Introduction
1. This is an appeal from the Judgment of the Tax Appeals Tribunal (Tribunal) dated 14th June 2024 in which the Tribunal set aside the Appellant’s review decision of 14th February 2023 classifying the Respondent’s consignment under HS Code 7308.90.99; thereby upholding the Respondent’s tariff classification of HS Code. 7207.19.00 in respect of the subject goods.
2. The background of the dispute is that on 17th February 2023, the Respondent imported a consignment of perforated MS plates vide customs entry number 23MBAIM400795163 and declared the same under the HS Code. 7207.19.00.
3. On 22nd February 2023, the Appellant, in the exercise of its statutory mandate, verified the consignment to verify the correctness of the customs classification by the Respondent company. The verification exercise revealed that the imported goods were perforated MS Plates, HFSG bolts with lock nut and spring washer, hexagon headed studs and button headed bolts with nuts.
4. Upon conclusion of the verification, exercise, the Appellant was of the view that the Respondent had misclassified the consignment for customs purposes. According to the Appellant, the goods ought to have been classified under HS Code 7308.90.99 as opposed to HS Code. 7207.19.00 used by the Respondent. This according to the Appellant, led to underpayment of taxes by the Respondent in the sum of Kshs. 6,378,589 in respect of Import Duty, VAT, Import Declaration Fee (IDF), Railway Development Levy (RDL), Merchant Shipping Superintendent (MSS) Levy, which was demanded vide the Appellant’s letter of 28th February 2023.
5. Dissatisfied with the Appellant’s reclassification of the goods and the resultant demand for additional taxes, the Respondent vide its letter of 28th February 2023, objected to the same. The Respondent nevertheless offered to pay the taxes demanded under protest, merely to facilitate the release of the goods in question pending resolution of the dispute in tariff classification.
6. The Respondent, vide its letter of 28th March 2023 applied for a review of the Appellant’s decision on the tariff classification under Section 229 of the East Africa Community Customs Management Act, 2004, and a refund of the taxes paid under protest. According to the Respondent, they had properly classified the consignment under the HS Code. 7207.19.00.
7. The Appellant vide its letter of 14th April 2023 communicated its review decision and maintained that the MS plates as considered to be parts of a girder bridge classified in the 2022 EAC/CET Code as HS Code 7308.90.99 in accordance with the General Interpretative Rules 1 and 6.
8. Dissatisfied with the Appellant’s decision, the Respondent lodged an appeal at the Tax Appeals Tribunal vide a Notice of Appeal dated 22nd June 2023.
9. On 14th June 2024, the Tribunal delivered its judgment allowing the appeal, setting aside the Appellant’s decision of 14th April 2023.
The Appeal
10. Aggrieved by the decision of the Tribunal, the Appellant lodged the instant appeal against the judgment vide its memorandum of appeal dated 9/8/2024, raising the following grounds of appeal; -
i. That the Tribunal erred in law in finding that the imported goods vide entry 23MBAIM400795163 of 17th February 2023 were semi-finished goods by dint that they required cutting, fabrication, fitting, and adjustment for their intended use without considering that the same was negated by the terms of heading under Chapter 72(1) (ii) of the EAC/CET 2022 which states that it should “have not been further worked than subjected to primary hot— rolling or roughly shaped by forging.”
ii. That the Tribunal erred in law by failing to appreciate that by dint of the imported goods having been perforated with holes for bolts and that it required only to be welded together to create I beam and that the holes were for driving through for purposes of installation disqualified it from the application of Chapter 72 of the EAC/CET 2022 on account that it had been further worked than subjected to primary hot rolling or roughly shaped by forging, including blanks for angles, shapes or sections and thus the Appellant correctly applied Chapter 73 of the EAC/CET 2022 in the re classification.
iii. That the Tribunal erred in law by finding that the goods in question were semi-finished goods without appreciating that the welding, fitting, and adjustments were merely for the convenience of shipping and to meet the importer's need and did not change the character of the goods as finished goods.
iv. That the Tribunal erred in law by taking into account irrelevant facts to wit that by the instruction manual providing for the procedure of assembling bridge changed the character of the goods from finished to semi-finished goods and thus reached an erroneous and absurd conclusion.
v. That the Tribunal erred in law and in fact in failing to find that the Appellant’s imported perforated MS Plates were parts of a girder bridge classifiable under HS Code 7308.90.99 of the EAC/CET 2022 in accordance with the General Interpretative Rules 1 and 6.
vi. That the Tribunal erred in law and in fact by directing the Appellant to refund paid taxes of Kshs. 6,378,586 yet the Appellant had correctly re-classified the Appellant’s imported perforated MS Plates and the resultant additional taxes were properly demanded.
vii. That the Tribunal erred in law and fact in failing to consider the evidence and submissions tendered by the Appellant;
viii. That the Tribunal misapplied the law and facts and by ignoring all material facts placed before it and based its Judgement on a biased approach without due regard to the balance of the scales of justice.
