Introduction and Background .
1. This is an appeal by the Commissioner of Customs and Border Control (“the Commissioner”) challenging the decision of the Tax Appeals Tribunal (“the Tribunal”) delivered on 24th November 2023. The Tribunal allowed the Respondent’s appeal and set aside the Commissioner’s tariff classification review decision. The Commissioner had initially demanded Kshs. 133,592,893.00 by Demand Notice Ref. HQ/PCA/RRI/024/2022, which amount was subsequently reduced to Kshs. 116,333,315.00 by the review decision dated 20th July 2022.
2. The Appellant is established under the Kenya Revenue Authority Act, Cap. 469, Laws of Kenya. Under section 5(1), it is an agency of the Government for the collection and receipt of revenue. Section 5(2) further mandates it, in the performance of that function, to administer and enforce the written laws set out in Parts I and II of the First Schedule to the Act for purposes of assessing, collecting and accounting for revenue in accordance with those laws.
3. The Respondent, Drifield Limited, is a limited liability company incorporated in Kenya under the Companies Act. Its principal business is the importation of irrigation systems and equipment, including drip irrigation systems, their accessories, flat driplines and lateral driplines.
Background to the dispute.
4. The dispute arose from a desk audit conducted by the Appellant on the Respondent’s import transactions for the period April 2017 to April 2022. The Appellant concluded that the Respondent had misclassified imported PE pipes and flat dripline pipes under tariff codes 8424.81.00 and 8424.89.00, which attracted 0% import duty and 0% VAT, instead of tariff codes 3917.21.00 and 3917.39.00, which attracted 25% import duty and 16% VAT.
5. Consequently, the Appellant issued a demand notice Ref: HQ/PCA/RRI/024/2022 dated 26th May 2022 for Kshs. 133,592,893.00/=. The Respondent, Drifield Limited, objected to the demand on 22 nd June 2022. Upon considering the objection, the Appellant issued a review decision on 20 th July 2022, revising the demand downwards to Kshs. 116,333,315.00/= via demand notice Ref: HQ/PCA/RRI/024/2022 dated 20 th July 2022.
6. Aggrieved by the Appellant's review decision, the Respondent filed a Notice of Appeal on 18 th August 2022, thereby commencing the appeal process before the Tax Appeals Tribunal.
7. The Tribunal, after considering the parties' pleadings, submissions and the evidence on record, delivered its judgment on 24 th November 2023 in Tax Appeal No. 937 of 2022 Drifield Kenya Limited vs. Commissioner of Customs & Border Control , allowing the Respondent's Appeal and holding that the irrigation systems under Tariff Code 8424.81.00 and accompanying accessories under Tariff Code 8424.89.00 were correctly classified.
8. The said decision by the Tribunal has precipitated the filing of the present appeal by the Commissioner which is grounded on the Memorandum of Appeal dated 19th January 2024, raising nine (9) grounds of Appeal which are as follows;
1. THAT the Tax Appeal Tribunal erred in law and fact in acting contrary to Rule 1 of the General Interpretation Rules of the Harmonised System by failing to consider the terms of the headings, relative sections and chapter notes and instead considered the text to the title of the chapters which are only used for ease of reference when considering the tariff classification of the product imported by the Respondent.
2. THAT the Tax Appeals Tribunal erred in law and fact in classifying irrigation systems under heading 8424.81.00 and the accompanying accessories under Tariff code 8424.89.00.
3. THAT the Tax Appeals Tribunal erred in fact and in law in disregarding the explanatory notes under heading 8424 which require the Respondent to import a complete irrigation system with all components.
4. THAT the Tax Appeals Tribunal erred in law and in fact in disregarding that the Respondent imported an incomplete system and purchased some of the components locally contrary to the explanatory notes heading 8424.
5. THAT the Tax Appeals Tribunal erred in law and in fact failing to appreciate that the Respondent did not meet the requirements provided under the explanatory notes heading 8424.
6. THAT the Tax Appeals Tribunal erred in law and in fact in failing to appreciate that the Appellant properly classified PE Pipes and flat drip line pipes under HS codes 3917.21.00 and 3917.39.00.
7. THAT the Tax Appeals Tribunal erred in law and in fact in failing to appreciate that the Respondent imported itemised units and thus correctly classified under HS codes 3917.21.00 and 3917.39.00.
8. THAT the Tax Appeals Tribunal erred in law and in fact by ignoring the WCO classification ruling issued during the 57 th Session of the HS Committee dated 26 th March 2016, which ruled that drip lines and lateral pipes should be classified under heading 3917 being the body mandated to classify products and develop the CET.
9. THAT the Tribunal erred in law and in fact in its interpretation of legitimate expectation vis a vis the express provisions of the law and the EAC/CET 2017 .
The Commissioner’s submissions.
9. The Commissioner, as the Appellant, submitted that the Tribunal had fundamentally erred by applying chapter titles rather than the actual terms of the headings, contrary to GIR 1. It argued that the Respondent had imported itemised units, specifically PE pipes and flat driplines, rather than a complete irrigation system. In its view, the Explanatory Notes to Heading 8424 require the importer to import all the components which, when assembled, constitute a complete irrigation system; otherwise the individual items fall to be classified according to their constituent material.
10. Consequently, the Commissioner maintained that Heading 3917 was the more specific classification because the PE pipes and lateral pipes are products used for conveying liquids. It relied on the Explanatory Notes to Heading 3917 and on Republic v Commissioner General & another Ex parte Awal Ltd [2008] eKLR for the proposition that tariff classification is determined by the applicable tariff text together with the Harmonized System rules and Explanatory Notes. It further relied on a WCO classification opinion said to have been issued at the 57th Session of the HS Committee on 26th March 2016 classifying drip lines and lateral pipes under Heading 3917.
