

8. The Appellant vides a letter dated 31st August 2023, objected to the decision.

9. The Respondent issued a Review Decision dated 26th September 2023, upholding the classification of caps for roofing nails in 2022 EAC/CET Code 7326. 90. 90.

10. The Appellant being dissatisfied with the Respondent’s ruling sought respite by filing a Notice of Appeal before the Tribunal dated 16th November 2023 and filed on 17th November 2023

The Appeal 11. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal dated 16th November 2023 and filed on 17th of November 2023 as followsa.That the Respondent erred in fact and law by failing to consider or properly consider all documentary evidence and explanations and supporting documents submitted by the Appellant as required under Section 51 (3) of the Tax Procedure Act No. 29 of 2015. b.That the Respondent erred in fact and law by handling the Appellant’s objection in an arbitrary, unfair (both procedurally and substantively) and unjust manner without paying due heed and regard to the material factual matters thereby depriving the Appellant of its right to fair administrative action and legitimate expectation of fair tax assessments and refunds as protected under Article 47 of the Constitution of Kenya 2010 and The Fair Administrative Actions Act No. 4 of 2015. c.That the Respondent's actions constitute an infringement of the Appellant's property rights as protected under Article 40 of The Constitution of Kenya 2010 by attempting to unlawfully and unfairly enrich itself in an unjust matter by insisting on declaration under HS Code 7326. 90. 90 and rejecting the declaration made under HS Code 7326. 19. 00. d.That the Respondent wrongfully continues to insist on the imposition of a wrong HS Code declaration when the imported Punched Steel Heads (Caps) are articles that are forged or stamped and require further working and cannot be categorized as ‘Other’.e.That the Respondent failed and/or refused to appreciate and accept that the Punched Steel Heads (Caps) are an intermediary product used in the production of roofing nails. In the form imported, they are not usable but need to be further worked on - by pressing onto the top of a nail pin through a hammering process to make a finished black steel roofing nail following which goes through a galvanizing process to turn it into a galvanized roofing nail.f.That the Respondent erred in failing to hold and accept that in its separate imported form, the Punched Steel Heads (Caps) are incapable of being put to any other useful purpose unless further worked and, as such, do not fall under the classification the Respondent insists on.g.That the Respondent erred in failing to hold or recognize that forging and stamping are two common metal-forming processes used to create a wide range of steel articles. Forging involves heating and hammering metals to deform them into desired shapes, while stamping uses extreme die pressure with high precision to shape blanks. The Punched Steel Heads (Caps) are articles that have been created using steel plates through heating and hammering these to deform them into the desired shapes and/or through punching using extreme die pressure with high precision to shape the blanks.h.That the Respondent failed to hold or accept that given that these items fall squarely within the EAC Tariff HS Code 7326. 19. 00 head under the ‘Forged or stamped, but not further worked’ sub-head, it would be incorrect to classify them under the ‘Other’ sub­ head with Tariff HS Code 7326. 90. 90. This is the only interpretation that can be given under GIR 1 to 6. i.That the interpretation given by the Respondent in the Objection Decision notified on 17th October 2023 which is the subject of this Appeal is incorrect and inconsistent with the globally accepted standardization that the Harmonized Code system intended.j.That the Respondent’s conduct in insisting on the wrong HS Code Tariff classification is not only wrongful but is also irrational, unfair and unjust and, is without any proper justification or basis in law. The Respondent is seeking to unjustly enrich itself by unfairly penalizing the Appellant with a higher duty rate.k.That the Respondent seeks to unjustly enrich itself and benefit from its own wrongful actions and conduct and is being less than candid and incongruous in continuing to demand the above sum as an alleged debt without any regard for the law.

The Appellant’s Case 12. The Appellant’s case is premised on its;a.Statement of Facts dated 16th November 2023 and filed on 17th November 2023 together with the documents attached thereto; and,b.Written submissions dated 29th April 2024 and filed on 30th April 2024 together with the Authorities attached thereto.