11. The Respondent opposed the application through its statement of facts dated 12/9/2024. The appeal was canvassed by way of written submissions. The Appellant’s submissions are dated 16th October 2024 whilst the Respondent’s submissions are dated 31st October 2024.
Appellant’s Submissions
12. The Appellant submitted that the Tribunal erred in law in finding that the goods in question were semi-finished goods merely because they required cutting, fabrication, fitting, and adjustment for their intended use, without considering that the same was negated by the terms of heading under Chapter 72(1) (ii) of the EAC/CET 2022.
13. The Appellant maintained that the Tribunal erred in law by finding that the goods in question were semi-finished goods without appreciating that the welding, fitting, and adjustments were merely for the convenience of shipping and to meet the importer's need and did not change the character of the goods. According to the Appellant, the Tribunal failed to appreciate that the imported goods had an instruction manual providing for the procedure of assembling the bridge. This, the Appellant maintained did not change the character of the goods from finished to semi-finished goods.
14. The Appellant therefore asserted that the Respondent’s imported perforated MS plates are classifiable under HS Code 7308.90.99 of the 2022 EAC CET as opposed to the HS Code. 7207.19.00 used by the Respondent and confirmed by the Tribunal in its impugned judgment. The Appellant maintained that the Respondent’s goods in question – perforated MS plates – were both bridge sections and plates prepared for use in structures of iron or steel.
15. the Appellant, therefore, prayed that this appeal be allowed and that the Tribunal’s Judgment dated 14th June 2023 be set aside, and the Appellant’s review decision dated 14th April 2023 be upheld. The Appellant also prays for the costs of this appeal.
Respondent’s Submissions
16. The Respondent supported the judgment by the Tribunal and urged this court to uphold the same. According to the Respondent, the steel items required cutting, fabrication, and fitting before they could be used, which aligns with the definition of semi-finished products under Chapter 72 of the EAC CET 2022. The Respondent asserted that the Tribunal correctly classified them as such, noting that only after further processing could they be considered finished products, such as I-beams.
17. The Respondent emphasized that the steel plates did not meet the definition of "I-beams" as provided in engineering references and that the Tribunal determined that the Appellant had incorrectly classified the goods, as the import declaration forms did not support this claim. Additionally, perforation alone did not constitute significant processing beyond what is allowed under Chapter 72.
18. The Respondent further argued that an alternative classification under Heading 7208 was appropriate, which also attracted a 0% duty. That classification under Heading 7308, as suggested by the appellant, was incorrect because the imported steel plates were not pre-assembled bridge parts but could be used for multiple industrial purposes. That fabrication was necessary to turn them into bridge sections, meaning they could not be considered finished goods.
19. Citing the General Interpretative Rules (GIRs), the Respondent asserted that the goods, in their imported state, lacked the essential character of finished bridge sections and that the Tribunal correctly determined that the fabrication process significantly altered the steel plates, transforming them into I-beams, a distinct product.
20. The Respondent maintained that it provided evidence, including reports and photographs, proving that the steel plates underwent extensive processing over 45 days before being used in bridge construction.
21. The Respondent asserted that the Tribunal properly classified the imported goods and that the Appellant failed to prove its claim that the steel plates were already bridge sections upon importation. Consequently, the Respondent prays that this appeal be dismissed with costs in their favour.
Analysis and determination:
22. This is an appeal from the Tax Appeals Tribunal to this court pursuant to Section 32 of the Tax Appeals Tribunal Act (Cap. 469A) which provides that appeals from the Tribunal lie with the High Court and that the rules applicable in the High Court are those set out by the Chief Justice.
“32. Appeals to the High Court on decisions of the Tribunal
(1) A party to proceedings before the Tribunal may, within thirty days after being notified of the decision or within such further period as the High Court may allow, appeal to the High Court, and the party so appealing shall serve a copy of the notice of appeal on the other party.
(2) The High Court shall hear appeals made under this section in accordance with rules set out by the Chief Justice.”
23. It is critical to note that Section 32 of the Tax Appeals Tribunal Act as read together with the Tax Appeals Tribunal (Appeals to the High Court) Rules does not restrict appeals from the Tribunal to be on issues of law only. It therefore means that in appeals from the Tribunal, this court has the power to interrogate both factual and legal findings of the Tribunal.
