Afat Trading Limited v Commissioner of Customs & Border Control [2023] KETAT 512 (KLR)

Afat Trading Limited v Commissioner of Customs & Border Control (Tax Appeal 164 of 2022) [2023] KETAT 512 (KLR) (1 September 2023) (Judgment)

Neutral citation: [2023] KETAT 512 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 164 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, Jephthah Njagi & AK Kiprotich, Members

September 1, 2023

Between

Afat Trading Limited

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

Background 1. The Appellant is a private limited company incorporated in Kenya under the Companies Act, 2015 laws of Kenya.

2. The Respondent is appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and the Kenya Revenue Authority is charged with the responsibility of among others, assessment, collection, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Respondent conducted a desk audit of the Appellant's imports of solar water heaters for the year 2016. Following the audit, the Respondent issued a demand notice of Kshs. 4,169,868. 48 on 3rd December 2021 relating to additional import duty and VAT.

4. In its demand, the Respondent submitted that the proper classification for the Appellant's product, solar water heaters, is under HS Code 8516. 10. 00 in accordance with GR 1 and Explanatory Notes to Heading 85. 16 attracting 25% import duty as well as 16% VAT as opposed to HS Code 8419. 19. 00 as declared by the Appellant which attracts 0% duty and 0% VAT.

5. The Appellant wrote back to the Respondent on 8th December 2021 objecting to the classification under HS Code 8516. l0. 00 and further requested the Respondent to reevaluate the classification of solar water heaters.

6. The Respondent delivered its review decision on 14th December, 2021 upholding the amount as demanded.

7. The Appellant vide its Tax Agent’s letter dated 23rd December 2021 insisted that the proper classification of its solar water heater, based on the terms of the heading and the appropriate Legal Notices, is and remains HS Code 8419. 19. 00.

8. The Appellant thereafter filed a Notice of Appeal on 3rd February 2022.

The Appeal 9. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated 10th February 2022:a.That the Respondent erred in law and fact by raising a demand of Kshs 4,169,868. 48 arrived at by incorrectly classifying the Appellant's solar water heaters (hereinafter referred to as “the Appellant's Product”) under tariff 8516. 10. 00 as opposed to the tariff code 8419. 19. 00 which Solar Water Heaters are classifiable under;b.That the Respondent erred in law and in fact in finding that the Appellant's product fell under HS Code 8516. 10. 00, despite the fact that the product does not fit within the heading, sections, and Explanatory Notes of the aforesaid classification;c.That the Respondent erred in law and fact in failing to appreciate that Solar Water Heaters imported by the Appellant do not meet the threshold envisaged by tariff code 8516. l0. 00 of the East African Community Common External Tariff (EAC/Cet) (Appendix A) Heading 85. 16 provides for“Electric instantaneous or storage water heaters and immersion heaters; electric space heating apparatus and soil heating apparatus; electro-thermic hair-dressing apparatus (for example, hair dryers, hair curlers, curling tong heaters) and hand dryers; electric smoothing irons; other electro-thermic appliances of a kind used for domestic purposes; electric heating resistors, other than those of heading 85. 45. ”In particular HS Code 85I6. 10. 00 provides for“Electric instantaneous or storage water heaters and immersion heaters.”d.That the Explanatory Notes further categorize the HS Code 8516. 10. 00 to include Geysers, storage water heaters, dual- System water heaters, electrode hot water boilers, immersion heaters and Electric equipment for producing boiling water.e.That the Respondent further erred in law and fact by classifying the Solar Water Heaters imported by the Appellant as dual-system heaters on the basis of Explanatory Note A to heading 85. 16 (APPENDIX B) which reads as follows:“(A)Electric Instantaneous Or Storage Water Heaters And Immersion HeatersThis group includes:(1)Geysers in which the water is heated as it flows through.(2)Storage water heaters (whether or not of the pressure type), i.e. heat-insulated tanks with immersion heating elements. In these heaters water is heated gradually.(3)Dual-system heaters in which the water is heated either electrically or by connection to a fuel-heated hot water system; they are often equipped with a thermostatic control to operate them electrically only when the alternative means is insufficient.”f.That the Respondent erred in law and fact by stating that a dual- system heater operates under both solar power and electricity when it is noticeably clear from the Explanatory Notes above that water in Dual-System Heaters is heated either electrically or by connection to a fuel-heated hot water system. It is on the basis of this flawed misinterpretation of the law that the Respondent misclassified the Appellant's Product.g.That the Respondent erred in law and fact by failing to appreciate that the nature of the product in dispute is not a dual-system water heating system but rather a solar water heater with a provision of an electric element to heat the water connected to a storage tank.h.That the Respondent erred in law and fact by failing to appreciate that Heading 8419. 19. 00 (APPENDIX C) as read together as read together with chapter 84 Explanatory Notes (EN) provide for the most accurate classification of solar water heaters. For the avoidance of doubt, the General EN to Chapter 84, EAC/CET (APPENDIX D), state in relevant part:“(A)General Content Of The Chapter..this Chapter covers all machinery and mechanical appliances, and parts thereof, not more specifically covered by Chapter 85. ..It should also be noted that machinery and apparatus of a kind covered by Chapter 84 remain in this Chapter even if electric, for example:(1)Machinery powered by electric motor.(2)Electrically heated machinery, for example, electric central heating boilers of heading 84. 03, machinery of heading 84. 19 and other machinery (e.g., calendars, textile washing or bleaching machines or presses) incorporating electrical heating elements.”i.That in addition En to Heading 8419. 19. 00 (appendix E) reads in the relevant part, “The apparatus described above is essentially used industrially, but the heading also covers nonelectric instantaneous water heaters and storage water heaters, including solar water heaters, domestic or not. If electrically heated, such appliances are excluded (heading 85. I6)·”j.That the Respondent erred in law and fact by failing to appreciate dual-system heaters do not operate under both solar and electricity as alleged by them. Dual-System Heaters are in fact explicitly defined in the Explanatory Notes to Heading 85. 16 as, “system in which the water is heated either electrically or by connection to a fuel heated hot water system”k.That the Respondent erred in law and fact by failing to appreciate that the key consideration in dual-system heaters is how the water in the storage tank is heated. The water can be heated directly by an electric powered element or through a connection to a fuel heated hot water system. It is generally accepted that fuel means; materials such as coal, gas or oil that is burned to produced heat or power.l.That the Respondent erred in law and fact by failing to appreciate that the suns thermal energy is not named, listed, or understood to be a source of heat in a dual-system heater. It cannot be overstated that the principal heating system in a solar water heating system is the suns thermal energy and not electricity as alleged by the Respondent. Similarly, Appellant's solar water heaters lack connection to a fuel heated system and as such cannot qualify under heading 85. 16 EAC/CET.m.That the Respondent erred in law and fact by opting to base their decision to classify the solar water heaters as dual-system heaters on an alleged World Customs Organization (WCO) opinion (APPENDIX dated 3rd November 2021 whose 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.n.That the Respondent breached the Appellant's right to access information in line with Article 35 of the Constitution of Kenya, by denying the Appellant access to information that is very crucial to this dispute. The said information requested by the Appellant included:i.A copy of the Kenya Revenue Authority's letter submitted to the WCO Secretariat dated 30th August 2021 requesting the Secretariat's advice on a product named “dual-system solar water heater” and further presented their submissions to the Secretariat for consideration; andii.A complete signed copy of the WCO decision from the Secretariat dated 3rd November 2021. o.That the Respondent erred in law and fact by failing to appreciate that goods classified under heading 84. 19 are subject to pre-export verification of conformity (pvoc) through a physical inspect1on by Sgs as the appointed agent of Kenya Bureau of Standards. If any discrepancy with what was declared would have been found, it would have been reported and goods could have not entered the country.p.That the Respondent erred in law and fact by failing to appreciate that the Appellant's goods were subjected to two inspections, both conducted by personnel appointed by the Respondent, one at the point of origin and one at the point of entry, and neither found any discrepancy with what was declared or confusion/ error with the code applied.q.That the Respondent erred in law and fact by failing to appreciate that the Respondent through their agents and/or representativescreated a legitimate expectation when its customs officers at the point of clearance verified the containers, examined the imports, sighted the solar water heating systems imported by the Appellant and established that the declared tariff code 8419. 19. 00 was correct, and at no point in time did the officers raise concerns on the classification. As a result, the Appellant relied on this legitimate expectation to its detriment.r.That the Respondent erred in law and fact by failing to appreciate the presumption of regularity providing that all official acts are done properly, and all procedures were lawfully followed. Upon verification of the containers, examination of the imports and approval by the Respondent and/ or their agents that tariff code 8419. 19. 00 was correct, the Appellant had no reason to doubt the procedure and eventually the outcome and correctness of its declaration.s.That the Respondent erred in law and fact by failing to appreciate that was there a discrepancy with regards to the tariff classification, it should have been raised in the first instance and at the point of entry upon inspection by the Respondent and/or their agents. The failure to do so is solely attributable to the Respondent and should not be held against the Appellant as he was relying on the presumption of regularity.