11. On legitimate expectation, the Commissioner contended that the Respondent could not rely on earlier tariff approvals to defeat the correct application of the tariff. It pointed in particular to the review decision of 20th July 2022, which stated that the earlier tariff ruling allowing classification under Heading 8424 applied where the goods were imported as a complete system and not where they were presented at customs clearance as itemised units. It relied on Republic v Principal Secretary, Ministry of Transport, Housing and Urban Development Ex parte Soweto Residents Forum CBO [2019] eKLR for the proposition that a legitimate expectation cannot require a public authority to act contrary to law.
12. Accordingly, the Commissioner prayed that the Court allow the appeal, set aside the Tribunal’s judgment, uphold the review decision and order the Respondent to pay the Kshs. 116,333,315.00 demanded.
The Respondent’s submissions.
13. In response, Drifield Kenya Limited, as the Respondent, submitted that its imports were correctly described as “Drip Irrigation System Complete with Accessories” in all shipping documents, including commercial invoices, packing lists, bill of lading and certificates of origin.
14. The Respondent argued that the goods formed a functional unit under Note 4 to Section XVI, whose clearly defined function was irrigation and which therefore fell within Heading 8424. It further submitted that the Explanatory Notes to Heading 8424 expressly identified the components comprising such irrigation systems.
15. On Heading 3917, the Respondent submitted that this heading applied only to ordinary pipes and hoses for the general conveyance of liquids and that Note 2(s) to Chapter 39 expressly excluded Articles of Section XVI, which includes machines and mechanical appliances, from classification under Chapter 39. The Respondent further argued that the goods were components of a machine, not mere pipes.
16. With regard to the WCO ruling, the Respondent submitted that the alleged ruling was not produced before the Tribunal. It further argued that the Commissioner had not established its legal effect and that, in any event, it concerned drip lines and lateral pipes imported in isolation rather than a complete irrigation system presented as a functional unit.
17. The Respondent, on the other hand, relied on the Commissioner’s previous tariff approvals, including an approved entry in 2019 and the tariff classification ruling Ref. CUS/V&T/TARI/GEN/029/2021 referred to in the record. It submitted that, following a demonstration in which the components were interconnected to form a functional drip irrigation system, the Commissioner had accepted classification under Heading 8424. The Respondent characterised the subsequent reclassification as approbating and reprobating, and also invoked section 120 of the Evidence Act on estoppel.
18. On legitimate expectation, the Respondent correctly pointed out that the Tribunal had never decided on legitimate expectation, as its judgment addressed only the classification issue, rendering Ground 9 of the Commissioner's appeal baseless. The Respondent accordingly prayed that the High Court dismiss the appeal, uphold the Tribunal's judgment, set aside the demand notice and award costs to the Respondent.
Analysis and Determination.
19. I have considered the grounds on the face of the record and the submissions of the parties, which I have highlighted in summary above.
20. Section 56(2) of the Tax Procedures Act (TPA), provides that;
“An appeal to the High Court or to the Court of Appeal shall be on a question of law only . ” [ Emphasis Mine].
21. Although the present appeal arises under section 56(2) of the Tax Procedures Act, which limits an appeal to a question of law, the Supreme Court’s exposition in Gatirau Peter Munya v Dickson Mwenda Kithinji & 2 Others (Petition 2B of 2014) [2014] KESC 38 (KLR) is instructive. The Court explained that “matters of law” include the interpretation of law, its application to the facts or evidence on record, and a challenge to conclusions said to be unsupported by the evidence or so perverse that no reasonable tribunal could have reached them.
The Supreme Court characterised the three elements of a matter of law as follows:
a. the technical element : involving the interpretation of a constitutional or statutory provision;
b. the practical element : involving the application of the Constitution and the law to a set of facts or evidence on record;
c. the evidentiary element : involving the evaluation of the conclusions of a trial Court on the basis of the evidence on record.”
22. The present appeal principally engages the practical and evidentiary elements. The Court may therefore examine the record to determine whether the Tribunal applied the correct legal principles to the facts found and whether its conclusions were supported by the evidence. That does not, however, permit this Court to conduct a fresh evaluation of the evidence merely because it might have reached a different factual conclusion.
23. The Court of Appeal expressed the same limitation in John Munuve Mati v Returning Officer, Mwingi North Constituency & 2 Others [2018] eKLR. It held that an appellate court confined to matters of law may consider the factual record as background and context, and to satisfy itself that the conclusions reached are supported by the evidence and are not so perverse that no reasonable tribunal could have arrived at them.
The inquiry is therefore not which evidence this Court would itself have preferred, but whether there was an evidential and legal basis upon which the Tribunal could reasonably reach the conclusion that it did.
24. That approach has also been applied in tax appeals under section 56(2) of the Tax Procedures Act. In Tile and Carpet Centre Limited v Commissioner of Domestic Taxes [2020] KEHC 7090 (KLR), the High Court adopted the principles in Gatirau Peter Munya on the limited scope of an appeal on questions of law only.
25. I have accordingly examined the record only to the extent necessary to determine whether the Tribunal applied the correct tariff rules to the facts before it and whether its conclusions had an evidential basis. I have not undertaken a fresh evaluation of the evidence with a view to substituting my own findings of fact for those of the Tribunal.
26. From the grounds of appeal and the parties’ submissions, I discern two issues for determination:
1. Whether the Tribunal erred in law in concluding that the Respondent’s imports were classifiable under Heading 8424 rather than Heading 3917.
2. Whether the Tribunal erred in its consideration of the doctrine of legitimate expectation.
Whether the Tribunal erred in law in concluding that the Respondent’s imports were classifiable under Heading 8424 rather than Heading 3917.
27. I begin with the issue framed by the Tribunal for its determination: “Whether the Respondent was justified in reclassifying the Appellant’s products.” The Tribunal resolved that issue in favour of the taxpayer, who was the Appellant before it. The Commissioner, who was the Respondent before the Tribunal and is the Appellant before this Court, challenges that conclusion through Grounds 1 to 8 of the Memorandum of Appeal.
