https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/161

Union Green Logistics Ltd v Commissioner of Investigations & Enforcement (Tax Appeal E1337 of 2025) [2026] KETAT 161 (KLR) (6 July 2026) (Judgment) Neutral citation: [2026] KETAT 161 (KLR) Republic of Kenya In the Tax Appeal Tribunal Tax Appeal E1337 of 2025 RM Mutuma, Chair, JM Malla, G Ogaga & T Vikiru, Members July 6, 2026 Between Union Green Logistics Limited Appellant and Commissioner Of Investigations & Enforcement Respondent Judgment Backgound 1.The Appellant is a limited liability company incorporated and having its registered offices within the Republic of Kenya. 2.The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 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.The Respondent conducted a Post Clearance Investigation on Appellant's declarations of imported solid-state drives, memory cards and flash drives for the period January 2024 to March 2025. The investigation established that some of the items were declared under HS Codes 8471.70.00, 8471.80.00, 8471.90.00 which attracts import duty rate of 0% instead of classifying them under the correct Hs Code 8523.51.00 which has import duty rate of 10% thereby leading to tax loss of Kshs. 373,407. Consequently, the Respondent issued a tax demand letter to the Appellant dated 9th May, 2025. This letter was not on record. 4.The Appellant vide a letter dated 28th May 2025 protested against the taxes demanded. The Respondent consequently issued the Appellant with response to the issues raised vide a letter dated 19th June 2025. Consequently, the Appellant lodged an objection vide a letter dated 4th September, 2025 and 25th September, 2025. 5.Upon considering the objection, the Respondent issued a tariff ruling dated 24th October 2025 wherein it disallowed the objection and confirmed the assessed principal tax of Kshs. 373,407. 6.Dissatisfied with the Respondent’s findings, the Appellant filed the instant Appeal vide notice of appeal dated 21st November 2025 and filed on the even date. The Appeal 7.The Appellant filed a memorandum of appeal dated 21st November 2025 and filed on the even date wherein it raised the following grounds of appeal:a.That the Respondent erred in law and in fact by unlawfully rejecting the Appellant's objection without undertaking a fair, impartial, and comprehensive review of the evidence and explanations tendered, thereby upholding an erroneous assessment of Kshs 373,407.00.b.That the Respondent erred in law and in fact in holding that the items declared under HS Codes 8471.70.00, 8471.80.00 and 8471.90.00, attracting an import duty rate of 0%, were improperly classified, and in purporting to reclassify them under HS Code 8523.51.00, which attracts an import duty rate of 10%, contrary to the actual nature and characteristics of the goods.c.That the Respondent erred in law and in fact by failing to appreciate that the subject items, being Solid State Drives (SSDS), were not imported as standalone units but were pre-installed and shipped as integral components of a larger storage system, and therefore cannot function independently for purposes of tariff classification.d.That the Respondent erred in law and in fact by applying HS Codes applicable to separate SSD components instead of applying the HS Code applicable to the complete storage equipment, thereby arriving at an incorrect tariff classification contrary to the General Rules for the Interpretation of the complete System.e.That the Respondent erred in law and in fact by failing to establish that the HS Codes applied by the Appellant were correct, consistent with the physical configuration and functional characteristics of the imported goods, and aligned with the principle that composite or assembled units are to be classified as complete equipment.f.That the Respondent erred in law and in fact by failing to accord the Appellant an opportunity to be heard or to provide clarifications during the valuation and tariff interpretation process, contrary to the principles of fairness. transparency, and the Appellant's right to be heard. The Appellant’s Case 8.In support of the appeal, the Appellant relied on its statement of facts dated 21st November 2025 and filed on the even date, and its written submissions dated and filed on 20th April 2026. 9.The Appellant relied on the following documents:i.Review decision dated 24th October 2025;ii.Response to tariff classification dated 19th June 2025;iii.Objection to the assessment dated 4th September 2025 and 25th September 2025;iv.Response to tariff classification dated 28th May 2025;v.Tariff classification dated 21st October 2025;vi.Letter allowing extension of time to object dated 19th September 2025;vii.Single Administrative Document (SAD);viii.Commercial invoices; andix.PVOC from KEBS dated 17th February 2023. 10.The Appellant’s case was that in the course of its business, the Appellant acted as a clearing agent for Sybyl Kenya Limited in clearing imported certain data-storage equipment comprising fully assembled storage units that included pre-installed Solid-State Drives (SSDS)as integral components of the complete systems. On 9th May 2025, the Appellant received a demand letter from the Respondent claiming tax arrears amounting to Kshs 373,407.00 on the allegation that the Appellant had misclassified the imported items under HS Codes 8471.70.00, 8471.80.00 and 8471.90.00 instead of HS Code 8523.51.00. 11.Upon receipt of the said demand, the Appellant engaged the Respondent seeking clarification and resolution of the matter, and subsequently lodged a detailed objection through its letter dated 26th September 2025, explaining that the SSDS had been imported as part of complete storage equipment and therefore correctly classified. 