Kenafric Industries Limited v Commissioner of Domestic Taxes [2024] KETAT 1147 (KLR)

Kenafric Industries Limited v Commissioner of Domestic Taxes (Appeal E916 of 2023) [2024] KETAT 1147 (KLR) (1 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1147 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E916 of 2023

RM Mutuma, Chair, B Gitari, M Makau, EN Njeru & AM Diriye, Members

August 1, 2024

Between

Kenafric Industries Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company registered under the Companies Act, which manufactures and trades in wide range of non-alcoholic beverages, including bottled water, carbonated soft drinks, ready to drink and energy drinks.

2. The Respondent is appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and 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 carried out what it called review of the Appellant’s excise duty declarations and discovered that the Appellant claimed non-qualifying excise input for the periods September 2021 to June 2022.

4. On 6th September 2023 the Respondent issued the Appellant with pre-assessment notice requiring it to amend its returns to comply with Section 14 of Excise Duty Act.

5. According to the Respondent, the Appellant failed to amend and was then slapped with assessment on 14th September, 2023, which it objected to on 13th October 2023.

6. The Respondent issued an Objection Decision on 29th November 2023 disallowing the objection on the basis that the packaging materials are not raw materials in the manufacture of excisable goods as per Section 14 of the Excise Act and no relief for excise duty incurred in purchasing packaging materials.

7. Dissatisfied with the Respondent’s Objection Decision, the Appellant filed a Notice of Appeal in the Tribunal dated 30th November 2023.

The Appeal 8. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal dated and filed 14th December, 2023:a.The Respondent erred in law by completely misconstruing the provisions of Section 14 (1) of the Excise Duty Act, 2015 and disallowing the excise duty claimed by the Appellant amounting to Kshs. 10,284,381. 74. b.The Respondent erred in law by failing to appreciate that the word ‘manufacture’ pursuant to Section 2 of the Excise Duty Act and Section 14 (1) of the said Excise Duty Act refers not only to the production of the final excisable goods, but also to intermediate or uncompleted process in the production of the final excisable goods.c.The Respondent erred in law in failing to appreciate that the word ‘raw materials’ in Section 14 (1) of the Excise Duty Act refers to any substances found in their natural modified or semi-processed state used as an input to a production process for subsequent modification or transformation into a finished good.d.The Respondent erred in law and fact in failing to appreciate that ‘preforms’ are ‘raw materials’ used in the production of bottles which are ultimately used to package the Appellant’s finished goods even after expressly admitting at page four (4) of its objection decision dated 29th November 2023 that ‘preforms undergo some’ to produce the bottle which is what is then used to package beverages to create the final finished products as per HS Code 2202. 90. 00 ‘Bottled or similarly packaged waters and other non-alcoholic beverages, not including fruit or vegetable juices’.e.The Respondent erred in law and fact by failing to appreciate that for purposes of Section 14 (1) of the Excise Duty Act, a distinction must be drawn between ‘the preforms’, ‘the bottles manufactured from the preforms’ and ‘the final finished products’ which is then sold to the consumers.f.The Respondent erred in law by failing to appreciate the fundamental distinction between the facts of Betersdorf East Africa Limited vs. Commissioner of Domestic Taxes (Tat Appeal No. 789 Of 2022) and the facts of the Appellant’s case which rendered the TAT decision in the said case completely inapplicable given the unique and different circumstances of the Appellant’s case.g.That the Respondent’s Objection Decision dated 29th November 2023 constitutes a violation of the Appellant’s right to fair administrative action under Article 47 of the Constitution as read together with the provisions of Fair Administrative Actions Act.h.That the Respondent’s Objection Decision dated 29th November 2023 violates the Appellant’s legitimate expectation.i.That the Respondent’s Objection Decision dated 29th November 2023 violates the Appellant’s right to property under Article 40 of the Constitution.j.That the Respondent erred in law failing to appreciate that tax legislations have to be subjected to strict interpretation.k.That the Respondents erred in law in failing to appreciate that any doubt or ambiguity in a tax legislation operates in favour of the taxpayer.