28. Classification of goods under the EAC Common External Tariff is governed by the General Interpretation Rules (GIR) . Rule 1 of the GIR provides:
“ 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 :”
29. Rule 6 of the GIR provides that 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, mutatis mutandis , to the above Rules.
30. The Tribunal, at paragraph 93 of its judgment, correctly reproduced GIR 1 and GIR 6 and proceeded to apply them. Contrary to the Appellant’s assertion in Ground 1, the Tribunal did not determine classification by reference to chapter titles. It expressly addressed the terms of Heading 8424 and the relevant Section and Chapter Notes. At paragraph 95, it stated:
“The Tribunal notes that GIR 1 provides that classification shall, inter alia, be determined according to the terms of the headings and any relative Section or Chapter Notes. Heading 8424 and its sub headings cover agricultural and horticultural systems that project, disperse or spray liquids. On this basis, it is apparent to the Tribunal that Heading 8424 provides a specific reference to agricultural and horticultural appliances for dispersion, projection or spraying of liquids.”
31. At paragraph 96, it applied GIR 6 stating;
“The Tribunal notes that GIR 6 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…”
32. It also reviewed the terms of Heading 8424. At Paragraph 88 of its Judgment, it observed;
“Heading 8424 of the East African Community Common External Tariff (EACCET) 2017 covers Mechanical appliances (whether or not hand-operated) for projecting, dispersing or spraying liquids or powders; fire extinguishers, whether or not charged; spray guns and similar appliances; steam or sand blasting machines and similar jet projecting machines …”
33. In addition, it reviewed the Explanatory notes to heading 8424, specifically the section on “Irrigation systems” which provides;
“ These irrigation systems, consisting of various components linked together usually include:
(i) a control station (mesh filters, fertiliser injectors, metering valves, non-return valves, pressure regulators, pressure gauges, air vents, etc.);
(ii) an underground network (distribution lines and branchlines which carry the water from the control station to the irrigation zone); and
(iii) a surface network (dripper lines incorporating the drippers).
Such systems are classified in this heading as functional units within the meaning of Note 4 to Section XVI.”
34. Two features of that text are significant. First, the Explanatory Note says that irrigation systems “usually include” the identified control station, underground network and surface network. It does not say that every listed component must invariably be imported in every consignment. Secondly, the Note expressly directs the classifier to Note 4 to Section XVI. The Commissioner’s submission that Heading 8424 is available only where every item in the illustrative list is imported therefore places a requirement in the Explanatory Note which its text does not contain.
35. It then further considered Note 4 to Section XVI, which provides:
“Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function.”
36. It proceeded to apply these provisions to the facts before it. At paragraph 101 of its judgment, it stated:
“Based on the above provision, it is apparent to the Tribunal that in the case of machines composed of various components that form a whole, one must determine the main function of the whole as opposed to the various components. In the instant case, the items imported form part of a whole whose function is irrigation for horticultural or agricultural purposes. In line with Section Note 4 under Section XVI of the EACCET, all the items fall to be classified in the heading appropriate to the function; in this case, Heading 8424 .”
37. Subsequently, it reached its final conclusion at paragraph 103:
“Due to the foregoing, and in reference to GIRs 1 and 6, it is clear to the Tribunal that Heading 8424, read together with its Chapter Notes and subheading descriptions provides a specific reference to the irrigation systems and accessories imported by the Appellant. Further, it is clear from the Explanatory Notes to this Heading that parts of these irrigation systems are also classifiable under this Heading contrary to the Respondent's assertion that they are classifiable under Heading 3917.”
38. The Appellant’s central contention is not merely that the components were unassembled at the time of importation, but that what was imported did not constitute a complete irrigation system because some components were allegedly procured locally. The distinction is important. Note 4 to Section XVI does not require the components of a functional unit to be physically assembled when presented for importation. It does, however, require the individual components to be intended to contribute together to the clearly defined function covered by the relevant heading. The question, therefore, was whether the evidence before the Tribunal was capable of supporting its finding that the imported goods constituted components of a drip irrigation system presented as a functional unit.
39. The Commissioner’s own review decision of 20th July 2022 proceeded on substantially the same legal premise. It accepted that irrigation systems consisting of various components linked together are classified in Heading 8424 as functional units, but maintained that the particular imports were itemised units and that the earlier tariff ruling applied only where the goods were imported as a complete system. The real controversy is therefore not whether a complete drip irrigation system may fall under Heading 8424. Both parties proceed on the basis that it may. The dispute is whether the goods presented in the transactions under review possessed that character for tariff purposes.
40. On that question, the documentary evidence before the Tribunal included commercial invoices, packing lists and bills of lading which consistently described the goods as “Drip Irrigation System Complete With Accessories” (see, for example, pages 116, 168 and 183 of the Record of Appeal). Those documents were evidence upon which the Tribunal was entitled to rely in determining the character of the goods as imported. In the absence of evidence demonstrating that the consignments comprised only isolated pipes or that essential components were in fact procured locally, I am unable to say that the Tribunal’s factual conclusion lacked an evidential basis or was one that no reasonable tribunal could reach.
41. The Respondent also referred to the Commissioner’s earlier treatment of similar imports. In my view, that material does not determine the present appeal. Previous tariff treatment cannot alter the proper construction of the EAC Common External Tariff, nor can it relieve the Court of determining whether the Tribunal applied the correct legal principles to the facts before it. I therefore place no independent evidential weight upon those earlier rulings in determining the character of the consignments presently in issue. The classification must stand or fall on the tariff text, the relevant Section and Chapter Notes, the GIRs, and whether the Tribunal’s conclusion on the material before it was legally sustainable.