Appellant’s Case 10. The Appellant’s case is premised on the following documents:a.The Appellant’s Statement of Facts dated 10th February 2022 together with the documents attached thereto and proceedings before the Tribunal.b.The Appellant’s written submissions filed on 29th November 2022 together with the authorities attached thereto

11. That in attempting to justify its demand for classification under tariff code 8516. 10. 00, the Respondent relied on an alleged World Customs Organization (WCO) opinion dated 3rd November 2021 whose veracity is highly in doubt. That the alleged opinion, which is beyond the Secretariat's scope, is incomplete and lacks a signature and the capacity in which the sender is allegedly proffering the opinion.

12. That in any event, despite stating that their demand was issued in reliance on the WCO opinion, the Respondent backtracked and abandoned that assertion in its Witness Statement of its Customs Officer who outrightly stated during cross-examination that the WCO tariff opinion had no significance in this Appeal, nor the wider industry issue before this Tribunal.

13. That at the very least, this is indicative of a level of inconsistency that should not be attributed to Government institutions affecting rights of millions of Kenyans. That the Respondent has in several cases, and in fact in their demand dated 3rd December 2021 stated that the WCO Advisory was instrumental to their reclassification of the tariff code applicable to solar water heaters, only to turn around and state that it in fact bore no significance. Honorable Members, this level of wishy-washiness goes against the Appellant's right to Fair Administrative Action.

14. That it should be noted that the WCO decision, the Respondent sought to rely on religiously is merely an opinion and not legally binding. That indeed, the roles in the WCO are clear, and the 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 instruments and tools. That therefore, the Secretariat has no legal duty, obligation or authority to issue classification opinions or other advice as guides to the interpretation of the Harmonized System.

15. It is the Appellant's unwavering contention that the Respondent arrived at its demand by incorrectly classifying the Appellant's solar water heaters under tariff 8516. 10. 00 as opposed to the tariff code 8419. 19. 00 which solar water heaters are correctly classifiable under.

16. That certainly, the Respondent has failed to appreciate that solar water heaters imported by the Appellant do not meet the threshold envisaged by tariff code 8516. 10. 00 of the East African Community Common External Tariff (EAC/CET) as claimed by the Respondent.

17. That ideally, the Appellant's solar water heaters should have been classified under that Heading 8419. 19. 00 as read together with the Explanatory Notes (EN) which provide for solar water heaters. That for the avoidance of doubt, the EN to Heading 8419. 19. 00 reads in the relevant part, “The apparatus described above is essentially used industrially, but the heading also covers non electric instantaneous water heaters and storage water heaters, including solar water heaters. domestic or not. If electrically heated, such appliances are excluded (headin9 85. 16).”

18. That in light of the aforementioned, the Appellant deems the below to be the issues for determination before this Honorable Tribunal:a.Whether the Appellant's solar water heaters are dual System heaters as alleged by the Respondent.b.Whether the Respondent's sole reliance on the alleged WCO opinion was justified.c.Whether the Respondent breached the Appellant's right to legitimate expectation.d.Whether the Respondents actions have created uncertainty and ambiguity in law.e.Whether the Respondent breached the presumption of regularity.

a.Whether the Appellant's Water Heaters are Dual System heaters as alleged by the Respondent. 19. That this is perhaps the most pertinent and fundamental issue and the crux of the matter. The Appellant and the Respondent are at loggerheads as to whether the Appellant's imported water heaters are solar water heaters or dual system heaters. Understanding both systems is paramount to determining the proper HS Classification.

20. That in its submissions it shall establish categorically and undeniably that the Appellant's imported water heaters are in fact solar water heaters and not dual system heaters as alleged by the Respondent. That understandably, we shall start with the vocabulary definition of both systems.

21. That a solar water heater is generally known, understood, and agreed to mean a device that captures, traps and utilizes the sun's thermal energy to heat water. It should be appreciated from the onset that what is utilized is the sun's thermal energy/ radiation. That this means that provided there is warmth in the atmosphere, regardless of how cloudy the day is, the solar water heater will function appropriately. This is indeed owing to the design of the solar water heaters.

22. That the Respondent has severally intimated that the Appellant's water heaters can either operate solely on electricity or on solar energy. That they go further to highlight that without the electricity element, the system would not be effective in heating water when the solar energy is inadequate. That based on this the Respondents thus erroneously drew the inference that the system would work perfectly even without the solar component. Indeed, this assertion was stated in the Respondents response to the Appeal dated 12th July 2022, and subsequently reiterated in the Respondent's witness statement dated 4th August 2022.

23. That indeed, the Appellant notes that despite being an experienced, seasoned and well-renowned customs officer and lab technician, the Respondent's witness is neither an engineer nor experienced as a photovoltaic expert capable of submitting on the finer workings of the solar water heaters imported by the Appellant.

24. That the Respondent's witness himself did indeed confirm on cross-examination that he was not a trained or experienced solar engineer or works in the photovoltaic field. That accordingly any assertions to the technical aspect of the solar water heaters as per the witness statement dated 4th August 2022 should be disregarded.

25. That it should be appreciated that the Appellant’s solar water heaters are comprised of the tank, and Solar, collectors among other crucial components all of which are crucial and fundamental to the functionality of the solar water heaters, and without which the system would be inoperable.

26. That indeed, these are the solar components that the Respondent has so callously termed as unnecessary and without which the system would allegedly function. The Appellant submits that if these components are stripped away, what is left is no longer a functioning item nor a solar water heater identifiable, known to or imported by the Appellant.

27. That it cannot be overstated that the Appellant's system is fully capable of operating purely on the reliance on solar energy, without the need for any electric component. That the Respondent is however erroneously trying to make a case for an exaggerated dependency on an electric component in order to deem it a dual system heater.

28. That essentially, the Respondent is exaggerating and overplaying the necessity of the electric component in order to justify a false narrative that a solar water heater is a dual system heater. That it cannot be overstated or overemphasized that the assertions of a solar water heating system operating solely on electricity, without the need for the solar component is highly misconstrued and misleading and is only posed in an attempt to erroneously deem the system as a dual system heater. That however, even on that premise the argument fails as we shall demonstrate in the ensuing paragraphs.

29. The Appellant notes that globally solar water heaters are classified under HS 8419. 19. 00 even where the same comes with the electric components installed. That to this evidence, the Appellant makes make reference to the classification ruling issued by Robert B. Swierupski, the Director of National Commodity Specialist Division in the Department of Homeland Security. Bureau of Customs and Border Protection. That whereas the Appellant notes that this ruling is in no way binding on this Honorable Tribunal, it quotes it to show classification of solar water heaters by the international Community. That the ruling provides in the relevant part that;“In your letter dated June 6, 2008, you requested a tariff classification ruling. You included schematic materials and a description with your request.The merchandise at issue is referred to as an ATE M360 solar water heating system. The system is designed to heat water and circulate the heated water to showers or other faucets in a home. The complete system consists of a solar collector panel which receives cool water from the home's water supply by an included pump. The water in the panel is heated by the sun and then held in the system's storage tank until used. The water heating unit contains a copper coil as an auxiliary electric heating element. There is an electronic controller included for the system's operation. Your request indicates that pipes and connectors are not included. It should be noted that any components which are not imported with the complete system would be classifiable based on their own features and not necessarily as a part of the solar water heating system.The applicable sub heading for the ATE MJ60 solar water heating system will be 8419. 19. 0040, Harmonized Tariff Schedule of the United States (HTSUS), which provides for machinery…; instantaneous or storage water heaters, nonelectric;...: other, solar water heaters. The general rate of duty will befree.Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on World Wide Web at http:/ lwww.usitc.gov/tatalhtsl.”

30. That it should be appreciated that in the application of the Harmonized System Nomenclature, the first six digits are to be applied uniformly across parties to the Nomenclature. That the remaining two digits in the eight-digit nomenclature are to be introduced by a Country for their tax planning purposes.