12.The Appellant stated that its objection was supported by documentation including product specifications, import documents, packing lists and supplier confirmations demonstrating that the SSDS formed part of a composite storage unit and were not capable of independent functionality. However, on 24th October 2025, the Respondent issued its Review decision wholly confirming the additional assessment of Kshs 373,407. The Appellant asserted that the Respondent did not adequately address or analyse the evidence that it provided. 13.According to the Appellant, the Respondent's conclusion that the SSDS fell under HS Code 8523.51.00 failed to take into account that the goods were imported as fully assembled data-storage systems and not as discrete storage media, thereby resulting in an erroneous tariff classification. 14.The Appellant maintained that it correctly applied HS Codes 8471.70.00, 8471.80.00 and 8471.90.00 in accordance with the nature, use and configuration of the imported goods. 15.The Appellant asserted that the Respondent's decision was therefore erroneous, unlawful, unreasonable and contrary to the evidence presented, necessitating the filing of this Appeal. 16.The Appellant filed written submissions dated 20th April 2026 wherein it submitted that the imported items were not standalone storage media but were integral units of an Automatic Data Processing (ADP) system under Heading 84.71. It also submitted that the Respondent erred in law by failing to apply the General Interpretative Rules (GIRS) regarding composite systems. 17.The Appellant submitted that these SSDS are "'units of ADP machines". They are preinstalled and shipped as integral components of a larger storage system and cannot function independently outside of that system. Therefore, it submitted that they are correctly classified under Heading 84.71 as "Automatic data processing machines and units thereof; magnetic or optical readers". 18.It submitted that the Respondent did not consider the subject items, being Solid State Drives (SSDS) and that were not imported as standalone units but were pre-installed and shipped as integral components of a larger storage system and therefore cannot function independently for purposes of tariff classification. It relied on the High Court decision in Commissioner Customs & Border Control v Jayraj Impex Limited wherein the Court established that a product is "manufactured" and classifiable as a finished good if it is ready for consumption as presented. If further processing is needed, it may not be considered manufactured. 19.It also submitted that that taxing statutes must be interpreted strictly. It cited the case of Cape Brandy Syndicate v Inland Revenue Commissioners where it was established that "there is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in; nothing is to be implied." Appellant’s Prayers 20.The Appellant prayed as follows:a.The decision of the Respondent made on 24th October 2025 be set aside;b.The assessment of Kshs 373,407.00 be set aside;c.The Honourable Tribunal be pleased to make a declaration that that the Appellant correctly applied the proper HS Codes in respect of the disputed: andd.Costs of and incidental to the Appeal be awarded to the Appellant. The Respondent’s Case 21.In response to the appeal, the Respondent lodged a Statement of facts dated 22nd January 2025, and written submissions dated 17th April 2026 and filed on 21st April 2026. 22.The Respondent stated that upon the Appellant filing an objection, the Respondent vide an email dated 26th September, 2025 requested the Appellant to provide samples and technical data sheets to enable expedite the issuance of the tariff ruling. It stated the Appellant on 15th October 2025 provided a sample of the electronic item described as NetAPP SSD, 960GB, 12G, DS212C and W/MSW. 23.It stated that upon receipt of the said samples, the Respondent referred the matter to Valuation and Tariff classification for interpretation and determination of correct tariff classification. The Respondent consequently issued a tariff ruling dated 24th October 2025 wherein it confirmed the assessment as issued. 24.In response to the assertion that the Respondent erred in law and in fact by reclassifying the items under HS Code 8523.51.00 which attracts 10% import duty rate instead of HS Codes 8471.70.00, 8471.80.00 and8471.90.00, the Respondent averred that the demand was for a specific type of storage device referred to as Solid State Drives (SSDS). 25.It noted that the assessment was based on description of the imported items declared by the Appellant in its declaration. It further averred that according to General of Interpretation (GRI) 1, "...classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes. 26.The Respondent further averred that storage devices under HS Code 8471 cover devices that are solely and principally used with an automatic data processing machine (ADP) whether for internal installation in an ADP or for external use with such machines. This refers to magnetic or optical drives for discs or tapes. 27.It stated that pursuant to the general Interpretative Rules of classification (GIRS) 1, goods classifiable under Hs Code 8471 are as outlined in note 6(c) of Chapter 84. In particular, a unit is to be regarded as part of an ADP system if all of the following conditions are met:a)It is of a kind solely or principally used by an ADP.b)It is connectable to the central processing unit either directly or through one or more other units;c)It is able to accept or deliver data in a form which can be used by the system. 