42. The Tribunal thereafter reviewed the alternative classification proposed by the Appellant, Heading 3917. At paragraph 98 of its judgment, it observed:
“In comparison, the Tribunal noted that Heading 3917 provides for items of plastic; specifically, tubes, pipes and hoses, and fittings therefore (for example, joints, elbows, flanges) for general use.”
43. The alternative classification under Heading 3917 must nevertheless be approached with some care. Chapter 39, Note 8 defines “tubes, pipes and hoses” for purposes of Heading 3917 as hollow products of a kind generally used for conveying, conducting or distributing gases or liquids. A dripline plainly performs that function. The fact that a pipe or dripline is specialised for irrigation does not, by itself, exclude it from Heading 3917. The decisive point is the legal character of the goods as presented for classification. If they are presented merely as plastic pipes or driplines, Heading 3917 may apply. If, however, the goods are properly presented and established as components intended together to perform the clearly defined function of irrigation, Note 4 to Section XVI requires the functional unit to be classified in the heading appropriate to that function. Chapter 39, Note 2(s), which excludes articles of Section XVI from Chapter 39, then operates consistently with that classification.
44. At paragraph 99, the Tribunal added:
“Further, a review of the Explanatory Notes to Heading 3917 established that the tubes, pipes and hoses falling under this Heading are 'of a kind generally used for conveying, conducting or distributing gases or liquids'. It was therefore clear to the Tribunal that this Heading does not cover specialised tubes.”
45. I would therefore place less weight on the Tribunal’s reference to whether the goods were “parts of general use”. The stronger basis for its conclusion lies in GIR 1, the terms and Explanatory Notes to Heading 8424, Note 4 to Section XVI, and the evidence as to the character in which the goods were imported. Those provisions, read together, provide the legal route by which a collection of components intended to function together as an irrigation system may be classified under Heading 8424.
46. Ground 4 alleges that the Respondent imported an incomplete system and purchased some components locally. The Tribunal did not make an express finding on the alleged local purchases. However, the Commissioner has not identified evidence in the record establishing that fact. By contrast, the commercial invoices and packing lists from the manufacturer, Captain Polyplast (see, for example, pages 116, 168 and 183 of the Record of Appeal), described the consignments as “Agriculture or Horticulture Products – Drip Irrigation System Complete With Accessories.” In an appeal confined to questions of law, this Court cannot replace the Tribunal’s assessment of that documentary evidence with a different factual conclusion where the conclusion reached was reasonably open to it.
47. With regard to Ground 8, the Appellant alleges that the Tribunal ignored a WCO classification ruling from the 57 th Session of the HS Committee dated 26 th March 2016.
48. I have examined the record of appeal. The WCO classification opinion relied upon in Ground 8 was not part of the material placed before the Tribunal. The Commissioner later referred to and attached the alleged opinion to its submissions before this Court, but submissions cannot enlarge the evidential record on an appeal confined to questions of law. The Tribunal cannot therefore be faulted for failing to apply material that was not before it. This does not mean that WCO materials are legally irrelevant. In Republic v Commissioner General & another Ex parte Awal Ltd [2008] eKLR, the High Court recognised the Harmonized System rules and WCO materials as aids to tariff interpretation. The difficulty here is anterior: the particular opinion was not part of the Tribunal record. Further, on the description advanced by the Commissioner itself, the opinion concerns drip lines and lateral pipes. That does not, without more, answer the distinct question whether components presented together as a functional irrigation system fall under Heading 8424 by operation of Note 4 to Section XVI.
49. For these reasons, I find that the Tribunal applied GIR 1 and GIR 6, considered the competing terms of Headings 8424 and 3917, and applied Note 4 to Section XVI to the evidence before it. Although I have qualified its reasoning concerning “parts of general use”, that does not affect the ultimate conclusion. The Commissioner has not demonstrated an error of law, or an evidential conclusion of the kind that would permit this Court to interfere with the Tribunal’s classification under Heading 8424.
50. The Appellant's grounds 1 through 8 are therefore dismissed.
Whether the Tribunal erred on legitimate expectation.
51. The Appellant’s ninth ground of appeal alleges that the Tribunal erred in its interpretation of legitimate expectation.
52. I have carefully reviewed the Tribunal’s judgment. The Tribunal framed a single issue for determination: “Whether the Respondent was justified in reclassifying the Appellant’s products.” At paragraph 84 of its judgment, it stated:
"The Tribunal has carefully reviewed the pleadings and documentation filed by both parties and is of the respectful view that the singular issue for its determination is as follows:- Whether the Respondent was justified in reclassifying the Appellant's products."
53. There is no reference in the Tribunal's judgment to the doctrine of legitimate expectation as a separate ground of decision. The Tribunal's analysis, from paragraphs 85 to 104, is confined exclusively to the tariff classification issue. The Tribunal made no finding on legitimate expectation.
54. The Respondent is therefore correct that Ground 9 does not arise from the Tribunal’s decision. Since the Tribunal made no determination on legitimate expectation, there is no finding on that doctrine for this Court to review. Ground 9 is accordingly misconceived and fails.
Propriety of the Tribunal’s Judgment
55. The Tribunal correctly framed the classification issue, applied the General Interpretation Rules, considered the competing terms of Headings 8424 and 3917 and the relevant Section and Chapter Notes, and concluded that the goods were properly classified under Heading 8424. For the reasons I have given, that conclusion was legally open to it on the evidence before it.
56. The Appellant has therefore not demonstrated an error of law warranting interference with the Tribunal’s decision. Grounds 1 to 8 fail on the classification issue, while Ground 9 fails because the Tribunal made no determination on legitimate expectation.
Conclusion and Orders.