The Appellant’s Case 9. The Appellant’s case is premised on its;a.Statement of Facts dated and filed on 14th December 2024 together with the documents attached thereto;b.Supplementary Record of Appeal dated 28th February 2024 together with the documents attached thereto; and,c.Written submissions dated and filed 16th April 2024.

10. The Appellant stated that it manufactures and trades in wide-ranging categories of non-alcoholic beverages under the Excise Duty Act, comprising of bottled water, carbonated soft drinks, ready to drink and energy drinks, which beverages are classified under HS Code 2202. 90. 00 as ‘Bottled or similarly packaged waters and other non-alcoholic beverages, not including fruit or vegetable juices. It uses plastic bottles, that it manufactures internally by procuring preforms locally and internationally, as its primary packaging material for its product.

11. The Appellant stated that the bottled water and non-alcoholic beverages being the finished goods are subject to excise duty at the rate of Kshs. 6. 41 per litre. It further averred that the Preforms are excisable goods classified under tariff 3923. 30. 00 purchased by the Appellant and it pays excise duty of 10 % on the value of the said preforms, either upon importation or upon local purchase.

12. The Appellant stated that under Section 14 of the Excise Duty Act, where an Excise Duty has been paid in respect of excisable goods imported into or manufactured in Kenya by a licensed manufacturer and, which have been used as raw materials in the manufacture of other excisable goods (hereinafter ‘the finished goods’), the excise duty paid on raw materials shall be offset against the excise duty payable on the finished goods. Therefore, the Appellant offset excise duty paid on the Preforms against excise duty paid on the finished goods, being ‘Bottled Water and Beverages’ for the period between September 2021 to June 2022.

13. The Appellant stated that on 6th September 2023, the Respondent demanded from the Appellant payment of excise duty amounting to Kshs. 10,284,385. 59 for the period between September 2021 to June 2022 purportedly on grounds that the Appellant had misapplied Section 14 of the Excise Duty Act aforesaid by erroneously deducting excise duty paid on purchased Preforms against the excise duty payable for each period.

14. It averred that the Respondent contended that Preforms were not raw materials within the meaning of Section 14 of the Excise Duty Act and therefore directed the Appellant to amend its returns and make payment of the said Kshs. 10,284,385. 59 within 7 days filing which the Respondent would proceed to issue assessments under Section 31 of the Tax Procedures Act, 2015.

15. The Appellant stated that it responded to the demand notice vide a letter dated 8th September 2023 explaining the Respondent's misapprehension of Section 14 of the Excise Duty Act and on 11th October 2023, the Appellant filed its Notice of Objection contending that KRA had erred in law in its interpretation of Section 14 (1) of the Excise Duty Act in determining whether the excise duty paid by the Appellant on the purchase of preforms could be offset against the excise duty payable on the Finished product. The Appellant relied on the following provisions of the Exercise duty Acta.Section 2, 9 (3), 11 and 14 of the Excise Duty Act.b.Section 37 and 38 of the Finance Act, 2019 which it says provided for preferential levying of IDF and RDL at the rate of 1. 5% respectively on the customs value on imported raw materials and intermediate products.

16. The Appellant stated that it meets its excise duty obligations on importation or sourcing of its input raw materials, which is affirmed by the lack of demand notices to the Appellant in relation thereto.

17. The Appellant averred that it uses Preforms as an input raw material to manufacture the finished bottled product within the meaning of 'manufacture' under Section 2 of the Excise Duty Act and that the Preforms are not acquired as finished products ready for packaging rather the same are procured in their intermediate form for further manufacturing. It argued that bottled water and beverages sold (finished products) in the Tariff class 2202. 90. 00 cannot exist in a sellable state unless packaged in bottles or similar packaging, which are also excisable.

18. That having paid excise duty on the preforms at the point of importation or local purchase, and the manufactured bottled products being excisable, the excise duty incurred on importation or local purchase is claimable under Section 14 of the Excise Duty Act.

