REPUBLIC OF KENYA
IN THE HIGH COURT AT NAIROBI
MILIMANI COMMERCIAL & TAX DIVISION INCOME TAX
HCCOMMCTA/E006/2025
COMMISSIONER OF CUSTOMS &
BORDER CONTROL …………………………………………APPELLANT
VERSUS
SICPA KENYA LIMITED………………………………....…RESPONDENT
(Being an appeal arising from the judgement of the Tax Appeals Tribunal delivered in Nairobi on 22 nd November 2024 in Tax Appeals Tribunal Appeal No. E697 of 2023)
JUDGMENT
1. The Appellant is a principal officer appointed under section 13 of the Kenya Revenue Authority Act. The Kenya Revenue Authority (KRA) is an agency of the Government of Kenya mandated with the duty of collecting and receipting of all tax revenue and the administration and enforcement of all tax laws set out in parts 1 & 2 of the first schedule to the Act, for purposes of assessing, collecting and accounting for all tax revenues in accordance with those laws.
2. The Respondent is a limited liability company incorporated in Kenya under the Companies Act. The Respondent’s services involve management of excise goods management system (EGMS) set in place by the KRA to monitor the production of excisable goods by various manufacturers on a real time basis to facilitate accurate revenue administration which involves measuring, enumeration, checking at the manufacturer’s production lines and relaying the information to the KRA Integrated Production Accounting System (IPAS).
3. The Appellant conducted a post clearance compliance review on imported coding machine parts which included Encoder Magnetic Incre, Encoder Optical Incre, Light source, Module SCL, MOD SAS and Module LSM b ke covering the years 2018 to 2023. Through a letter titled ‘Notice of Demand for short-levied duties - kshs 35,050,691.00’ dated 12/07/2023, the Appellant alleged that the Respondent had used an incorrect tarrif code 9031.49.00 which attracts VAT only instead of tarrif code 8543.70.00 which attracts an import duty of 10% and Value Added Tax at the standard rate of 14% or 16% depending on the time of importation. The Appellant re classified the gadgets to 8543.70.00 and demanded additional taxes.
4. The Respondent lodged an application for review on 11/08/2023 maintaining that the items should be categorized under Chapter 90 which pertains to ‘optical, photographic, cinematography, measuring, checking, precision, medical or surgical instruments and apparatus, parts and accessories.’ After examining the application for review, the Appellant upheld its decision to re classify the items and impose additional taxes and the decision was conveyed to the Respondent via a letter dated 05/09/2023.
5. Aggrieved by the review decision, the Respondent appealed to the Tribunal.
Appeal before the Tax Appeals Tribunal
6. The Respondent (Appellant in the Tribunal) raised the following grounds;
a) The Commissioner erred in law and fact in charging tax on commodities under Tariff classification with zero percent duty charge.
b) The Commissioner erred in law and fact in the re classification of coding machine parts or module LSM b ke, Encoder Magnetic Incre, Encoder Optical Incre, Light source, Module SCL and MOD SAS from tarrif code 9031.49.00 to 8543.70.00.
c) The Commissioner erred in law by raising assessments out of the five-year statutory timeline permitted.
7. The Tribunal found merit in the Appeal and gave the following orders;
a) The Appeal be and is hereby allowed.
b) The Respondent’s Review decision dated 5 th September 2023 be and is hereby set aside.
c) Each party to bear its own costs.
8. Aggrieved by that judgment, the Commissioner lodged this appeal via an amended Memorandum of Appeal dated 28/05/2025. The grounds are set out as follows :
a) The honorable Tribunal failed to address or make a determination on an issue expressly raised by the Appellant during trial namely- that the Respondent did not lodge an objection to the Appellant’s ruling dated 6 th June 2023 as required under section 229 of the East African Community Customs Management Act (EACCMA).
b) The honorable Tribunal erred by failing to apply and consider Section XVI Note 4 Explanatory notes of the Harmonized system relating to classification of combination of machines hence finding that the Appellant erred in reclassifying the Respondent’s LSM coding machine parts from tarrif code 9031.49.00 to tarrif code 8543.70.00.
c) The Tribunal thus failed to appreciate that the SICPATRACE gadgets are a system or a combination machine performing different functions (multifunctional machines) whose classification is guided by section XVI Note .
d) The honorable Tribunal erred in law and fact in holding that the Appellant was wrong in re-classifying the Respondent’s LSM coding machine parts from tarrif code 9031.49.00 to tarrif code 8543.70.00.
e) The Honorable Tribunal erred in law and in fact in their analysis of the nature of the subject goods by referring to them as ‘mere parts’ leading to the erroneous finding that the Appellant’s reclassification of the goods was incorrect.
f) The Honorable Tribunal erred in holding that the imported goods are ‘parts of machines’ disregarding the Respondent’s description of the goods as SICPATRACE gadgets a ‘system of machines’ performing specific functions in monitoring manufacture processes for purposes of Excisable Goods Control.
g) The Honorable Tribunal erred in law and in fact in acting contrary to Rule 1 of the General Interpretation Rules of the Harmonized system which provides that classification shall be determined according to the terms of the headings and any relative sections or chapter notes and instead considered the text to the title of the chapters which are only used for ease of reference when considering the tariff classification of the product imported by the Respondent September 2023 were not justified.
(emphasis all mine)
9. Parties agreed to proceed by way of written submissions. Consequently, each filed their respective submissions.
Appellant’s Submissions
10. The issues for determination were identified to be;
a) Whether the honorable Tribunal erred in failing to determine the legal effect of the Respondent’s failure to lodge an objection to the Appellant’s ruling dated 6 th June 2023, contrary to section 229 of the East African Community Customs Management Act (EACCMA).
b) Whether the Tribunal erred in re classifying the disputed products despite the tariff ruling not objected to on interpretation of the relevant customs tariff codes.