57. The Appeal fails in its entirety.
58. For the reasons set out above, I make the following orders:
1. The Appeal is dismissed.
2. The Judgment of the Tax Appeals Tribunal delivered on 24 th November 2023 in Tax Appeal No. 937 of 2022 is upheld.
3. The Respondent shall have the costs of this Appeal.
1. This is an appeal by the Commissioner of Customs and Border Control (“the Commissioner”) challenging the decision of the Tax Appeals Tribunal (“the Tribunal”) delivered on 24th November 2023. The Tribunal allowed the Respondent’s appeal and set aside the Commissioner’s tariff classification review decision. The Commissioner had initially demanded Kshs. 133,592,893.00 by Demand Notice Ref. HQ/PCA/RRI/024/2022, which amount was subsequently reduced to Kshs. 116,333,315.00 by the review decision dated 20th July 2022.
2. The Appellant is established under the Kenya Revenue Authority Act, Cap. 469, Laws of Kenya. Under section 5(1), it is an agency of the Government for the collection and receipt of revenue. Section 5(2) further mandates it, in the performance of that function, to administer and enforce the written laws set out in Parts I and II of the First Schedule to the Act for purposes of assessing, collecting and accounting for revenue in accordance with those laws.
3. The Respondent, Drifield Limited, is a limited liability company incorporated in Kenya under the Companies Act. Its principal business is the importation of irrigation systems and equipment, including drip irrigation systems, their accessories, flat driplines and lateral driplines.
Background to the dispute.
4. The dispute arose from a desk audit conducted by the Appellant on the Respondent’s import transactions for the period April 2017 to April 2022. The Appellant concluded that the Respondent had misclassified imported PE pipes and flat dripline pipes under tariff codes 8424.81.00 and 8424.89.00, which attracted 0% import duty and 0% VAT, instead of tariff codes 3917.21.00 and 3917.39.00, which attracted 25% import duty and 16% VAT.
5. Consequently, the Appellant issued a demand notice Ref: HQ/PCA/RRI/024/2022 dated 26th May 2022 for Kshs. 133,592,893.00/=. The Respondent, Drifield Limited, objected to the demand on 22 nd June 2022. Upon considering the objection, the Appellant issued a review decision on 20 th July 2022, revising the demand downwards to Kshs. 116,333,315.00/= via demand notice Ref: HQ/PCA/RRI/024/2022 dated 20 th July 2022.
6. Aggrieved by the Appellant's review decision, the Respondent filed a Notice of Appeal on 18 th August 2022, thereby commencing the appeal process before the Tax Appeals Tribunal.
7. The Tribunal, after considering the parties' pleadings, submissions and the evidence on record, delivered its judgment on 24 th November 2023 in Tax Appeal No. 937 of 2022 Drifield Kenya Limited vs. Commissioner of Customs & Border Control , allowing the Respondent's Appeal and holding that the irrigation systems under Tariff Code 8424.81.00 and accompanying accessories under Tariff Code 8424.89.00 were correctly classified.
8. The said decision by the Tribunal has precipitated the filing of the present appeal by the Commissioner which is grounded on the Memorandum of Appeal dated 19th January 2024, raising nine (9) grounds of Appeal which are as follows;
1. THAT the Tax Appeal Tribunal erred in law and fact in acting contrary to Rule 1 of the General Interpretation Rules of the Harmonised System by failing to consider the terms of the headings, relative sections and chapter notes and instead considered the text to the title of the chapters which are only used for ease of reference when considering the tariff classification of the product imported by the Respondent.
2. THAT the Tax Appeals Tribunal erred in law and fact in classifying irrigation systems under heading 8424.81.00 and the accompanying accessories under Tariff code 8424.89.00.
3. THAT the Tax Appeals Tribunal erred in fact and in law in disregarding the explanatory notes under heading 8424 which require the Respondent to import a complete irrigation system with all components.
4. THAT the Tax Appeals Tribunal erred in law and in fact in disregarding that the Respondent imported an incomplete system and purchased some of the components locally contrary to the explanatory notes heading 8424.
5. THAT the Tax Appeals Tribunal erred in law and in fact failing to appreciate that the Respondent did not meet the requirements provided under the explanatory notes heading 8424.
6. THAT the Tax Appeals Tribunal erred in law and in fact in failing to appreciate that the Appellant properly classified PE Pipes and flat drip line pipes under HS codes 3917.21.00 and 3917.39.00.
7. THAT the Tax Appeals Tribunal erred in law and in fact in failing to appreciate that the Respondent imported itemised units and thus correctly classified under HS codes 3917.21.00 and 3917.39.00.
8. THAT the Tax Appeals Tribunal erred in law and in fact by ignoring the WCO classification ruling issued during the 57 th Session of the HS Committee dated 26 th March 2016, which ruled that drip lines and lateral pipes should be classified under heading 3917 being the body mandated to classify products and develop the CET.
9. THAT the Tribunal erred in law and in fact in its interpretation of legitimate expectation vis a vis the express provisions of the law and the EAC/CET 2017 .
The Commissioner’s submissions.
9. The Commissioner, as the Appellant, submitted that the Tribunal had fundamentally erred by applying chapter titles rather than the actual terms of the headings, contrary to GIR 1. It argued that the Respondent had imported itemised units, specifically PE pipes and flat driplines, rather than a complete irrigation system. In its view, the Explanatory Notes to Heading 8424 require the importer to import all the components which, when assembled, constitute a complete irrigation system; otherwise the individual items fall to be classified according to their constituent material.
10. Consequently, the Commissioner maintained that Heading 3917 was the more specific classification because the PE pipes and lateral pipes are products used for conveying liquids. It relied on the Explanatory Notes to Heading 3917 and on Republic v Commissioner General & another Ex parte Awal Ltd [2008] eKLR for the proposition that tariff classification is determined by the applicable tariff text together with the Harmonized System rules and Explanatory Notes. It further relied on a WCO classification opinion said to have been issued at the 57th Session of the HS Committee on 26th March 2016 classifying drip lines and lateral pipes under Heading 3917.