13. The Appellant stated that in July 2023, it imported Punched Steel Heads (Caps) for roofing Nails which were the subject of Entry No. 23MBAIM404073418 dated 18th July 2023. The Appellant declared the Punched Steel Heads under EAC Tariff HS Code 7326. 19. 00. The Respondent rejected the Entry and declined to pass this insisting that the imported Punched Steel Heads should be declared under EAC Tariff HS Code 7326. 90. 90. Under EAC Tariff HS Code 7326. 90. 90, the duty rate is 25% per Kg whereas under EAC Tariff HS Code 7326. 19. 00 the duty rate is 10% per Kg.

14. The Appellant stated that Tariff Code 7326. 19. 00 falls under and relates to ‘Other articles of Iron or Steel - Forged or Stamped, but not further worked’ whereas Tariff Code 7326. 90. 90 falls under and relates to ‘Other articles of Iron or Steel - Other.’

15. The Appellant contents that the Punched Steel Heads (Caps) are an intermediary product used in the production of roofing nails. In the form imported, they are not usable but need to be further worked on - by pressing onto the top of a nail pin through a hammering process to make a finished black steel roofing nail following which goes through a galvanizing process to turn it into a galvanized roofing nail.

16. The Appellant avers that in its separate imported form, the Punched Steel Heads (Caps) are incapable of being put to any useful purpose unless further worked and, as such, do not fall under the classification the Respondent insists on.

17. The Appellant stated that forging and stamping are two common metal-forming processes used to create a wide range of steel articles. Forging involves heating and hammering metals to deform them into desired shapes, while stamping uses extreme die pressure with high precision to shape blanks. The Punched Steel Heads (Caps) are articles that have been created using steel plates through heating and hammering these to deform them into the desired shapes and/or through punching using extreme die pressure with high precision to shape the blanks.

18. That given that these items fall squarely within the EAC Tariff HS Code 7326. 19. 00 head under the ‘Forged or stamped, but not further worked’ sub-head, it would be incorrect to classify them under the ‘Other’ sub-head with Tariff HS Code 7326. 90. 90. This is the only interpretation that can be given under GIR 1 to 6.

19. The Appellant posited that the interpretation given by the Respondent in the Objection decision notified on 17th October 2023 which is the subject of this Appeal is incorrect and inconsistent with the globally accepted standardization that the Harmonized Code system intended.

20. The Appellant stated that the Respondent’s actions and conduct in insisting on the wrong classification in order to raise additional revenue contravenes the National Values and Principles of Governance prescribed by Article 10 of The Constitution of Kenya 2010 which require all state organs and officers to adhere to principles of good governance, integrity, transparency and accountability.

21. The Appellant averred that the Respondent’s conduct in insisting on the application of Tariff HS Code 7326. 90. 90 is mischievous and only intended at penalizing the Appellant into paying an additional Kshs. 2,164,661. 00 by way of duty by application of a 25% duty instead of a 10% duty rate when it very well knows that the Tariff HS Code 7326. 90. 90 applies to finished products such as fully finished nails imported into the country and not individual components that still require to be worked upon. It defies logic that a finished product and one that needs to be worked on would attract the same rate of duty.

22. That the Respondent’s conduct in insisting on the wrong HS Code Tariff classification is not only wrongful but is also irrational, unfair and unjust and, is without any proper justification or basis in law. The Respondent is seeking to unjustly enrich itself by

23. The Appellant stated that the Respondent only released the imported goods, the subject of Entry No. 23MBAIM404073418 upon appropriate security being given to the Respondent for the additional VAT amount.

24. By a letter dated 31st August 2023, the Appellant, through its Advocates, objected to the Respondent’s decision on Tariff classification through a notification issued to the Appellant on 7th August 2023. The Respondent, by its Objection Decision contained in a letter dated the 26th September 2023 but only received (through ordinary post) on 17th October 2023, yet again rejected the Objection and insisted on applying the Tariff Classification under HS Code 7326. 90. 90 instead of HS Code 7326. 19. 00.

25. The Appellant averred that as stated above, the Respondent’s conduct in insisting on the application of a wrong tariff code is not only wrongful and unjust but is also irrational and the Respondent is seeking to unjustly enrich itself and benefit from its own wrongful and incongruent conduct in a manner that is morally repugnant to justice and the national values of governance set out in Article 10. of the Constitution of Kenya 2010.

