Introduction and Background
1. In January 2017, the Respondent imported goods described as 00C16155 Prepared Wax under entry number 2017MSA6312650 (“the goods”) which it classified under Harmonised System (HS) Code 3404.90.00 of the East African Community Common External Tariff (EAC CET); Artificial waxes and prepared waxes.
2. Upon verification of the goods for clearance, the Appellant (“the Commissioner”) contended that while the trade name of the said goods was stated as “prepared Wax”, the composition/information on ingredients therein was stated as “Hot-Melt Adhesive” and that it had polymeric material. After conducting online research on the labelling of the goods labelled as Termoflex P, the Commissioner concluded that from the components of the goods described, the tariff classification of the said goods was HS Code 3506.99; Prepared glues and other prepared adhesives, not elsewhere specified or included; products suitable for use as glues or adhesives, put up for retail sale as glues or adhesives, not exceeding a net weight of 1 kg.
3. The Respondent disputed the Commissioner’s classification and appealed by its letter dated 23rd January 2017. It stated that it classified the goods under Heading 34.04 based on the commercial invoice and all relevant documents related to the goods supplied by the supplier vis-à-vis Rule 3(a) of the General Rules of Interpretation (GIRs). In accordance with Article 11 of the WTO Agreement on Customs Valuation, it requested to draw a sample for laboratory analysis. The Commissioner drew the samples on 26th January 2017 and by the letter dated 3rd February 2017, it informed the Respondent that from the sample tested, it found that it was a preparation containing polymeric organic compounds characterized with carbonyl functional groups and having typical physical properties of adhesive materials. That Termoflex P2415 is specified to be hot melt adhesive containing paraffin wax polymeric organic compounds and Heading 35.06 covers the classification of prepared glues and other prepared adhesives, not elsewhere specified or included; products suitable for use as glues or adhesives, not exceeding 2 net weight of 1kg. That the Heading includes the classification of preparations specially formulated for use as adhesives, consisting of polymers ox blends thereof containing added substances such as waxes.
4. The Commissioner concluded that Termoflex P2415 is considered to be preparation for use as adhesive containing waxes and polymers classified in HS code 3506.91.00. On 13th February 2017, it issued the tariff ruling classifying the goods under HS Code 3506.91.00. It stated that the declared HS Code 3404.90.00 and the goods description were at variance with the laboratory findings.
5. In its response to the tariff ruling, the Respondent by the letter dated 17th February 2017 stated that its supplier had appointed Lab Analysis S.R.L in Italy to carry out laboratory testing of the product in response to the ruling. The results were contained in a test report dated 17th February 2017 showing that analysis of a sample Termoflex P2415 confirmed the composition of the prepared wax and based on those results and information provided, the Respondent appealed the tariff ruling. It averred that Prepared Wax in the nomenclature is covered by a more specific Heading 34.04; Artificial Waxes and Prepared Waxes. That furthermore, the classification is in line with the exclusion clause of Heading 35.06 Explanatory Notes which state that “except when they comply with the provisions of paragraph (A) above, the heading excludes products covered by a more specific heading in the nomenclature.” The Respondent also reiterated that the classification is in conformity with Rule 3(a) of the GIRs of the classification of goods.
6. As the parties were unable to agree, the Respondent lodged an appeal to the Tax Appeals Tribunal (“the Tribunal”). It rendered a decision on 4th September 2020 where it stated that the single issue for determination was whether the Commissioner erred in the classification of the goods and resolving involved merely reading the HS Code and identifying the correct code for purposes of taxation.
7. The Tribunal took the view that since the Commissioner’s witness did confirm and agree with the Respondent that the goods contain waxes, prepared waxes and adhesives alike, it was futile to belabor the issue of composition of the goods. It held that it was to be guided by the description and notes under the CET and identify the proper classification under the Code. The Tribunal noted that two things stood out from the Heading 35.06 as used by the Commissioner. First, it refers to “…prepared glues and other prepared adhesives, not elsewhere specified or included”. Second, the phrase “not exceeding a net weight of 1kg”. That if nothing else, these two phrases alone, in the Tribunal’s view indicated why the Commissioner’s classification could not be correct. The Tribunal found that the Respondent imported 20 pallets of OC16155 prepared wax in bags of 20 kgs which meant that the Respondent was entirely removed from the scope of HS Code 3506.91.00. Additionally, that there is a specific provision in the HS Code that deals with the description of the goods imported by the Respondent being HS Code 3404.90.00.