11. On legitimate expectation, the Commissioner contended that the Respondent could not rely on earlier tariff approvals to defeat the correct application of the tariff. It pointed in particular to the review decision of 20th July 2022, which stated that the earlier tariff ruling allowing classification under Heading 8424 applied where the goods were imported as a complete system and not where they were presented at customs clearance as itemised units. It relied on Republic v Principal Secretary, Ministry of Transport, Housing and Urban Development Ex parte Soweto Residents Forum CBO [2019] eKLR for the proposition that a legitimate expectation cannot require a public authority to act contrary to law.
12. Accordingly, the Commissioner prayed that the Court allow the appeal, set aside the Tribunal’s judgment, uphold the review decision and order the Respondent to pay the Kshs. 116,333,315.00 demanded.
The Respondent’s submissions.
13. In response, Drifield Kenya Limited, as the Respondent, submitted that its imports were correctly described as “Drip Irrigation System Complete with Accessories” in all shipping documents, including commercial invoices, packing lists, bill of lading and certificates of origin.
14. The Respondent argued that the goods formed a functional unit under Note 4 to Section XVI, whose clearly defined function was irrigation and which therefore fell within Heading 8424. It further submitted that the Explanatory Notes to Heading 8424 expressly identified the components comprising such irrigation systems.
15. On Heading 3917, the Respondent submitted that this heading applied only to ordinary pipes and hoses for the general conveyance of liquids and that Note 2(s) to Chapter 39 expressly excluded Articles of Section XVI, which includes machines and mechanical appliances, from classification under Chapter 39. The Respondent further argued that the goods were components of a machine, not mere pipes.
16. With regard to the WCO ruling, the Respondent submitted that the alleged ruling was not produced before the Tribunal. It further argued that the Commissioner had not established its legal effect and that, in any event, it concerned drip lines and lateral pipes imported in isolation rather than a complete irrigation system presented as a functional unit.
17. The Respondent, on the other hand, relied on the Commissioner’s previous tariff approvals, including an approved entry in 2019 and the tariff classification ruling Ref. CUS/V&T/TARI/GEN/029/2021 referred to in the record. It submitted that, following a demonstration in which the components were interconnected to form a functional drip irrigation system, the Commissioner had accepted classification under Heading 8424. The Respondent characterised the subsequent reclassification as approbating and reprobating, and also invoked section 120 of the Evidence Act on estoppel.
18. On legitimate expectation, the Respondent correctly pointed out that the Tribunal had never decided on legitimate expectation, as its judgment addressed only the classification issue, rendering Ground 9 of the Commissioner's appeal baseless. The Respondent accordingly prayed that the High Court dismiss the appeal, uphold the Tribunal's judgment, set aside the demand notice and award costs to the Respondent.
Analysis and Determination.
19. I have considered the grounds on the face of the record and the submissions of the parties, which I have highlighted in summary above.
20. Section 56(2) of the Tax Procedures Act (TPA), provides that;
“An appeal to the High Court or to the Court of Appeal shall be on a question of law only . ” [ Emphasis Mine].
21. Although the present appeal arises under section 56(2) of the Tax Procedures Act, which limits an appeal to a question of law, the Supreme Court’s exposition in Gatirau Peter Munya v Dickson Mwenda Kithinji & 2 Others (Petition 2B of 2014) [2014] KESC 38 (KLR) is instructive. The Court explained that “matters of law” include the interpretation of law, its application to the facts or evidence on record, and a challenge to conclusions said to be unsupported by the evidence or so perverse that no reasonable tribunal could have reached them.
The Supreme Court characterised the three elements of a matter of law as follows:
a. the technical element : involving the interpretation of a constitutional or statutory provision;
b. the practical element : involving the application of the Constitution and the law to a set of facts or evidence on record;
c. the evidentiary element : involving the evaluation of the conclusions of a trial Court on the basis of the evidence on record.”
22. The present appeal principally engages the practical and evidentiary elements. The Court may therefore examine the record to determine whether the Tribunal applied the correct legal principles to the facts found and whether its conclusions were supported by the evidence. That does not, however, permit this Court to conduct a fresh evaluation of the evidence merely because it might have reached a different factual conclusion.
23. The Court of Appeal expressed the same limitation in John Munuve Mati v Returning Officer, Mwingi North Constituency & 2 Others [2018] eKLR. It held that an appellate court confined to matters of law may consider the factual record as background and context, and to satisfy itself that the conclusions reached are supported by the evidence and are not so perverse that no reasonable tribunal could have arrived at them.
The inquiry is therefore not which evidence this Court would itself have preferred, but whether there was an evidential and legal basis upon which the Tribunal could reasonably reach the conclusion that it did.
24. That approach has also been applied in tax appeals under section 56(2) of the Tax Procedures Act. In Tile and Carpet Centre Limited v Commissioner of Domestic Taxes [2020] KEHC 7090 (KLR), the High Court adopted the principles in Gatirau Peter Munya on the limited scope of an appeal on questions of law only.
25. I have accordingly examined the record only to the extent necessary to determine whether the Tribunal applied the correct tariff rules to the facts before it and whether its conclusions had an evidential basis. I have not undertaken a fresh evaluation of the evidence with a view to substituting my own findings of fact for those of the Tribunal.
26. From the grounds of appeal and the parties’ submissions, I discern two issues for determination:
1. Whether the Tribunal erred in law in concluding that the Respondent’s imports were classifiable under Heading 8424 rather than Heading 3917.
2. Whether the Tribunal erred in its consideration of the doctrine of legitimate expectation.
Whether the Tribunal erred in law in concluding that the Respondent’s imports were classifiable under Heading 8424 rather than Heading 3917.
27. I begin with the issue framed by the Tribunal for its determination: “Whether the Respondent was justified in reclassifying the Appellant’s products.” The Tribunal resolved that issue in favour of the taxpayer, who was the Appellant before it. The Commissioner, who was the Respondent before the Tribunal and is the Appellant before this Court, challenges that conclusion through Grounds 1 to 8 of the Memorandum of Appeal.