28.The Respondent further contended that HS Code 8523.51.00 refers to solid-state. non-volatile data storage devices. It noted that the explanatory notes to the heading refer to these devices as those for recording data from an external source pursuant to Note 6(a) to this chapter. 29.According to the Respondent, these devices also known as "flash memory cards" or "flash electronic storage cards" are used for recording data from external source or providing data to devices such as navigation and global positioning systems, data collection terminals. portable scanners, medical monitoring appliances, audio recording apparatus. personal communicators, mobile phones, digital cameras and automatic data processing machines. 30.It noted the items declared in the entries that formed the basis of the Respondent's demand were described as Solid-State Drives (SSDS) which at first glance, can be classified in both HS Codes 8471 and 8523. The Respondent further stated that in application of GIR3 (a), when by application of Rule 2(b) or for any other reason, goods are prima facie, classifiable under two or more headings, the classification effected by the heading which provides the most specific description shall be preferred to headings providing a more general description. The Respondent therefore, averred that the identified Solid-State Drives (SSDS) are storage devices specifically classifiable under HS Code 8523.51.00 which provides a specific description of Solid-State non-volatile storage devices. 31.In response to the assertion that the Respondent erred in law and in fact by failing to appreciate the subject items were not imported as standalone units but were pre-installed and shipped as integral components of a larger storage system that cannot function independently, the Respondent averred that Appellant's statement is incorrect and misleading. 32.The Respondent averred that Appellant's claims that the items were part of an integrated automatic data processing machine contradicts its own declaration since all other items in the respective invoice were declared under appropriate HS Code. Moreover, the Respondent stated that it requested the Appellant vide an email dated 26th September, 2025 to provide samples and technical data sheets to expedite the issuance of the correct HS Code. 33.It noted that the Appellant provided a sample of the electronic item described as NetAPP SSD, 960GB, 12G, DS212C and W/MSW on 15th October 2025. The Respondent upon receipt of the said samples, referred the matter to Valuation and Tariff classification for interpretation and determination of correct tariff classification. Consequently, the Respondent asserted that the Valuation and Tariff team upon analysis and interrogation of the product in question, classified the product under HS Code 8523.51.00. 34.In response to the assertion that the Respondent erred in law and fact in failing to accord the Appellant an opportunity to be heard or provide clarifications during valuation and tariff interpretation process, contrary to principles of fairness, transparency and Appellant's right to be heard, the Respondent averred that Appellant's statement is incorrect and misleading. On the contrary. the Respondent stated that the Appellant was engaged throughout the process of valuation and in particular, it was requested to provide samples of the product vide email dated 26th September 2025. 35.It pointed out that the Appellant provided the samples on 15th October 2025 for valuation and it was upon this analysis that the Respondent was guided in issuing the tariff classification. 36.The Respondent also filed written submissions dated 17th April 2026. In summary, the Respondent submitted that the Respondent did not err by reclassifying the items under HS Code 8523.51.00 which attracts 10% import duty rate instead of HS Codes 8471.70.00, 8471.80.00 and 8471.90.00. 37.The Respondent submitted that it did not err by finding that the subject items were not imported as standalone units but were preinstalled and shipped as integral components of a larger storage system that cannot function independently. 38.The Respondent also submitted that it accorded the Appellant an opportunity to be heard and required the Appellant to provide clarifications during valuation and tariff interpretation process in compliance with the principles of fairness, transparency and Appellant’s right to be heard. 39.It cited the cases of Commissioner Investigations and Enforcement v Sangyug Enterprises(K) Limited (Income Tax Appeal EO56 of 2020) [2022] KEHC 59 (KLR); Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] eKLR; and Capwell Industries Limited v Commissioner of Customs and Border Control [2024] KETAT 1244 (KLR) where the High Court stated that the burden always and ultimately rests on the taxpayer to prove that the Commissioner’s decision is wrong. It submitted that the Appellant failed to discharge the burden. Respondent’s Prayers 40.The Respondent prayed as follows:i.That the correct tariff classification for the imported products fell under HS Code 8523.51.00; andii.The Tribunal be pleased to dismiss the Appeal with costs to the Respondent. Issue For Determination 41.Having examined the parties’ pleadings, the Tribunal identified the following issue for determination:Whether the Respondent was justified in reclassifying the Appellant’s import under heading 8523 instead of heading 8471 as declared by the Appellant. Analysis And Findings 42.The Appellant imported the products and declared the same under heading 8471. However, upon conducting audit, the Respondent reclassified the products under heading 8523 hence this appeal. 