11. On whether the honorable Tribunal erred in failing to determine the legal effect of the Respondent’s failure to lodge an objection to the Appellant’s ruling dated 06/06/2023 , it was submitted that section 229(1) of EACCMA provides a strict 30-day timeline for an importer to object to a ruling made by the Commissioner and as such, the Respondent ought to have objected to the ruling on or before 06/07/2023 . That the tribunal lacked the jurisdiction to re-open a classification that already had a ruling that the respondent never objected to
12. That, the Tribunal failed to address this procedural lapse despite the Appellant raising it at trial. It was contended that failure to object to the ruling rendered it final by law and the Tribunal lacked jurisdiction to entertain the matter and undermined the principle of finality in administrative decisions. .
13. The court was referred to appellant’s statement of facts, paragraph 13 of the appellant’s witness statement at page 29 and the examination in chief at Page 127 of the Record of Appeal.
14. For the proposition that the tribunal erred in re opening the reclassification the appellant relied on Commissioner of Customs & Border Control -vs- Rex International Ltd (2025) eKLR where the court stated;
“I find merit in the Appellant’s argument that the Tribunal erred in re classifying the disputed products despite the absence of an objection to the tariff ruling, as required under section 229 of the EACCMA 2024 .”
15. On whether the Tribunal erred in re classifying the disputed products despite the tariff ruling not being objected to on interpretation of the relevant customs tariff codes, it was submitted that the re classification of the goods effectively overturned the binding ruling that has never been challenged through the proper legal process. It was contended that having failed to object, the Respondent accepted the classification and paid taxes accordingly. That, the Tribunal’s disregard of this fact violates section 230 of EACCMA and creates procedural confusion, encouraging importers to revisit final decisions through backdoor litigation.
16. It was submitted that the Tribunal exceeded its jurisdiction, amounting to procedural impropriety as elucidated in Republic -vs- Principal Secretary, Ministry of Defence & Others ex parte Unique Supplies Ltd (2019) KEHC 2903 KLR where it was held that;
“63. Procedural impropriety generally encompasses two things; procedural ultra vires, where administrative decisions are challenged because a decision maker has overlooked or failed to properly observe statutory procedural requirements and common law rules of natural justice and fairness. Lord Diplock noted that; ‘failure by an administrative Tribunal to observe procedural rules that are expressly laid down in the legislative instrument by which its jurisdiction is conferred, even where such failure does not involve any denial of natural justice,’ is a form of procedural impropriety .”
17. It was submitted that the Tribunal usurped the Commissioner’s authority to issue binding tariff rulings, contrary to the principle of legal finality in administrative decision-making and its reclassification interfered with the statutory scheme for objections and appeals, violating settled law that a decision not objected to in time is not appealable.
18. It was submitted that the Tribunal failed to evaluate the implications of the Respondent’s non-compliance with administrative procedures, which is a fundamental aspect of the tax dispute resolution framework.
Submissions by the Respondent
19. It was submitted that the subject machines are imported by the Respondent for deployment to various manufacturers pursuant to the Excise Duty (Excisable Goods Management System) Regulations (the Regulations). That, the Respondent’s undertaking in Kenya includes the offering of solutions for the collection of Excise Duty. That, the Regulations assist the KRA in the collection of Excise Duty by providing for the installation and operation of an excisable goods management system in the premises of manufacturers of excisable goods.
20. It was submitted that the Respondent provides the solution which enables KRA in management of the excise goods management system and to effectively monitor the production of excisable goods by various manufacturers on a real time basis to facilitate accurate revenue administration which involves; measuring, enumeration and monitoring at the manufacturer’s production lines and relaying the information to the KRA Integrated Production Accounting System.
21. It was submitted that the goods which are the subject of the dispute are the goods which the Respondent uses to offer the necessary solution to KRA which are essentially a system of gadgets working together to perform one function. That, they are intelligent gadgets whose combination is called SICPATRACE which is a tailored digital tax stamp management system designed for governments to optimize fiscal revenues on excise goods to facilitate its mandate. That, to date the Respondent has installed the SICPATRACE systems at 51 manufacturers’ premises with more coming on board over time.
22. It was asserted that the subject items perform one function and should therefore be classified under tarrif code 9031.49.00 because they are part of one whole performing one function as a whole as contemplated in this tarrif. Reliance was placed on Commissioner of Customs & Border Control -vs- Kenya Breweries Ltd where a summation of the classification system was given by Majanja J as follows;
a) The Harmonized Commodity Description and Coding System is a common and harmonized system offering a means for a systemic naming or enumerating of all goods found in international trade along with international rules and interpretation.
b) The East African Community Common External Tariffs (EAC/CET) premised on the East African Community Partner States agreement to adopt the same following the establishment of the East African Community.
c) The Harmonized System comprises 21 sections divided into 99 chapters and the arrangement of sections is based on three principles, articles made of same material, goods of the same use and the stage of processing or degree of manufacturing. It comprises tarrif structures where a tariff number is identified by an eight-digit code assigned to a good or service i.e the HS Code.
d) The tarrif number is based on the general category that describes the item.
e) The Harmonized system is also supported by explanatory notes which provide commentary on the intent and scope of provisions and as approved by the customs co-operation Council, they thus constitute the official interpretation of the Harmonized system at the international level and are an indispensable complement to the system.
23. In response to the Appellants argument that the Respondent ‘concurred’ with the reclassification by not appealing within 30 days as required under section 229 of EACCMA, it was submitted that a mere reading of the Appellant’s letter dated 12/06/2023 dispels the notion that the said letter had a ring of finality as the Respondent was informed of its right of appeal to the Tax Appeals Tribunal.
24. It was submitted that the Appellant’s assertion that the Respondent should have proceeded on the basis of the letter dated 06/06/2023 is an afterthought because barely 36 days after issuing the said letter and at least 9 days before an appeal would be out of time, the Appellant was still engaging with the Respondent wide the letter of 12/07/2023 . It was contended that the Appellant cannot approbate and reprobate.
25. It was submitted that the unequivocal language in the Appellant’s demand letter dated 12/07/2023 indicates that the ‘decision’ capable of objection or appeal was the tax assessment therein and not the prior advisory classification communicated on 06/06/2023. That, notably, the 6 th June letter made no mention of a tax demand, assessment or enforcement. That, it did not invite objection or indicate that it was a final or appealable decision under EACCMA or the Tax Procedures Act.