26. The Appellant gave the following reasons for which the relief sought below ought to be grated are:a.The Respondent obviously erred in its application of the wrong interpretation and, consequent thereupon, the wrong HS Tariff Code;b.EAC Tariff HS Code 7326. 19. 00 relates to intermediary/unfinished products that need to be further worked whereas Tariff HS Code 7326. 90. 90 relates to other items including finished products such as nails which require no further working;c.The Tax Appeals Tribunal in TAT No. 120 of 2022 [Ewca Marketing vs. KRA], involving a sister company, by its decision endorsed the tariff Classification declared by the Objector in its Entry;d.There cannot be inconsistent Tariff Classification applied for the same goods.

27. The Appellant submitted that from the Respondent’s Statement of Facts dated the 19th December 2023 that the Respondent, in fact, accepts that the imported items are an intermediary product incapable of being put to any useful purpose unless further worked. In this regard, the Appellant draws this Honourable Tribunal’s attention to: KRA’s letter dated 27th June 2022 (First document attached as KRA 1) in which the Respondent confirmed its Laboratory analysis, confirmed that the imported item was an ‘umbrella shaped metallic article’ and that ‘Caps for roofing nails are punched, umbrella shaped or round shaped discs produced by die stamping of a small disc of metal. They are designed to accept the pointed tip of a nail set, making it easier to countersink the nail without slipping or gouging the material.’

28. The Appellant submitted that it wrote to the Respondent on 6th June 2022 seeking a ruling and explained in this the production process which required the imported item to be further worked on and attached photographs of the entire process.

29. The Appellant posited that clearly, the two fundamental operative requirements under EAC Tariff HS Code 7326. 19. 00 were fulfilled – ‘articles of Iron and Steel’ and ‘forged or stamped, but not further worked’. It is the caps together with a piece of wire that make the raw materials for manufacturing of roofing nails and unless further worked on, the caps are worthless at the point of importation as they are not ready for use. They must, consequently, be further worked on, that is, machinery pressed onto the top of a nail pin through a hammering process to make a steel roofing nail which then goes through a galvanizing process to make a finished product. Therefore, the punched steelheads are an 'intermediary' product and cannot be entered under the HS Code ruled by the Respondent.

30. The Appellant submitted and appealed to the Tribunal to determine the main issue of whether the Respondent wrongfully imposed the wrong HS Code in assessing the Tariff classification in order to impose a higher duty rate of 25% as opposed to the lower one of 10%. Whether the Respondent wrongfully imposed the wrong HS Code in assessing the Tariff classification.

31. The Appellants reiterated that they declared and classified the consignment as the caps under HS code 7326. 19. 00. This code provides for articles that are forged or stamped but not further worked. The caps for roofing materials is an intermediary component which has to be worked on by machine pressing on to the top of the nail pin through a hammering process to make a finished black steel roofing nail which then goes through a galvanising process to make into a galvanized roofing nail as is apparent from all the material and evidence placed before this Honourable Tribunal.

32. The Appellant submitted that the punched steel heads are as a result of the process of ‘forging or stamping’ which are categorised under HS Code 7326. 19. Forging involves heating and hammering metals to deform them into desired shapes while stamping uses extreme die pressure with high precision to shape blanks.

33. The Appellant submitted that this position was on numerous occasions explained to by the Appellants Agents after the Respondent rejected its entry no. 23MBAIM404073418 declaring the caps under HS Code 7326. 19. 00. The Appellants agents numerously and specifically on 16th August 2023 wrote to the Respondents explaining why the declaration was made under HS Code 7326. 19. 00, with additional explanations being given on Pages 14 and 43 to 47 of the Memorandum of Appeal. Indeed, the Respondent was also referred to the decision in EWCA Marketing Limited, in Tax Appeals Tribunal No. 120 of 2022 but the Respondent, without giving any reason, just simply insisted on the classification as it had ruled.

