' Introduction
1. This is an appeal by the Commissioner of Customs & Border Control (the “Appellant”) against the judgment of the Tax Appeals Tribunal (the “Tribunal”) delivered on 24th January 2025 in Tax Appeal No. 533 of 2024. In that judgment, the Tribunal allowed the Respondent’s appeal and consequently set aside the Appellant’s tax demand of Kshs. 147,263,369.
2. The impugned tax demand arose from a post-clearance audit (“PCA”) undertaken by the Appellant pursuant to Sections 235 and 236 of the East African Community Customs Management Act (EACCMA), 2004. The audit was initiated by a notice dated 8th August 2023 and covered the period August 2018 to July 2023.
3. The genesis of the dispute is that sometime in 2018, the Respondent commenced the importation of a complete flour milling plant comprising milling machinery, grain holding and mill feeding silos, conveying systems, packing lines, and a delivery rack system. Owing to the size of the machinery, the Respondent sought and obtained authorization from the Appellant to import the plant in disassembled form, across multiple consignments, pursuant to Additional Note 2 to Section XVI of the East African Community Common External Tariff (EAC CET).
4. Additional Note 2 to Section XVI of the East African Community Common External Tariff (EAC CET) allows a machine to be imported in different consignments for the convenience of transport, but all the components upon importation are classified as the complete machine under a single Customs Tariff.
5. However, following the PCA audit, the Appellant, vide its letter of 31st January 2024, reclassified certain parts of the machinery and demanded customs duties amounting to Kshs. 193,734,048/-, which included Kshs. 25,187,712, allegedly arising from undervaluation. The Appellant contended that the Respondent ought to have declared specific parts of the machinery under separate tariff headings, namely: –
i. Electrical equipment for the automation and computer system – The Appellant asserted that the Respondent had erroneously declared this equipment under Tariff subheading 8437.80.00, the same heading applicable to the complete flour milling machine, instead of classifying it as “separately presented electrical parts” under Chapter 85 of the EAC CET. This reclassification resulted in an additional tax demand of Kshs. 87,710,119/=.
ii. Dynamic Rack System (DRS) – The Appellant contended that the Respondent had erroneously declared the DRS under Tariff subheading 8437.80.00, the same heading as the assembled flour milling machine, instead of classifying it under Tariff 7308.90.90. According to the Appellant, the DRS merely performed an auxiliary function and was not an integral component of the plant. This reclassification yielded an additional tax demand of Kshs. 4,431,334/=.
iii. Wheat Mills and Maize Mill Parts – The Appellant argued that certain components, such as cables, cable trays, installation materials, controls, and safety switches, did not constitute integral parts of the milling machinery and therefore, by their nature, ought to have been classified under their respective HS Codes rather than under Tariff subheading 8437.80.00. The reclassification resulted in the following additional tax demands:
a) Wheat Mill B&C – Kshs. 57,638,440.00
b) Maize Mill D – Kshs. 18,766,443.00
iv. Undervaluation –The Appellant further alleged that discrepancies existed between the contractual values and the values declared for customs purposes, leading to a shortfall in duty payments. On this account, the Appellant raised an additional tax demand of Kshs. 25,187,712/=.
6. Dissatisfied with the Appellant’s reclassification of its goods and the consequent tax demand, the Respondent lodged an application for review by its letter dated 27th February 2024. Pursuant thereto, the Appellant issued a Review Decision revising the assessment downward to Kshs. 147,263,369/=. While the Decision upheld the substantive reclassification findings, it also introduced an additional element relating to Customs Warehouse Rent (CWR), albeit without quantifying the same.
7. The Respondent thereafter contested the Review Decision and lodged an appeal at the Tax Appeals Tribunal. On 24th January 2025, the Tribunal delivered its judgment in favour of the Respondent, thereby quashing the Appellant’s tax demand in its entirety.
The Appeal
8. Aggrieved by the Tribunal’s judgment, the Appellant lodged the present appeal, raising the following six grounds: -
i. That the Honourable Tribunal erred in law and in fact in failing to find that the Respondent did not initially disclose the full details of the silo system and its components, which violates Additional Note 2 to Section XVI of the EAC Common External Tariff (CET).
ii. That the Honourable Tribunal erred in law and fact in failing to find that the Respondent did not present all necessary importation documents at the time of customs declaration, thus failing to meet the conditions for Tariff classification under one heading.
iii. That the Honourable Tribunal erred in law and fact in failing to find that under Sections 234, 235, and 236 of the East African Community Customs Management Act (EACCMA) 2004, the Appellant has the legal right to conduct post-clearance audits (PCAs) for up to five years.
iv. That the Honourable Tribunal erred in law and fact in relying on Section Note 4 to erroneously conclude that all imported parts, including electrical components and dynamic racks, should be classified under one heading (Chapter 84).
v. That the Honourable Tribunal erred in law and fact in failing to find that General Note II and VII to Section XVI specifically excludes electrical parts from being classified with machines thus failing to arrive at a finding that computerized automation systems should be taxed separately under Chapter 85.
vi. That the Honourable Tribunal erred in law and fact in failing to find that Section Note 4 and General Note Vll of Section XVI of the EAC CET 2017 specifically excludes auxiliary machines or components from being classified with machines, meaning that DRS should be taxed separately under Tariff heading 7308.
9. The Respondent opposed the appeal through its Statement of Facts dated 19th May 2025, wherein it supported the Tribunal’s findings and maintained that the assessment issued by the Appellant in the sum of Kshs. 147,263,369/= was erroneous both in law and in fact.
10. The appeal was canvassed by way of written submissions. Learned counsel, Ms. Chelang’at Mutai, appeared for the Appellant and filed submissions dated 18th June 2025. The Respondent, represented by learned counsel Mr. Mohamed Nabil, filed submissions dated 2nd July 2025.
Appellant’s submissions
11. The Appellant’s first contention was that the Tribunal erred in failing to appreciate that the Respondent did not adhere to the conditions set out in the Commissioner’s letter authorizing the shipment of unassembled or disassembled machinery pursuant to Additional Note 2 to Section XVI of the East African Community Common External Tariff (EAC CET).