26. It was submitted that the letter of 6 th June 2023 which spoke of the reclassification of Line Status Monitoring System could not have been the basis of an appeal, because of the next letter of 12 th July 2023 which was the demand , giving the window of an appeal. That the Respondent lodged its application for review (objection) on 10/08/2023, which was duly acknowledged and admitted by the Commissioner. That, subsequently, the parties participated in a series of Objection Review Meetings including engagements recorded in the ADR Progress Report dated 28/11/2023 and the correspondence exchanged between the Commissioner and SICPA representatives in April 2024 confirming the ongoing post-review discussions. That, thereafter, the Commissioner issued an Objection Decision dated 05/09/2023 which not only validates the legitimacy of the Respondent’s Objection process but also acknowledges that the appealable decision was the tax demand and not the earlier tarrif guidance .
27. It was submitted that the Commissioner proceeded to file its statement of facts at the Tribunal on 16/11/2023 without raising any objection to the procedural validity of the appeal. That, the Commissioner participated fully in the ADR process where the merits of classification were discussed and at no point did the Appellant claim that the Respondent’s appeal was incompetent for failure to object to the June 6 th Letter.
28. It was contended that the current attempt to retroactively elevate the June 6 th Letter to the status of an appealable decision is both legally unsound and factually dishonest. That, it is a desperate attempt to mislead this court, confuse the issues and avoid scrutiny of the actual tax decision that was duly challenged under the law.
29. It was submitted that section 229 of EACCMA is the primary provision governing administrative objections to customs decisions and compliance with it is a pre-condition to invoking the jurisdiction of the Tax Appeals Tribunal under section 230 of EACCMA.
30. Reference was made to the Tax Procedures Act (TPA) for the submission that an appealable decision includes an objection decision by the Commissioner as well as ‘any other decision made under a tax law’ (except decisions that are part of the process of making a tax assessment). That, the letter dated 05/09/2023 conveying the review outcome is plainly an objection decision within the meaning of section 3 of the TPA as it finally disposed off the Respondent’s objection and confirmed a tax liability.
31. It was submitted that for purposes of customs, the classification of goods under the Harmonized Commodity Description and Coding System (HS) is governed by the General Rules for the Interpretation of the Harmonized System (GIRs) as incorporated in the East African Community Common External Tarrif (CET) 2022. That, there are section notes and chapter notes which have legal force and can include or exclude particular goods from certain chapters. That, there are explanatory notes which are a persuasive interpretative aid and are highly regarded in decidedly clarifying the scope of headings.
32. It was submitted that in this case, the two tariff headings in contention are Heading 85.43 (subheading 8543.70.00) and Heading 90.31 (subheading 9031.49.00) . That, according to the EAC/CET 2022, heading 8543 falls in chapter 85 (which covers electrical machinery and equipment) and by description covers ‘Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter.’ That, subheading 8543.70.00 is an ‘other’ category under that heading. It was contended that HS 8543 is a catch-all for miscellaneous electrical apparatus that do not fall under any specific device category in chapter 85.
33. It was submitted that Heading 9031 falls in Chapter 90 (which covers optical, photographic, measuring, checking, precision instruments etc) and covers ‘measuring or checking instruments, appliances and machines, not specified or included elsewhere in this chapter, profile projectors . That, subheading 9031.49.00 specifically refers to ‘other’ measuring or checking instruments not enumerated elsewhere in heading 90.31. That, HS 90.31 is intended for instruments and apparatus that measure, check, inspect or test physical parameters, which are not covered by earlier headings of chapter 90.
34. It was submitted that the language of the two headings immediately reveals a critical distinction i.e Heading 9031 is about function whereas Heading 8543 is about an apparatus’s nature as an electrical machine not covered elsewhere.
35. It was submitted that the characteristics of the EGMS (SICPATRACE) devices, from the evidence on record which was largely undisputed, shows that they collectively serve a single well-defined function i.e, to measure, monitor, check and verify production output of excisable goods for tax compliance. That, they form an integrated system to ensure accurate reporting of production (for excise tax purposes) by detecting anomalies, counting outputs and validating codes.
36. It was submitted that it is a fundamental principle in the HS that certain chapters are mutually exclusive by virtue of section or chapter notes. That, section XVI Note 1(m) (which applies to chapters 84 & 85) explicitly excludes articles of chapter 90 from classification in section XVI (i.e from chapters 84/85) hence if an item is properly classifiable as a measuring or checking instrument of chapter 90, it cannot be put in chapter 85.
37. It was submitted that the Appellant’s Headquarters initially classified the items under chapter 90 for many years, implying they recognized them as instruments rather than generic electrical apparatus. It was contended that Heading 8543.70 is a more general description encompassing any apparatus reliant on electrical operation whose function is not covered in chapter 85. That however, the EGMS devices have a particular identifiable function recognized in chapter 90’s scope. That, according to GIR 3(a), the specific beats the general i.e ‘the heading which provides the most specific description shall be preferred to a heading providing a more general description.’
38. It was submitted that the Appellant’s argument, that the subject devices should be seen as electrical machines because they incorporate electrical and electronic components, is flawed. It was contended that many measuring instruments use electricity (e.g digital multimeters, electronic gauges, laser measuring devices) yet are classified in chapter 90 by virtue of their measuring functions. That, the WCO explanatory notes recognize that Heading 9031 covers a wide array of measuring or checking instruments, including electrical or electronic ones unless they are more specifically provided for elsewhere.
39. It was submitted that the subject goods are evidently specialized devices and to insist on classifying them into a miscellaneous electrical category would be an over generalization of their character whereas classifying them in chapter 90 places them in their proper niche alongside similar precision instruments.
40. It was submitted that it is instructive to observe how similar goods are treated internationally especially noting that Kenya is a member of the World Customs Organization (WCO) which strives for uniform tarrif classification. It was contended that the suppliers of these items operate in over 70 countries, all of which classify the equipment in HS chapter 90 and as such, Kenya’s deviation to chapter 85 would be an outlier motivated not by proper interpretation of the law but by extraneous considerations. That, while each country’s decision is not binding on Kenya, consistency is a virtue in customs classification to facilitate trade. Reliance was placed inter alia on KRA -vs- Export Trading Company (Petition 20 of 2020) where the Supreme Court of Kenya underscored that even though the Commissioner has power to conduct post clearance audits and demand short-levied duty, doing so in a manner that is unfair or excessively delayed can violate the tax payer’s right to fair administrative action.