19. The Appellant averred that the costing (ex-factory selling price) of the finished goods comprises all costs incurred in the manufacture of bottles, which comprises excise duty on its raw materials.

20. It posited that the Respondent treats the Preforms as raw materials in line with the provisions of Section 37 and 38 of the Finance Act of 2019 by granting the Appellant remission on IDL and RDL.

21. The Appellant averred that disallowing excise duty incurred on purchase of preforms is tantamount to a violation of the Appellant’s right to property under Article 40 of the Constitution and amounts to unfair taxation.

22. The Appellant maintained that the Respondent has completely misconstrued the provisions of Section 14 (1) of the Excise Duty Act, 2015 by refusing to apply the said provision to the circumstances of the Appellant’s case.

23. The Appellant stated that it is paramount to define keywords relevant to the case being ‘manufacture’, and the ‘finished goods’ which are excisable and as provided in the Act as follows;a.Section 14 of the Excise Duty Act which states that“Where excise duty has been paid in respect of excisable goods imported into or manufactured in Kenya by a licensed manufacturer and which have been used as raw materials in the manufacture of other excisable goods (hereinafter referred to as "finished goods"), the excise duty paid on the raw materials shall be offset against the excise duty payable on the finished goods.”b.Section 5 of the Excise Duty Act which states that excise duty is chargeable on (a) excisable goods manufactured in Kenya by a licensed manufacturer;(b) excisable services supplied in Kenya by a licensed person; or (c) excisable goods imported into Kenya.c.Section 5(2) states Excise duty shall be charged at the rate specified in the First Schedule for the excisable goods.

24. The Appellant states that the Respondent has failed to appreciate that the word ‘manufacture’ pursuant to Section 2 of the Excise Duty Act, refers not only to the production of the final excisable goods, but also to intermediate or uncompleted process in the production of the final excisable goods. The Appellant urged the Honorable tribunal to take note that it manufactures beverages classified as excisable goods (finished goods) as per Schedule 1 under HS Code 2202. 90. 00.

25. The Appellant relied on Cambridge Dictionary to define ‘Bottled’ as contained, stored, or sold in bottles and argued that, a bottled product requires raw materials inclusive of preforms to create the finished product, which in this case is developed from preforms.

26. It is the Appellant’s statement that in order to manufacture its bottled beverages, the Appellant sources Preforms both locally and internationally which undergo a further manufacturing process to create the bottles which as used for packaging of the excisable finished goods identified herein above.

27. The Appellant stated that it rightfully paid excise duty on preforms imported and which were further processed to manufacture the excisable beverage product and therefore had a right pursuant to Section 14 of the Act to claim duty on the finished foods. That additionally, Tariff per Schedule 1 under HS Code 2202. 90. 00 is the only class that specifies the excisable product inclusive of the accompanying packaging as all the other classes of excisable beverages only specify the liquid content. That this position is supported by the provisions of Section 12 of the Act which specifies that a class of excisable goods cannot be sold in their state other than accompanied by a type of packaging, in the Appellant’s case being bottles.

28. The Appellant argued that the Respondent erred in law by disallowing the claim by the Appellant of the excise duty paid on preforms used to manufacture the finished goods. It also stated that the Respondent erred in law in failing to appreciate that tax legislations have to be subjected to strict interpretation. That Section 14 of the Act must be interpreted strictly as stated allowing manufacturers of excisable goods to claim excise paid on excisable raw materials used in the manufacturing process.

29. The Appellant argued that Respondent has erred in its definition of the word ‘raw materials’ and packaging in Section 14 (1) of the Excise Duty Act It stated that the Respondent erred in law and in fact by failing to appreciate that for purposes of Section 14 (1) of the Excise Duty Act, a distinction must be drawn between (a) ‘the preforms’, (b)the bottles manufactured from the preforms, and (c) the final finished products.