12. While not disputing that the Respondent had obtained such authorization, the Appellant argued that the Respondent contravened the conditions by failing to lucidly describe the specific constituent parts of subsequent consignments in its customs declarations. The Appellant emphasized that Additional Note 2 only permits partial shipment of machinery upon strict compliance with conditions, including the submission of detailed descriptions of all constituent parts.
13. The Appellant further submitted that the Respondent failed to disclose the specific items imported under pro forma invoice PI80710A, which covered the supply of electrical equipment for the automation and computer system. Instead, the invoice was vaguely described as Equipment Supply – 6 Complete Silo Systems for Milling Machinery.
14. The Appellant maintained that by failing to disclose the precise contents of pro forma invoice PI80710A, the Respondent misdeclared the electrical equipment, thereby entitling the Appellant to reclassify the same from Tariff subheading 8437.80.00 to Chapter 85 of the EAC CET as separately presented electrical parts.
15. In support of the reclassification, the Appellant relied on Section Note 2 and General Note II to Section XV of the EAC CET, which provides that parts constituting separate articles covered by a different heading should be classified in their own appropriate heading, even if they are designed to be part of a specific machine. On this basis, the Appellant submitted that the resultant tax demand of Kshs. 87,710,119/= for the misdeclaration of electrical equipment was lawful and justified.
16. With respect to the Dynamic Rack System (DRS), the Appellant submitted that it was equally justified in reclassifying the same under Tariff heading 7308.90.99. It was argued that the DRS is essentially a steel structure rather than a machine, and thus falls outside the scope of Section Note 5 to Section XVI of the EAC CET 2017. The Appellant contended that the fact that the DRS was consigned together with the milling machinery was immaterial.
17. The Appellant further contended that the DRS merely performed an auxiliary function—namely, the storage of finished products before dispatch—which does not form part of the clearly defined function of the milling and packing plant. The Appellant maintained that under General Note VII to Section XVI, auxiliary machines or appliances are to be classified separately in their own tariff headings, in this case HS Code 7308.90.99.
18. The Appellant also defended the reclassification of auxiliary parts of the Wheat Mills and Maize Mill plant, including cables, trays, and safety switches. It was argued that these items were not integral components of the milling plants and therefore fell outside condition 3 of the Commissioner’s authorization letter, which expressly provided that non-essential items were to be classified under their respective HS Codes.
19. On the issue of Customs Warehouse Rent (CWR), the Appellant clarified that the same was never assessed but that the Respondent had only been notified of the risk. Reference was made to a certificate of sale showing that the Respondent had purchased 4,000MT of grain from Atta Kenya Limited as the highest bidder but had not settled the accruing CWR.
20. The Appellant argued that the Respondent, having acquired a "beneficial interest" in the goods, it therefore fell within the statutory definition of “owner” under Section 2 of the EACCMA, 2004, and was consequently liable for the CWR, which continued to accrue.
21. On the question of whether the Respondent discharged its burden of proof, the Appellant, relying on the case of Leah Njeri Njiru vs. Commissioner of Investigations and Enforcement Kenya Revenue Authority & Another [2021] eKLR, submitted that the burden was on the Respondent to demonstrate that the Commissioner’s determination was incorrect, a burden the Respondent in the present case failed to discharge.
22. On the legality of the audit, the Appellant submitted that contrary to the Respondent’s submissions, the PCA was lawful and in accordance with Sections 135, 229, 235, and 236 of the EACCA, 2004.
23. In the premises, the Appellant urged the Court to allow the appeal with costs, set aside the judgment of the Tribunal, and reinstate the tax demand, with costs awarded to the Appellant.
Respondent’s submissions
24. The Respondent, on its part, submitted that it had duly applied for and obtained approval from the Commissioner (Appellant) to import the flour milling plants in disassembled consignments under Additional Note 2 to Section XVI of the EAC CET. According to the Respondent, the approval permitted clearance of the machinery and its components, though imported under different consignments, as a complete functional unit.
25. The Respondent maintained that all consignments were declared, verified, and released by customs officials at the port, and that the Appellant’s representatives even monitored the installation of the machinery. The Respondent argued that the belated post-clearance audit amounted to an attempt to recharacterize items already authorized and cleared, contrary to the principles of certainty and legitimate expectation.
26. On the classification of the automation and computer system, the Respondent maintained that the system formed the essential control mechanism of the plant and could not be separated for tariff purposes. It was contended that the Appellant’s attempt to isolate the EUR 2.4 million value of the automation system was inconsistent with commercial reality, since the system was invoiced and supplied together with conveyors and packing lines by the same supplier.
27. The Respondent further submitted that the Appellant’s reliance on Section Note 2 and General Note II to argue that the automation and computer system constituted “separately presented parts” was misconceived. While acknowledging that the goods were imported in different consignments, the Respondent emphasized that the shipments were part of a whole and had been expressly approved under Additional Note 2.
28. It was the Respondent’s position that the Appellant’s reliance on the General Explanatory Notes to Chapter 84 was misplaced, since those notes only apply where components are presented independently and not as integral parts of a complete machine.
29. The Respondent therefore maintained that the automation system constituted the “nerve centre” of the plant, without which the plant was inoperable. The assertion by the Appellant that the system was never presented for clearance was disputed, the Respondent pointing out that the automation equipment was invoiced and contractually integrated into the overall supply arrangement.
30. With respect to the Dynamic Rack System (DRS), the Respondent argued that it was a component of the delivery chain, purpose-built and installed as part of the integrated milling plant. Disputing the Appellant’s reclassification, the Respondent contended that the flour milling plant was not confined to milling and packing, but encompassed an integrated series of processes including storage, mill feeding, milling, packing, and final delivery.
31. The Respondent maintained that the DRS, as part of the handling and delivery chain, was an integral component of the plant’s functional design. Under Section Note 5 to Section XVI and General Note VII, the DRS should be classified with the complete functional unit, as it contributed to the clearly defined principal function of the plant.
