Commissioner of Customs and Border Control v Promasidor (K) Limited (Customs Tax Appeal E008 of 2022) [2023] KEHC 20587 (KLR) (Commercial and Tax) (21 July 2023) (Judgment)

Key Facts

Tax Type

Issues

• The first issue concerns the classification of the Respondent's MIKSI Instant Milk powder with Vegetable Fat under the Harmonised System (HS) Code. The Commissioner argued it should be classified under 0402.29.00 (milk and cream, concentrated or containing added sugar), while the Respondent and Tribunal concluded it falls under 1901.90.90 (food preparations derived from milk). The Tribunal held that the product's manufacturing process—removing animal fat (butyric fats) and replacing it with vegetable fat (oleic fats)—excluded it from Chapter 4 under GIR 1 and Chapter Note 4b, as per the Explanatory Notes.
• The second issue addresses the fairness of the Tribunal's conduct. The Commissioner alleged the Tribunal allowed the Respondent to introduce new evidence (a certificate of name change) without prior notice, potentially violating the Commissioner's right to a fair hearing under Article 50 of the Constitution. The Tribunal and this court found no procedural unfairness, noting the Commissioner did not formally object to the proceedings and that the new evidence did not influence the classification decision. The court affirmed the Tribunal's adherence to procedural rules and its discretion in managing the hearing.

Holdings

• The court dismissed the Commissioner's appeal, upholding the Tax Appeals Tribunal's decision that the Miksi product is correctly classifiable under HS Code 1901.90.90 rather than 0402.29.00. The Tribunal's classification was based on General Rules of Interpretation (GIRs) and Explanatory Notes, which indicated the product qualifies as a food preparation under Chapter 19 due to the replacement of natural milk constituents (animal fats) with vegetable fats. The court found the Commissioner's argument lacked factual and legal merit.
• The court determined the Tax Appeals Tribunal's proceedings were fair. The Commissioner's claim that the Tribunal admitted prejudicial evidence (Respondent's name change certificate) was rejected, as the evidence did not influence the decision and the Commissioner failed to formally challenge the Tribunal's conduct. The court affirmed the Tribunal's adherence to procedural fairness and its right to admit clarificatory evidence.

Remedies

Tax Issue Category

Legal Principles

• The court applied the principle of substance over form in determining the correct customs classification of the Miksi product, emphasizing that the essential character and manufacturing process (replacement of milk fats with vegetable fats) dictated its categorization under HS Code 1901.90.90 rather than 0402.29.00.
• The court confirmed the Respondent discharged its burden of proof under section 30(a) and (b) of the Tax Appeals Tribunal Act and section 56(1) of the Tax Procedures Act by providing credible evidence and documentation to support its classification under Chapter 19.01.

Precedent Name

• Mercy Kirito Mutegi v Beatrice Nkatha Nyaga
• John Munuve Mati v Returning Officer Mwingi North Constituency
• Kenya Revenue Authority v Maluki Kitili Mwendwa

Cited Statute

• Tax Procedures Act
• Tax Appeals Tribunal Act
• East African Community Common External Tariff
• Constitution of Kenya
• Harmonized System

Judge Name

Passage Text

• The appeal lacks merit. It is dismissed.
• The Tribunal took the position that so long as there was removal and the replacement of an ingredient from the product of Heading 04.02, the resulting product would be disqualified from Chapter 4 and classified under Heading 19.01 irrespective of the quantum.
• I find that the Respondent was able to present a prima facie case that its Miksi product was excluded from Chapter 4 as it was a product from milk where the animal fat (butyric fats) was removed and replaced with vegetable fat (Oleic fats).