31. That with that in mind, the Appellant implores the Tribunal to note that as per the above quoted ruling from the United States Bureau of Customs, the proper Heading of solar water heaters is to be 8419 and subheading is 19, regardless of whether the solar water heaters have an electric component. That fundamentally, the existence of an electric component will not change the essential nature of the solar water heater to dual system heaters as alleged by the Respondent.

32. That consequently, a question of what a dual system heater means is therefore naturally formed. That in Heading 85. 16, which the Respondent is valiantly, albeit misconceivingly, trying to classify the solar water heaters, provides in the Explanatory Note A that:“(A)Electric Instantaneous Or Storage Water Heaters And Immersion HeatersThis group includes:1. Geysers in which the water is heated as it flows through.2. Storage water heaters (whether or not of the pressure type), i.e., heat-insulated tanks with immersion heating elements. In these heaters water is heated gradually.3. Dual-System Heaters, in which the water is heated either electrically or by connection to fuel-heated hot water system; they are often equipped with a thermostatic control to operate them electrically only when the alternative means is insufficient.”

33. That before delving any further, we must first appreciate and understand the definition and description of the system as provided by the Explanatory Note. That it should be noted that the system is called a dual system heater. That the use of the word dual in the description cannot and should not be overlooked.

34. That an ordinary definition of the word dual is to consist of two parts or elements. That indeed the Appellant submits that the use of dual in this instance is very deliberate on the part of the drafters. That is to say, for the system to qualify as dual, it must have not only one or two of the elements, but instead have both in order to be deemed a dual system heater. That the Explanatory Notes then go further to define and prescribe what two elements must be there for the system to be defined as a dual system heater.

35. That indeed, the Explanatory Notes are very categorical. That it is lucidly provided that a dual system heater is one in which water is heated either by electricity "or" by a connection to a fuel-heated system. That the use of the word "or'' while further highlighting the dual nature of the system, limits the components applicable to only electricity or fuel. That accordingly, the use of the word "or'' implies and dictates that for it to be deemed a dual system heater, the system must have the capacity to use both electricity and fuel as a means of heating the water.

36. That fundamentally the Explanatory Notes provide a very exhaustive list of what elements are to be included in a dual system heater set up, that is electricity and fuel. That there is no contemplation on the part of the drafters for any other components to be included in the set. That in that breath, we note that the phrasing of the Note is very specific and does not use the word "includes" or "is not limited to" which would have otherwise couched the provision in non-exhaustive terms, giving lee way for other items to be added. That, as is however, no such terms are used, speaking to the exhaustive nature of the components considered in dual system heaters.

37. That relating the same to the Appellant's solar water heaters, the Appellant states that its solar water heaters are heated by the sun's thermal energy. That conversely, a fuel is understood to be a material like coal, gas or oil that is burned to produce heat or power. That manifestly, this is not the case with the Appellant's solar water heaters, which again, rely primarily on solar energy. That consequently, classification under the criteria of 85. 16 is not appropriate.

38. That indeed, the Respondent's witness under cross-examination did confirm that the Appellants solar water heaters lacked the capability to undertake combustion by use of fuel. That equally, the Respondent’s witness did indeed confirm that solar was not one of the mechanisms contemplated in the Explanatory Notes to Heading 85. 16 for it to be termed as a dual system heater. That it is thus baffling as to why despite admitting that the Respondent would still try and force classification of the Appellant’s water heater(s) under HS 85. 16 despite stating that it does not meet the fundamental criteria laid down in the aforementioned heading.

39. The Appellant notes that the element of duality in the dual system heaters is present to allow for the inter switching between using of electricity or fuel- based combustion. That consequently, both systems must be present for it to be deemed dual, as otherwise the system would be solely an electric heater, or a fuel-based heater.

40. That the Respondent cannot and should not be allowed to introduce solar energy as an element in dual system heaters as the same was not contemplated in the Explanatory Note to Heading 85. 16. That indeed, would the drafters have preferred to introduce Solar energy as an element, they would have clone so. That noting that they haven't, the Respondent should not be allowed to craft their own laws and apply them to the detriment of the Appellant.

41. That certainly, as has been prescribed by the Explanatory Note to Heading 85. 16, a system is only deemed a dual system heater if it uses both electricity and the combustion of fuel to heat water. That crucially, the Appellant's solar water heaters do not have the capability, components or elements to undertake the combustion of fuel, nor does it need the electric component to heat water as the same can adequately be undertaken by the sun's thermal energy.

42. That in support of the aforementioned, the Appellant makes reference to the case of Republic vs. Commissioner of Domestic Taxes Large Taxpayer's Office Ex-Parte Barclays Bank of Kenya Ltd [2012) eKLR wherein it was held:“The approach to this case is that stated in the often-cited case of Cape Brandy Syndicate v Inland Revenue Commissioners (1920] 1 KB 64 as applied in T.M. Bell v Commissioner of Income Tax (1960] EALR 224 where Roland J. stated, "..in a taxing Act, one has to look at what is clearly said. There is no room for intendment as to a tax. Nothing is to be read in, nothing it to be implied. One can only look fairly at the language used… If a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be.”

43. The Appellant further relied on Russell v Scott (1948] 2 ALL ER 5 and Adamson vs. Attorney General (1933) AC 257 with regard to the imposition of tax on a subject.

44. That progressing further through the Explanatory Note, the Appellant wishes to highlight that the Appellant's solar water heaters do not have a thermostatic control for the system as prescribed by Explanatory Note A.

45. That going by the numerous provisions in the Harmonized System (HS) Nomenclature and the Explanatory Notes to the same it appreciated that the correct classification of the Appellant's solar water heaters is Heading 84. 19. That indeed, the Explanatory Note to Heading 85. 16 which is preferred by the Respondent, directs that solar water heaters should be classified under Heading 84. 19.

46. That it therefore comes as no shock that in the 2022 version of the HS Nomenclature, the World Customs Organization HS Committee issued tariff code 8419. 12. 00 for solar water heaters. That it should be appreciated that HS Nomenclature is reviewed every 5 years by the Committee to reflect changes and advancements of technology, and to ensure that there is a uniform interpretation by member states. That these changes reflect clarifications and guidance on classification of otherwise disputed items.

47. That whereas the Appellant appreciates that the Appellant's solar water heaters were imported under the 2017 version of the Nomenclature and that the 2022 version cannot be applied retrospectively, the Appellant submits that the placement of solar water heaters in the 2022 HS Code issued further is indicative of the intention of WCO HS Committee to have solar water heaters imported under Heading 84. 19.

48. That globally HS Code 8419. 19. 00 is the preferred code for solar water heaters. Noting that the HS Nomenclature serves as a uniform and standardized numerical method of classifying traded products used by customs authorities around the world to identify products when assessing duties and taxes and for gathering statistics, it is baffling why the Respondent insists that Kenya stands as an anomaly greatly hampering its ability to trade globally.

b.Whether the Respondent’s reliance on the alleged WCO was justified 49. That from the onset the Appellant must emphasize that the Secretariat who issued the opinion docs not have the mandate/jurisdiction to proffer such an opinion. That it is not the function, mandate, or role of the Secretariat to issue classification opinions or other advice as guides to the interpretation of the Harmonized System. That the 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 instruments and tools.

50. That in accordance with Article 7 of the Harmonized System Convention, only the HS Committee is mandated to issue classification opinions or decisions as per the International Convention on the Harmonized Commodity Description and Coding system.“7Functions of the CommitteeI.The Harmonized System Committee, having regard to the provisions of Article 8, shall have the following functions:a.to propose such amendments to this Convention as may be considered desirable, having regard, in particular, to the needs of users and to changes in technology or in patterns of international trade;b.to prepare Explanatory Notes, Classification Opinions or other advice as guides to the interpretation of the Harmonized System;”

51. The Appellant makes reference to the Kenyan locus classicus case of Owners of the Motor Vessel "Lillian S" v Caltex Oil (Kenya) Ltd. (1989) to emphasize the importance of jurisdiction and mandate:“Jurisdiction is everything. Without it a court has no power to make one more step. Where a court has no jurisdiction there would be no basis for a continuation of proceedings pending other evidence. A court of law downs its tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction .... Where a court takes it upon itself to exercise jurisdiction which it does not possess, its decision amounts to nothing. Jurisdiction must be acquired before judgement is given.”

52. That todate the Appellant is not aware of the item submitted to the Secretariat by the Respondent for guidance. The Appellant notes as per the brief description provided in the opinion, the item is defined and termed as a dual system water heater for domestic use, manufactured by Helios Argosol.