32. The Respondent therefore agreed with the Tribunal’s finding that, notwithstanding later replacement, the DRS was at the time of importation an integral part of the plant and thus properly classifiable under Heading 8437.
33. On the wheat and maize mill parts, the Respondent contended that the Appellant’s argument was untenable, given that it was the Appellant who approved the importation of the milling plant in multiple consignments and could not subsequently claim that the consignments were improperly declared.
34. The Respondent relied on General Interpretative Rule (GIR) 2(a), which provides that a reference to an article within a heading includes that article in an incomplete or unassembled state, provided it retains the essential character of the complete article. It was argued that this justified classification of the milling plant under Heading 8437, specifically subheading 8437.80.00.
35. Reference was also made to Section Note 5 to Section XVI, which broadly defines a “machine” to include any plant, equipment, apparatus, or appliance appearing under Chapters 84 and 85. The Respondent submitted that this encompassed the flour milling plant and auxiliary equipment necessary for its installation, operation, or maintenance, as provided under Additional Note 1.
36. The Respondent further relied on General Note V to Section XVI, which provides that unassembled machines are to be classified as complete machines. The only exception is where components exceed what is necessary for a complete machine, which was not the case here
37. It was therefore the Respondent’s position that it was unreasonable for the Appellant to exclude and classify separately essential components necessary for the plant’s connectivity and operation. Under Section Note 4 and General Note VII, where machines or components are imported to jointly achieve a single, clearly defined function—such as flour milling—they should be classified collectively under the heading of their principal function.
38. The Respondent submitted that technical classification rules must yield to commercial and functional reality, and that taxpayers are entitled to rely on prior administrative decisions. Reliance was placed on authorities including Republic v KRA ex parte Bata Shoe Co. (K) Ltd [2014] eKLR, Stanbic Bank Kenya Ltd v KRA [2017] eKLR, Keroche Industries Ltd v KRA [2007] eKLR, and Export Trading Co. v KRA [2018] eKLR.
39. On Customs Warehouse Rent (CWR), the Respondent pointed out that since the Appellant had conceded that no assessment was ever raised, then under Section 135 of the EACCMA, 2004, no tax obligation could arise. In any event, it was argued, the matter was the subject of separate litigation and ought not to have been introduced in these proceedings.
40. In conclusion, the Respondent urged the High Court to dismiss the appeal with costs, uphold the Tribunal’s judgment.
Analysis and Determination
41. Having considered the record of appeal, the submissions by both parties, and the applicable law, the following issues arise for determination: -
i. Whether the Respondent adhered to the conditions for partial shipment under Additional Note 2 to Section XVI of the EAC CET
ii. Whether the Appellant was right in reclassifying the electrical equipment for the automation and computer system, Dynamic Rack System (DRS), and the various components of the plants.
iii. Whether the tax demand of Kshs. 147,263,369 was justified.
iv. Whether the Respondent is liable for customs warehouse rent in respect of wheat purchased through public auction.
42. This being a first appeal, the role of this Court is as set out in the case of Selle v Associated Motor Boat Co. [1968] EA 123, where the Court of Appeal for East Africa laid down the principles guiding the exercise of the jurisdiction of the first appellate court that: -
“An appeal to this Court… is by way of retrial and the principles upon which this Court acts in such an appeal are well settled. Briefly put, they are that this Court must reconsider the evidence, evaluate it itself and draw its own conclusions though it should always bear in mind that it has neither seen nor heard the witnesses and should make due allowance in this respect. In particular this Court in not bound necessarily to follow the trial Judges findings of fact if it appears either that he has clearly failed on some point to take account of particular circumstances or probabilities or materially to estimate the evidence or if the impression based on demeanour of a witness is inconsistent with the evidence in the case generally (Abdul Hamid Saif v Ali Mohamed Sholan[1955] 22 EACA 270).” See also Peters v Sunday Post Limited [1958] EA 424; Williams Diamonds Limited v Brown (1970) EA. 1.
43. Further, the Court of Appeal in Ephantus Mwangi and Another v Duncan Mwangi Wambugu [1982] – 88) IKAR 278 stated that:
“A Court of Appeal will not normally interfere with a finding of fact by the trial court, unless it is based on no evidence, or on a misapprehension of the evidence, or the judge is shown, demonstrably, to have acted on wrong principles in reaching the findings he did.”
44. It is not in dispute that the Respondent, vide a letter of 3rd August 2018, submitted a request to import the conveyor and packing systems, including handling silos, under a single HS code, invoking Additional Note 2 to Section XVI of the Customs Nomenclature, which permits classification of goods as a complete machine when shipped in disassembled consignments. The packing lines were to be imported under IDF No. E1807901318, and the storage silos under IDF No. E1807899832. The Respondent also attached to the application the related supply contract. This application was approved vide the Appellant’s letter of 17th August 2025 in the following terms:
“ M/S Grain Industries Ltd
P.O Box 4xxx-80100
Mombasa.
Dear Sirs,
APPLICATION FOR AUTHORITY TO IMPORT CONVEYER & PACKING SYSTEM AND STORAGE SILOS FOR MILLING PLANT IN PARTIAL SHIPMENT FROM FRANCE-IDF NO. E1807899832 & E1807901318
We are in receipt of a letter ref: SAL/CUSTOMS/1/18 dated 3rd August, 2018 from M/s Sirro & Associates, acting on your behalf regarding the above application.
Note 2 of the Additional Notes to Section XVI of the East African Community Common External Tariff, 2017 provides that a machine in a disassembled or unassembled state may be imported in several consignments over a period of time for convenience of trade or transport.
Further, according to Section Note 5 of Section notes to Section XVI to the EAC Nomenclature, the expression "machine" refers to any machine, machinery, plant, equipment, apparatus, or appliance cited in the headings of Chapter 84 or 85.
The supporting documents availed to this office have been found acceptable in fulfillment of the conditions set out under Additional Note 2 to Section XVI with regard to partial shipments.
Accordingly, your request to import the components of the Wheat Milling Plant in partial consignments is hereby granted in accordance with the aforementioned provisions subject to the following conditions: -
1. The consignment under consideration is described in the documents outlined in the table under paragrapli 3.
2. The key components of the Wheat milling plant including any machines identifiable with the milling function and the Storage Silos shall be classified under HS Code 8437.80.00.