41. It was contended that in the present case, the Respondent had a legitimate expectation from consistent past practice that its imports under 9031 would not be suddenly reclassified without a clear justified reason. Reliance was placed on the comparative jurisprudence emerging from India by way of Indian customs decisions, often cited for persuasive guidance due to India’s long history of complex classification disputes. That, Indian Tribunals and courts have repeatedly held that where a product’s primary function is of a kind described in chapter 90, it should be classified there even if it incorporates electrical features (Commissioner Customs, Bangalore vs- M/s N.I Systems India P Ltd) .
Duty of Court
42. Section 53 of the Tax Procedures Act (TPA) provides for appeals and s. 56 (2) that an appeal to the High Court from the decision of the Tax Appeals Tribunal or to the Court of Appeal is on a question of law only .
53. Appeals to High Court A party to proceedings before the Tribunal who is dissatisfied with the decision of the Tribunal in relation to an appealable decision may, within thirty days of being notified of the decision or within such further period as the High Court may allow, appeal the decision to the High Court in accordance with the provisions of the Tax Appeals Tribunal Act, 2013 (No. 40 of 2013 ).
56. General provisions relating to objections and appeals.
(1)......
(2) An appeal to the High Court or to the Court of Appeal shall be on a question of law only
43. I have carefully considered the record, the grounds of appeal, statement of facts, rival submissions. The issues that arise for determination are:
a) Whether the that appellant made an appealable Tarif ‘ruling’ dated 06/06/2023; whether the Respondent was required to object to the said ruling; what was the import of any failure to do so and whether the Tribunal erred by failing to make a determination on the issue.
b) Whether the Appellant erred in re classifying the Respondent’s imported gadgets from tarrif code 9031.49.00 to 8543.70.00.
Analysis and Determination
Whether the that appellant made an appealable Tarif ‘ruling’ dated 06/06/2023; whether the Respondent was required to object to the said ruling; what was the import of any failure to do so and whether the Tribunal erred by failing to make a determination on the issue.
44. Following a post clearance compliance review on the Respondent’s imported gadgets, the Appellant issued a tariff ruling via a letter dated 06/06/2023 wherein it re classified the gadgets from tarrif code 9031.49.00 which attracts VAT only instead to tarrif code 8543.70.00 which attracts an import duty of 10% and Value Added Tax at the standard rate of 14% or 16% depending on the time of importation. The Appellant’s position is that there was no objection to the ruling hence the Respondent was in agreement with the consequences of the re classification.
45. On the other hand, the Respondent maintains that the Commissioner never objected to the procedural validity of the appeal at the Tribunal hence the current attempt to retroactively elevate the June 6 th Letter to the status of an appealable decision is both legally unsound and factually dishonest.
46. It is not in dispute that the gadgets which are the subject matter herein were imported within the East African Community hence governed by provisions of EACCMA. Section 220(1) therein provides that;
“A person directly affected by the decision or omission of the Commissioner or any other officer on matters relating to customs shall within 30 days of the date of the decision or omission lodge an application for review of that decision or omission.”
47. The tarrif ruling was certainly a decision that affected the Respondent as it would have an impact on the tax payable on the imported gadgets. However, I have not seen any provision to the effect that failure to object to variation of a tarrif code automatically means that the tax payer is in concurrence/agreement of the consequences of the new tariff code imposed by the Commissioner. This is in line with the cardinal rule of interpretation of tax statutes where courts are required to do so strictly without leaving room for intendment, implication or presumption. In the case of Commissioner of Investigations & Enforcement -vs- Libya Oil Kenya Ltd (Income Tax Appeal E104 of 2021) [2024] KEHC 3624 (KLR) (Commercial and Tax) (15 April 2024), the court (Mong’are J) stated that; “It is trite that Tax Statutes are to be strictly interpreted and there is no room for imputing that which has not been legislated into statute by Parliament.”
48. Similarly, in the case of Mount Kenya Bottlers Limited & 3 others -vs- Attorney General & 3 others [2019] eKLR the Court of Appeal appreciated this cardinal rule by stating that:
“... ‘Nevertheless, taxation is clearly “penal” within this section of the Code, and must not be enforced by the courts unless clearly imposed’…The same principles as above, were accepted and applied in the case of Cape Brandy Syndicate v Inland Revenue Commissioners [1921] KB 64 where Ronlat J, restated the principle in these words: “in a taxing Act clear words are necessary in order to tax the subject…It simply means that in a taxing Act one has to look merely at what is clearly said. There is no reason for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing to be implied. One can only look fairly on the language used…”
49. I have read both letters , the one dated 6 th June 2023 and the one dated 12 th July 2023 both from Customs & Border Control Department. The latter clearly states:
In case you do not agree to part or any of the findings of this demand letter you may lodge an appeal or review of our decision under sec. 229(1) of the EACCMA ...your appeal to be valid in line with sec 229(2) of EACCMA ...
50. this clearly states that that this was the decision the respondent was expected to appeal against in accordance with s. 229. The letter of 6 th June 2023 had np such clear directions and there was no room to read into it that the respondent had failed to act accordingly.
51. In any event , it was imperative for EACCMA to state in no uncertain terms that failure by a tax payer to dispute a tariff ruling which leads to additional taxes would estop such a taxpayer from disputing a subsequent demand for additional tax. In the absence of such a provision.
52. it is my considered view that there is no room for imputing concurrence on the part of the Respondent. This was a live issue before the Tribunal and its failure to address it was erroneous.