34. The Appellant posited that the Respondent failed to take into account or rationally consider the explanation by the Appellant’s agents and arbitrarily deprived the Appellant’s its right to fair administrative actions and legitimate expectation of fair tax assessments. In this regard, the Respondent further ignored the General Interpretations Rules too.

35. The Appellant quoted several authorities as summarized below;i.Kenya Revenue Authority & 2 Others vs. Darasa Investments Limited [2018] eKLR – where the court held that legitimate expectations refer to the principle of good administration or administrative fairness. If a public authority leads a person or body to expect that the public authority will, in the future, continue to act in a way it has regularly acted in the past, then, the public authority should not without an overriding reason in the public interest, renege from that representation and unilaterally cancel the expectation of the person.ii.Tax Appeal Tribunal No. 120 of 2022 where the HS Code 7326. 19. 00 was applied in a previous consignment of the same goods - the punched steel head caps.iii.Positive Packaging Limited v Commissioner of Customs & Border Control (Tax Appeal 342 of 2022) [2023] KETAT 1007 (KLR) – where the Tribunal stated that:‘Rule 1 of the General Rules for classification of Goods under EACCET guides how to determine classification of goods. It 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.”It is clear from the above provision that the Sections and Chapter Notes are paramount as they are the first consideration in determining classification. This means that goods are to be classified under the heading in which they appear unless it is not possible to classify them according to CIR 1. ' Consequently, there is nothing in the Sections or Chapter notes that would prevent interpretation of the classification under GIR 1 such that the goods remain as entered under HS Tariff Code 7326. 19. 00. iv.Attorney General & 2 others vs. Ndii & 79 others [2022] KESC 8 (KLR) 31 March 2022 where the court held that:“Common law doctrines like the stare decisis had to be interpreted in a manner that promoted and gave effect to the values and principles of the Constitution. In the instant case, the two superior courts below did not take into account the value and principle of the rule of law enshrined in Article 10 (2)(a) of the Constitution that commanded compliance with court orders before making a decision that has the effect of penalizing IEBC for relying on a declaratory finding by a High Court. IEBC could not be faulted as its actions then were supported by the Isaiah Biwott Kangowny vs. Independent Electoral Boundaries Commission & Attorney General, Constitutional Petition No. 212 of 2018 (Isaiah Biwott case). Although that decision was not binding on the High Court or the Court of Appeal, it created a legitimate expectation in the IEBC that carrying out business with three commissioners complied with the law.”Therefore, the decision of the Respondent is at variance with the principles of interpretation already alluded to and set by this Honourable Tribunal. It is arbitrary and contrary to the law as it has deviated from the precedent set by this Honourable Tribunal's earlier decision.v.High Court in Income Tax Appeal No. El 73 of 2021 Commissioner Customs & Border Control vs. Jayraj Impex Limited which held that a product would only be deemed to be manufactured if it is ready for consumption in the state that it is in. Consequently, the Appellant humbly submits that if it requires to be worked on further, it can only classify as an intermediary product and not finished product as would be the case for classification under HS Tariff Code 7326. 90. 90.

36. The Appellant submitted that it has explained and demonstrated that the caps imported are, in industry usage, intermediate products as they cannot be used in the state imported and, must undergo further process into finished nails through additional manufacturing steps.

37. That being guided by the General Interpretation Rules (GIR) 1 to 6, the Appellant humbly submits that the punched steel head caps can only be classified under HS Code 7326. 19. 00 and not HS Code 7326. 90. 90. GIR are to be interpreted in cascading order. GIR 1 applies, as seen above, in this circumstance as it covers the classification of the goods without any ambiguity. This rules states that the classification of goods shall be determined by the headings and any relative section or chapter notes. Since punched steel head caps are forged or stamped articles of iron or steel not further worked on, this code is an appropriate classification. There is no need of further interpretation as can be seen from the decision of this Tribunal already cited above.

38. In view of the foregoing, the Appellant submits that the Respondent erred in its decision in arbitrarily and failing to take into consideration the explanations by the Appellant in declaring the punched steel head caps under HS Code 7326. 19. 00. and wrongfully misinterpreted the principles of interpreting the HS Code thus applying the wrong code on the punched steel head caps.