3. Conveying and related packing lines for the Wheat milling plant shall be classified under HS Code 8428.33.00.
4. Tools, spare parts and items of general use shall be classified under their appropriate HS Codes.
5. All the components described in the documents outlined here below shall be imported within three (3) months from the date of this letter either through the Port of Mombasa or Inland Container Depot, Nairobi to ensure easy monitoring………
6. Upon each partial importation, a list of the parts making up the complete plant covered by the respective documents listed above must be provided.
7. The Customs declaration for each consignment must contain both the description of the part in that declaration and parts making up the complete machinery.
8. The Chief Manager, Container Freight Stations/ICDE shall appoint an officer to maintain an inventory of components that have been imported, including running balances until the entire importation is over.
9. All the components imported under this authority shall be used exclusively in the installation of the Conveying, Packing Lines & Storage Silos for the Wheat Milling Plant for Grain Industries Limited.
10. The Department shall conduct random audits at your site at any time during or after the importation period to monitor your compliance with the requirements outlined herein.
11. Any non-compliance detected thereon will lead to appropriate action being taken by the Authority against your company in accordance with the law
Managers on copy of this letter are informed accordingly
Yours faithfully;
F OR: COMMISSIONER OF CUSTOMS & BORDER CONTROL
45. Again, by a letter dated 17th September 2018, the Respondent sought permission to import two wheat mills and one maize mill (hereinafter also referred to simply as “the mills”) in multiple consignments. In support of the application, the Respondent attached the relevant contract and other documentation. This application was also approved by the Appellant vide its letter of 17th October 2018, on terms substantially similar to the initial approval. The Appellant clarified that the mills were to be imported under the HS Code 8437.80.00.
46. It is also on record that following authorization, the Respondent imported and declared the goods upon arrival. The Appellant reviewed and released the consignments upon verification, which the Respondent subsequently used to assemble the milling plant.
47. The primary dispute in this matter is that, whereas the Appellant argues certain components of the plant ought to be separately classified since they are independent and do not therefore form part of the integrated plant, the Respondent, on the other hand, maintains that the entire installation, comprising the three mills, silos, conveyors, and automation system, constituted a single functional unit as per General Note VII of the Customs Explanatory Notes, with some parts qualifying as composite machinery under Note VI.
On the issue of Compliance with Additional Note 2 to Section XVI of the EAC CET
48. The Appellant’s case is that the Respondent failed to adhere to the conditions set out by the Commissioner pursuant to his approval to the Respondent to import the machinery in multiple consignments under Additional Note 2 to Section XVI of the East African Community Common External Tariff (EAC CET). The Appellant argued that the Respondent failed to "lucidly describe the specific constituent parts" in subsequent customs declarations and failed to disclose the contract for the "electrical equipment for the automation and computer system."
49. The Respondent, conversely, argued that it made a formal and timely application to import the plant in parts. It insists that it provided all necessary diagrams, manuals, and invoices, and that the Appellant’s own letters of authorization dated 17th August 2018 and 17th October 2018 prove that the application was approved and the importations were cleared.
50. Additional Note 2 to Section XVI of the East African Community Common External Tariff (EAC CET) allows the Commissioner to authorize the shipment of unassembled or disassembled machinery in several consignments over a period of time. It provides that: -
“A machine in a disassembled or unassembled state may be imported in several consignments over a period of time if this is necessary for convenience of trade or transport.
In order to be able to declare the different constituent parts under the same tariff heading or subheading as the assembled machine, the declarant must make a request in writing to the customs post not later than the first consignment and attach:
(a) a manual, diagram or, if necessary several diagrams, of the machine showing the serial numbers of the most important constituent parts;
(b) a general inventory containing an indication of the characteristics and approximate weights of the different parts and the serial numbers of the principal parts referred to above.
The application may only be accepted in fulfilment of a contract for the supply of a machine which can be regarded as complete for the purposes of the EAC tariff Nomenclature.
All the constituent parts must be imported through the same entry point within the allowed time. However, in special cases, the competent authorities may authorize importation through several points of entry. This time limit may not be exceeded unless a reasoned and justified request for an extension is made to the competent authorities.
Upon each partial importation, a list of the parts making up the consignment with references to the above mentioned general inventory must be provided. The customs declaration for each consignment must contain descriptions of both the part or parts making up the consignment and the complete machine.” [Emphasis added]
51. From the foregoing, it is evident that Additional Note 2 of the EAC CET was designed to facilitate the importation of large industrial plants which, owing to their size and configuration, cannot feasibly be shipped in a single consignment. Further, it is also clear from the provision that the different constituent parts may be declared under the same tariff heading or subheading as the assembled machine, provided the conditions specified thereunder are met.
52. In the present case, the record demonstrates that the Respondent, by its letters dated 3rd August 2018 and 17th September 2018, sought and obtained the Appellant’s authority to import the consignments under Additional Note 2. In support of its request, the Respondent furnished diagrams and inventories of the plant, which the Appellant duly approved. It is also not in dispute that the consignments were thereafter released upon examination.
53. It is critical to note that condition No. 8 of the Appellant’s letter of 17th August 2018, approving the Respondent’s application for partial shipment under Additional Note 2, expressly provided that:
“8. The Chief Manager, Container Freight Stations/ICDE shall appoint an officer to maintain an inventory of components that have been imported, including running balances until the entire importation is over.”
54. Beyond the bare assertion that the Respondent failed to comply with the conditions of Additional Note 2, the Appellant has placed no evidence before this Court to substantiate that claim. If indeed there had been any contravention as alleged, nothing would have been easier than for the Appellant to produce a report from the officer designated under condition No. 8 of the letter of authorization. No such report has been availed in these proceedings.
55. In the circumstances, I find that the Appellant’s allegation of the Respondent’s non-compliance with the requirements of Additional Note 2 and the attendant letter of authorization, unsubstantiated and unsupported by evidence. This ground, therefore, fails.