53. That it cannot be overstated that the Appellant's solar water heaters are not manufactured, assembled or in any way worked by the said manufacturer, Helios Argosol. That consequently, the presented items could be fundamentally different from those imported by the Appellant.

54. That it should be appreciated that generally solar water heaters are of two key categories: those which use a glycol-water mixture flowing into to the flat panel collectors to be subsequently heated by the sun's thermal energy, and those which use vacuum tubes, and an indirect flat plate model as is the case with the Appellant's solar water heaters.

55. That seeking to understand the item submitted and the basis for the request by the Respondent, the Appellant requested for a copy of the Respondent's letter submitted to the WCO Secretariat dated 30th August 2021 requesting the Secretariat's advice on a product named “dual-system solar water heater”. That in response, the Respondent informed the Appellant that its request was superfluous and consequently ignored. That this was despite the request having been made in line with Article 35 of the Constitution of Kenya, 2010 providing for the right to access information.

56. That looking at the alleged opinion itself, when the same was issued, it was incomplete, lacked a sign off, signature and the capacity in which the sender is allegedly proffering the opinion. That understandably, the veracity of the document is highly in doubt. That when asked for a complete opinion, the Respondent's response was that the partial and possibly highly selective portion of the document shared with the Appellant was sufficient to justify classification as dual system water heater. That frustratingly, as the shared portion is incomplete, the Appellant is unable to obtain a holistic picture of what was actually and ultimately determined and how the determination was arrived at.

57. That after already sharing a part of the alleged decision, the Respondent then goes ahead to aver that advice letters from the Secretariat remain a property of the WCO and may not be shared with a third party without permission from the WCO. That at that point, the Respondent had used the partial decision to mount a full-scale crackdown on the entire industry, and it is only when asked for a full copy of the decision that the same transforms into a classified and privileged document.

58. That the Respondent's actions are akin to taking half of a courts judgement and using the incomplete and unsigned judgement to execute against a judgement debtor, and when prompted for a full copy of the judgement, the response issued is that judgements are properties of the court and cannot be issued to third parties.

59. That looking at the content of the alleged decision, the Appellant is indeed apprehensive and extremely concerned that the WCO decision in response to the Respondent's query, may have been compromised by the wrongly formulated question; that expressly enquires about "Dual-System water heaters", a term which carries implications which go beyond the nature of the goods imported by the Appellant.

60. That indeed, the Secretariat in its decision failed to appreciate and apply the Explanatory Notes (EN) to Heading 84. I9 which clearly provides that other machinery incorporating electrical heating elements shall remain in Chapter 84 even if electric.

61. That similarly, the Secretariat failed to consider Explanatory Notes to Heading 85. 16 and 84. 19 which outright provide that solar water heaters are to be classified under Heading 84. 19. That the alleged decision, in the partial document provided to the Appellant, erroneously proceeds to conclude that the item submitted to it is to be deemed a dual system heater. The Appellant wishes to re-emphasize that the Appellant is still not aware of the item submitted, or the actual conclusion of the opinion. That an argument could be made that in the ensuing pages not supplied to the Appellant, the alleged opinion provides that solar water heaters are to be classified in Heading 84. 19.

62. That in any event, the Appellant has established the very strict criteria provided by Heading 85. 16 for items to be classified as dual system heaters, it cannot and should not be disputed that the Appellant's water heaters cannot meet the threshold provided in the Explanatory Notes.

63. The Appellant re-emphasizes that the Appellant's water heaters cannot be dual system heaters as alleged by the secretariat for the simple reasons that the Appellant's water heaters do not have the provision for both (dual) electric and fuel as prescribed, demanded and mandated by the Explanatory Note to Heading 85. 16. That consequently, the supposed decision classifying the solar water heaters despite the same lacking the basic, fundamental and non- reducible elements prescribed by the HS Nomenclature is erroneous and flawed.

64. That it is important to note that Explanatory Notes are the official interpretation of the HS code and can only be changed by the HS Committee. That the Notes constitute the official interpretation of the Harmonized System at the International level and are an indispensable complement to the system. That it is therefore erroneous for the Secretariat to have disregarded the provisions of the Explanatory Notes in its decision.

65. That on this issue the Appellant seeks solace in the words of Lord Denning in delivering an opinion of the Privy Council in Macfoy vs. United Africa Co. Ltd (1961] 3 All E.R. 1169 as quoted in the case of Omega Enterprises (Kenya) Limited vs. Kenya Tourist Development Corporation Limited & 2 others (1998] eKLR wherein he said at page 1172 (1) that:-“If an act is void, then it is in law a nullity. It is not only bad, but incurably bad. There is no need for an order of the Court to set it aside. It is automatically null and void without more ado, though it is sometimes convenient to have the Court declare it to be so. And every proceeding which is founded on it is also bad and incurably bad. You cannot put something on nothing and expect it to stay there. It will collapse.”

c.Whether the Respondents breached the Appellant’s right to Legitimate Expectation. 66. It is the Appellant's submission that sudden and erratic change in tariff classification of the solar water heaters constitutes a fundamental breach of the Appellants legitimate expectation. That the principle of legitimate expectation was considered in the English case of Council of Civil Service Unions v Minister for Civil Service (1995) AC 374 where Lord Diplock defined the principle as follows:“For a legitimate expectation to arise the decision must affect the other person by depriving him of same benefit or advantage which he had in the past been permitted by the decision maker to enjoy and which can legitimately expect to be permitted to continue to do until there has been committed to him some rational grounds for withdrawing it on which he has been given an opportunity to comment.”

67. That in the determination of this issue, one similarly has to consider, reflect and contemplate on the importation process and how a legitimate expectation was created after several importations under Heading 84. 19, spanning a number of years, all with the involvement and clearance by the Respondent. That the Appellant relies on the case of Republic vs. Kenya Revenue Authority Ex Parte Cooper K-Brands Limited (2016] eKLR where learned counsels summarised the process of importation.

68. That the Appellant had indeed declared solar water heaters under HS Code 8419. 19. 00 and the same had been allowed by the Respondent. That having allowed the same, 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 rate of an additional 25% duty and 16% VAT. That conversely, tariff code 8419. 19. 00 accrues 0% duty and 0% VAT.

69. That it should not be forgotten that the Appellant's goods classified under Heading 84. 19 are subjected to pre-export verification of conformity (PVoC) through a physical inspection by SGS as the appointed agent of Kenya Bureau of Standards. That if any discrepancy with what was declared would have been found, it would have been reported and goods could have not entered the country.

70. That in fact, the Appellant's goods are subjected to two inspections, both conducted by personnel appointed by the Respondent: one at the point of origin and one at the point of entry, and neither found any discrepancy with what was declared or confusion/ error with the code applied.

71. That no error was found as the Appellant and in fact the entire industry had been relying on tariff code 84. 19 for the importation of solar water heaters, it is only recently that the Respondent seeks to rely on a strange classification which the Appellant nor the taxpayers nor the international community are accustomed to.

72. That indeed, the Respondent through their agents and/or representatives created a legitimate expectation when its customs officers at the point of clearance verified the containers, examined the imports, sighted the solar water heating systems imported by the Appellant and established that the declared tariff code 8419. 19. 00 was correct, and at no point in time did the officers raise concerns on the classification. As a result, the Appellant relied on this legitimate expectation to its detriment.

73. That the Appellant wishes to strongly rely on the sentiments of the court In the case of Keroche Industries Limited vs. Kenya Revenue Authority & 5 Others Nairobi HCMA No. 743 of2006 [2007) KLR 240 where the court pronounced Itself clearly on the Issue of legitimate expectation in the following manner:“…legitimate expectation is based not only on ensuring that legitimate expectations by the parties are not thwarted, but on a higher public interest beneficial to all including the respondents, which is, the value or the need of holding authorities to promise, and practice they have made and acted on and by so doing upholding responsible public administration. This in turn enables people affected to plan their lives with a sense of certainty, trust, reasonableness and reasonable expectation. An abrupt change as was intended in this case, targeted at a particular company or industry is certainly abuse of power....In this case the applicant did not expect an abrupt change of tariff where the process of manufacture or its products had not changed. Public authorities must be held to their practices and promises by the courts and the only exception is where a public authority has a sufficient overriding interest to justify a departure from what has been previously promised In order to ascertain whether or not the respondent's decision and the intended action is an abuse of power the court has taken a fairly broad view of the major factors such as the abruptness, arbitrariness, oppressiveness and the quantum of the amount of tax. imposed retrospectively and its potential to irretrievably ruin the applicant. All these are traits of abuse of power. Thus, I hold that the frustration of the applicant’s legitimate expectation based on the application of tariff amounts to abuse of power…….The unilateral change of tariff indicates that this change was done nearly nine (9) years later after its use by the applicant company with its predecessors who shared the same licence that was based on tariff 22. 04. The applicant has over this period arranged its business affairs in reliance with the principle of certainty of law - and that should there be a change it will only apply to the future. I hold that the applicant is entitled to hold the taxman to its bargain and its business expectations based on the principle of legality ought not to be thwarted. The respondents should have exercised their power to change the tariff … in a spirit of legality and fairness.One other reason why the respondents conduct in changing the tariff and making its effect retroactive is illegal, is that it became penal and penal laws should not be retroactive. The applicant has in the circumstances of this case the right to protect its reliance on legitimate expectations as elaborated elsewhere in this judgment. The applicant in conducting its affairs is entitled to rely on certainty and regularity of law.”