30. The Appellant posited that the Black law Dictionary refers to ‘raw materials’ as any substances found in their natural, modified or semi-processed state used as an input to a production process for subsequent modification or transformation into a finished good. It averred that the Respondent failed to appreciate that Preforms are raw materials used in the production of bottles which are ultimately used to package the Appellant’s beverages to produce the finished goods being Bottled and similarly packaged beverages.

31. It stated that the manufacturing of these finished goods involves the manufacturing of the bottles from preforms, preparation of the liquid beverages and together with other components such as the bottles caps and labels are combined to ultimately produce the Appellant's finished products. That the bottles are manufactured by loading the preforms at the hopper and sorting the machine. While in the machine, the preforms are subjected to heating at the oven at a temperature of 55 to 85 degrees Celsius. That the preforms are then stretched, pre-blown (between 4 to 9 bars), and further blown (between 28 to 32 bars in accordance with the mould’s shape. That it then undergoes a cooling process at the chiller for enhancing their wall and base strength at 4 to 8 degrees Celsius. That therefore Preforms are raw materials used in the manufacturing of the bottled beverages.

32. The Appellant stated that indeed, the Kenya Revenue Authority Harmonized System Handbook for the EAC Customs Administration incorporates ‘preforms’ in its definition of an incomplete/unfinished article as follows thereby confirming that preforms are in fact raw materials in intermediate form.

33. It stated that preforms are not packaging materials in the form they are purchased in and have to undergo a further processing to make them usable in packaging the liquid contents. Both the beverages and the preforms undergo a manufacturing process to create the finished goods

34. That the Respondent has failed to appreciate that for purposes of Section 14 (1) of the Excise Duty Act, the ‘final finished products’ manufactured in the Appellants case are “bottled and similarly packaged beverages” which include both the beverages and the bottle packaging.

35. The Appellant stated that the Respondent failed to appreciate the fundamental distinction between the facts of Beiersdorf East Africa Limited vs. Commissioner of Domestic Taxes (TAT Appeal no.789 of 2022) and the facts of the Appellant’s case which rendered the TAT decision in the said case completely inapplicable given the unique and different circumstances of the Appellant's case as followsa.That whereas the Beiersdorf case involved the relationship between the Glass Bottle and the Finished Product, the Appellant’s case involves the relationship between the Preforms and the bottles manufactured from the preforms to be used in packaging of the finished product.b.That whereas the Beiersdorf case involved the importation of glass bottles as a final product, the Appellant’s case involves the importation or local procurement of preforms in their intermediate state for further manufacturing into the final product.c.That in the Beiersdorf case, since the glass bottles are imported in their finished state, the Tribunal ruled that“the liquid content packaged in the glass bottles is the product that undergoes processing and may be packaged in different materials or containers”.d.That the said glass bottles do not undergo a manufacturing or altering process as component of the finished product.

36. The Appellant stated that the Honorable Tribunal in the Beiersdorf case specified that packaging alone did not amount to manufacture and highlighted the criteria that a further alteration process was required in relation to the packaging as a component of the finished product as also highlighted in the case of Mjengo Limited vs. Commissioner of Domestic Taxes [2016] eKLR,where the Court held that;“there was no evidence that beyond importing, sorting and packaging the rice imported, there was any change in its state as a result of any process undertaken by the Appellant”.

37. The Appellant averred that having identified the finished/excisable good as “Bottled water or similarly packaged beverages”, the processing of the Preforms into bottles, as an intermediate process in the production of bottled water, is part of the manufacture of the excisable good as there cannot be an excisable good (bottled water/beverages) without the bottle.

38. It posited that the Respondent in the Beiersdorf case pleaded that the glass bottles are for packing the roll-on and that the packing material does not in any way add value to the manufacturing process.

39. The Appellant reiterates that the finished product in this case and as per the First Schedule of the Act is the “Bottled water or beverages” and not just any water or beverage.

