Tax Appeals Tribunal Decision HS Classification Chapter 84>Tax Consultant Kenya

• The Respondent conducted a post clearance audit on the Appellant’s consignments for the year 2016. The items imported were solar water heaters. Following the audit, the Respondent issued a demand notice of Kshs 10,207,370.00 on 25^thNovember 2021 relating to additional import duty, excise duty and VAT.
• The Appellant being greatly aggrieved with the assessment objected vide letter dated December 2021. The Respondent

JUDGEMENT

1. Before the Tribunal is an application filed by way of Notices of Motion dated 2^ndMarch 2022 and filed on 3^rd March 2022.
2. Both application is seeking for orders that:

• The application be certified as urgent and be heard ex parte in the first instance.
• An order be granted directing the Respondent to continue classification of the Appellant’s consignments of solar water heaters under HS Code 8519 19 00 pending the hearing and determination of the application.
• An order be granted directing the Respondent to continue classification of the Appellant’s consignments of water heaters under HS Code 8519 19 00 pending hearing and determination of the Appeal.
• An order be granted prohibiting the Respondent from classifying the Appellant’s heaters under HS Code 8516 10 00 pending hearing and determination of this application.

 

• An order be granted prohibiting the Respondent from classifying the Appellant’s consignments of solar water heaters under HS 8516 10 00 pending the hearing and determination of the Appeal.

• The Honourable Tribunal be pleased to issue prohibitory injunction restraining the Respondent from detaining the Applicant’s incoming and enroute Solar Water Heaters and future consignment classifiable under tariff number 8519 19 00 pending the determination of the Appeal
• That the Honourable Tribunal be pleased to issue prohibitory injunction restraining the Respondent from using the WCO decision elated 3^rdNovember 2021 and enforce classification of the Appellant’s solar water heaters under tariff Code 8516 10 00 pending the hearing and determination of this application as the WCO decision is just an opinion and is not legally binding.

(viii) That costs of and incidental to the application be in the cause.

3. The application is premised on the following grounds as stated in the Affidavit in support deponed by Findesio Mugendi Mbiuki on 2^ndMarch 2022 and filed on 3^rd March 2022.

• The Respondent conducted a post clearance audit on the Appellant’s consignments for the year 2016. The items imported were solar water heaters. Following the audit, the Respondent issued a demand notice of Kshs 10,207,370.00 on 25^thNovember 2021 relating to additional import duty, excise duty and VAT.
• The Appellant being greatly aggrieved with the assessment objected vide letter dated December 2021. The Respondent

 

subsequently provided a review dated 3^rd January 2022 upholding its demand dated 25^th November 2021.

• The Appellant is not a stranger to importation of solar water heaters, it has on several occasions imported solar water heaters for purposes of retailing the same.
• In all its previous consignments, the Appellant had declared solar water heaters under HS Code 8519 19 00 and the same had been allowed by the Respondent. Having allowed the same in the past, the Respondent is now unjustly and unfairly attempting to demand for classification of the solar water heaters under a different tariff code which is subject to higher taxes at the higher rate of an additional 25% duty and 16% VAT. Conversely, tariff Code 8519 19 00 accrued 0% duty and VAT. The motives of the Respondent is thus clear.
• In attempting to justify their demand for classification under tariff Code 8516 10 00 the Respondent relied on WCO opinion dated 3^rdNovember 2021 whose veracity is highly in doubt. The alleged opinion is incomplete, lacks a signature and the capacity in which the sender is allegedly preferring the opinion.
• The WCO decision the Respondent intend to rely on religiously is merely an opinion and not legally binding. The role of the WCO is clear, mandate of the Secretariat is to supply technical, logistical, and professional support to the various working bodies established by the Council, deliver capacity building, technical assistance and training and develop and maintain international customs and tools. Therefore, the Secretariat has no legal duty, obligation, and mandate to issue classification opinions or other advice as guides to the interpretation of the Harmonized System.
• Justifiably the Appellant being dissatisfied with the review intents to Appeal to this Honourable Tribunal. The Appellant’s Appeal to the Honourable Tribunal raises triable issues with high probability of success pertinent of which are:

1. That the Respondent arrived at its demand by incorrectly classifying the Appellant’s solar water heaters und HS 8516 10 00 as opposed to the tariff Code 8519 19 00 which solar Water heaters are classifiable under
2. That the Respondent failed to appreciate that solar water heaters imported by the Appellant do not meet the threshold envisaged by HS 8516 10 00 of the EACCET.
3. Ideally the Appellant’s water heaters should have been classified under HS 8519 19 00 as read together with the explanatory notes which provide for solar water heaters.
4. The Respondent made a grievous error in opting to base their decision to classify the solar water heaters as dual system heaters on an alleged WCO opinion dated 3^rdNovember 2021 where the veracity is highly in doubt. The alleged opinion is incomplete and lacks a signature and the capacity in which the sender is allegedly proffering the opinion.
5. In any event, appreciate that the principal heating system in the solar water heaters imported by the Applicant is solar energy and that they are not heated electrically or by connection to a fuel heated system and thus cannot be classifiable under HS 85

16.

(viii) It cannot be overstated that the Appellant’s business entails, inter alia, purchase, importation and installation of solar heaters on behalf of its clients. The Respondent by relying on the WCO decision, not only seek to jeopardize the Appellant’s goods currently at the Port, but also any future consignments it may seek to import.

