Unity West Sez Limited v Commissioner, Customs & Border Control (Appeal 403 of 2022) [2023] KETAT 292 (KLR) (Civ) (2 June 2023) (Judgment)

Key Facts

Tax Type

Issues

• Whether the Respondent erred in the interpretation of the EAC/CET GIRs and wrongly classified the Appellant's imported solar water system under HS code 8516:10:00.
• Whether the Respondent's decision to assess the Appellant for short levied duties in the sum of Kshs 882,306.36 was justified.

Tax Years

• 2019
• 2021
• 2020
• 2017
• 2018
• 2022

Holdings

• The Tribunal found the Respondent's assessment of short levied duties (Kshs 882,306.36) unjustified due to the corrected classification of the solar heaters.
• The Tribunal held that the Appellant's solar water heaters are correctly classified under HS code 8419:19:00, not 8516:10:00, as their essential character is solar-based with an electric backup.

Remedies

• The Respondent's review decision dated 24th March 2022, which confirmed the assessment of Kshs 882,306.36 in short levied duties, is set aside by the Tribunal.
• The Tribunal orders that each party shall bear its own costs in relation to the appeal proceedings.
• The Tribunal has allowed the Appellant's appeal against the Respondent's classification of the solar water heaters under HS code 8516:10:00, determining that the correct classification is 8419:19:00.

Tax Issue Category

Legal Principles

• The Tribunal referenced the presumption of regularity, which presumes that official acts (like customs classification approvals) are performed properly unless proven otherwise. This supported the Appellant's argument that it had no reason to doubt the initial classification until the Respondent's audit.
• The Tribunal applied the principle of substance over form in determining the essential character of the Appellant's imported solar water heaters. It concluded that despite the inclusion of an electric component, the primary function and classification of the product should be based on its solar heating mechanism, as mandated by GIR 3(b).
• The Appellant argued that the Respondent's failure to raise classification concerns during initial inspections created a legitimate expectation that the declared HS code (8419.19.00) was correct. The Tribunal acknowledged this principle, noting the Appellant relied on customs officers' prior approval without raised objections.

Disputed Tax Amount

Precedent Name

• Keroche Industries Ltd v KRA & 5 others
• Republic vs. Commissioner of Domestic Taxes Ex Parte Barclays bank of Kenya LTD
• Republic v Kenya Revenue Authority Ex parte Cooper K-Brands Limited

Cited Statute

• East African Community Customs Management Act (EACCMA), 2004
• Kenya Revenue Authority Act Cap 469 Laws of Kenya

Judge Name

• Robert M. Mutuma
• Elishah N. Njeru
• Edwin K. Cheluget
• Delilah K. Ngala
• Rodney O. Oluoch

Passage Text

• The Tribunal has also taken judicial notice of the fact that the insertion of the electric component into the solar water heaters emanated from recent directive by the Government requiring all imported solar water heaters to have an electric component.
• Based on the above analysis, and being guided by the GIR 3(b) on the need to determine the essential character of the product under review, the Tribunal hereby arrives at the conclusion that the essential character of the Appellant's imported product was solar water heater.
• the Tribunal finds and holds that the Appellant's imported solar water heaters is classifiable under the EAC/CET HS code 8419:19:00, and not HS code 8516:10:00 that is preferred by the Respondent.