40. The Appellant further relied on Section 12 (2) of the Excise Duty Act, which states:“(a)excisable goods are imported into Kenya, or removed from the factory of a licensed manufacturer, in a package intended for sale with, or of a kind usually sold with the goods in a sale by retail; and(b)the package-(i)is not marked or labelled with a net weight; or(ii)is not commonly sold as containing, or is not commonly reputed to contain, a specific quantity or weight; and(c)the owner of the goods is unable to satisfy the Commissioner of the correct net weight of the package; the excisable goods shall be liable to excise duty according to the gross weight of the package and its contents.”

41. The Appellant stated that the current excise duty payable for bottled beverages in this tariff is Kshs. 6. 41 per litre and therefore from this specification, it is clear that the Act had envisioned that this Tariff class of excisable goods cannot be sold in their state other than accompanied by a type of packaging in our case being bottles. The section also states that the excisable goods shall be liable to excise duty according to the gross weight of the package and its contents. The bottles are used to measure the volume of the beverages is clearly stated on all bottles and to which the excise duty of Kshs. 6. 41 per litre is payable.

42. It is the Appellants case that packaging is a necessary addition to the manufacturing process as its specific tariff class of beverage products can only be valued once contained in some form of packaging and being liquid content measured by their volume. That as per Section 6 (1) of the Excise Duty Act the liability of a licensed manufacturer for excise duty on excisable goods manufactured in Kenya shall arise at the time of removal of the goods from the manufacturer’s factory. The products for sale cannot be valued as they are and removed from the factory for sale and retail without being accompanied by a form of packaging.

43. The Appellant deems the acts of the Respondent as not only unfair but also illegal, amounting to unfair taxation, violations of its fundamental rights and freedoms protected by the law.

44. The Appellant highlighted the principles enumerated in the case of Okiya Omtatah Okoiti vs. Commissioner General, Kenya Revenue Authority & 2 others [2018] eKLR.

45. The Appellant stated that there is no reasonable justification why preforms or bottles produced by manufacturers who import materials to produce preforms or bottles for production of their own bottled beverages are not given the same treatment given to importers of the same preforms. That the same means that the provision in Section 14 of the Act is not fairly applied in relation to preforms which amounts to discrimination and unfair taxation.

46. The Appellant stated that in denying the Appellants right to offset the input duty, the Respondent’s acts in contravention of Article 27 (4) and Article 40, 47 of the Constitution.

47. In its submissions the Appellant posited that the dispute between the parties hereto relate to the meaning of ‘raw materials’ and the meaning of ‘finished goods’ for purposes of taxation and the disagreement between the Appellant and the Respondent regarding the meaning of the two terminologies arise out of Section 14 of the Excise Duty Act.

48. The Appellant’s view is that raw materials mean a ‘feedstock’, ‘unprocessed material’ or ‘a primary commodity’ which is used in the manufacture of a secondary commodity and that a finished product (secondary commodity) is that which has its final value in the manufacturing process. The primary commodity must be distinguished from a secondary commodity, which is what is sold to the customers. The finished product (secondary commodity) can therefore be a primary commodity as long as it is not sold and that where the finished product (secondary commodity) is used to manufacture another finished good, then it is for all practical purposes a raw material.

49. The Appellant submitted that it relied on the Law Dictionary which defines a 'Finished product' as: A product that has its final value in the manufacturing process. It is being stored, is awaiting sale and delivery or use to make a product. It asserts that the bottled water, carbonated soft drinks, ready to drink and energy drinks (hereinafter referred to as ‘the finished goods’) which it manufactures are classified as excisable (FINISHED) goods under HS Code 2202. 90 of the Excise Duty Act as ‘Bottled or similarly packaged waters and other non-alcoholic beverages’, not including fruit or vegetable juices. That in order to produce the finished product exactly as referenced in HS Code 2202. 90 above the Appellant packages its water and non-alcoholic beverages in plastic bottles made from preforms.

50. That the preforms are sourced locally or abroad, and are subject to excise duty at the point of purchase as provided under Tariff Head 3923. 30. 00 at the rate of 10% of their value and are then subjected to an industrialized process to produce bottles hence are raw materials necessary in manufacturing and generating the finished product particularized in HS Code 2209. 90. The bottled and packaged waters and non-alcoholic beverages being the finished product particularized in HS Code 2209. 90 are subject to excise duty at the rate of Kshs. 6. 41 per litre. The Appellant asserts that pursuant to the aforesaid classification at HS Code 2202. 90, the finished product does not exist and is not excisable unless it is BOTTLED as clearly outlined in the said provision.

