Introduction and Background
1. The Appellant is a company that deals in importation, sale and distributorship of construction equipment and aluminium products. Sometime in January 2018, it imported goods that it described as “aluminum profiles for structures” (“the subject goods”) through Customs Entry No. 2018MSA6775909. However, the Respondent (“the Commissioner”) declined to process the consignment under Harmonised System (HS) Code 7610.90.00 as advanced by the Appellant and advised that the same ought to be registered under HS Code 7604.29.00.
2. On 31st January 2018, the Commissioner issued the Appellant with various demands for taxes due on the subject goods imported by the Appellant. The Commissioner stated that it had been investigating the Appellant for suspected misdeclaration of the HS Code for the subject goods and thus demanded taxes of Kshs. 54,416,284.00, 35,869,246.00 and 5,492,090.00 respectively.
3. The Appellant objected to each demand and sought a review by the letters dated 20th February 2018. It explained that the subject goods were aluminum, structures and parts of structures, profiles prepared for use in structures. That these consist of components that are fixed together with synthetic resins or rubber compounds instead of being fixed by the ordinary riveting and bolting to form structures and that these profiles are used as components in various types of lightweight enclosures and construction halls. The Appellant added that the profiles serve as the supports for the roof and sidewalls and relied on Chapter 76 Note 1(b) which describes profiles as “…formed products coiled or not, of a uniform cross-section along their whole length …The expression also covers cast and sintered products of the same forms, which have been subsequently worked after production” . That the definition excludes profiles prepared for use in structures as per Explanatory Notes XV-7604-1 of the Harmonised Commodity Description & Coding System, 5th Edition Volume IV(2012). The Appellant concluded that the subject goods complied with the applied HS Code as per verification input reports done at various clearance exit points.
4. The Commissioner responded to the Appellant’s submissions through its letters of 7th March 2018 (“the Objection Decisions”) on the basis that Heading 76.10 covers “aluminum structures (for example bridges and bridge sections, towers, lattice masts, roofs, roofing frameworks, doors and windows and their frames and threshold for doors, balustrades, pillars and columns); aluminum plates, rods, profiles, tubes and the like, prepared for use in structures.” In its view, the profiles for general use such as the ones imported by the Appellant are excluded from Heading 76.10 and ought to be classified under Heading 76.04. The Commissioner therefore maintained that the demanded taxes remained due and payable by the Appellant.
5. The Appellant being dissatisfied with the Objection Decisions appeals to the Tax Appeals Tribunal (“the Tribunal”). The Appellant faulted the Commissioner for finding that imported aluminium profiles for general use are excluded from Heading 76.10 and that they are classified under Heading 76.04. The Appellant also accused the Commissioner of coercing it into making a declaration under Entry No. 2018MSA6775909 under HS Code 7604.29.00 which attracts a higher duty of 25% and then using the same as the basis for retrospective determination that all subject goods imported were classified under Heading 76.04. The Appellant further faulted the Commissioner for ignoring the valuation rulings issued by it and referenced as LB/SAMP/81411 dated 4th August 2011 and LAB/SAMP/8211 dated 23rd August 2011 which correctly applied the HS Code 7610.90.00 for the subject goods. That the Commissioner acted contrary to equity, unfairly, arbitrarily, unreasonably and against legitimate expectations of the Appellant in seeking to retrospectively apply a new Tariff Code to goods that had long since been cleared and subsequently sold to customers and in effect reversing the clearance and authorizations for release of goods done at the importation stage by the Commissioner’s own officers who approved the HS Code as used at the time and okayed the release of the subject goods.
6. The Appellant faulted the Commissioner for undertaking a course of action and reaching decisions that would undermine the Harmonized System by holding that goods can have one tariff when imported from China but have another code when they arrive in Kenya. The Appellant stated that the Commissioner’s actions amounted to discrimination of goods from another jurisdiction and was a violation of Kenya’s Treaty obligations and International Trade Agreements and that its decisions were guided by extraneous considerations and the desire to raise revenue at all costs regardless of the established legal provisions and practice by the Commissioner over the past years.
7. In the circumstances, the Appellant urged the Tribunal to set aside the Commissioner’s demand, declare that the applicable HS Code for the subject goods was HS Code 7610.90.00 which attracts 0% import duty and order the Commissioner to refund all sums paid by the Appellant under HS Code 7604.29.00 which attracts import Duty of 25% .
8. In response to the appeals, the Commissioner restated that the subject goods are classified under Chapter 76 of the East African Community Common External Tariff (CET) whereby profiles are defined under Note 1(b) and that Heading 76.04 covers “Aluminium bars, rods and profiles” while Sub Heading 76.04.29 covers “others”. The Commissioner stated that the subject goods cannot fall under Heading 76.10 as the profiles are not prepared for use in structures and are imported separately for general use as Heading 76.10 covers aluminum structures, aluminium plates, rods, profiles, tubes and the like prepared for use in structures. It maintained that for the subject goods profiled to be classified under 76.10 they must be prepared for use in structures.