8. In the Tribunal’s assessment, the classification of products imported by tax payers should be guided by the description in the HS Code as opposed to the composition of the products and that in this case there was no doubt that the Respondent used the appropriate Code in its declarations. The Tribunal’s position was further buttressed by the Respondent’s submission that if indeed there was a misdeclaration of its products, then the Commissioner would have flagged out the same during the various post clearance audits.
9. Having classified the goods appropriately, the Tribunal turned its attention to the issue of the bank guarantee. The Tribunal was persuaded by the Respondent’s submission that the Commissioner’s decision to liquidate the said amount when the same was not due at any time whatsoever was utterly misconceived, irrational and unreasonable; was grounded on a thorough misconception of the law and based on an erroneous understanding of the facts. Accordingly, the Tribunal founds that having established that the basis of the said guarantee was illegal assessment of taxes allegedly due from the Respondent, it was only in keeping with the finding that the amounts provided by the Respondent as guarantee under section 229 (6) of the East African Community Customs Management Act, 2004 should be liquidated in favor of the Respondent.
10. In light of the foregoing, the Tribunal allowed the appeal by holding that the correct HS Code for the prepared wax imported by the Respondent is HS 3404.90.00.
11. The Commissioner is dissatisfied with this decision. It appeals to this court through its Memorandum of Appeal dated 16th November 2022. The Respondent did not respond to the appeal despite service of process. Counsel for the Commissioner made oral submissions which I have considered alongside the positions taken by the parties as I have summarized above.
Analysis and Determination
12. Just like the Tribunal, the main issue for determination before this court concerns the applicable classification of the Respondent’s imported goods. As submitted by the Commissioner, the Coding/Tariff classification system currently in use in the country for determining applicable tariffs for imported goods is adopted from the Harmonized System, an internationally standardized system of names and numbers to classify traded products and that the EAC partner States agreed to adopt it when they signed the Treaty for the establishment of the EAC on 30th November 1999. The customized EAC CET is always being updated and the version that was in use at the material time was the one revised in 2017.
13. In order to ascertain what code is applicable to particular goods under the classification system, one has also to look at the 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. In Commissioner of Customs and Border Control v Auto Industries Limited ML Tax Appeal No. E008 of 2022 (UR) the court agreed 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.
14. Whether the goods ought to have been classified under Heading 35.06 as fronted by the Commissioner or Heading 34.04 as advanced by the Respondent and affirmed by the Tribunal is a question of fact that was within the province of the Tribunal. This court’s appellate jurisdiction is limited 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. The court can only intervene if the decision cannot be supported by the facts or evidence or is otherwise perverse (see John Munuve Mati v Returning Officer Mwingi North Constituency & 2 others [2018] eKLR and Mercy Kirito Mutegi v Beatrice Nkatha Nyaga & 2 others NYR CA Civil Appeal Mo. 48 of 2013 [2013] eKLR). Thus, 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.
15. Under section 30(a) and (b) of the Tax Appeals Tribunal Act and section 56(1) of the TPA, the burden of proving that a tax assessment or decision is excessive or should have been made differently is placed squarely on the Respondent as the tax payer. The taxpayer must prove that the Commissioner was wrong by meeting the minimum threshold of providing credible, competent and relevant information and documentation necessary to support its position and establish a prima facie case which the Commissioner is expected measure on a preponderance of probabilities (see Kenya Revenue Authority v Maluki Kitili Mwendwa ML HC ITA No. E078 of 2020 [2021] eKLR).
16. The Respondent took the position that the goods were classifiable under HS Code 3404.90.00; Artificial waxes and prepared waxes and it relied on the commercial invoice and a lab report from its supplier in Italy to confirm that the goods were prepared wax. The Commissioner’s position was that the goods were considered to be a preparation for use as adhesive containing waxes and polymers classified in HS Code 3506.91.00; Prepared glues and other prepared adhesives, not elsewhere specified or included; products suitable for use as glues or adhesives, put up for retail sale as glues or adhesives, not exceeding a net weight of 1 kg and more specifically, Adhesives based on polymers of heading 39.01 to 39.13 or on rubber.