On the Correctnes
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1. This is an appeal by the Commissioner of Customs & Border Control (the “Appellant”) against the judgment of the Tax Appeals Tribunal (the “Tribunal”) delivered on 24th January 2025 in Tax Appeal No. 533 of 2024. In that judgment, the Tribunal allowed the Respondent’s appeal and consequently set aside the Appellant’s tax demand of Kshs. 147,263,369.
2. The impugned tax demand arose from a post-clearance audit (“PCA”) undertaken by the Appellant pursuant to Sections 235 and 236 of the East African Community Customs Management Act (EACCMA), 2004. The audit was initiated by a notice dated 8th August 2023 and covered the period August 2018 to July 2023.
3. The genesis of the dispute is that sometime in 2018, the Respondent commenced the importation of a complete flour milling plant comprising milling machinery, grain holding and mill feeding silos, conveying systems, packing lines, and a delivery rack system. Owing to the size of the machinery, the Respondent sought and obtained authorization from the Appellant to import the plant in disassembled form, across multiple consignments, pursuant to Additional Note 2 to Section XVI of the East African Community Common External Tariff (EAC CET).
4. Additional Note 2 to Section XVI of the East African Community Common External Tariff (EAC CET) allows a machine to be imported in different consignments for the convenience of transport, but all the components upon importation are classified as the complete machine under a single Customs Tariff.
5. However, following the PCA audit, the Appellant, vide its letter of 31st January 2024, reclassified certain parts of the machinery and demanded customs duties amounting to Kshs. 193,734,048/-, which included Kshs. 25,187,712, allegedly arising from undervaluation. The Appellant contended that the Respondent ought to have declared specific parts of the machinery under separate tariff headings, namely: –
i. Electrical equipment for the automation and computer system – The Appellant asserted that the Respondent had erroneously declared this equipment under Tariff subheading 8437.80.00, the same heading applicable to the complete flour milling machine, instead of classifying it as “separately presented electrical parts” under Chapter 85 of the EAC CET. This reclassification resulted in an additional tax demand of Kshs. 87,710,119/=.
ii. Dynamic Rack System (DRS) – The Appellant contended that the Respondent had erroneously declared the DRS under Tariff subheading 8437.80.00, the same heading as the assembled flour milling machine, instead of classifying it under Tariff 7308.90.90. According to the Appellant, the DRS merely performed an auxiliary function and was not an integral component of the plant. This reclassification yielded an additional tax demand of Kshs. 4,431,334/=.
iii. Wheat Mills and Maize Mill Parts – The Appellant argued that certain components, such as cables, cable trays, installation materials, controls, and safety switches, did not constitute integral parts of the milling machinery and therefore, by their nature, ought to have been classified under their respective HS Codes rather than under Tariff subheading 8437.80.00. The reclassification resulted in the following additional tax demands:
a) Wheat Mill B&C – Kshs. 57,638,440.00
b) Maize Mill D – Kshs. 18,766,443.00
iv. Undervaluation –The Appellant further alleged that discrepancies existed between the contractual values and the values declared for customs purposes, leading to a shortfall in duty payments. On this account, the Appellant raised an additional tax demand of Kshs. 25,187,712/=.
6. Dissatisfied with the Appellant’s reclassification of its goods and the consequent tax demand, the Respondent lodged an application for review by its letter dated 27th February 2024. Pursuant thereto, the Appellant issued a Review Decision revising the assessment downward to Kshs. 147,263,369/=. While the Decision upheld the substantive reclassification findings, it also introduced an additional element relating to Customs Warehouse Rent (CWR), albeit without quantifying the same.
7. The Respondent thereafter contested the Review Decision and lodged an appeal at the Tax Appeals Tribunal. On 24th January 2025, the Tribunal delivered its judgment in favour of the Respondent, thereby quashing the Appellant’s tax demand in its entirety.
The Appeal
8. Aggrieved by the Tribunal’s judgment, the Appellant lodged the present appeal, raising the following six grounds: -
i. That the Honourable Tribunal erred in law and in fact in failing to find that the Respondent did not initially disclose the full details of the silo system and its components, which violates Additional Note 2 to Section XVI of the EAC Common External Tariff (CET).
ii. That the Honourable Tribunal erred in law and fact in failing to find that the Respondent did not present all necessary importation documents at the time of customs declaration, thus failing to meet the conditions for Tariff classification under one heading.
iii. That the Honourable Tribunal erred in law and fact in failing to find that under Sections 234, 235, and 236 of the East African Community Customs Management Act (EACCMA) 2004, the Appellant has the legal right to conduct post-clearance audits (PCAs) for up to five years.
iv. That the Honourable Tribunal erred in law and fact in relying on Section Note 4 to erroneously conclude that all imported parts, including electrical components and dynamic racks, should be classified under one heading (Chapter 84).
v. That the Honourable Tribunal erred in law and fact in failing to find that General Note II and VII to Section XVI specifically excludes electrical parts from being classified with machines thus failing to arrive at a finding that computerized automation systems should be taxed separately under Chapter 85.
vi. That the Honourable Tribunal erred in law and fact in failing to find that Section Note 4 and General Note Vll of Section XVI of the EAC CET 2017 specifically excludes auxiliary machines or components from being classified with machines, meaning that DRS should be taxed separately under Tariff heading 7308.
9. The Respondent opposed the appeal through its Statement of Facts dated 19th May 2025, wherein it supported the Tribunal’s findings and maintained that the assessment issued by the Appellant in the sum of Kshs. 147,263,369/= was erroneous both in law and in fact.
10. The appeal was canvassed by way of written submissions. Learned counsel, Ms. Chelang’at Mutai, appeared for the Appellant and filed submissions dated 18th June 2025. The Respondent, represented by learned counsel Mr. Mohamed Nabil, filed submissions dated 2nd July 2025.
Appellant’s submissions
11. The Appellant’s first contention was that the Tribunal erred in failing to appreciate that the Respondent did not adhere to the conditions set out in the Commissioner’s letter authorizing the shipment of unassembled or disassembled machinery pursuant to Additional Note 2 to Section XVI of the East African Community Common External Tariff (EAC CET).