39. The Appellant urges the tribunal to allow its Appeal, set aside the decision by the Respondent and declare the punched steel head caps be classified under HS Code 7326. 19. 00.

40. In addition, the Appellant seeks that a consequential order be made cancelling the Guarantee given to the Respondent by Prime Bank Limited as already referred to above.

Appellant’s Prayers 41. The Appellant therefore prays that this Honourable Tribunal;a.Sets aside the Respondent’s Objection decision contained in the letter of 26th September 2023;b.Allow the consignment of Punched Steel Heads (Caps) for Roofing Nails which is the subject of the above Entry and all future identical products to be entered under HS Tariff Code 7326. 19. 00;c.Any other remedies that this Honourable Tribunal deems just and reasonable to grant; and,d.Costs of this Appeal be awarded to the Appellant.

The Respondent Case 42. The Respondent case is premised on its;a.Statement of Facts dated 19th December 2023 and filed on 20th December 2023 together with documents attached; and,b.Submissions dated 23rd April 2024 and filed on 24th April 2024.

43. The Respondent in its response to the issues raised in the Appellant’s Memorandum of Appeal and Statement of facts stated that it was guided by Section 135, 229, 235, 236 and 249 of the East African Community Customs Management Act, 2004.

44. The Respondent stated that that Appellant imported punched caps for roofing nails vide entry number 23MBAIM404073418 of 18th July 2023.

45. That as per the Appellant’s declaration, punched caps for roofing was classified in 2022 EAC/CET Code 7326. 19. 00 that provides for articles that are forged or stamped, but not further worked.

46. The Respondent avers that the item description and physical verification, the items are punched in addition to being forged or stamped.

47. The Respondent avers that the imported articles were forged and stamped but also punched hence the exclusion from the subheading 7326. 19. 00 as per the Explanatory Note to heading.

48. It stated that the Heading 73. 26 covers, by cutting or stamping or by other processes such as folding, assembling, welding, turning, milling or perforating other than articles included in the preceding headings of Chapter 73 or covered by Note 1 to Section XV or included in Chapter 82 or 83 or more specifically covered elsewhere in the Nomenclature.

49. The Respondent avers that the decision taken was done within the timelines as provided for under Section 229 EACCMA 2004.

50. The Respondent averred that the subject matter product, CAPS FOR ROOFING NAILS, are specified to be punched, whereas Heading 73. 26 covers other articles of iron or steel. The heading includes all iron or steel articles obtained by forging or punching, by cutting or stamping or by other processes such as folding, assembling, welding, turning, milling or perforating.

51. That the declared 2022 EAC/CET Code 7326. 19. 00 therefore, is at variance with the Respondent’s decision. Therefore, based on the findings on the nature of the goods and the description as provided by the import, a tariff ruling letter was issued to the importer vide a letter dated 7th August 2023 classifying the product under HS Code 7326. 90. 90.

52. The Respondent provided a brief procedure or process that follows Tariff Classification:a.A tariff dispute is forwarded from the release station;b.An analysis leading to tariff determination is done online and memo is done to the importer on the decision undertaken;c.In case, the importer is dissatisfied, and an appeal is lodged by the importer;d.A review of the appeal is undertaken and the review ruling communicated to the importer;e.The importer would still object to the findings, the matter is then forwarded to Policy for the constitution of a Technical Committee to deliberate on the tariff dispute;f.The Ruling of the technical Committee is deemed to be the final findings of the Commissioner; and,g.The importer is required to abide by the ruling or forward the matter to the Tax Appeal Tribunal.

53. The Respondent states that the above processes were undertaken in this case. Further Sections 235 and 236 of the East African Community Customs Management Act (hereinafter EACCMA), 2004 gives the Respondent powers to call for documents and to conduct a Post Clearance Audit on the import and export operations of a taxpayer within a period of five years from the date of importation or exportation.

54. The Respondent stated that Section 235 (1) of the EACCMA provides that;“The proper officer may, within five years of the date of importation, exportation or transfer or manufacture of any goods, require the owner of the goods or any person who is in possession of any documents relating to the goods-a)To produce all books, records and documents in relation to the goods; andb)to answer any question in relation to the goods; andc)to make declaration with respect to weight, number, measure of goods, as the proper officer may deem fit.”