51. The Appellant further asserts that water and plastic bottles are not excisable as they are not finished products. That Section 14 of the Excise Duty Act permits the deduction of excise duty paid on raw materials from excise duty payable on finished goods. That the Appellant is therefore entitled, as it did, to offset excise duty paid on preform at the rate of 10% of their value pursuant to Tariff 3923. 30. 00, from excise duty payable on the finished product (bottled water and non-alcoholic beverages) for the period between March and May 2023, because preforms are raw materials necessary tor the generation of the finished product in HS Code 2209. 90.

52. The Appellant submitted on the following issues for determination:a.Whether the Respondent has misconstrued the provisions of Section 14 (1) of the Excise Duty Act 2015 by refusing to apply the said provision to the circumstances of the Appellant’s case:b.Whether the Respondent has erred in its definition of the words ‘raw materials’ and packaging in Section 14 (1) of the Excise Duty Act;c.Whether the Respondent has failed to appreciate the fundamental distinction between the facts of Beiersdorf East Africa Limited vs Commissioner of Domestic-Taxes (TAT Appeal no.789 of 2022) and the facts of the Appellant’s case which rendered the TAT decision in the said case completely inapplicable given the unique and different circumstances of the Appellant's case';d.Whether in rejecting the Appellant’s entitlement to the relief under Section 14 of the Excise Duty Act, the Respondent has:a.Exercised a discriminatory and unfair application of the said provision:b.Acted in violation of section 40 of the Constitution:c.Acted in violation of section 47 of the Constitution;d.Acted in violation of the doctrine of legitimate expectation.

Whether the Respondent has misconstrued the provisions of Section 14 (1) the Excise Duty Act, 2015 by refusing to apply the said provision to the circumstances of the Appellant’s case 53. The Appellant submitted that a party expressly exempted from payment of tax under a tax regime bears no obligation to make such payment.

54. It posited that in order to apply Section 14 (1) of the Excise Duty Act correctly, one must properly define key words used in the said provision which are materially relevant to the case being, ‘manufacture’ and ‘finished goods’ which are excisable. That the word manufactures as used in Section 2 of the Excise Duty Act, refers not only to the production of the final excisable good, but also to the intermediate or uncompleted process in the production of the final excisable good. Based on the foregoing, the Appellant submitted that, the preforms actually undergo a distinct manufacturing process to create bottles, which are then used to package the water and beverages; to form the final excisable good.

55. That Section 14 (1) of Excise Duty Act allows the deduction of excise duty paid on raw materials from excise duty payable on finished goods, which therefore makes it extremely important to understand the term ‘finished goods’ used therein in the context of the business conducted by the Appellant.

56. The Appellant stated that tax can only be imposed and enforced as provided by existing legislation, in particular, excise duty applies only as prescribed under Section 5 of the Excise Duty Act.

57. The Appellant submitted that HS code 2202. 90 is the only class in the First Schedule to the Excise Duty Act that incorporates the packaging element as part of the excisable good whereas all other classes of excisable beverages specify the liquid content only, without reference to the packaging.

58. That the water and non-alcoholic beverages are not subject to excise duty and are incapable of sale unless bottled as provided in HS Code 2202. 90. 00.

59. That this position is further buttressed by Section 12 of the Excise Duty Act, which specifies that certain class of excisable goods cannot be sold in their state unless accompanied by a type of packaging, which in the appellant’s circumstances are the plastic bottles.

60. The Appellant submits that the Respondent has erred in treating only the water and non-alcoholic beverage content as the finished product, to the exclusion of the bottle, contrary to the provisions of HS Code 2202. 90. 00.