53. I have looked at Rex International Ltd (supra) where the court (Ado Moses J) held that failure to object to a tarrif ruling binds a tax payer to the classification determined in the said ruling. It is my view that the facts of this case in particular the existence of the two letters side by side cannot lead me to the same decision. From my foregoing
[...truncated]
IN THE HIGH COURT AT NAIROBI
MILIMANI COMMERCIAL & TAX DIVISION INCOME TAX
HCCOMMCTA/E006/2025
COMMISSIONER OF CUSTOMS &
BORDER CONTROL …………………………………………APPELLANT
VERSUS
SICPA KENYA LIMITED………………………………....…RESPONDENT
(Being an appeal arising from the judgement of the Tax Appeals Tribunal delivered in Nairobi on 22 nd November 2024 in Tax Appeals Tribunal Appeal No. E697 of 2023)
JUDGMENT
1. The Appellant is a principal officer appointed under section 13 of the Kenya Revenue Authority Act. The Kenya Revenue Authority (KRA) is an agency of the Government of Kenya mandated with the duty of collecting and receipting of all tax revenue and the administration and enforcement of all tax laws set out in parts 1 & 2 of the first schedule to the Act, for purposes of assessing, collecting and accounting for all tax revenues in accordance with those laws.
2. The Respondent is a limited liability company incorporated in Kenya under the Companies Act. The Respondent’s services involve management of excise goods management system (EGMS) set in place by the KRA to monitor the production of excisable goods by various manufacturers on a real time basis to facilitate accurate revenue administration which involves measuring, enumeration, checking at the manufacturer’s production lines and relaying the information to the KRA Integrated Production Accounting System (IPAS).
3. The Appellant conducted a post clearance compliance review on imported coding machine parts which included Encoder Magnetic Incre, Encoder Optical Incre, Light source, Module SCL, MOD SAS and Module LSM b ke covering the years 2018 to 2023. Through a letter titled ‘Notice of Demand for short-levied duties - kshs 35,050,691.00’ dated 12/07/2023, the Appellant alleged that the Respondent had used an incorrect tarrif code 9031.49.00 which attracts VAT only instead of tarrif code 8543.70.00 which attracts an import duty of 10% and Value Added Tax at the standard rate of 14% or 16% depending on the time of importation. The Appellant re classified the gadgets to 8543.70.00 and demanded additional taxes.
4. The Respondent lodged an application for review on 11/08/2023 maintaining that the items should be categorized under Chapter 90 which pertains to ‘optical, photographic, cinematography, measuring, checking, precision, medical or surgical instruments and apparatus, parts and accessories.’ After examining the application for review, the Appellant upheld its decision to re classify the items and impose additional taxes and the decision was conveyed to the Respondent via a letter dated 05/09/2023.
5. Aggrieved by the review decision, the Respondent appealed to the Tribunal.
Appeal before the Tax Appeals Tribunal
6. The Respondent (Appellant in the Tribunal) raised the following grounds;
a) The Commissioner erred in law and fact in charging tax on commodities under Tariff classification with zero percent duty charge.
b) The Commissioner erred in law and fact in the re classification of coding machine parts or module LSM b ke, Encoder Magnetic Incre, Encoder Optical Incre, Light source, Module SCL and MOD SAS from tarrif code 9031.49.00 to 8543.70.00.
c) The Commissioner erred in law by raising assessments out of the five-year statutory timeline permitted.
7. The Tribunal found merit in the Appeal and gave the following orders;
a) The Appeal be and is hereby allowed.
b) The Respondent’s Review decision dated 5 th September 2023 be and is hereby set aside.
c) Each party to bear its own costs.
8. Aggrieved by that judgment, the Commissioner lodged this appeal via an amended Memorandum of Appeal dated 28/05/2025. The grounds are set out as follows :
a) The honorable Tribunal failed to address or make a determination on an issue expressly raised by the Appellant during trial namely- that the Respondent did not lodge an objection to the Appellant’s ruling dated 6 th June 2023 as required under section 229 of the East African Community Customs Management Act (EACCMA).
b) The honorable Tribunal erred by failing to apply and consider Section XVI Note 4 Explanatory notes of the Harmonized system relating to classification of combination of machines hence finding that the Appellant erred in reclassifying the Respondent’s LSM coding machine parts from tarrif code 9031.49.00 to tarrif code 8543.70.00.
c) The Tribunal thus failed to appreciate that the SICPATRACE gadgets are a system or a combination machine performing different functions (multifunctional machines) whose classification is guided by section XVI Note .
d) The honorable Tribunal erred in law and fact in holding that the Appellant was wrong in re-classifying the Respondent’s LSM coding machine parts from tarrif code 9031.49.00 to tarrif code 8543.70.00.
e) The Honorable Tribunal erred in law and in fact in their analysis of the nature of the subject goods by referring to them as ‘mere parts’ leading to the erroneous finding that the Appellant’s reclassification of the goods was incorrect.
f) The Honorable Tribunal erred in holding that the imported goods are ‘parts of machines’ disregarding the Respondent’s description of the goods as SICPATRACE gadgets a ‘system of machines’ performing specific functions in monitoring manufacture processes for purposes of Excisable Goods Control.
g) The Honorable Tribunal erred in law and in fact in acting contrary to Rule 1 of the General Interpretation Rules of the Harmonized system which provides that classification shall be determined according to the terms of the headings and any relative sections or chapter notes and instead considered the text to the title of the chapters which are only used for ease of reference when considering the tariff classification of the product imported by the Respondent September 2023 were not justified.
(emphasis all mine)
9. Parties agreed to proceed by way of written submissions. Consequently, each filed their respective submissions.
Appellant’s Submissions
10. The issues for determination were identified to be;
a) Whether the honorable Tribunal erred in failing to determine the legal effect of the Respondent’s failure to lodge an objection to the Appellant’s ruling dated 6 th June 2023, contrary to section 229 of the East African Community Customs Management Act (EACCMA).
b) Whether the Tribunal erred in re classifying the disputed products despite the tariff ruling not objected to on interpretation of the relevant customs tariff codes.