9. The Commissioner contended that from its past conduct, the Appellant was aware of the applicable HS Code and that it intentionally misdeclared the wrong one in order to avoid paying the applicable duties. That the Commissioner intervened on the same issue in the Appellant’s entry 2016MSA5987459 and in the Appellant’s sister company Future Development Corporation Ltd in previous entries numbers 2016MSA5986603 and 2016MSA6051567 hence the Appellant was estopped from alleging that there was retrospective application of the HS Code yet it was aware of the applicable HS Code but opted to not comply.
10. The Commission rejected the Appellant’s contention that its customs clearance agents were responsible yet the Appellant is bound by the actions of the agent under section 148 of the East African Community Customs Management Act, 2004 (“EACCMA”). On the previous rulings referred to by the Appellant, the Commissioner stated that they applied to a different item of a different consignor and of different material description and that the Commissioner is empowered under section 235 and 236 of EACCMA to conduct a post clearance audit to verify the correctness of the Taxpayers self-declarations. In the circumstances, the Commissioner was of the view that there was no abuse of the Appellant’s legitimate expectation as it knew the applicable HS Code but intentionally misdeclared it in order to avoid payment of the 25% import duty.
11. Having considered both parties’ pleadings, documentation and submissions, the Tribunal rendered its judgments on 7th May 2021 where it stated that its determination was on a single issue; whether the Appellant had proved to the Tribunal’s satisfaction that the subject goods imported fell within HS Code 7610.90.00.
12. From the onset, the Tribunal stated that customs clearance processes on their own cannot stop the Commissioner from subsequently investigating and ascertaining the correct tariff classification of imported goods. The Tribunal observed that the Import Declaration Forms and Certificates of Conformity showed that the Appellant had initially classified the subject goods under Heading 76.04 but subsequently cancelled and changed the same to 76.10. The Tribunal noted that neither the CET nor the WCO Explanatory Notes provided a definition of the word ‘structure’ and that in the absence of this definition, then its meaning was to be derived from the meaning in its common use or dictionary. The Tribunal relied on the Merriam Webster dictionary which describes a structure as, "a: something (such as a building) that is constructed b: something arranged in a definite pattern of organization”.
13. In light of the dictionary definition it seemed to the Tribunal that for an item to fit within the description in Heading 76.10 of the CET as read with the explanatory notes to Heading 73.08, it must be either a complete structure made of aluminium or a specific part of a structure. That the description in Heading 76.10 helpfully lists examples of parts of structures including “…bridges and bridge-section towers, lattice masts, roofs, roofing frameworks, doors and windows and their frames and thresholds for doors, balustrades, pillars and columns”.
14. The Tribunal held that while the Appellant had described its imported aluminium products as ‘aluminium profiles for structures’ it had not demonstrated what parts and of what structures these aluminium profiles form. That in the absence of such description, the Tribunal was inclined to agree with the Commissioner that the imported aluminium profiles are for general use and cannot fall within Heading 76.10. Having found that the Appellant’s imported aluminium profiles do not fall under the ambit of Heading 76.10, the Tribunal turned to the question of the correct classification of those aluminium profiles that were imported by the Appellant. The Tribunal agreed with the Commissioner that Heading 76.04 of the CET which describes “Aluminium bars, rods and profiles” is the correct classification for the aluminium profiles imported by the Appellant.
15. The Tribunal also agreed with the Commissioner that the rulings made by the Commissioner of Customs were private rulings relating to different aluminium products and as such the Appellant could rely on them for the assertion that its imported aluminium products were subject to the same tax treatment. Further, that in the circumstances, the Tribunal was of the view that the doctrine of legitimate expectation did not apply herein.
16. Having found that the Appellant had mis-declared its goods resulting in an underpayment of taxes, the Tribunal held that the Commissioner was entitled to collect the short-levied taxes under section 135 of the EACCMA. The Tribunal further opined that the Appellant ought to have considered producing facts such as the itemised inventories, laboratory analysis, expert opinions, relevant specifications and even physical or photographic samples to assist the Tribunal to appreciate the specific products that were imported. The Tribunal stated that in the Appellant’s objection letter dated 20th February 2018, the imported goods were described as aluminium profiles “...used as the exterior cladding of buildings. Each profile is comprised of a polythene core sandwiched between two layers of aluminium sheet”. However, that in the appeal and importation entry document, the goods are described as aluminium profiles and that based on the description of the said letter, the products could even fall into a third HS category of 76.06 – Aluminium plates, sheets and strip, of a thickness exceeding 0.2 mm. In short the Tribunal stated that the description by the Appellant of the imported aluminium goods was very vague and general and in such circumstances, it was unreasonable for the Appellant to expect a HS Code category classification appeal to be determined in its favour especially without specific descriptions and evidence.