12. While not disputing that the Respondent had obtained such authorization, the Appellant argued that the Respondent contravened the conditions by failing to lucidly describe the specific constituent parts of subsequent consignments in its customs declarations. The Appellant emphasized that Additional Note 2 only permits partial shipment of machinery upon strict compliance with conditions, including the submission of detailed descriptions of all constituent parts.
13. The Appellant further submitted that the Respondent failed to disclose the specific items imported under pro forma invoice PI80710A, which covered the supply of electrical equipment for the automation and computer system. Instead, the invoice was vaguely described as Equipment Supply – 6 Complete Silo Systems for Milling Machinery.
14. The Appellant maintained that by failing to disclose the precise contents of pro forma invoice PI80710A, the Respondent misdeclared the electrical equipment, thereby entitling the Appellant to reclassify the same from Tariff subheading 8437.80.00 to Chapter 85 of the EAC CET as separately presented electrical parts.
15. In support of the reclassification, the Appellant relied on Section Note 2 and General Note II to Section XV of the EAC CET, which provides that parts constituting separate articles covered by a different heading should be classified in their own appropriate heading, even if they are designed to be part of a specific machine. On this basis, the Appellant submitted that the resultant tax demand of Kshs. 87,710,119/= for the misdeclaration of electrical equipment was lawful and justified.
16. With respect to the Dynamic Rack System (DRS), the Appellant submitted that it was equally justified in reclassifying the same under Tariff heading 7308.90.99. It was argued that the DRS is essentially a steel structure rather than a machine, and thus falls outside the scope of Section Note 5 to Section XVI of the EAC CET 2017. The Appellant contended that the fact that the DRS was consigned together with the milling machinery was immaterial.
17. The Appellant further contended that the DRS merely performed an auxiliary function—namely, the storage of finished products before dispatch—which does not form part of the clearly defined function of the milling and packing plant. The Appellant maintained that under General Note VII to Section XVI, auxiliary machines or appliances are to be classified separately in their own tariff headings, in this case HS Code 7308.90.99.
18. The Appellant also defended the reclassification of auxiliary parts of the Wheat Mills and Maize Mill plant, including cables, trays, and safety switches. It was argued that these items were not integral components of the milling plants and therefore fell outside condition 3 of the Commissioner’s authorization letter, which expressly provided that non-essential items were to be classified under their respective HS Codes.
19. On the issue of Customs Warehouse Rent (CWR), the Appellant clarified that the same was never assessed but that the Respondent had only been notified of the risk. Reference was made to a certificate of sale showing that the Respondent had purchased 4,000MT of grain from Atta Kenya Limited as the highest bidder but had not settled the accruing CWR.
20. The Appellant argued that the Respondent, having acquired a "beneficial interest" in the goods, it therefore fell within the statutory definition of “owner” under Section 2 of the EACCMA, 2004, and was consequently liable for the CWR, which continued to accrue.
21. On the question of whether the Respondent discharged its burden of proof, the Appellant, relying on the case of Leah Njeri Njiru vs. Commissioner of Investigations and Enforcement Kenya Revenue Authority & Another [2021] eKLR, submitted that the burden was on the Respondent to demonstrate that the Commissioner’s determination was incorrect, a burden the Respondent in the present case failed to discharge.
22. On the legality of the audit, the Appellant submitted that contrary to the Respondent’s submissions, the PCA was lawful and in accordance with Sections 135, 229, 235, and 236 of the EACCA, 2004.
23. In the premises, the Appellant urged the Court to allow the appeal with costs, set aside the judgment of the Tribunal, and reinstate the tax demand, with costs awarded to the Appellant.
Respondent’s submissions
24. The Respondent, on its part, submitted that it had duly applied for and obtained approval from the Commissioner (Appellant) to import the flour milling plants in disassembled consignments under Additional Note 2 to Section XVI of the EAC CET. According to the Respondent, the approval permitted clearance of the machinery and its components, though imported under different consignments, as a complete functional unit.
25. The Respondent maintained that all consignments were declared, verified, and released by customs officials at the port, and that the Appellant’s representatives even monitored the installation of the machinery. The Respondent argued that the belated post-clearance audit amounted to an attempt to recharacterize items already authorized and cleared, contrary to the principles of certainty and legitimate expectation.
26. On the classification of the automation and computer system, the Respondent maintained that the system formed the essential control mechanism of the plant and could not be separated for tariff purposes. It was contended that the Appellant’s attempt to isolate the EUR 2.4 million value of the automation system was inconsistent with commercial reality, since the system was invoiced and supplied together with conveyors and packing lines by the same supplier.
27. The Respondent further submitted that the Appellant’s reliance on Section Note 2 and General Note II to argue that the automation and computer system constituted “separately presented parts” was misconceived. While acknowledging that the goods were imported in different consignments, the Respondent emphasized that the shipments were part of a whole and had been expressly approved under Additional Note 2.
28. It was the Respondent’s position that the Appellant’s reliance on the General Explanatory Notes to Chapter 84 was misplaced, since those notes only apply where components are presented independently and not as integral parts of a complete machine.
29. The Respondent therefore maintained that the automation system constituted the “nerve centre” of the plant, without which the plant was inoperable. The assertion by the Appellant that the system was never presented for clearance was disputed, the Respondent pointing out that the automation equipment was invoiced and contractually integrated into the overall supply arrangement.
30. With respect to the Dynamic Rack System (DRS), the Respondent argued that it was a component of the delivery chain, purpose-built and installed as part of the integrated milling plant. Disputing the Appellant’s reclassification, the Respondent contended that the flour milling plant was not confined to milling and packing, but encompassed an integrated series of processes including storage, mill feeding, milling, packing, and final delivery.
31. The Respondent maintained that the DRS, as part of the handling and delivery chain, was an integral component of the plant’s functional design. Under Section Note 5 to Section XVI and General Note VII, the DRS should be classified with the complete functional unit, as it contributed to the clearly defined principal function of the plant.