55. Further the Respondent referred to Section 236 of the EACCMA which provides that;“The Commissioner shall have powers to -a.Verify the accuracy of the entry of goods or documents through examination of books, records, computer stored information, business systems and all relevant custom documents, commercial documents and other data related to the goods;b.Question any person involved directly or indirectly in the business, or any person in the possession of documents and data relevant to the goods or entry;c.Inspect the premises of the owner of the goods or any other place of the person directly or indirectly involved in the operations; andd.examine the goods where it is possible for the goods to be produced.”

56. Consequently, the Respondent stated that it has a statutory duty to carry out Post Clearance Audits on the import declarations made by taxpayers by verifying the accuracy of the entry of goods or documents and determine whether a person has made the correct Customs declarations and paid all the taxes due.

57. The Respondent stated that it mandate is provided for under the EACCMA, 2004. The unit handles substantive matters of non-compliance post clearance to allow faster clearance of goods at the release points. Further the WTO TFA Article 7 paragraph 5 on PCA, guides the Respondent’s post clearance audit process and provides binding legal framework for WTO members who have ratified the Agreement. Where the Respondent's post clearance audit reveals that taxes were short levied, or erroneously refunded, Section 135 and 249 (1) of the EACCMA empowers the Respondent to recover any such amount short levied or erroneously refunded with interest at a rate of two percent per month for the period the taxes remain unpaid.

58. In the Respondent’s submissions it considered the following issues for determination in this matter: -i.Whether the Respondent erred by classifying the imported punched caps under EAC/CET Code 7326. 90. 90;ii.Whether the Respondent acted against the Fair Administrative Action Act,2015 and the Constitution of Kenya, 2010; and,iii.Whether the Appellant fulfilled its burden of proof

59. On the first issue for determination “whether the Respondent erred by classifying the imported punched caps under EAC/CET Code 7326. 90. 90”, the Respondent stated that the EAC Customs Union Common External Tariff (EAC Nomenclature) is broken down into Sections, Chapters, Headings and Sub-Heading in order of hierarchy.

60. The General Interpretation Rules (GIRs) gives the guide on how the EAC nomenclature is to be interpreted. GIR1 and GIR 6 are the substantive rules whereas GIR 2 to 5 are specific and work with reference to GIR 1 and GIR 6. GIR 1 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.”

61. The Respondent submitted that GIR 1 has clarified that for legal reference the classification of goods shall be determined by the terms of the headings and any relative Section or Chapter Notes. GIR 6 provides as follows;“For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related Subheading Notes and, mutatis mutandis, 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.”

62. Further, the Respondent stated that GIR 6 has broken down the legal reference of classification at the subheading level supported by Section and Chapter notes. The EAC nomenclature establishes classification of goods through a reference-based guide and elimination process. The Respondent stated that it undertakes to guide this Honourable Tribunal through the relevant Section notes, Chapter notes, Heading breakdown and any relevant Subheading notes. The Respondent provided a detailed explanation of the relevant sections notes chapter notes heading breakdown and any relevant notes under Chapter 73, Articles of iron or steel

63. On the second issue “whether the Respondent acted against the Fair Administrative Action Act, 2015 and the Constitution of Kenya, 2010” the Respondent reiterated it powers as provided under Section 235 and 236 of the East African Community Customs Management Act (hereinafter EACCMA), 2004 to call for documents and to conduct a Post Clearance Audit on the import and export operations of a taxpayer within a period of five years from the date of importation or exportation.

64. That further Section 236 of the EACCMA provides that the Respondent shall have powers to:“a)Verify the accuracy of the entry of goods or documents through examination of books, records, computer stored information, business systems and all relevant custom documents, commercial documents and other data related to the goods;b)Question any person involved directly or indirectly in the business, or any person in the possession of documents and data relevant to the goods or entry;c)Inspect the premises of the owner of the goods or any other place of the person directly or indirectly involved in the operations; and,d)Examine the goods where it is possible for the goods to be produced.”