11. On whether the honorable Tribunal erred in failing to determine the legal effect of the Respondent’s failure to lodge an objection to the Appellant’s ruling dated 06/06/2023 , it was submitted that section 229(1) of EACCMA provides a strict 30-day timeline for an importer to object to a ruling made by the Commissioner and as such, the Respondent ought to have objected to the ruling on or before 06/07/2023 . That the tribunal lacked the jurisdiction to re-open a classification that already had a ruling that the respondent never objected to
12. That, the Tribunal failed to address this procedural lapse despite the Appellant raising it at trial. It was contended that failure to object to the ruling rendered it final by law and the Tribunal lacked jurisdiction to entertain the matter and undermined the principle of finality in administrative decisions. .
13. The court was referred to appellant’s statement of facts, paragraph 13 of the appellant’s witness statement at page 29 and the examination in chief at Page 127 of the Record of Appeal.
14. For the proposition that the tribunal erred in re opening the reclassification the appellant relied on Commissioner of Customs & Border Control -vs- Rex International Ltd (2025) eKLR where the court stated;
“I find merit in the Appellant’s argument that the Tribunal erred in re classifying the disputed products despite the absence of an objection to the tariff ruling, as required under section 229 of the EACCMA 2024 .”
15. On whether the Tribunal erred in re classifying the disputed products despite the tariff ruling not being objected to on interpretation of the relevant customs tariff codes, it was submitted that the re classification of the goods effectively overturned the binding ruling that has never been challenged through the proper legal process. It was contended that having failed to object, the Respondent accepted the classification and paid taxes accordingly. That, the Tribunal’s disregard of this fact violates section 230 of EACCMA and creates procedural confusion, encouraging importers to revisit final decisions through backdoor litigation.
16. It was submitted that the Tribunal exceeded its jurisdiction, amounting to procedural impropriety as elucidated in Republic -vs- Principal Secretary, Ministry of Defence & Others ex parte Unique Supplies Ltd (2019) KEHC 2903 KLR where it was held that;
“63. Procedural impropriety generally encompasses two things; procedural ultra vires, where administrative decisions are challenged because a decision maker has overlooked or failed to properly observe statutory procedural requirements and common law rules of natural justice and fairness. Lord Diplock noted that; ‘failure by an administrative Tribunal to observe procedural rules that are expressly laid down in the legislative instrument by which its jurisdiction is conferred, even where such failure does not involve any denial of natural justice,’ is a form of procedural impropriety .”
17. It was submitted that the Tribunal usurped the Commissioner’s authority to issue binding tariff rulings, contrary to the principle of legal finality in administrative decision-making and its reclassification interfered with the statutory scheme for objections and appeals, violating settled law that a decision not objected to in time is not appealable.
18. It was submitted that the Tribunal failed to evaluate the implications of the Respondent’s non-compliance with administrative procedures, which is a fundamental aspect of the tax dispute resolution framework.
Submissions by the Respondent
19. It was submitted that the subject machines are imported by the Respondent for deployment to various manufacturers pursuant to the Excise Duty (Excisable Goods Management System) Regulations (the Regulations). That, the Respondent’s undertaking in Kenya includes the offering of solutions for the collection of Excise Duty. That, the Regulations assist the KRA in the collection of Excise Duty by providing for the installation and operation of an excisable goods management system in the premises of manufacturers of excisable goods.
20. It was submitted that the Respondent provides the solution which enables KRA in management of the excise goods management system and to effectively monitor the production of excisable goods by various manufacturers on a real time basis to facilitate accurate revenue administration which involves; measuring, enumeration and monitoring at the manufacturer’s production lines and relaying the information to the KRA Integrated Production Accounting System.
21. It was submitted that the goods which are the subject of the dispute are the goods which the Respondent uses to offer the necessary solution to KRA which are essentially a system of gadgets working together to perform one function. That, they are intelligent gadgets whose combination is called SICPATRACE which is a tailored digital tax stamp management system designed for governments to optimize fiscal revenues on excise goods to facilitate its mandate. That, to date the Respondent has installed the SICPATRACE systems at 51 manufacturers’ premises with more coming on board over time.
22. It was asserted that the subject items perform one function and should therefore be classified under tarrif code 9031.49.00 because they are part of one whole performing one function as a whole as contemplated in this tarrif. Reliance was placed on Commissioner of Customs & Border Control -vs- Kenya Breweries Ltd where a summation of the classification system was given by Majanja J as follows;
a) The Harmonized Commodity Description and Coding System is a common and harmonized system offering a means for a systemic naming or enumerating of all goods found in international trade along with international rules and interpretation.
b) The East African Community Common External Tariffs (EAC/CET) premised on the East African Community Partner States agreement to adopt the same following the establishment of the East African Community.
c) The Harmonized System comprises 21 sections divided into 99 chapters and the arrangement of sections is based on three principles, articles made of same material, goods of the same use and the stage of processing or degree of manufacturing. It comprises tarrif structures where a tariff number is identified by an eight-digit code assigned to a good or service i.e the HS Code.
d) The tarrif number is based on the general category that describes the item.
e) The Harmonized system is also supported by explanatory notes which provide commentary on the intent and scope of provisions and as approved by the customs co-operation Council, they thus constitute the official interpretation of the Harmonized system at the international level and are an indispensable complement to the system.
23. In response to the Appellants argument that the Respondent ‘concurred’ with the reclassification by not appealing within 30 days as required under section 229 of EACCMA, it was submitted that a mere reading of the Appellant’s letter dated 12/06/2023 dispels the notion that the said letter had a ring of finality as the Respondent was informed of its right of appeal to the Tax Appeals Tribunal.
24. It was submitted that the Appellant’s assertion that the Respondent should have proceeded on the basis of the letter dated 06/06/2023 is an afterthought because barely 36 days after issuing the said letter and at least 9 days before an appeal would be out of time, the Appellant was still engaging with the Respondent wide the letter of 12/07/2023 . It was contended that the Appellant cannot approbate and reprobate.
25. It was submitted that the unequivocal language in the Appellant’s demand letter dated 12/07/2023 indicates that the ‘decision’ capable of objection or appeal was the tax assessment therein and not the prior advisory classification communicated on 06/06/2023. That, notably, the 6 th June letter made no mention of a tax demand, assessment or enforcement. That, it did not invite objection or indicate that it was a final or appealable decision under EACCMA or the Tax Procedures Act.