74. That in line with the illustrious words of Justice Nyamu in the aforementioned case, the Appellant seeks to highlight that the abrupt, unilateral change in tariff code was occasioned despite the Appellant's products not changing.

75. That the non-binding partial classification opinion, issued without authority or mandate and made based on an alleged dual system water heater, not in any way related to the Appellant nor manufactured by its supplier, cannot be the basis of a lawful reclassification. That we indeed have to bear in mind that this supposed reclassification is happening years after importation under tariff code 84. 19, all with the approval and clearance of the Respondent at all levels, from the point of departure of the goods from the exporting country to the importation of the goods into Kenya.

76. That it is therefore the Appellant’s submission that the decision of the Respondent herein to tax the Appellant's goods under tariff 8516. 10. 00, despite having their goods taxed under code 8419. 19. 00 goes against the principle of legitimate expectation and against the Respondent's duty to act fairly. That allowing such acts of belligerent disregard to the provisions of the law would set a dangerous precedent for other Government bodies who would choose to act arbitrarily just as the Respondent has.

77. That the Appellant's frustrations are further aggravated by the fact that under the 2022 version of the HS Nomenclature, solar water heaters are outrightly provided for under Heading 84. 19. That this means that going forward classification will be a non-issue. That the unfortunate situation the Appellant finds itself in, is one of a demand being made for an alleged wrongful classification under 84. 19, only to again continue declaring under tariff code 84. 19 as prescribed by the 2022 EAC/CET.

d.Whether the Respondent’s actions have created uncertainty and ambiguity in Law 78. That it should be appreciated from the onset that whereas the stance and correct classification of solar water heaters has always been clear, the Respondent has created a landscape of great confusion marred with ambiguity by insisting that solar water heaters are classifiable under tariff code 8516. 10. 00. Their actions have single-handedly left the taxpayers in a state of disarray.

79. That the task before the Honorable Tribunal is therefore a solemn one and that the decision issued today stands to set precedents for a litany of other related matters before this Honorable tribunal. That it is not an exaggeration to say that taxpayers are awaiting with bated breath the outcome of this Tribunal.

80. That bearing the gravity of the matter at hand, a keen look at the facts in issue will show that the Respondent's unilateral decision to classify solar water heaters under HS Code 85. 16, has created ambiguity and uncertainty in the taxpayer's application of the Harmonized Coding System, not just with the Appellant, but also within the industry and the international community.

81. That it should be noted that no international supplier at the point of origin, is willing to authorize a shipment of solar water heaters classified under tariff code 8516. 10. 00 as the internationally recognized code is 8419. 19. 00. That indeed, we have to appreciate that the entire purpose for which the Harmonized System exists is to ensure that all goods in international trade are classified uniformly and consistently according to a common international nomenclature. That this avoids reclassifying goods as they are moved from one country to another.

82. That the import of the above-mentioned is that the Tariff classifications are not only applied in Kenya, but rather, they are utilized and implemented equally and unwaveringly around the world. That Kenya's key trading partners, including but not limited to the European Union, all recognize tariff code 8419. 19. 00 as the correct tariff code for solar water heaters, leaving the Appellant herein in a precarious situation.

83. That accordingly, it is therefore not surprising that suppliers and shippers are unwilling to undertake importation under a heading that is varyingly different from all other countries party to the World Customs Organization. The Kenya solar water heating industry is thus marred with uncertainty. How are they to continue doing business if suppliers and shippers are not willing to ship under Heading 85. 16 demanded by the Respondent, and if the Appellant’s import under 84. 19, they are met with a demand from the Respondent.

84. That whereas it is generally accepted in the international community that solar water heaters are classifiable under Heading 84. 19, the insisted deviation by the Respondent is creating an element of ambiguity and uncertainty in the application of the law and the HS Nomenclature.

85. That it is a cardinal and fundamental aspect of a taxation system that the tax laws of a country be certain and leave no room for ambiguity. That ideally, tax certainty calls for clear and simple rules and regulations so as to minimize disputes.

86. That this is not simply a whimsical or the naive position of the Appellant, but rather a crucial corner stone of tax law in a country, and to that effect, reference is made to the case of Waweru & 3 others (suing as officials of Kitengela Bar Owners Association) & another v National Assembly & 2 others; Institute of Certified Public Accountants of Kenya (ICPAK) & 2 others (Interested parties) (Constitutional Petition EOOS & EOOT (Consolidated) of 2021) [2021] KEHC 58 (KLR) wherein it was stated that:-“Article 10 (1) (b) and (c) of the Constitution provides that the National values and principles of governance bind all State organs, State officers, public officers, and all persons whenever any of them enacts, applies, interprets any law, makes, or implements public policy decisions. The said national values and principles of governance are provided for under Article I0(2) and include the rule of law, equality, and non-discrimination. The fundamental principle of rule of law as encapsulated in Article I0 of the Constitution if that the law must be certain. Certainty of the law is especially critical in legislation that imposes taxes on members of the public.”

87. That bearing the aforementioned in mind, the question of what happens when a law is uncertain or ambiguous arises. That case law providing an answer to this are numerous. That essentia1ly, where the law is uncertain, indeterminate or ambiguous, typically it should be interpreted in favour of the citizen or in this case the taxpayer. That these sentiments were stated in the case of Commissioner of Income Tax vs. Westmont Power (K) Ltd Nairobi High Court Income Tax Appeal No. 626 of 2002, the Court while citing Inland Revenue vs. Scottish Central Electricity Company [1931) 15 TC 761 expressed itself as follows:-“Even though taxation is acceptable and even essential in democratic societies, taxation laws that have the effect of depriving citizens of their property by imposing pecuniary burdens resulting also in penal consequences must be interpreted with great caution. In this respect, it is paramount that their provisions must be express and clear so as to leave no room for ambiguity… any ambiguity in such a law must be resolved in favor of the taxpayer and not the Public Revenue Authorities which are responsible for their implementation.”

88. That a similar position was also held in the case of Keroche Industries Ltd vs. KRA &.5 others [2007] eKLR; wherein it was held that the effect of the Judge's finding was to give rise to ambiguity on the provision of a tax law and that any such ambiguity must be resolved in favor of the taxpayer as held by the High Court (Visram, J as he then was) in Commissioner of Income Tax v Westmont Power (K) Ltd /2006} eKLR.

89. That additionally, in the case of Stanbic Bank Kenya Ltd vs Kenya Revenue Authority [2009] eKLR Nyamu, JA adopted with approval the words of Lord Simonds in Scott v Russell 1948J2All E R 1 that the subject is not to be taxed unless the words of the taxing statute unambiguously impose the tax upon him

90. That in the matter at hand, the Respondent's rationale for reclassification of solar water heaters under tariff code 8516. 10. 00 is not based on the explicit provision of the East Africa Community External Tariff 2017, but rather, partial reliance on an incomplete and at any rate, non• binding WCO opinion. That essentially, whereas the law had been certain and sufficient that solar water heaters are adequately classifiable under Tariff Code 8419. 19. 00, the Respondent by relying on the non-binding opinion have created confusion and ambiguity in the law.