17. The Tribunal held that the goods were excluded from Heading 35.06 as they exceeded 1kg and that there is a specific provision in the HS Code that deals with the description of the product imported by the Appellant, being HS Code 3404.90.00.
18. In the proceedings, the Commissioner’s witness admitted that the lab report prepared by the Respondent’s supplier had more or less similar findings to that of the Commissioner in terms of the composition of the goods. However, the Commissioner insisted that the said goods were prepared adhesives and not prepared wax as was confirmed and concluded by the Respondent’s supplier’s lab report.
19. Having reviewed the record, the Headings advanced by the parties and the Explanatory Notes therein, I am unable to hold that the Tribunal’s decision is unreasonable or that it is not supported by the facts. I find and hold that the Respondent was able to provide prima facie evidence and explanations that the goods were prepared wax and that the most specific Heading that fit their description was HS Code 3404.90.00; Artificial waxes and prepared waxes. In addition, while the Commissioner’s witness stated that the laboratory tests of samples of the goods were done, it did not provide lab reports or results to the Respondent or the Tribunal to demonstrate that the composition of the goods, though similar to the findings of the Respondent’s lab report, could lead the Tribunal to conclude that the same were prepared adhesives as opposed to prepared wax. The Commissioner also did not dispute that for a product to be classified under HS Code 3506.91.00, it had to be less than 1kg and that the Respondent’s goods exceeded this weight. This means that the Respondent discharged its burden of proof and demonstrated that the Commissioner was wrong in its finding.
20. I am therefore satisfied that the Tribunal rightly analysed the evidence on record and came to a conclusion that was supported by the EAC CET, the GIRs, the Explanatory Notes and the evidence before it. The Respondent’s imported goods described as 00C16155 Prepared Wax and weighing 20kgs more likely than not fell within Heading 34.04 as opposed to 35.06 and I cannot fault the Tribunal for arriving at this conclusion.
Disposition
21. For the above reasons, I find that the Commissioner’s appeal lack merit. It is dismissed.
DATED and DELIVERED at NAIROBI this 2nd day of AUGUST 2023.
D. S. MAJANJA
JUDGE
1. In January 2017, the Respondent imported goods described as 00C16155 Prepared Wax under entry number 2017MSA6312650 (“the goods”) which it classified under Harmonised System (HS) Code 3404.90.00 of the East African Community Common External Tariff (EAC CET); Artificial waxes and prepared waxes.
2. Upon verification of the goods for clearance, the Appellant (“the Commissioner”) contended that while the trade name of the said goods was stated as “prepared Wax”, the composition/information on ingredients therein was stated as “Hot-Melt Adhesive” and that it had polymeric material. After conducting online research on the labelling of the goods labelled as Termoflex P, the Commissioner concluded that from the components of the goods described, the tariff classification of the said goods was HS Code 3506.99; Prepared glues and other prepared adhesives, not elsewhere specified or included; products suitable for use as glues or adhesives, put up for retail sale as glues or adhesives, not exceeding a net weight of 1 kg.
3. The Respondent disputed the Commissioner’s classification and appealed by its letter dated 23rd January 2017. It stated that it classified the goods under Heading 34.04 based on the commercial invoice and all relevant documents related to the goods supplied by the supplier vis-à-vis Rule 3(a) of the General Rules of Interpretation (GIRs). In accordance with Article 11 of the WTO Agreement on Customs Valuation, it requested to draw a sample for laboratory analysis. The Commissioner drew the samples on 26th January 2017 and by the letter dated 3rd February 2017, it informed the Respondent that from the sample tested, it found that it was a preparation containing polymeric organic compounds characterized with carbonyl functional groups and having typical physical properties of adhesive materials. That Termoflex P2415 is specified to be hot melt adhesive containing paraffin wax polymeric organic compounds and Heading 35.06 covers the classification of prepared glues and other prepared adhesives, not elsewhere specified or included; products suitable for use as glues or adhesives, not exceeding 2 net weight of 1kg. That the Heading includes the classification of preparations specially formulated for use as adhesives, consisting of polymers ox blends thereof containing added substances such as waxes.