26. It was submitted that the letter of 6 th June 2023 which spoke of the reclassification of Line Status Monitoring System could not have been the basis of an appeal, because of the next letter of 12 th July 2023 which was the demand , giving the window of an appeal. That the Respondent lodged its application for review (objection) on 10/08/2023, which was duly acknowledged and admitted by the Commissioner. That, subsequently, the parties participated in a series of Objection Review Meetings including engagements recorded in the ADR Progress Report dated 28/11/2023 and the correspondence exchanged between the Commissioner and SICPA representatives in April 2024 confirming the ongoing post-review discussions. That, thereafter, the Commissioner issued an Objection Decision dated 05/09/2023 which not only validates the legitimacy of the Respondent’s Objection process but also acknowledges that the appealable decision was the tax demand and not the earlier tarrif guidance .
27. It was submitted that the Commissioner proceeded to file its statement of facts at the Tribunal on 16/11/2023 without raising any objection to the procedural validity of the appeal. That, the Commissioner participated fully in the ADR process where the merits of classification were discussed and at no point did the Appellant claim that the Respondent’s appeal was incompetent for failure to object to the June 6 th Letter.
28. It was contended that the current attempt to retroactively elevate the June 6 th Letter to the status of an appealable decision is both legally unsound and factually dishonest. That, it is a desperate attempt to mislead this court, confuse the issues and avoid scrutiny of the actual tax decision that was duly challenged under the law.
29. It was submitted that section 229 of EACCMA is the primary provision governing administrative objections to customs decisions and compliance with it is a pre-condition to invoking the jurisdiction of the Tax Appeals Tribunal under section 230 of EACCMA.
30. Reference was made to the Tax Procedures Act (TPA) for the submission that an appealable decision includes an objection decision by the Commissioner as well as ‘any other decision made under a tax law’ (except decisions that are part of the process of making a tax assessment). That, the letter dated 05/09/2023 conveying the review outcome is plainly an objection decision within the meaning of section 3 of the TPA as it finally disposed off the Respondent’s objection and confirmed a tax liability.
31. It was submitted that for purposes of customs, the classification of goods under the Harmonized Commodity Description and Coding System (HS) is governed by the General Rules for the Interpretation of the Harmonized System (GIRs) as incorporated in the East African Community Common External Tarrif (CET) 2022. That, there are section notes and chapter notes which have legal force and can include or exclude particular goods from certain chapters. That, there are explanatory notes which are a persuasive interpretative aid and are highly regarded in decidedly clarifying the scope of headings.
32. It was submitted that in this case, the two tariff headings in contention are Heading 85.43 (subheading 8543.70.00) and Heading 90.31 (subheading 9031.49.00) . That, according to the EAC/CET 2022, heading 8543 falls in chapter 85 (which covers electrical machinery and equipment) and by description covers ‘Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter.’ That, subheading 8543.70.00 is an ‘other’ category under that heading. It was contended that HS 8543 is a catch-all for miscellaneous electrical apparatus that do not fall under any specific device category in chapter 85.
33. It was submitted that Heading 9031 falls in Chapter 90 (which covers optical, photographic, measuring, checking, precision instruments etc) and covers ‘measuring or checking instruments, appliances and machines, not specified or included elsewhere in this chapter, profile projectors . That, subheading 9031.49.00 specifically refers to ‘other’ measuring or checking instruments not enumerated elsewhere in heading 90.31. That, HS 90.31 is intended for instruments and apparatus that measure, check, inspect or test physical parameters, which are not covered by earlier headings of chapter 90.
34. It was submitted that the language of the two headings immediately reveals a critical distinction i.e Heading 9031 is about function whereas Heading 8543 is about an apparatus’s nature as an electrical machine not covered elsewhere.
35. It was submitted that the characteristics of the EGMS (SICPATRACE) devices, from the evidence on record which was largely undisputed, shows that they collectively serve a single well-defined function i.e, to measure, monitor, check and verify production output of excisable goods for tax compliance. That, they form an integrated system to ensure accurate reporting of production (for excise tax purposes) by detecting anomalies, counting outputs and validating codes.
36. It was submitted that it is a fundamental principle in the HS that certain chapters are mutually exclusive by virtue of section or chapter notes. That, section XVI Note 1(m) (which applies to chapters 84 & 85) explicitly excludes articles of chapter 90 from classification in section XVI (i.e from chapters 84/85) hence if an item is properly classifiable as a measuring or checking instrument of chapter 90, it cannot be put in chapter 85.
37. It was submitted that the Appellant’s Headquarters initially classified the items under chapter 90 for many years, implying they recognized them as instruments rather than generic electrical apparatus. It was contended that Heading 8543.70 is a more general description encompassing any apparatus reliant on electrical operation whose function is not covered in chapter 85. That however, the EGMS devices have a particular identifiable function recognized in chapter 90’s scope. That, according to GIR 3(a), the specific beats the general i.e ‘the heading which provides the most specific description shall be preferred to a heading providing a more general description.’
38. It was submitted that the Appellant’s argument, that the subject devices should be seen as electrical machines because they incorporate electrical and electronic components, is flawed. It was contended that many measuring instruments use electricity (e.g digital multimeters, electronic gauges, laser measuring devices) yet are classified in chapter 90 by virtue of their measuring functions. That, the WCO explanatory notes recognize that Heading 9031 covers a wide array of measuring or checking instruments, including electrical or electronic ones unless they are more specifically provided for elsewhere.
39. It was submitted that the subject goods are evidently specialized devices and to insist on classifying them into a miscellaneous electrical category would be an over generalization of their character whereas classifying them in chapter 90 places them in their proper niche alongside similar precision instruments.
40. It was submitted that it is instructive to observe how similar goods are treated internationally especially noting that Kenya is a member of the World Customs Organization (WCO) which strives for uniform tarrif classification. It was contended that the suppliers of these items operate in over 70 countries, all of which classify the equipment in HS chapter 90 and as such, Kenya’s deviation to chapter 85 would be an outlier motivated not by proper interpretation of the law but by extraneous considerations. That, while each country’s decision is not binding on Kenya, consistency is a virtue in customs classification to facilitate trade. Reliance was placed inter alia on KRA -vs- Export Trading Company (Petition 20 of 2020) where the Supreme Court of Kenya underscored that even though the Commissioner has power to conduct post clearance audits and demand short-levied duty, doing so in a manner that is unfair or excessively delayed can violate the tax payer’s right to fair administrative action.