91. That the level of uncertainty has made it that businesses have stopped importation of solar water heaters until a determination can be made regarding this matter. That in light of the aforementioned, the words of Justice E. K. O. OGOLA in the case of Ecobank Kenya Limited vs. Commissioner Of Domestic Taxes (2012) eKLR have never rang truer. The Honorable Justice averred that:-“In my finding, that expectation became so legitimate, and so strongly grounded, that it established an economic right that only an express, concise, and specific waiver clearly communicated and delivered, could uproot. The Appellant and other business people have a right of certainty and predictability in the applicability of conduct, rules, policies and procedures which underlie the proper regulation of economic activities. This right necessarily militates against policies, regulations and procedures which are haphazardly resorted to by public regulatory bodies without adequate notice to those whose conduct or behavior is to be regulated.In an environment of business, that certainty and predictability is so crucial that to deny the same amounts to a denial of an economic right. Now, when such haphazard regulation affects a citizen's income the effect will be felt well beyond the comfort or discomfort of the two parties before the court. It is an issue which a court of law must tread on carefully, and where possible, restore the rights of the appellant and to reduce, as far as possible, the cascading negative impacts on all the parties associated with that income.”

92. That the importance of tax certainty as a key component of a good tax system is therefore irrefutable as it helps to reconcile the expectations of taxpayers and governments and enable for the provision a tax environment which is conducive to growth and foreign direct investment.

93. That two key concepts are indeed raised under this issue, the first one being that a tax system should be certain meaning that the tax law should be clear, with simple rules and regulations that minimize disputes. That manifestly, the Respondent's actions in this matter are not in the spirit of ensuring certainty of the law

94. That the second and perhaps most pertinent point, however, is that, in the event of ambiguity of the law which the Respondent has created, the same should be resolved and interpreted in the taxpayer's favor.

95. That at the risk of sounding repetitive and pedantic, the Respondent's actions have created an air of uncertainty and ambiguity in their insistence on application of tariff code 8516. 10. 00, for the following reasons:a.Despite the Appellant, the taxpayers and in fact the entire industry having in the past classified their solar water heaters under tariff code 8419. 19. 00, the Respondent wants to unilaterally change the tariff code recognized by not only importers and traders in Kenya, but rather international community and Kenya's key trading partners.b.The tariff code indicated by the Respondent is a strange animal to the international community. Conveniently the Respondent's preferred classification accrues additional taxes at the rates of 25% customs duty and 16% VAT. Manifestly, the Respondent's actions are motivated, not the development of jurisprudence, but rather the additional fees they can scrap and extort from the taxpayer.

96. That indeed, certainty of law is crucial to the taxpayer. That the court in the case of Law Society of Kenya vs. Kenya Revenue Authority & another (2017) eKLR highlighted the need for certainty and clarity when it was held that;“The common law principle of legality has hardened into a strong clear statement rule that is applied when legislation engages common law rights and freedoms. It has transformed a loose collection of rebuttable interpretive presumptions into a quasi-constitutional common law bill of rights. If Parliament wishes to interfere where rights, liberties and expectations are effected, it must do so with clarity. The dear statement principle is the critical way that the law of statutory interpretation reflects and implements the principle of legality. If Parliament wishes to interfere where rights, liberties and expectations are effected, it must do so with clarity. The clear statement principle is the critical way that the law of statutory interpretation reflects and implements the principle of legality. As Lord Hoffmann famously observed in Ex parte Simms:In the absence of express language or necessary implication to the contrary, the courts therefore presume that even the most general words were intended to be subject to the basic rights of the individual.”In Grayned vs. City of Rocliford, the United States Supreme Court identified a basic principle of due process that an enactment is void for vagueness if its prohibitions are not clearly defined. Vagueness offends several important rules. A vague law impermissibly creates dangers of arbitrary and discriminatory application. Therefore, elementary justice or the need for legal certainty demands that rules by which the citizen is to be bound should be ascertainable by him by reference to identifiable sources that are publicly accessible, clear and not vague. It is important to have clarity and certainty.A statute is void for vagueness and unenforceable if it is too vague for the average citizen to understand. There are several reasons a statute may be considered vague; in general, a statute might be called void for vagueness reasons when an average citizen cannot generally determine what persons are regulated, what conduct is prohibited, or what punishment may be imposed.A statute is also void for vagueness if a legislature's delegation of authority to administrators is so extensive that it would lead to arbitrary prosecutions. Vague laws aren't just a threat to individual freedom. They constrict economic growth and discourage legitimate enterprise. As Justice Thurgood Marshall once wrote, vague laws "lead citizens to steer far wider of the unlawful zone ... than if the boundaries of the forbidden areas were clearly marked.”

97. That the presumption of regularity was defined the case of Chief Land Registrar & 4 others - v - Nathan Tirop Koech & 4 others (2018) eKLR where it was stated that there is a presumption that all acts done by a public official have lawfully been done and that all procedures have been duly followed. The presumption of regularity is a presumption that executive officials have properly discharged their official duties. The presumption is aptly captured in the ancient Latin maxim “Omnia praesumuntur rite esse acta,” which roughly translated means "All things are presumed to have been done rightly.”

98. That it cannot be overlooked that the Appellant finds itself in this position owing in part to the actions of the Respondent. That upon arrival of the goods in the Country, the Respondent's customs officers at the point of clearance verified the containers, examined the imports, sighted the solar water heating systems imported by the Appellant and established that the declared tariff code 8419. 19. 00 was correct.

99. That at no point in time did the officers raise concerns about the classification. It was in reliance on the Respondent's customs officers' clearances and verifications that the Appellants subsequent actions were based on. That a legitimate expectation was created, and the Appellant should now not be punished for relying on a government authority's approvals as per the presumption of regularity.

100. It is the Appellant's explicit position that should there have been a discrepancy with regards to the tariff classification, it should have been raised in the first instance and at the point of entry upon inspection by the Respondents and/or their agents. That the failure to do so is solely attributable to the Respondents and should not be held against the Appellant as it was relying on the presumption of regularity.

101. That Justice P. O. Kiage in the case of Kibos Distillers Limited & 4 others v Benson Ambuti Adega & 3 others (2020) eKLR opined that “I make a finding that the presumption of regularity cannot be rebutted through conflicting interpretation of a statutory or regulatory provision. Liability for any action cannot be founded on conflicting interpretation of statute.”

102. That therefore, the Respondent cannot now seek to cite a conflict of laws and punish the Appellant with a demand; it cannot be overstated that the Respondent conducted the verification and cleared the Appellant’s goods under tariff code 84. 19, and now seek to punish the Appellant for actions they themselves authorized.

103. The Appellant wishes to rely on the court's sober ruling in Kibos Distillers Limited & 4 others v Benson Ambuti Adega & 3 others (2020) eKLR to further emphasize that the Appellant herein rightfully relied on the law as is and emphasize that they are not liable for the payment of the demanded amount of Kshs. 4,169,868. 48

104. That summarily the Appellant wishes to restate that the Appellant's solar water heaters are indeed classifiable under Heading 84. 19 as solar water heaters, and not under 85. 16 as dual system heaters. That indeed, the provisions of Heading 85. 16 are clear that for an item to be termed as dual, it must have the provision and capability to heat water using both electricity and by combustion of fuel. That notably, in the Appellant's system, the water is heated using the sun's thermal energy and, in any event, does not have the capability of heating water using fuel.

105. That the Appellant, the taxpayers and the international community all declare their solar water heaters under tariff code 8419. 19. 00 and the Respondent unfortunately seek for Kenya to be the anomaly. That the import of the Respondent’s actions is that Kenya will be cut off from the rest of the world as Kenya's key trading partners all export their solar water heaters under tariff code 8419. 19. 00 and consequently don't recognize 8516. 10. 00.

106. That going strictly by the words used and the provisions of the EAC/CET and the Explanatory notes to the same, it is our humble submission that the Appellant's goods are solar water heaters classifiable under tariff code 8419. 19. 00

Appellant’s Prayers 107. The Appellant prays for the following orders:a.That this Appeal be allowed.b.That the Respondent's demand notice dated 3rd December 2021 and subsequent review decision dated 14th December 2021 be set aside.c.That the Appellant's declaration of its solar water heaters under tariff classification 8419. 19. 00 be allowed to stand.d.That the Respondent be restrained from taking any enforcement mechanisms with respect to the demand for taxes in the years of contention pending the determination of this matter.

The Respondent’s Case 108. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal: -a.The Respondent’s Statement of Facts dated and filed on 12th July 2022 together with the documents attached thereto.b.The Respondent’s witness statement dated and filed on 4th August 2022 and admitted as evidence on oath on 9th November 2022. c.The Respondent’s written submissions dated and filed on 23rd November 2022 together with the legal authorities filed therewith.

a.Whether the Respondent erred in classifying the solar heating systems under tariff code 8516. 10. 00 instead of tariff code 8419. 19. 00 109. The Respondent avers that dual solar water heaters are classifiable under 8516. 10 due to its composition of a dual capacity. The Respondent avers that the headings under consideration are Headings 84. 19 and 85. 16 as these two headings classify, among others instantaneous or storage heaters, non -electric and electric, respectively.