28. Classification of goods under the EAC Common External Tariff is governed by the General Interpretation Rules (GIR) . Rule 1 of the GIR provides:
“ 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 :”
29. Rule 6 of the GIR provides that 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, mutatis mutandis , to the above Rules.
30. The Tribunal, at paragraph 93 of its judgment, correctly reproduced GIR 1 and GIR 6 and proceeded to apply them. Contrary to the Appellant’s assertion in Ground 1, the Tribunal did not determine classification by reference to chapter titles. It expressly addressed the terms of Heading 8424 and the relevant Section and Chapter Notes. At paragraph 95, it stated:
“The Tribunal notes that GIR 1 provides that classification shall, inter alia, be determined according to the terms of the headings and any relative Section or Chapter Notes. Heading 8424 and its sub headings cover agricultural and horticultural systems that project, disperse or spray liquids. On this basis, it is apparent to the Tribunal that Heading 8424 provides a specific reference to agricultural and horticultural appliances for dispersion, projection or spraying of liquids.”
31. At paragraph 96, it applied GIR 6 stating;
“The Tribunal notes that GIR 6 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…”
32. It also reviewed the terms of Heading 8424. At Paragraph 88 of its Judgment, it observed;
“Heading 8424 of the East African Community Common External Tariff (EACCET) 2017 covers Mechanical appliances (whether or not hand-operated) for projecting, dispersing or spraying liquids or powders; fire extinguishers, whether or not charged; spray guns and similar appliances; steam or sand blasting machines and similar jet projecting machines …”
33. In addition, it reviewed the Explanatory notes to heading 8424, specifically the section on “Irrigation systems” which provides;
“ These irrigation systems, consisting of various components linked together usually include:
(i) a control station (mesh filters, fertiliser injectors, metering valves, non-return valves, pressure regulators, pressure gauges, air vents, etc.);
(ii) an underground network (distribution lines and branchlines which carry the water from the control station to the irrigation zone); and
(iii) a surface network (dripper lines incorporating the drippers).
Such systems are classified in this heading as functional units within the meaning of Note 4 to Section XVI.”
34. Two features of that text are significant. First, the Explanatory Note says that irrigation systems “usually include” the identified control station, underground network and surface network. It does not say that every listed component must invariably be imported in every consignment. Secondly, the Note expressly directs the classifier to Note 4 to Section XVI. The Commissioner’s submission that Heading 8424 is available only where every item in the illustrative list is imported therefore places a requirement in the Explanatory Note which its text does not contain.
35. It then further considered Note 4 to Section XVI, which provides:
“Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function.”
36. It proceeded to apply these provisions to the facts before it. At paragraph 101 of its judgment, it stated:
“Based on the above provision, it is apparent to the Tribunal that in the case of machines composed of various components that form a whole, one must determine the main function of the whole as opposed to the various components. In the instant case, the items imported form part of a whole whose function is irrigation for horticultural or agricultural purposes. In line with Section Note 4 under Section XVI of the EACCET, all the items fall to be classified in the heading appropriate to the function; in this case, Heading 8424 .”
37. Subsequently, it reached its final conclusion at paragraph 103:
“Due to the foregoing, and in reference to GIRs 1 and 6, it is clear to the Tribunal that Heading 8424, read together with its Chapter Notes and subheading descriptions provides a specific reference to the irrigation systems and accessories imported by the Appellant. Further, it is clear from the Explanatory Notes to this Heading that parts of these irrigation systems are also classifiable under this Heading contrary to the Respondent's assertion that they are classifiable under Heading 3917.”
38. The Appellant’s central contention is not merely that the components were unassembled at the time of importation, but that what was imported did not constitute a complete irrigation system because some components were allegedly procured locally. The distinction is important. Note 4 to Section XVI does not require the components of a functional unit to be physically assembled when presented for importation. It does, however, require the individual components to be intended to contribute together to the clearly defined function covered by the relevant heading. The question, therefore, was whether the evidence before the Tribunal was capable of supporting its finding that the imported goods constituted components of a drip irrigation system presented as a functional unit.
39. The Commissioner’s own review decision of 20th July 2022 proceeded on substantially the same legal premise. It accepted that irrigation systems consisting of various components linked together are classified in Heading 8424 as functional units, but maintained that the particular imports were itemised units and that the earlier tariff ruling applied only where the goods were imported as a complete system. The real controversy is therefore not whether a complete drip irrigation system may fall under Heading 8424. Both parties proceed on the basis that it may. The dispute is whether the goods presented in the transactions under review possessed that character for tariff purposes.
40. On that question, the documentary evidence before the Tribunal included commercial invoices, packing lists and bills of lading which consistently described the goods as “Drip Irrigation System Complete With Accessories” (see, for example, pages 116, 168 and 183 of the Record of Appeal). Those documents were evidence upon which the Tribunal was entitled to rely in determining the character of the goods as imported. In the absence of evidence demonstrating that the consignments comprised only isolated pipes or that essential components were in fact procured locally, I am unable to say that the Tribunal’s factual conclusion lacked an evidential basis or was one that no reasonable tribunal could reach.
41. The Respondent also referred to the Commissioner’s earlier treatment of similar imports. In my view, that material does not determine the present appeal. Previous tariff treatment cannot alter the proper construction of the EAC Common External Tariff, nor can it relieve the Court of determining whether the Tribunal applied the correct legal principles to the facts before it. I therefore place no independent evidential weight upon those earlier rulings in determining the character of the consignments presently in issue. The classification must stand or fall on the tariff text, the relevant Section and Chapter Notes, the GIRs, and whether the Tribunal’s conclusion on the material before it was legally sustainable.