65. The Respondent submitted the following case laws to buttress their reliance on Sections 235 and 236 of EACCMA, Honourable Justice G.V. Odunga (as he then was) in Republic vs. Commissioner General Kenya Revenue Authority Ex-Parte Mount Kenya Bottlers Ltd & another [2016] eKLR Nairobi High Court Miscellaneous Civil Application 170 of 2010, held as follows concerning post clearance audit:“58. In my view, the Customs Officer is supposed to verify the accuracy of the entries made by the clearing agent within the shortest time possible in order to facilitate the release of the goods and mitigate the accrual of demurrage and customs warehouse rent hence the reason for conferment of the powers under section 235 and 236 of the EACC.MA to conduct Post Clearance Audits to verify the accuracy of the entries after the goods have been released from Customs control. Therefore the mere fact that goods have been released to the importer does not preclude the Respondent from carrying out post clearance audit to verify the accuracy of the declarations made at the time of the clearance of the goods and where the said audit disclose that as there was an undervaluation of import values by the Applicant Company's agents for customs purposes hence resulting in gross underpayment of duties on the Applicant Company's imports, the importer will be liable to make good the difference.” [Emphasis added]

66. In addition, the Respondent submitted that the audit was also guided by the EAC PCA procedure manual, and demanded short levied taxes under Section 135 & 249 of the EACCMA, 2004 which give the Respondent the power to demand for a period of 5 years retrospectively.

67. The Respondent avers that its decision does not in any way undermine the Harmonized system of classification of goods, but is guided and informed by the same in reaching its decisions and its decision does not breach any treaty obligations or international Trade Agreements.

68. The Respondents submitted that its major role is protecting the society, the local manufactures against unscrupulous traders engaged in unfair trade practices. Resultantly, on payment of duty due, the Appellant will be on the level playing field with the local manufactures/traders and industries. It is in the public interest that the Appellant remits the taxes in line with the provisions of Article 201 (b) (i) of the Constitution of Kenya which requires that the tax burden be equitably shared by all persons.

69. On the last issue “whether the Appellant fulfilled its burden of proof”, the Respondent relied on section 30 of the Tax Appeals Tribunal Act.

70. The Respondent relied In Nairobi Tat 573 of 2022: Wire Products Limited vs. Commissioner Domestic Taxes Department, where the Tribunal pronounced itself as follows:“The Tribunal has taken note of the laboratory chemical composition analysis report from SGS and the mill test certificate of the Appellant's products which are at variance with the Respondent's purported findings. Further, the Respondent has not controverted these results. It would have aided all parties if the samples were analysed at an independent laboratory. Such results would have been objective as opposed to the doubt the Respondent has created by unilaterally undertaking the whole process. In the absence of the Respondent’s laboratory analysis report, the Tribunal is inclined to consider the SGS laboratory analysis report and the mill certificates as credible hence more reliable ...”

71. The Respondent submitted that similarly, in this matter the Appellant has not provided any independent laboratory analysis to counter the Respondent’s provided laboratory analysis. The Appellant is yet to discharge its burden of proof in order to cast doubt on the Respondent's classification.

Respondent’s Prayers 72. The Respondent prays that this Honourable Tribunal :a)Upholds the Respondent’s Assessment in the Review Decision dated 26th September 2023; and,b)This Appeal be dismissed with costs to the Respondent as the same is devoid of any merits.

Issues For Determination 73. After perusing submissions, prayers and documentation from both the Appellant and the Respondent in the dispute, the Tribunal is of the opinion that the following is the issue for determination:Whether the Respondent erred in law and fact in reclassifying the Appellant’s goods under HS Code 7326. 90. 90 as ‘other articles of iron or steel’ instead of the Appellant classification under HS Code 7326:19:00.

Analysis And Findings 74. The Tribunal notes that the contention between the parties herein is whether the product is further worked aside from forging and stamping,

75. According to the Appellant, the product in its separate imported form, the Punched Steel Heads (Caps) are incapable of being put to any useful purpose unless further worked.