110. The Respondent raises the following questions:a.ential characteristics of the product it's solar, making the item classifiable under Heading 84. 19. b.The Respondent avers that to classify a dual solar water heater that has provisions for electric use but the electric element itself has not been attached.

111. The Respondent avers that in its analysis on the terms of Headings 84. 19 and 85. 16 and explanatory notes solar water heaters are classifiable under Heading 84. 19 on the other had electric water heaters are classifiable under Heading 85. 16.

112. The Respondent avers that the provisions of the General Interpretative Rule (GIR) 3 as a legal basis for classification. That when applying the three methods of GIR3, Rule 3 is not applicable as each heading refers to part of the system. That Rule 3(b) is not applicable for the reason that for the heating system using solar power is not regarded as giving the essential character to the product, taking into consideration the fact that even if the solar panel is removed, the product can still function by the electric element. That therefore Rule 3(c) is applicable in the case at issue.

113. out an electrical heating element, the Respondent avers that under GIR2(a), the product is taken as a complete system.

114. The Respondent thus avers that dual-system solar water heater can be classified in Heading 85. 16 by application of the GIR1, 2(a), 3(c) and 6.

115. That its classification is based on the provisions of the General Interpretative Rule (GIR) 3 as a legal basis for classification. That the WCO ruling was for purposes of capacity building and the Appellant has not provided ·evidence to demonstrate that it sought for the same from the Respondent and it was not granted.

116. That the Appellant has not requested for the documents nor provided evidence to demonstrate that it has sought for the same from the Respondent. That the Appellant's allegation that its right to access to information has been infringed upon is unfounded.

117. That in Republic v Commissioner General & Another Ex-Parte Awal Ltd [2008] eKLR the Court noted the application of the rules of interpretation as follows:“It is also imperative to note that the rules of interpretation of tariff classification are also provided for in the world customs organization explanatory notes of Harmonized commodity Description and coding systems (H.S. Code). They are the generalized rules of interpretation of harmonized systems in classification of goods in nomenclature issued by the world customs organization to which Kenya is a signatory. The H.S Code assists the customs Department in the interpretation of the tariff classification. I will apply the interpretation provided for under the customs and Excise Act plus the rules of H.S. Code to determine this dispute.”

118That this was affirmed by the High Court in Beta Healthcare International Ltd V Commissioner of Customs Services [2010] eKLR when it was stated that:-“Kenya is a signatory to the International Convention on the Harmonized Commodity Description and Coding System. Kenya became a contracting party to the convention on 29th January 1988. The entry into force of the convention came into effect in Kenya on 1st January 1989. ”

119The Respondent humbly submits that the EA CET is derived from and informed by the International Convention on the Harmonized Commodity Description and Coding System to which Kenya and all member states of the East African Community are signatories.

120The Respondent submits that the Appellant's imported solar water heating systems are classifiable under Chapter 85 of the East African Community Common External Tariff (EAC CET) which provides as follows:-“Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles”

121That Heading 85. 16 covers:“Electric instantaneous or storage water heaters and immersion heaters; electric space heating apparatus and soil heating apparatus; electro-thermic hair-dressing apparatus (for example, hair dryers, hair curlers, curling tong heaters) and hand dryers; electric smoothing irons; other electro-thermic appliances of a kind used/or domestic purposes; electric heating resistors, other than those of heading 85. 45. ”

122That sub heading 8516. 10. 00 covers:“Electric instantaneous or storage water heaters and immersion heaters”

123That explanatory (A) to Heading 85. 16 provides as follows:“(a)electric Instantaneous Or Storage Water Heaters And Immersion HeaterSThis group includes:1. Geysers..... .2. Storage water heaters.....3. Dual system heaters in which the water is heated either electrically or by connection to a fuel- heated hot water system; they are often equipped with a thermostatic control to operate them electrically only when the alternative means is insufficient.”

124That the Appellant's imported solar water heating systems that are dual in nature in the sense that it operates under both solar power and electricity. That apart from the solar energy collector which heats the water from solar energy, the system incorporates an auxiliary electric heating element operated by a thermostatic control to enable electrical heating when solar heating is insufficient. That the system can operate solely on electricity or on solar energy.

125That without the electrical element the system would not be effective in heating water when the solar energy is inadequate but it would work perfectly without the solar component.

126That Chapter 84 of the East African Community Common External Tariff (EAC CET) which provides as follows:-“Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof”

127That Heading 84. 19 covers;“Machinery, plant or laboratory equipment, whether or not electrically heated (excluding furnaces, ovens and other equipment of heading 85. 14), for the treatment of materials by a process involving a change of temperature such as heating, cooking, roasting, distilling, rectifying, sterilising, pasteurising, steaming, drying, evaporating, vaporising, condensing or cooling, other than machinery or plant of a kind used for domestic purposes; instantaneous or storage water heaters, non-electric.”

128That subheading 8419. 19. 00 covers;“Other”

129That Heading 8419 covers non-electric instantaneous or storage water heating systems only and electric heating systems are excluded from this heading.

130That the Explanatory Notes to Heading 84. 19 further provide that the machinery and plant classified under this heading may be heated by nay system (coal, oil, gas, steam, electricity etc, except in the case of instantaneous water heaters and storage water heaters which are classified in Heading 85. 16 when heated electrically.

131That Note 1 to Heading 84. 19 concludes that the apparatus described in the Note i.e. heating or cooling plant and machinery is essentially used industrially, but the heading also covers non- electric instantaneous water heaters and storage water heaters, including solar water heaters, domestic or not. If electrically heated, such appliances are excluded (heading 85. 16).

132That under Rule 1 of the General Interpretative Rules (GIRs) of classification of goods the Appellant's imported solar water heating systems are classifiable under HS Code 85. 16.

133That Rule 1 of the General Interpretative Rules (GIRs) provides as follows: “The titles of Sections, Chapters and sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions:”

134That even if it can be assumed that both the solar and electrical components are equal under Rule 4 of the General Interpretative Rules (GIRs) of classification of goods the dual system heaters would still be classified under the heading appropriate to the goods which are most akin and in this case it's HS Code 85 16. “Goods which cannot be classified in accordance with the above Rules shall be classified under the heading appropriate to the goods to which they are most akin”

b.Whether the WCO advisory affected the classification of the Appellant's imported solar water hearing systems? 135That the classification of goods in Kenya is governed by the East African Community Common External Tariff (EACCET) which codified and adopted the World Custom Organization Harmonized Commodity Description Coding System and its principles of General Interpretative Rules (GIRs) of classification of goods.

136That the WCO Advisory opinion dated 3rd November, 2021 is an opinion and does not in any way alter the East African Community Common External Tariff (EAC CET) which governs the classification of goods in Kenya.

137That the Appellant's contention that the failure to provide the certified copy of the WCO advisory infringes on the Appellant's right to fair administrative action is a mere misconception of the law governing the classification of goods in Kenya.

138That the Appellant's contention that the basis of the classification was not availed is false as the explanatory notes which form the basis of the classification were availed.

139That the WCO advisory only affirmed the position under the East African Community Common External Tariff (EAC CET) but was not the primary basis for the classification of the Appellant's imported solar water heating systems under HS Code classification 8516. 10. 00.

C.whether The Respondent's Decision To Demand For The Short Levied Taxes Was Wrong And Retrospective? 140The Respondent submits that the Appellant mis-declared the imported solar water heating systems under HS Code 8419. 19. 00 instead of HS Code 8516. 10. 00.

141The Respondent states that the Kenya operates a self-assessment and self• declaration regime whereby, the taxpayer makes a declaration and pays truces on the items that they import themselves or through their agents. Thatthis creates a legitimate expectation that the taxpayer will self-declare and pay the correct taxes in accordance with the law.

142That where the Appellant defaults in this expectation, the law under Sections 135, 235, 236 and 245 of EACCMA, 2004 allows the Respondent within five years of importation to assess and demand short levied taxes .

143The Respondent submits that it acted within its power under Section 235(1) and 236 of EACCMA, 2004 which empowers the Respondent to conduct a post clearance audit within 5 years and seek for documents to verify the correctness of the taxes declared and paid.

144That the Appellant's assessment was made within the five year window provided for by the law and therefore no legitimate expectation by the Appellant was breached.

145That Section 135 of the East African Community Customs Management Act, 2004 empowers the Respondent to demand for short levied taxes.