41. It was contended that in the present case, the Respondent had a legitimate expectation from consistent past practice that its imports under 9031 would not be suddenly reclassified without a clear justified reason. Reliance was placed on the comparative jurisprudence emerging from India by way of Indian customs decisions, often cited for persuasive guidance due to India’s long history of complex classification disputes. That, Indian Tribunals and courts have repeatedly held that where a product’s primary function is of a kind described in chapter 90, it should be classified there even if it incorporates electrical features (Commissioner Customs, Bangalore vs- M/s N.I Systems India P Ltd) .
Duty of Court
42. Section 53 of the Tax Procedures Act (TPA) provides for appeals and s. 56 (2) that an appeal to the High Court from the decision of the Tax Appeals Tribunal or to the Court of Appeal is on a question of law only .
53. Appeals to High Court A party to proceedings before the Tribunal who is dissatisfied with the decision of the Tribunal in relation to an appealable decision may, within thirty days of being notified of the decision or within such further period as the High Court may allow, appeal the decision to the High Court in accordance with the provisions of the Tax Appeals Tribunal Act, 2013 (No. 40 of 2013 ).
56. General provisions relating to objections and appeals.
(1)......
(2) An appeal to the High Court or to the Court of Appeal shall be on a question of law only
43. I have carefully considered the record, the grounds of appeal, statement of facts, rival submissions. The issues that arise for determination are:
a) Whether the that appellant made an appealable Tarif ‘ruling’ dated 06/06/2023; whether the Respondent was required to object to the said ruling; what was the import of any failure to do so and whether the Tribunal erred by failing to make a determination on the issue.
b) Whether the Appellant erred in re classifying the Respondent’s imported gadgets from tarrif code 9031.49.00 to 8543.70.00.
Analysis and Determination
Whether the that appellant made an appealable Tarif ‘ruling’ dated 06/06/2023; whether the Respondent was required to object to the said ruling; what was the import of any failure to do so and whether the Tribunal erred by failing to make a determination on the issue.
44. Following a post clearance compliance review on the Respondent’s imported gadgets, the Appellant issued a tariff ruling via a letter dated 06/06/2023 wherein it re classified the gadgets from tarrif code 9031.49.00 which attracts VAT only instead to tarrif code 8543.70.00 which attracts an import duty of 10% and Value Added Tax at the standard rate of 14% or 16% depending on the time of importation. The Appellant’s position is that there was no objection to the ruling hence the Respondent was in agreement with the consequences of the re classification.
45. On the other hand, the Respondent maintains that the Commissioner never objected to the procedural validity of the appeal at the Tribunal hence the current attempt to retroactively elevate the June 6 th Letter to the status of an appealable decision is both legally unsound and factually dishonest.
46. It is not in dispute that the gadgets which are the subject matter herein were imported within the East African Community hence governed by provisions of EACCMA. Section 220(1) therein provides that;
“A person directly affected by the decision or omission of the Commissioner or any other officer on matters relating to customs shall within 30 days of the date of the decision or omission lodge an application for review of that decision or omission.”
47. The tarrif ruling was certainly a decision that affected the Respondent as it would have an impact on the tax payable on the imported gadgets. However, I have not seen any provision to the effect that failure to object to variation of a tarrif code automatically means that the tax payer is in concurrence/agreement of the consequences of the new tariff code imposed by the Commissioner. This is in line with the cardinal rule of interpretation of tax statutes where courts are required to do so strictly without leaving room for intendment, implication or presumption. In the case of Commissioner of Investigations & Enforcement -vs- Libya Oil Kenya Ltd (Income Tax Appeal E104 of 2021) [2024] KEHC 3624 (KLR) (Commercial and Tax) (15 April 2024), the court (Mong’are J) stated that; “It is trite that Tax Statutes are to be strictly interpreted and there is no room for imputing that which has not been legislated into statute by Parliament.”
48. Similarly, in the case of Mount Kenya Bottlers Limited & 3 others -vs- Attorney General & 3 others [2019] eKLR the Court of Appeal appreciated this cardinal rule by stating that:
“... ‘Nevertheless, taxation is clearly “penal” within this section of the Code, and must not be enforced by the courts unless clearly imposed’…The same principles as above, were accepted and applied in the case of Cape Brandy Syndicate v Inland Revenue Commissioners [1921] KB 64 where Ronlat J, restated the principle in these words: “in a taxing Act clear words are necessary in order to tax the subject…It simply means that in a taxing Act one has to look merely at what is clearly said. There is no reason for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing to be implied. One can only look fairly on the language used…”
49. I have read both letters , the one dated 6 th June 2023 and the one dated 12 th July 2023 both from Customs & Border Control Department. The latter clearly states:
In case you do not agree to part or any of the findings of this demand letter you may lodge an appeal or review of our decision under sec. 229(1) of the EACCMA ...your appeal to be valid in line with sec 229(2) of EACCMA ...
50. this clearly states that that this was the decision the respondent was expected to appeal against in accordance with s. 229. The letter of 6 th June 2023 had np such clear directions and there was no room to read into it that the respondent had failed to act accordingly.
51. In any event , it was imperative for EACCMA to state in no uncertain terms that failure by a tax payer to dispute a tariff ruling which leads to additional taxes would estop such a taxpayer from disputing a subsequent demand for additional tax. In the absence of such a provision.
52. it is my considered view that there is no room for imputing concurrence on the part of the Respondent. This was a live issue before the Tribunal and its failure to address it was erroneous.
53. I have looked at Rex International Ltd (supra) where the court (Ado Moses J) held that failure to object to a tarrif ruling binds a tax payer to the classification determined in the said ruling. It is my view that the facts of this case in particular the existence of the two letters side by side cannot lead me to the same decision. From my foregoing
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