32. The Respondent therefore agreed with the Tribunal’s finding that, notwithstanding later replacement, the DRS was at the time of importation an integral part of the plant and thus properly classifiable under Heading 8437.
33. On the wheat and maize mill parts, the Respondent contended that the Appellant’s argument was untenable, given that it was the Appellant who approved the importation of the milling plant in multiple consignments and could not subsequently claim that the consignments were improperly declared.
34. The Respondent relied on General Interpretative Rule (GIR) 2(a), which provides that a reference to an article within a heading includes that article in an incomplete or unassembled state, provided it retains the essential character of the complete article. It was argued that this justified classification of the milling plant under Heading 8437, specifically subheading 8437.80.00.
35. Reference was also made to Section Note 5 to Section XVI, which broadly defines a “machine” to include any plant, equipment, apparatus, or appliance appearing under Chapters 84 and 85. The Respondent submitted that this encompassed the flour milling plant and auxiliary equipment necessary for its installation, operation, or maintenance, as provided under Additional Note 1.
36. The Respondent further relied on General Note V to Section XVI, which provides that unassembled machines are to be classified as complete machines. The only exception is where components exceed what is necessary for a complete machine, which was not the case here
37. It was therefore the Respondent’s position that it was unreasonable for the Appellant to exclude and classify separately essential components necessary for the plant’s connectivity and operation. Under Section Note 4 and General Note VII, where machines or components are imported to jointly achieve a single, clearly defined function—such as flour milling—they should be classified collectively under the heading of their principal function.
38. The Respondent submitted that technical classification rules must yield to commercial and functional reality, and that taxpayers are entitled to rely on prior administrative decisions. Reliance was placed on authorities including Republic v KRA ex parte Bata Shoe Co. (K) Ltd [2014] eKLR, Stanbic Bank Kenya Ltd v KRA [2017] eKLR, Keroche Industries Ltd v KRA [2007] eKLR, and Export Trading Co. v KRA [2018] eKLR.
39. On Customs Warehouse Rent (CWR), the Respondent pointed out that since the Appellant had conceded that no assessment was ever raised, then under Section 135 of the EACCMA, 2004, no tax obligation could arise. In any event, it was argued, the matter was the subject of separate litigation and ought not to have been introduced in these proceedings.
40. In conclusion, the Respondent urged the High Court to dismiss the appeal with costs, uphold the Tribunal’s judgment.
Analysis and Determination
41. Having considered the record of appeal, the submissions by both parties, and the applicable law, the following issues arise for determination: -
i. Whether the Respondent adhered to the conditions for partial shipment under Additional Note 2 to Section XVI of the EAC CET
ii. Whether the Appellant was right in reclassifying the electrical equipment for the automation and computer system, Dynamic Rack System (DRS), and the various components of the plants.
iii. Whether the tax demand of Kshs. 147,263,369 was justified.
iv. Whether the Respondent is liable for customs warehouse rent in respect of wheat purchased through public auction.
42. This being a first appeal, the role of this Court is as set out in the case of Selle v Associated Motor Boat Co. [1968] EA 123, where the Court of Appeal for East Africa laid down the principles guiding the exercise of the jurisdiction of the first appellate court that: -
“An appeal to this Court… is by way of retrial and the principles upon which this Court acts in such an appeal are well settled. Briefly put, they are that this Court must reconsider the evidence, evaluate it itself and draw its own conclusions though it should always bear in mind that it has neither seen nor heard the witnesses and should make due allowance in this respect. In particular this Court in not bound necessarily to follow the trial Judges findings of fact if it appears either that he has clearly failed on some point to take account of particular circumstances or probabilities or materially to estimate the evidence or if the impression based on demeanour of a witness is inconsistent with the evidence in the case generally (Abdul Hamid Saif v Ali Mohamed Sholan[1955] 22 EACA 270).” See also Peters v Sunday Post Limited [1958] EA 424; Williams Diamonds Limited v Brown (1970) EA. 1.
43. Further, the Court of Appeal in Ephantus Mwangi and Another v Duncan Mwangi Wambugu [1982] – 88) IKAR 278 stated that:
“A Court of Appeal will not normally interfere with a finding of fact by the trial court, unless it is based on no evidence, or on a misapprehension of the evidence, or the judge is shown, demonstrably, to have acted on wrong principles in reaching the findings he did.”
44. It is not in dispute that the Respondent, vide a letter of 3rd August 2018, submitted a request to import the conveyor and packing systems, including handling silos, under a single HS code, invoking Additional Note 2 to Section XVI of the Customs Nomenclature, which permits classification of goods as a complete machine when shipped in disassembled consignments. The packing lines were to be imported under IDF No. E1807901318, and the storage silos under IDF No. E1807899832. The Respondent also attached to the application the related supply contract. This application was approved vide the Appellant’s letter of 17th August 2025 in the following terms:
“ M/S Grain Industries Ltd
P.O Box 4xxx-80100
Mombasa.
Dear Sirs,
APPLICATION FOR AUTHORITY TO IMPORT CONVEYER & PACKING SYSTEM AND STORAGE SILOS FOR MILLING PLANT IN PARTIAL SHIPMENT FROM FRANCE-IDF NO. E1807899832 & E1807901318
We are in receipt of a letter ref: SAL/CUSTOMS/1/18 dated 3rd August, 2018 from M/s Sirro & Associates, acting on your behalf regarding the above application.
Note 2 of the Additional Notes to Section XVI of the East African Community Common External Tariff, 2017 provides that a machine in a disassembled or unassembled state may be imported in several consignments over a period of time for convenience of trade or transport.
Further, according to Section Note 5 of Section notes to Section XVI to the EAC Nomenclature, the expression "machine" refers to any machine, machinery, plant, equipment, apparatus, or appliance cited in the headings of Chapter 84 or 85.
The supporting documents availed to this office have been found acceptable in fulfillment of the conditions set out under Additional Note 2 to Section XVI with regard to partial shipments.
Accordingly, your request to import the components of the Wheat Milling Plant in partial consignments is hereby granted in accordance with the aforementioned provisions subject to the following conditions: -
1. The consignment under consideration is described in the documents outlined in the table under paragrapli 3.
2. The key components of the Wheat milling plant including any machines identifiable with the milling function and the Storage Silos shall be classified under HS Code 8437.80.00.