17. On the Appellant’s contention that the HS code cancellation and change was occasioned by coercion from the Commissioner’s officers who declined to clear the goods unless the Appellant’s related entity changed the HS Code, the Tribunal noted that the payments made were not under protest as provided for under EACCMA and that in the absence of any tangible evidence of coercion, the Tribunal treated the allegation as such, a mere allegation.
18. Ultimately, the Tribunal concluded that the Appellant had not demonstrated to its satisfaction that the decision of the Commissioner regarding the applicable HS Code and collection of short levied taxes ought not to have been made or ought to have been made differently. Consequently, the Tribunal held that the Appellant had not proved to its satisfaction that the aluminium profiles it imported through entry numbers 2018MSA6775909 and 2018MSA6782052 fell within HS Code 7610.90.00. The Tribunal dismissed the appeals an upheld the Commissioner’s assessments and subsequent Objection Decisions dated 7th March 2018.
19. The Appellant was dissatisfied by these decisions. It has now appealed to this court based on the respective Memorandums of Appeal dated 7th June 2021. The appeals were canvassed by written submissions with the parties setting out their respective arguments along the lines outlined above.
20. I note that in these appeals, the parties are the same, so is the central issue, which is what was the applicable Heading/HS Code for the subject goods. In such circumstances, I have found it appropriate to consolidate the appeals in order to facilitate the efficient and expeditious disposal of the dispute. Further, no injustice would be occasioned on the parties in hearing and determining the appeals together (see Law Society of Kenya v Centre for Human Rights & Democracy and 12 others SCK Petition No.14 of 2013 [2014] eKLR).
Analysis and Determination
21. The appellate jurisdiction that is circumscribed by section 56(2) of the Tax Procedures Act (“the TPA”) which provides that “An appeal to the High Court or to the Court of Appeal shall be on a question of law only”. An appeal limited to matters of law does not permit the appellate court to substitute the Tribunal’s decision with its own conclusions based on its own analysis and appreciation of the facts (See John Munuve Mati v Returning Officer Mwingi North Constituency & 2 others [2018] eKLR). In Mercy Kirito Mutegi v Beatrice Nkatha Nyaga & 2 others NYR CA Civil Appeal Mo. 48 of 2013 [2013] eKLR the Court of Appeal observed that when a court that is limited to dealing with matters of law has a concern regarding the issues that dealt on facts, then the court will also be limited to re-evaluation of the lower court’s conclusions; and if the conclusions are erroneous; that is, not supported by evidence and the law; the matter becomes a point of law.
22. From the facts and background, I have set out together with the submissions, the singular issue for determination in this appeal is whether the Tribunal erred in finding that the Appellant had not proved that the aluminium profiles it imported fell within HS Code 7610.90.00.
23. I do not think it is in dispute that the Coding/Tariff classification system currently in use in the country for determining applicable tariffs for imported goods is adopted from the said Harmonized System, an internationally standardized system of names and numbers to classify traded products, adopted by the East Africa Community Partner States. The parties also agree that to ascertain what code is applicable to particular goods, one has to look at the General Interpretative Rules (GIRs) which are rules that govern the classification of goods under the Harmonized System and the Explanatory Notes which provide commentary on the intent and scope of provisions and as approved by the Customs Co-operation Council and constitute the official interpretation of the Harmonized System at the International level and are an indispensable complement to the System.
24. Whether the subject goods ought to have been classified under Heading 76.01 as fronted by the Appellant or 76.04 as averred by the Commissioner is a question of fact and was within the province of the Tribunal to resolve. I agree with the Tribunal that under the GIRs, goods are classified in accordance with the Heading appropriate to the goods to which they are most akin and that the Heading which provides the most specific description shall be preferred to Headings providing a more general description. The jurisdiction of this court can only be properly invoked if the question before it is one of law and this entails a review of the Tribunal’s conclusion and determining whether it was able to correctly apprehend the evidence before it.
25. From the record, I am satisfied that the Tribunal rightly analysed the evidence came to a conclusion that was supported by the CET, the GIRs and the Explanatory Notes and the evidence before it. The Appellant failed to satisfy the Tribunal that the subject goods imported fell within Heading 76.10 as there was not much of evidence to support this suggestion that the Appellant ought to have produced evidence to support its case. Under section 30 of the Tax Appeals Tribunal Act and section 56 of the TPA, the burden is on the taxpayer, in this case the Appellant, to prove the Commissioner wrong. The Appellant, aside from insisting that it had always imported similar goods and declared the same under Heading 76.01 did not concretize its position by way of demonstrative evidence. It never demonstrated how the subject goods were aluminium structures or part of a structure or that they were prepared for use in a structure. If anything, its previous conduct of declaring the said goods under Heading 76.04 and subsequently changing the same to 76.10 gave it away.
26. I am constrained to conclude that the Tribunal came to conclusions that were consistent with the evidence before it and that a different tribunal sitting in its place would have come to the same conclusions.
Disposition
27. The Appellant’s appeals lack merit. They are now dismissed.
DATED and DELIVERED at NAIROBI this 27th day of JANUARY 2022.
D. S. MAJANJA
JUDGE