24. This being a first appeal, this court is under a duty to re-evaluate and assess the evidence and make its own conclusions. It must, however, keep at the back of its mind that a trial court, unlike the appellate court, had the advantage of observing the demeanour of the witnesses and hearing their evidence first hand.
25. In the case of Mbogo and Another vs. Shah [1968] EA 93 the Court stated:
“…that this Court will not interfere with the exercise of judicial discretion by an inferior court unless it is satisfied that its decision is clearly wrong, because it has misdirected itself or because it has acted on matters on which is should not have acted or because it failed to take into consideration matters which it should have taken into consideration and in doing so arrived at a wrong conclusion.”
26. Again, the Court of Appeal for Eastern Africa in Pandya -vs- Republic [1957] EA 336 is as follows: -
“On a first appeal from a conviction by a Judge or magistrate sitting without a jury the appellant is entitled to have the appellate court’s own consideration and views of the evidence as a whole and its own decision thereon. It has the duty to rehear the case and reconsider the witnesses before the Judge or magistrate with such other material as it may have decided to admit. The appellate court must then make up its own mind not disregarding the judgment appealed from but carefully weighing and considering it. When the question arises which witness is to be believed rather than another and that question turns on manner and demeanor, the appellate court must be guided by the impression made on the Judge or magistrate who saw the witness but there may be other circumstances, quite apart from manner and demeanor which may show whether a statement is credible or not which may warrant a court different.”
27. I have carefully reviewed and considered the Appellant’s memorandum of appeal dated 9th August 2024, the record of appeal, the Respondent’s Statement of Facts dated 12th September 2024, and the parties' submissions filed herein in support of their respective positions. From my analysis, the sole issue for determination is whether the tribunal erred in determining that the Appellant's reclassification of the items imported by the Respondent from HS Code 7207.19.00 to 7308.90.99 was not proper in law.
28. From the record, it is evident that on 17/2/2023 the Respondent imported a consignment of perforated MS plates under entry number 23MBAIM400795163. The Appellant reviewed the importation and reclassified the imported goods under tariff HS Code 7308.90.99 as opposed to the Respondent’s classification under tariff HS Code 7207.19.00. As a result of the reclassification, the appellant demanded additional taxes of Kshs.6,378,586/-.
29. In its judgment delivered on 14th June 2024, the Tribunal held that the Appellant erred in reclassifying the imported goods from HS code 7207.19.00 to HS Code 7308.90.99 and that the imported goods were semi-finished goods and not finished goods as classified by the Appellant.
30. The law governing the classification of imported items in Kenya as is the rest of the EAC region is the East African Community Common External Tariffs Code (EAC CET), Harmonised Commodity Description and Coding System (HS Code). The EAC CET also provides the General Rules of Interpretation applicable sequentially in determining the correct classification. In Republic V Commissioner General & Another Ex-Parte Awal Ltd [2008] KEHC 2682 (KLR), the Court stated as follows on the issue of classification of goods for customs purposes:
“It is also imperative to note that the rules of interpretation of tariff classification are also provided for in the World Customs Organization explanatory notes of Harmonized Commodity Description and Coding Systems (H.S. Code). They are the generalized rules of interpretation of harmonized systems in classification of goods in nomenclature issued by the World Customs Organization to which Kenya is a signatory. The H.S. Code assists the Customs Department in the interpretation of the tariff classification. I will apply the interpretation provided for under the Customs and Excise Act plus the rules of H.S. Code to determine this dispute.”
31. The Harmonised Commodity Description and Coding System (HS Code), is an international standardized numerical method of classifying traded products. It is developed by the World Customs Organization (WCO) for the classification of goods. The HS is used to identify products for determining the applicable customs duties, as well as for statistical purposes.
32. To ensure that products are classified in a uniform manner, the HS has six basic principles, known as General Rules for the Interpretation (GIRs) of the HS. The first two digits of the HS Code is the “Chapter” to which the item belongs (which is a broad categorization of the item); the second two digits are the “Heading” (a specific category of the products within the Chapter) followed by the “Sub-Heading” (which is a specific category within a particular heading).
33. Applying the above to the present case, the first question for this court would be to determine whether the goods in question (perforated MS Plates) imported by the Respondent vide Customs entry 23MBAIM400795168 falls within Chapter 72 or Chapter 73 of the EAC CET – Harmonised Commodity Description and Coding System (HS Code), 2022 Version. The next will be to determine the heading and sub-heading.