3. Conveying and related packing lines for the Wheat milling plant shall be classified under HS Code 8428.33.00.
4. Tools, spare parts and items of general use shall be classified under their appropriate HS Codes.
5. All the components described in the documents outlined here below shall be imported within three (3) months from the date of this letter either through the Port of Mombasa or Inland Container Depot, Nairobi to ensure easy monitoring………
6. Upon each partial importation, a list of the parts making up the complete plant covered by the respective documents listed above must be provided.
7. The Customs declaration for each consignment must contain both the description of the part in that declaration and parts making up the complete machinery.
8. The Chief Manager, Container Freight Stations/ICDE shall appoint an officer to maintain an inventory of components that have been imported, including running balances until the entire importation is over.
9. All the components imported under this authority shall be used exclusively in the installation of the Conveying, Packing Lines & Storage Silos for the Wheat Milling Plant for Grain Industries Limited.
10. The Department shall conduct random audits at your site at any time during or after the importation period to monitor your compliance with the requirements outlined herein.
11. Any non-compliance detected thereon will lead to appropriate action being taken by the Authority against your company in accordance with the law
Managers on copy of this letter are informed accordingly
Yours faithfully;
F OR: COMMISSIONER OF CUSTOMS & BORDER CONTROL
45. Again, by a letter dated 17th September 2018, the Respondent sought permission to import two wheat mills and one maize mill (hereinafter also referred to simply as “the mills”) in multiple consignments. In support of the application, the Respondent attached the relevant contract and other documentation. This application was also approved by the Appellant vide its letter of 17th October 2018, on terms substantially similar to the initial approval. The Appellant clarified that the mills were to be imported under the HS Code 8437.80.00.
46. It is also on record that following authorization, the Respondent imported and declared the goods upon arrival. The Appellant reviewed and released the consignments upon verification, which the Respondent subsequently used to assemble the milling plant.
47. The primary dispute in this matter is that, whereas the Appellant argues certain components of the plant ought to be separately classified since they are independent and do not therefore form part of the integrated plant, the Respondent, on the other hand, maintains that the entire installation, comprising the three mills, silos, conveyors, and automation system, constituted a single functional unit as per General Note VII of the Customs Explanatory Notes, with some parts qualifying as composite machinery under Note VI.
On the issue of Compliance with Additional Note 2 to Section XVI of the EAC CET
48. The Appellant’s case is that the Respondent failed to adhere to the conditions set out by the Commissioner pursuant to his approval to the Respondent to import the machinery in multiple consignments under Additional Note 2 to Section XVI of the East African Community Common External Tariff (EAC CET). The Appellant argued that the Respondent failed to "lucidly describe the specific constituent parts" in subsequent customs declarations and failed to disclose the contract for the "electrical equipment for the automation and computer system."
49. The Respondent, conversely, argued that it made a formal and timely application to import the plant in parts. It insists that it provided all necessary diagrams, manuals, and invoices, and that the Appellant’s own letters of authorization dated 17th August 2018 and 17th October 2018 prove that the application was approved and the importations were cleared.
50. Additional Note 2 to Section XVI of the East African Community Common External Tariff (EAC CET) allows the Commissioner to authorize the shipment of unassembled or disassembled machinery in several consignments over a period of time. It provides that: -
“A machine in a disassembled or unassembled state may be imported in several consignments over a period of time if this is necessary for convenience of trade or transport.
In order to be able to declare the different constituent parts under the same tariff heading or subheading as the assembled machine, the declarant must make a request in writing to the customs post not later than the first consignment and attach:
(a) a manual, diagram or, if necessary several diagrams, of the machine showing the serial numbers of the most important constituent parts;
(b) a general inventory containing an indication of the characteristics and approximate weights of the different parts and the serial numbers of the principal parts referred to above.
The application may only be accepted in fulfilment of a contract for the supply of a machine which can be regarded as complete for the purposes of the EAC tariff Nomenclature.
All the constituent parts must be imported through the same entry point within the allowed time. However, in special cases, the competent authorities may authorize importation through several points of entry. This time limit may not be exceeded unless a reasoned and justified request for an extension is made to the competent authorities.
Upon each partial importation, a list of the parts making up the consignment with references to the above mentioned general inventory must be provided. The customs declaration for each consignment must contain descriptions of both the part or parts making up the consignment and the complete machine.” [Emphasis added]
51. From the foregoing, it is evident that Additional Note 2 of the EAC CET was designed to facilitate the importation of large industrial plants which, owing to their size and configuration, cannot feasibly be shipped in a single consignment. Further, it is also clear from the provision that the different constituent parts may be declared under the same tariff heading or subheading as the assembled machine, provided the conditions specified thereunder are met.
52. In the present case, the record demonstrates that the Respondent, by its letters dated 3rd August 2018 and 17th September 2018, sought and obtained the Appellant’s authority to import the consignments under Additional Note 2. In support of its request, the Respondent furnished diagrams and inventories of the plant, which the Appellant duly approved. It is also not in dispute that the consignments were thereafter released upon examination.
53. It is critical to note that condition No. 8 of the Appellant’s letter of 17th August 2018, approving the Respondent’s application for partial shipment under Additional Note 2, expressly provided that:
“8. The Chief Manager, Container Freight Stations/ICDE shall appoint an officer to maintain an inventory of components that have been imported, including running balances until the entire importation is over.”
54. Beyond the bare assertion that the Respondent failed to comply with the conditions of Additional Note 2, the Appellant has placed no evidence before this Court to substantiate that claim. If indeed there had been any contravention as alleged, nothing would have been easier than for the Appellant to produce a report from the officer designated under condition No. 8 of the letter of authorization. No such report has been availed in these proceedings.
55. In the circumstances, I find that the Appellant’s allegation of the Respondent’s non-compliance with the requirements of Additional Note 2 and the attendant letter of authorization, unsubstantiated and unsupported by evidence. This ground, therefore, fails.
On the Correctnes
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