43.The facts in issue concerns classification of imports. The General Interpretation Rules (GIR) as cited in the EAC-CET provide for principles that govern classification of goods in the nomenclature. GRI 1 provides as inter alia:“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…’’ 44.GIR 6 is relevant. It provides that; -“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.’’ 45.Courts have shed light on how classification should be done. In this regard, in the case of Republic v Commissioner of Customs & Exparte Mulchand Ramii & Sons limited ekLR, it was held as follows:“To ascertain what code is applicable to particular goods, one has to look at the General interpretation rules for the classification of goods, which set out the principles of interpretation in conjunction with the various chapters, describing the goods and the duty due." 46.The Tribunal therefore, considered the two headings in light of the GIR. 47.On the other hand, heading 8471 under which the Appellant declared its imports provides as follows:Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included.8471.70.00 - Storage units8471.80.00 - Other units of automatic data processing machines8471.90.00 – Other. 48.Pursuant to the subheadings under heading 8471, all storage items must exclusively be used with Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data. Further it is vital to note that such storage must not be specifies or included elsewhere in the EAC-CET. 49.Note 6(A) to Chapter 84 provides as follows: 6.- (A) For the purposes of heading 84.71, the expression “automatic data processing machines” means machines capable of: (i)Storing the processing program or programs and at least the data immediately necessary for the execution of the program;(ii)Being freely programmed in accordance with the requirements of the user;(iii)Performing arithmetical computations specified by the user; and(iv)Executing, without human intervention, a processing program which requires them to modify their execution, by logical decision during the processing run. 50.Pursuant to Note 6(A), the storage items under heading 8471 must be capable of storing programs to be used by automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data. 51.HS Code 8523.51.00 that the Respondent preferred provides as follows:Discs, tapes, solid-state non-volatile storage devices, “smart cards” and other media for the recording of sound or of other phenomena, whether or not recorded, including matrices and masters for the production of discs, but excluding products of Chapter 37-- Other. 52.Pursuant to heading Code 8523, the storage items thereunder are used for the recording of sound or of other phenomena. 53.Note 6(a) and (b) to Chapter 85 provides as follows: 6.- For the purposes of heading 85.23: (a)“Solid-state non-volatile storage devices” (for example, “flash memory cards” or “flash electronic storage cards”) are storage devices with a connecting socket, comprising in the same housing one or more flash memories (for example, “FLASH E²PROM”) in the form of integrated circuits mounted on a printed circuit board. They may include a controller in the form of an integrated circuit and discrete passive components, such as capacitors and resistors;(b)The term “smart cards” means cards which have embedded in them one or more electronic integrated circuits (a microprocessor, random access memory (RAM) or read-only memory (ROM)) in the form of chips. These cards may contain contacts, a magnetic stripe or an embedded antenna but do not contain any other active or passive circuit elements. 54.The difference between heading 8471 and heading 8523 is that the storage items under heading 8471 are for storing programmes by automatic data processing machines and units thereof, while the storage items under heading 8523 are for used for general storage and for storing the recorded sound or other phenomena. 55.Pursuant to the provisions of Note 6(A) to Chapter 84 and Note 6(a) and (b) to Chapter 85, and considering the evidence that the Appellant provided, there is no way that the storage items that the Appellant imported can be categorised as Solid-state non-volatile storage devices. Note 6(A) to Chapter 84 and Note 6(a) and (b) to Chapter 85 clearly brings out the essential character of the items under the two headings. 56.Under GIR 2(a) what matters is what give an item essential character. It provides as follows:2.(a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled. 57.Pursuant to Note 6(A) to Chapter 84, the items that the Appellant imported are the essential character of the items is that they are used for storage, and not just storage, but for storing programs for automatic data processing machines and units thereof. The use of the said items makes incompatible with the items under heading 8523. 58.Apart from GIR 2(a), GIR 3(a) provides that a heading that provides specific description shall be preferred. It provides:3.When by application of Rule 2 (b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows :(a)The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods. 59.The Tribunal is of the view that heading 8471 provides the most specific description of the Appellant’s items and since the 60.Based on the foregoing, the Tribunal finds and holds that the Respondent erred in reclassifying the Appellant’s imports under heading 8523 instead of heading 8471 as declared by the Appellant. Determination 61.The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is meritorious and makes the following orders:-a.The Appeal be and is hereby allowed;b.The Review decision dated 24th October 2025 be and is hereby set aside;c.Each party to bear its own cost. 62.It is so ordered. DATED AND DELIVERED AT NAIROBI THIS 6TH DAY OF JULY 2026.……………………………ROBERT M. MUTUMACHAIRMAN………………………………JIMMY M. MALLA.MEMBER……………………GLORIA A. OGAGAMEMBER………………………………DR. TIMOTHY B. VIKIRUMEMBER