42. The Tribunal thereafter reviewed the alternative classification proposed by the Appellant, Heading 3917. At paragraph 98 of its judgment, it observed:
“In comparison, the Tribunal noted that Heading 3917 provides for items of plastic; specifically, tubes, pipes and hoses, and fittings therefore (for example, joints, elbows, flanges) for general use.”
43. The alternative classification under Heading 3917 must nevertheless be approached with some care. Chapter 39, Note 8 defines “tubes, pipes and hoses” for purposes of Heading 3917 as hollow products of a kind generally used for conveying, conducting or distributing gases or liquids. A dripline plainly performs that function. The fact that a pipe or dripline is specialised for irrigation does not, by itself, exclude it from Heading 3917. The decisive point is the legal character of the goods as presented for classification. If they are presented merely as plastic pipes or driplines, Heading 3917 may apply. If, however, the goods are properly presented and established as components intended together to perform the clearly defined function of irrigation, Note 4 to Section XVI requires the functional unit to be classified in the heading appropriate to that function. Chapter 39, Note 2(s), which excludes articles of Section XVI from Chapter 39, then operates consistently with that classification.
44. At paragraph 99, the Tribunal added:
“Further, a review of the Explanatory Notes to Heading 3917 established that the tubes, pipes and hoses falling under this Heading are 'of a kind generally used for conveying, conducting or distributing gases or liquids'. It was therefore clear to the Tribunal that this Heading does not cover specialised tubes.”
45. I would therefore place less weight on the Tribunal’s reference to whether the goods were “parts of general use”. The stronger basis for its conclusion lies in GIR 1, the terms and Explanatory Notes to Heading 8424, Note 4 to Section XVI, and the evidence as to the character in which the goods were imported. Those provisions, read together, provide the legal route by which a collection of components intended to function together as an irrigation system may be classified under Heading 8424.
46. Ground 4 alleges that the Respondent imported an incomplete system and purchased some components locally. The Tribunal did not make an express finding on the alleged local purchases. However, the Commissioner has not identified evidence in the record establishing that fact. By contrast, the commercial invoices and packing lists from the manufacturer, Captain Polyplast (see, for example, pages 116, 168 and 183 of the Record of Appeal), described the consignments as “Agriculture or Horticulture Products – Drip Irrigation System Complete With Accessories.” In an appeal confined to questions of law, this Court cannot replace the Tribunal’s assessment of that documentary evidence with a different factual conclusion where the conclusion reached was reasonably open to it.
47. With regard to Ground 8, the Appellant alleges that the Tribunal ignored a WCO classification ruling from the 57 th Session of the HS Committee dated 26 th March 2016.
48. I have examined the record of appeal. The WCO classification opinion relied upon in Ground 8 was not part of the material placed before the Tribunal. The Commissioner later referred to and attached the alleged opinion to its submissions before this Court, but submissions cannot enlarge the evidential record on an appeal confined to questions of law. The Tribunal cannot therefore be faulted for failing to apply material that was not before it. This does not mean that WCO materials are legally irrelevant. In Republic v Commissioner General & another Ex parte Awal Ltd [2008] eKLR, the High Court recognised the Harmonized System rules and WCO materials as aids to tariff interpretation. The difficulty here is anterior: the particular opinion was not part of the Tribunal record. Further, on the description advanced by the Commissioner itself, the opinion concerns drip lines and lateral pipes. That does not, without more, answer the distinct question whether components presented together as a functional irrigation system fall under Heading 8424 by operation of Note 4 to Section XVI.
49. For these reasons, I find that the Tribunal applied GIR 1 and GIR 6, considered the competing terms of Headings 8424 and 3917, and applied Note 4 to Section XVI to the evidence before it. Although I have qualified its reasoning concerning “parts of general use”, that does not affect the ultimate conclusion. The Commissioner has not demonstrated an error of law, or an evidential conclusion of the kind that would permit this Court to interfere with the Tribunal’s classification under Heading 8424.
50. The Appellant's grounds 1 through 8 are therefore dismissed.
Whether the Tribunal erred on legitimate expectation.
51. The Appellant’s ninth ground of appeal alleges that the Tribunal erred in its interpretation of legitimate expectation.
52. I have carefully reviewed the Tribunal’s judgment. The Tribunal framed a single issue for determination: “Whether the Respondent was justified in reclassifying the Appellant’s products.” At paragraph 84 of its judgment, it stated:
"The Tribunal has carefully reviewed the pleadings and documentation filed by both parties and is of the respectful view that the singular issue for its determination is as follows:- Whether the Respondent was justified in reclassifying the Appellant's products."
53. There is no reference in the Tribunal's judgment to the doctrine of legitimate expectation as a separate ground of decision. The Tribunal's analysis, from paragraphs 85 to 104, is confined exclusively to the tariff classification issue. The Tribunal made no finding on legitimate expectation.
54. The Respondent is therefore correct that Ground 9 does not arise from the Tribunal’s decision. Since the Tribunal made no determination on legitimate expectation, there is no finding on that doctrine for this Court to review. Ground 9 is accordingly misconceived and fails.
Propriety of the Tribunal’s Judgment
55. The Tribunal correctly framed the classification issue, applied the General Interpretation Rules, considered the competing terms of Headings 8424 and 3917 and the relevant Section and Chapter Notes, and concluded that the goods were properly classified under Heading 8424. For the reasons I have given, that conclusion was legally open to it on the evidence before it.
56. The Appellant has therefore not demonstrated an error of law warranting interference with the Tribunal’s decision. Grounds 1 to 8 fail on the classification issue, while Ground 9 fails because the Tribunal made no determination on legitimate expectation.
Conclusion and Orders.
57. The Appeal fails in its entirety.
58. For the reasons set out above, I make the following orders:
1. The Appeal is dismissed.
2. The Judgment of the Tax Appeals Tribunal delivered on 24 th November 2023 in Tax Appeal No. 937 of 2022 is upheld.
3. The Respondent shall have the costs of this Appeal.