146That in Pharmaceutical Manufacturing (K) Co. Ltd. & 3 others v Commissioner General of Kenya Revenue Authority & 2 others {2017] eKLR the Court of Appeal stated that:-“Furthermore Section 135 (1) of the East African Community Customs Management Act, 2004 mandated the respondents, where any duty was short levied or erroneously refunded, to demand payment or a refund, as the case may be, from the person who should have paid the amount or to whom a refund was erroneously made. Such a person is required to pay the amount due upon receipt of the demand. The amount due is deemed to be due on the date on which the demand note is served upon him or her. The demand note must be followed by payment within thirty days of the date of such service, failing which a further duty of a sum equal to five percent of the amount demanded would be due and payable by that person by way of a penalty and a subsequent penalty. But no such demand may be made after five years from the date of the short levy or erroneous refund, as the case may be, unless the short levy or erroneous refund had been caused by fraud on the part of the person who should have paid the amount short levied or to whom the refund was erroneously made, as the case may be.”

147The Respondent avers that Sections 235 and 236 gives the Respondent powers to call for documents and conduct a Post Clearance Audit (PCA) on the import and export operations of a taxpayer within a period of five years from the date of importation or exportation.

148The Respondent avers that where the PCA reveals that taxes were short levied, or erroneously refunded, Sections 135 and 249(1) of EACCMA 2004 empowers the Respondent to recover any such amount short levied or erroneously refunded with interest at a rate of two percent per month for the period the taxes remain unpaid.

149That the post clearance audit herein and subsequent demand was made within the five years window provided by the law and therefore no legitimate expectation or law on the Appellant has been breached.

150The Respondent submits that it did not apply the applicable HS Code retrospectively as the Appellant is required at all times to correctly declare the goods it is importing and subject the same to the applicable HS Code for purposes of charging appropriate taxes.

151That the Appellant cannot then contend that the application of the applicable HS Code after the audit is retrospective as the East African Community Common External Tariff (EAC CET) clearly outlined the applicable HS Code even before the demand notice for the short levied taxes was issued.

152The Respondent humbly submits that the demand letter dated 3rd December 2021 and the subsequent review decision dated 14th December 2021 are proper and in conformity with the law and the taxes so demanded of Kshs. 4,169,868. 48 are due and payable in full together with the applicable interest and penalty.

Respondent’s Prayers 153The Respondent prays that the Appeal be dismissed with costs to the Respondent as the same is without merit.

Issue For Determination 154The Tribunal upon due consideration of the pleadings of the parties was of the considered view that the Appeal raises only one issue for its determination, being:-Whether the Respondent erred in law and in fact in reclassifying the Appellant’s solar water heaters from tariff code 8419. 19. 00 to tariff code 8516. 10. 00

Analysis And Determination 155The Tribunal having ascertained the issue for determination as set out above proceeds to deal with the same as hereunder.

156This dispute arose from a re-classification of solar water heaters by the Respondent on the basis of a WCO advisory opinion.

157The Appellant submitted that it had over the years imported the product in question under HS Code 8419. 19. 00 and the Respondent never raised an issue with the classification of the product. That this consistent practice of importing the product in question for a long time created legitimate expectation that the solar water heaters shall in future be imported under HS code 8419. 19. 00 and not any other code.

158The Appellant further submitted that the decision by the Respondent to retrospectively apply the opinion of the WCO dated 3rd November 2021 to imports that took place many years before the same opinion was delivered was unfair.

159The Appellant stated that on the issue of misinterpretation of the EAC Common External Tariff (CET), 2017, it is the Appellant’s position that the solar water heaters can only be classified under Heading 8419 and not under any other heading. That this is because Heading 8419 covers machinery, plant or laboratory equipment, whether or not electrically heated (excluding furnaces, ovens and other equipments of heading 8514) for the treatment of materials by a process involving a change of temperature such as heating, cooking, roasting, distilling, rectifying, sterilizing, pasteurizing, drying, evaporating, vapourising, condensing or cooling, other than machinery or plant of a kind used for domestic purposes, instantaneous or storage water heaters, non-electric.

160It was also the Appellant’s position that the Explanatory Notes (ENs) constitute the official interpretation of the Harmonised System at the international level with each EN providing a commentary on the scope of each heading and therefore indicative of the proper interpretation of these headings.

161The Appellant also averred that Chapter 85 covers all electric machinery and equipment other than machinery and apparatus of a kind covered by Chapter 84 which remains classified there even electric. That the Appellant also emphasized the contents of the Explanatory Notes to Chapter 84 which state in relevant part: it should be noted that machinery and apparatus of a kind covered by Chapter 84 remains in this chapter even if electric. That the Appellant therefore holds the position that the solar water heaters are classifiable under Heading 8419.

162The Respondent submitted that the EACCET is derived from and informed by the International Convention on the Harmonized Commodity Description and Coding System to which Kenya and all member states of the East African Community are signatories.

163The Respondent further submitted that, in line with the EACCET and the General Interpretation Rules (GIRs) to the EACCET, the Appellant's imported solar water heating systems are classifiable under Chapter 85 of the East African Community Common External Tariff (EAC CET) which provides for:“Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles”

164The Tribunal has established that the demand by the Respondent was on the basis of an application made by the Respondent to the WCO and an advisory opinion issued by the WCO which documents were neither availed to the Appellant nor to the Tribunal.

165Further, the Tribunal has looked at the arguments advanced by both parties. The Appellant’s position is that nothing has changed to warrant the re- classification of the product. That the character of the product has not changed and all that happened was that the Respondent changed the interpretation of the code and applied it retrospectively on the Appellant’s solar water heaters.

166The Tribunal finds that the General Interpretation Rules (GIR 1) under the EAC Common External Tariff 2017 provides that classification shall be determined according to the terms of the Headings and any relative Section or Chapter Notes. This rule provides as follows:“The titles of Sections, Chapters and sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes.”

167The Tribunal notes that since the Heading is clear on the treatment of the solar water heaters, there is no need to consider the chapter notes or what other sections provide. This is because the heading takes priority and reference to Chapter notes or other sections should only be made when the heading lacks clarity on the classification of the item in question.

168The Tribunal agrees with the Appellant that the electric heating element is not a significant part of the system as the bulk of the water heating system is made of the collectors and heat exchange tank. The Appellant demonstrated that the backup heater plays a very incidental role in the functioning of the system as the solar system still functions without the electric heating element.

169According to GIR 1, what one sees when they look at the product in dispute is a solar water heater as opposed to a water heater, boiler, geyser or hot water tank. The electric heating element is an accessory to the solar water heater. The HS tariff classification codes are internationally used to facilitate global trade. The WCO in 2022 Nomenclature, introduced tariff 8419. 12. 00 to specifically provide for solar water heaters. The East African Common External Tariff structure that came into force on 1st July 2022 also classified solar water heaters under HS Code 8419. 12. 00. This is an indication that the WCO and its member states intend that solar water heaters be classified under Chapter 84 thereby reinforcing the Explanatory Notes under Heading 8516 that solar water heaters should be classified under Heading 8419.

170The Tribunal also notes that the East African Solar Taxation Handbook at page 38 describes solar water heaters as:-“Machinery, plant for conversion of sunlight into heat for water heating using a solar thermal collector.” The Handbook indicates that the HS code used for solar water heaters in the East African countries is 8419. 19. 00. The Tribunal notes that the Respondent did not offer a satisfactory justification for departure from the code that it has used over the years and that continues to be used by the other countries in the East African Customs Union.”

171The Tribunal reiterates its decisions in similar matters, TAT 249 of 2021 - Scandinavian Solar Systems Ltd and TAT 135 of 2022 - Climacentro Green Tech Ltd, where the Tribunal found that solar water heaters are classifiable under HS code 8419. 19. 00 during the period under review. The Tribunal has found no reason to deviate from its earlier decisions.

172In view of the above, the Tribunal finds that the correct tariff code for the classification of the Appellant’s water heaters for the period under dispute is 8419. 19. 00.

Final Decision 173The upshot of the foregoing analysis is that the Tribunal finds that the Appeal is merited and accordingly proceeds to make the following Orders:a.The Appeal be and is hereby allowed.b.The Respondent’s review decision in its letter dated 14th December, 2021 be and is hereby set aside.c.Each party to bear its own costs.

174. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 1ST DAY OF SEPTEMBER, 2023ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERGRACE MUKUHA - MEMBERJEPHTHAH NJAGI - MEMBERABRAHAM K. KIPROTICH - MEMBER