• Currently the Appellant has consignments of water heaters at the Port awaiting verification based on the recent actions of the Respondent, the Appellant will be impelled to classify the goods under HS Code 8516 10 00 and pay higher taxes.
• Noting that the Applicant is a going concern the Respondent by detaining the Appellant goods at the Port and potential detainment of those currently enroute will lead to increased liabilities for the Appellant including but not limited to Port and demurrage charges,
• The Respondent’s officers have previously verified the Appellant’s imports and accepted the declaration of its solar water heaters at HS 8519 19 00. Consequently, a legitimate expectation was created and the Appellant should not be punished for relying on a Government authority’s approvals as per presumption of regularity.
• The Appellant stands to suffer insurmountable losses should the orders sought for not be granted. The Respondent in turn will not suffer prejudice should the application be allowed.

4. The Respondent cited the following in its Grounds of Opposition dated 17^thMarch 2022 and filed on 18^th March 2022 and the written submissions dated 8^th March and filed on 11^th April 2022

• That the Honourable Tribunal lacks the jurisdiction to grant orders staying the WCO advisory.
• That there is no threat by the Respondent to execute against the Appellant as the dispute is before the Tribunal
• That the WCO advisory has determination on the classification of the HS Code of the Applicant’s products and hence an order against continued use of the recommended Hs Code will go against the WCO advisory for which the Honourable Tribunal is not vested with that jurisdiction
• That the WCO advisory is conclusive and the Appellant if angered can seek a review with the WCO
• That if the orders sought are granted, it shall be prejudicial against the Respondent.
• That the application be dismissed with costs.

Analysis and determination

5. The Tribunal after considering the pleadings of both parties was of the view that the only issue for determination was whether the Applicant may be granted the prayers sought.
6. Briefly, the facts leading to this dispute are that the Respondent carried out a post clearance audit on the Applicant following which it raised a demand for additional taxes amounting to Ksh 10,207,370.00. The demand was premised on reclassification of the Appellant’s solar water heaters from HS 8519 19 00 to HS 8516 10 00, relying of an advisory opinion from WCO Secretariat. The Appellant has filed an Appeal before the Tribunal against the Respondent’s decision to reclassify its goods.
7. The authority of the Tribunal to order stay or affect the implementation of the decision under review is immortalized in Section 18 of the Tax Appeals Tribunal Act which provides that

“Where an appeal against a tax decision has been filed under this Act, the Tribunal may make an order staying or otherwise affecting the operation or implementation of the decision under review as it considers appropriate for the purposes of securing the effectiveness of the proceeding and determination of the appeal. ”

8. The Tribunal used the following criteria to determine whether a stay of the Respondent’s review decision dated 12^thJanuary 2022 may be granted.
9. Whether there is an arguable Appeal
10. The prejudice suffered by the Respondent if the application is granted.
11. An appeal being arguable does not mean that it should necessarily succeed it is rather arguable. It is one that would not be frivolous and lead to a waste of the Tribunal’s time. The Tribunal was guided by the findings of the Court in Kenya Commercial Bank Limited Vs Nicholas Ombija (2009) eKLR where it was held that “ an arguable appeal is not one which must necessarily succeed, but one which ought to be argued

fully before the court. ” That was also the position in Stanley Kangethe Kinyanjui Vs Tony Ketter & others (2013) eKLR where the court held that “on whether the appeal is arguable, it is sufficient if a single bonafide ground of appeal is raised, .. an arguable appeal is not one which must necessarily succeed, but one which ought to be argued fully before the court: one which is not frivolous.

10. Ngugi J in Samuel Mwaura Muthumbi V Josephine Wanjiru Ngugi & Another (2018) eKLR on arguable Appeal stated that:

“At this point the Applicant is not required to persuade the Appellate court that the intended or filed appeal has a high probability of success. AH one is required to demonstrate is the arguabiiity of the Appeal, a demonstration that the Appellant has plausible grounds of either facts or law to overturn the original verdict.. ”

11. Looking at the grounds of appeal in the Applicant’s Memorandum of Appeal the Tribunal noted that the Applicant had listed 21 grounds which it wished to rely on during the hearing of the Appeal and which grounds the Tribunal was of the view that they required rebuttal from the Respondent.
12. On whether there would be prejudice suffered by the Respondent if the application were granted, it is common parlance that the term “Prejudice” as used in civil matters refer to injury, loss, damnification or substantial loss. Thus, a party claiming that it would suffer prejudice must demonstrate the likelihood of suffering substantial loss,
13. The Court inVishva Stone Suppliers Company Limited v RSR Stone [2006] Limited [2020] eKLR stated on prejudice to be suffered by the Respondent as follows:

“The degree of prejudice to the Respondent entails balancing the competing interests of the parties ”…

14. After weighing the degree of prejudice to be suffered by the Applicant if the application was not granted against that of the Respondent if the application was granted, the Tribunal found that the Respondent would not suffer any prejudice if the application was granted,.
15. Furthermore, the Respondent did not claim that it would suffer any prejudice or that the Applicant was a man of straw. The Tribunal was of the view that the Respondent could always enforce its demand for taxes from the Appellant if the appeal was unsuccessful.

Disposition

16. In view of the foregoing, the Tribunal determined that the Appeal has merit and therefore succeeds. The Orders that commend themselves are as follows:
17. Temporary stay of implementation of the Respondent’s review decision dated 3^rdJanuary 2022 be and is hereby granted pending the hearing and final determination of Appeal.
18. The Applicant to continue declaring its goods under HS Code 8519 19 00 pending hearing and determination of the Appeal.
19. The matter to be heard on priority basis.
20. Each party to bear its costs.
21. It is so ordered

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