76. The Appellant went on to describe what forging and stamping are. According to the Appellant, forging involves heating and hammering metals to deform them into desired shapes, while stamping uses extreme die pressure with high precision to shape blanks.

77. That the Punched Steel Heads (Caps) are articles that have been created using steel plates through heating and hammering these to deform them into the desired shapes and/or through punching using extreme die pressure with high precision to shape the blanks.

78. While the Respondent argued the imported articles were forged and stamped but also punched, hence the exclusion from the subheading 7623:19:00.

79. The Respondent relied on the product description as “punched steel heads(caps)” to take the position that the imported article is also punched, hence its classification as “other articles of iron and steel”.

80. The Tribunal notes that the distinction on classification can be settled through determining if “punching” forms part of the forging and stamping, or is a separate process altogether such that a product is said to have been further worked and excluded from 7326:19:00 as argued by the Respondent.

81. The Tribunal notes that the Appellant relied on TAT Case No. 120 of 2022 to buttress its position arguing that the decision of the Tribunal was that the classification of the Respondent was found to be erroneous.

82. The Tribunal has perused through the case and notes that it is on all fours in terms of facts with the instant case however, the same was not decided on substance but procedural technicalities.

83. Therefore, the Tribunal’s position is that the doctrine of stare decisis doesn’t apply in this instance. The Tribunal did not delve with the issue of classification despite identifying as one of the issues for determination. We shall therefore proceed to render ourselves on this matter.

84. The Black’s Law dictionary defines stamping/forging as forming a specific, wanted shape during the manufacturing process in this case being the umbrella or disc shaped like cap, whereas punching is defined as metalworking process that is used extensively in the manufacturing industry which involves punching a hole through a workpiece.

85. According to Engineering Specialties Inc, The Basics of Metal Stamping, https://www.esict.com/what-is-metal-stamping/ , Stamping is a manufacturing process used to convert flat metal sheets into specific shapes. It is a complex process that can include a number of metal forming techniques — blanking, punching, bending and piercing, to name a few.

86. The above clearly shows that punching is a form of stamping, it is not a separate and/or further work.

87. The Tribunal, from the foregoing analysis, therefore is persuaded by the Appellants classification of the product Punched Steel Heads (Caps) using GIR 1 to classify the product as articles of Iron or steel. GIR 1 states:“Rule 1The 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:The legal elements of classification are:BULLETS*the terms of headings;*Section or Chapter Notes; and*if not prevented by the two elements above, the remaining General Interpretative Rules.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.Where the terms of the headings and any relevant Notes leave only one heading open for consideration, or they direct either the classification or the means of classification, then only GIR 1 is used at heading level.”

88. The Tribunal takes note of Chapter 73 Heading 73. 26 of the EAC CET 2022 which states as follows;“Chapter 73- Articles of Iron or Steel- Heading 26 - Other Articles of Iron or Steel.

Forged or stamped, but not further worked.

19. 00- “Other”As opposed to the Respondent classification 2022 EAC/CET Code 7326. 90. 90 which states as Articles of iron or steel wire - Other.

89. In view of the foregoing, the Tribunal is persuaded by the Appellants submissions that the imported Punched Steel Heads (Caps) for roofing Nails identified as Entry No. 23MBAIM404073418 and dated 18th July 2023 are classifiable under EAC Tariff HS Code 7326. 19. 00 and therefore the Respondent erred in law and fact in reclassifying the Appellant’s goods under HS Code 7326. 90. 90 as articles of iron or steel wire-other”.

90. The upshot of the foregoing is that the Tribunal finds the Appellant’s Appeal is therefore merited and succeeds.

Final Decision 91. The Appellant’s Appeal having succeed, the Tribunal makes the following orders:a.The Appeal be and is hereby allowed;b.The Respondent’s Review Decision dated 26th September 2023 be and is hereby set aside; and,c.Each Party to bear its own costs.

92. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 1ST DAY OF AUGUST 2024ROBERT M. MUTUMACHAIRMANBERNADETTE GITARI ELISHAH N. NJERUMEMBER MEMBERMUTISO MAKAU ABDULAHI DIRIYEMEMBER MEMBER