4. The Commissioner concluded that Termoflex P2415 is considered to be preparation for use as adhesive containing waxes and polymers classified in HS code 3506.91.00. On 13th February 2017, it issued the tariff ruling classifying the goods under HS Code 3506.91.00. It stated that the declared HS Code 3404.90.00 and the goods description were at variance with the laboratory findings.
5. In its response to the tariff ruling, the Respondent by the letter dated 17th February 2017 stated that its supplier had appointed Lab Analysis S.R.L in Italy to carry out laboratory testing of the product in response to the ruling. The results were contained in a test report dated 17th February 2017 showing that analysis of a sample Termoflex P2415 confirmed the composition of the prepared wax and based on those results and information provided, the Respondent appealed the tariff ruling. It averred that Prepared Wax in the nomenclature is covered by a more specific Heading 34.04; Artificial Waxes and Prepared Waxes. That furthermore, the classification is in line with the exclusion clause of Heading 35.06 Explanatory Notes which state that “except when they comply with the provisions of paragraph (A) above, the heading excludes products covered by a more specific heading in the nomenclature.” The Respondent also reiterated that the classification is in conformity with Rule 3(a) of the GIRs of the classification of goods.
6. As the parties were unable to agree, the Respondent lodged an appeal to the Tax Appeals Tribunal (“the Tribunal”). It rendered a decision on 4th September 2020 where it stated that the single issue for determination was whether the Commissioner erred in the classification of the goods and resolving involved merely reading the HS Code and identifying the correct code for purposes of taxation.
7. The Tribunal took the view that since the Commissioner’s witness did confirm and agree with the Respondent that the goods contain waxes, prepared waxes and adhesives alike, it was futile to belabor the issue of composition of the goods. It held that it was to be guided by the description and notes under the CET and identify the proper classification under the Code. The Tribunal noted that two things stood out from the Heading 35.06 as used by the Commissioner. First, it refers to “…prepared glues and other prepared adhesives, not elsewhere specified or included”. Second, the phrase “not exceeding a net weight of 1kg”. That if nothing else, these two phrases alone, in the Tribunal’s view indicated why the Commissioner’s classification could not be correct. The Tribunal found that the Respondent imported 20 pallets of OC16155 prepared wax in bags of 20 kgs which meant that the Respondent was entirely removed from the scope of HS Code 3506.91.00. Additionally, that there is a specific provision in the HS Code that deals with the description of the goods imported by the Respondent being HS Code 3404.90.00.
8. In the Tribunal’s assessment, the classification of products imported by tax payers should be guided by the description in the HS Code as opposed to the composition of the products and that in this case there was no doubt that the Respondent used the appropriate Code in its declarations. The Tribunal’s position was further buttressed by the Respondent’s submission that if indeed there was a misdeclaration of its products, then the Commissioner would have flagged out the same during the various post clearance audits.
9. Having classified the goods appropriately, the Tribunal turned its attention to the issue of the bank guarantee. The Tribunal was persuaded by the Respondent’s submission that the Commissioner’s decision to liquidate the said amount when the same was not due at any time whatsoever was utterly misconceived, irrational and unreasonable; was grounded on a thorough misconception of the law and based on an erroneous understanding of the facts. Accordingly, the Tribunal founds that having established that the basis of the said guarantee was illegal assessment of taxes allegedly due from the Respondent, it was only in keeping with the finding that the amounts provided by the Respondent as guarantee under section 229 (6) of the East African Community Customs Management Act, 2004 should be liquidated in favor of the Respondent.
10. In light of the foregoing, the Tribunal allowed the appeal by holding that the correct HS Code for the prepared wax imported by the Respondent is HS 3404.90.00.
11. The Commissioner is dissatisfied with this decision. It appeals to this court through its Memorandum of Appeal dated 16th November 2022. The Respondent did not respond to the appeal despite service of process. Counsel for the Commissioner made oral submissions which I have considered alongside the positions taken by the parties as I have summarized above.
Analysis and Determination
12. Just like the Tribunal, the main issue for determination before this court concerns the applicable classification of the Respondent’s imported goods. As submitted by the Commissioner, the Coding/Tariff classification system currently in use in the country for determining applicable tariffs for imported goods is adopted from the Harmonized System, an internationally standardized system of names and numbers to classify traded products and that the EAC partner States agreed to adopt it when they signed the Treaty for the establishment of the EAC on 30th November 1999. The customized EAC CET is always being updated and the version that was in use at the material time was the one revised in 2017.