34. In this case, the Respondent imported the item in question, being perforated mild steel plates, and classifiable it under the tariff 7207.19.00, with a tax rate of 0 percent per kilogram. The tariff falls under Chapter 72, which covers “Iron and Steel”. The Heading 72.07 covers “Semi-finished products of iron or non-alloy steel” containing by weight less than 0.25% of carbon. The Sub-heading 72.07.10 is “Other”.
35. The term “Semi-finished products of iron or non-alloy steel” as used in the EAC CET is defined as follows; -
“Semi-finished products
Continuous cast products of solid section, whether or not subjected to primary hot-rolling; and Other products of solid section, which have not been further worked than subjected to primary hot-rolling or roughly shaped by forging, including blanks for angles, shapes or sections. These products are not presented in coils.”
36. The Appellant on the other hand was of the view that the MS plates are classifiable under HS Code 7308.90.99, with a tax rate of 25 percent per kilogram. The tariff falls under Chapter 73, which covers “Articles of Iron and Steel”. The Heading 73.08 covers “Structures (excluding prefabricated buildings of heading 94.06) and parts of structures (for example, bridges and bridge-sections, lock-gates, towers, lattice masts, roofs, roofing frame-works, doors and windows and their frames and thresholds for doors, shutters, balustrades, pillars and columns), of iron or steel; plates, rods, angles, shapes, sections, tubes and the like, prepared for use in structures, of iron or steel.”
37. From the above exposition, it is clear that Heading 72.07 of Chapter 72 of the EAC CET covers “semi-finished products of iron or non-alloy steel”, that is, iron and steel “which have not been further worked than subjected to primary hot-rolling or roughly shaped by forging”. Essentially these are products of iron and steel which are not fully formed and require further processing.
38. The Respondent imported MS Plates which are not “semi-finished products of iron or non-alloy steel” within the meaning of Heading 72.07 of the EAC CET since no further processing of the item was required. The Respondent’s evidence and submissions that they had to do the cutting, fabrication, fitting, and adjustments do not in my view amount to further processing of the imported plates. The action by the Respondents was simply to make the plates adaptable to the use they were to be put to. As rightly submitted by the Appellant, the actions by the Respondent did not change the character of the goods.
39. On the other hand, Heading 73.08 of Chapter 73 of the EAC CET essentially covers “structures…….and parts of structures…… of iron or steel; plates, rods, angles, shapes, sections, tubes…...prepared for use in structures of iron or steel."
40. A review of the evidence submitted at trial indicates that the imported goods were parts of structures of iron and steel, in their complete form, which required no further processing and therefore rightly fell within Heading 73.08 as rightly submitted by the Appellant.
41. The instruction manual merely detailed the necessary fabrication and assembly processes required to achieve the final structural form. This did not change the character of the goods, neither did it amount to further processing of the goods.
42. In the premises, I find that the Tribunal erred in setting aside the Appellant’s decision dated 14th April 2023 reclassifying the subject goods under HS Code 73.08.99 (with a duty rate of 25 percent per kg) from the HS Code of 7207.19.00 (duty rate of 0 percent).
43. Having found that the Tribunal erred in setting aside the Appellant’s decision dated 14th April 2023 reclassifying the subject goods under HS Code 73.08.99 (with a duty rate of 25 percent per kg) from the HS Code of 7207.19.00 (duty rate of 0 percent) declared by the Respondent, it, therefore, follows that the Tribunal equally erred in setting aside the Appellant’s tax demand of Kshs. 6,378,586/- and ordering a refund of the taxes, the sane having been paid under protest.
44. The upshot of the above is that this court finds the appeal meritorious and that the Tribunal erred in hereby allows the same. Accordingly, I make the following orders; -
i. The Judgment of the Tax Appeals Tribunal in the Tax Appeals Tribunal No. E368 of 2023 dated 14th June 2024 is hereby set aside.
ii. The Appellant’s Tariff Classification review decision dated 14th April 2023 classifying perforated MS plates under 2022 EAC/CET HS Code 7308.90.99 is hereby upheld.
iii. The Appellant tax demand for Kshs. 6,378,586/- is hereby upheld.
45. The Appellant being the successful party is hereby awarded the costs of this appeal.
46. It is so ordered.
SIGNED DATED and DELIVERED IN VIRTUAL COURT
THIS 20TH DAY OF MARCH 2025
ADO MOSES
JUDGE
In the presence of:
Moses – Court Assistant.
………………...For the Applicant.
………………...For the Respondent.