13. In order to ascertain what code is applicable to particular goods under the classification system, one has also to look at the 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. In Commissioner of Customs and Border Control v Auto Industries Limited ML Tax Appeal No. E008 of 2022 (UR) the court agreed 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.
14. Whether the goods ought to have been classified under Heading 35.06 as fronted by the Commissioner or Heading 34.04 as advanced by the Respondent and affirmed by the Tribunal is a question of fact that was within the province of the Tribunal. This court’s appellate jurisdiction is limited 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. The court can only intervene if the decision cannot be supported by the facts or evidence or is otherwise perverse (see John Munuve Mati v Returning Officer Mwingi North Constituency & 2 others [2018] eKLR and Mercy Kirito Mutegi v Beatrice Nkatha Nyaga & 2 others NYR CA Civil Appeal Mo. 48 of 2013 [2013] eKLR). Thus, 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.
15. Under section 30(a) and (b) of the Tax Appeals Tribunal Act and section 56(1) of the TPA, the burden of proving that a tax assessment or decision is excessive or should have been made differently is placed squarely on the Respondent as the tax payer. The taxpayer must prove that the Commissioner was wrong by meeting the minimum threshold of providing credible, competent and relevant information and documentation necessary to support its position and establish a prima facie case which the Commissioner is expected measure on a preponderance of probabilities (see Kenya Revenue Authority v Maluki Kitili Mwendwa ML HC ITA No. E078 of 2020 [2021] eKLR).
16. The Respondent took the position that the goods were classifiable under HS Code 3404.90.00; Artificial waxes and prepared waxes and it relied on the commercial invoice and a lab report from its supplier in Italy to confirm that the goods were prepared wax. The Commissioner’s position was that the goods were considered to be a preparation for use as adhesive containing waxes and polymers classified in HS Code 3506.91.00; Prepared glues and other prepared adhesives, not elsewhere specified or included; products suitable for use as glues or adhesives, put up for retail sale as glues or adhesives, not exceeding a net weight of 1 kg and more specifically, Adhesives based on polymers of heading 39.01 to 39.13 or on rubber.
17. The Tribunal held that the goods were excluded from Heading 35.06 as they exceeded 1kg and that there is a specific provision in the HS Code that deals with the description of the product imported by the Appellant, being HS Code 3404.90.00.
18. In the proceedings, the Commissioner’s witness admitted that the lab report prepared by the Respondent’s supplier had more or less similar findings to that of the Commissioner in terms of the composition of the goods. However, the Commissioner insisted that the said goods were prepared adhesives and not prepared wax as was confirmed and concluded by the Respondent’s supplier’s lab report.
19. Having reviewed the record, the Headings advanced by the parties and the Explanatory Notes therein, I am unable to hold that the Tribunal’s decision is unreasonable or that it is not supported by the facts. I find and hold that the Respondent was able to provide prima facie evidence and explanations that the goods were prepared wax and that the most specific Heading that fit their description was HS Code 3404.90.00; Artificial waxes and prepared waxes. In addition, while the Commissioner’s witness stated that the laboratory tests of samples of the goods were done, it did not provide lab reports or results to the Respondent or the Tribunal to demonstrate that the composition of the goods, though similar to the findings of the Respondent’s lab report, could lead the Tribunal to conclude that the same were prepared adhesives as opposed to prepared wax. The Commissioner also did not dispute that for a product to be classified under HS Code 3506.91.00, it had to be less than 1kg and that the Respondent’s goods exceeded this weight. This means that the Respondent discharged its burden of proof and demonstrated that the Commissioner was wrong in its finding.
20. I am therefore satisfied that the Tribunal rightly analysed the evidence on record and came to a conclusion that was supported by the EAC CET, the GIRs, the Explanatory Notes and the evidence before it. The Respondent’s imported goods described as 00C16155 Prepared Wax and weighing 20kgs more likely than not fell within Heading 34.04 as opposed to 35.06 and I cannot fault the Tribunal for arriving at this conclusion.
Disposition
21. For the above reasons, I find that the Commissioner’s appeal lack merit. It is dismissed.
DATED and DELIVERED at NAIROBI this 2nd day of AUGUST 2023.
D. S. MAJANJA
JUDGE