61. The Appellant placed reliance on the case of Republic vs. Kenya Revenue Authority & Another Ex -parte Fontana Limited, JR Misc. Civ. Appl. 442 of 2013 [2014] eKLR where Odunga J held: “The principles guiding tax legislation were restated in Republic vs Commissioner of Domestic Taxes Large Tax Payer’s Ex Parte Barclays Bank of Kenya LTD [2012] eKLR where Majanja J held:“The approach to this case is that stated in the often-cited case of Cape Brandy Syndicate v Inland Revenue Commissioners [1920] 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 is to 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. As this case concerns the interpretation of the Income Tax Act, I am also guided by the dictum of Lord Simonds in Russel v Scott [1948] 2 ALLER 5 where he stated. ‘My Lord, there is a maxim of income tax law which, though it may sometimes be overstressed yet ought not to be forgotten.It is that the subject is not to be taxed unless the words of the taxing statute unambiguously impose the tax upon him' adopted in Stanbic Bank Kenya Limited vs Kenya Revenue Authority CA Civil AppealNo.77 of 2008 (unreported) [2009] e KLR per Nyamu JA (See also Jafferali Alibhai vs Commissioner of Income Tax [1961] EA 610 Kanjee Naranjee vs Income Tax Commissioner [1964] EA 610 KanjeeNaranjee v Income Tax Commissioner, Any tax imposed on a subject is dictated by terms of legislation and taxing authority must satisfy itself that the transaction fits within the definition of the statute. In Adamson vs Attorney General [1933] AC 257 at p. 275 it was held that, the section is one that imposes a tax upon the subject, and itis well settled that in such cases it is incumbent on the Crown to establish that its claim comes within the very words used, and if there is any doubt or ambiguity this defect-if it be in view of the Crown a defect can only be remedied by legislation.”

62. The Appellant also urged this Honourable Tribunal to hold and find as it did in TAT 1026 of 2022 London Distillers Limited vs. Commissioner of Domestic Taxes that:“in view of the ambiguities as to the definitions of raw materials as used under Section 14 (1) of the Excise Duty Act. the Appellant was legally right and justified in offsetting the duty paid on its finished product being (bottled water and carbonated drinks) from the excise duty paid on the preforms which were the raw materials.

Whether the Respondent erred in its definition of the word ‘raw materials’ and 'packaging' in section 14 (1) of the Excise Duty Act.” 63. The Appellant relied on the Blacks’ Law Dictionary definition of the term ‘raw materials’ as ‘any substances found in their natural, modified or semi-processed state used as an input in production process for subsequent modification or transformation into a finished good.’

64. The Appellant also brought to the attention of the Tribunal the Kenya Revenue Authority Harmonized System Handbook for the EAC Customs and Administration definition of preforms as:“An article, not ready for direct use, having the approximate shape and outline of the finished article or part, and which can only be used, other than in exceptional cases, for completion into the finished article or part, for example, bottle preforms of plastics being intermediate products having tubular shapes, with one closed end and one open end threaded to secure a screw type closure, the portion below the threaded end being intended to be expanded to a desired size and shape”.

65. The Appellant reiterated that Preforms are therefore articles in a semi-processed/unfinished state that are used in the intermediate process of production of final excisable goods, being the 'bottled water and non-alcoholic beverages as described in HS Code 2202. 90. 00. In particular, preforms are raw materials/inputs that are used in the production of bottles that are ultimately used to package the water and non-alcoholic beverages to produce the finished products.

66. The Appellant further submitted that the Respondent has always treated imported preforms as raw materials by granting remission on both IDL and RDL pursuant to the provisions of Section 37 and 38 of the Finance Act,2019, which grants preferential levying of IDF and RDF at the rate of 1. 5% respectively on the customs value on imported raw materials and intermediate products approved by manufacturers.

67. The Appellant also submitted that Section 12 (2) of the Excise Duty Act categorically specifies that it shall apply where the first Schedule specifies a rate of excise duty payable by reference to a quantity measured by volume or weight:(2)(f)(a)excisable goods are imported into Kenya, or removed from the factory of a licensed manufacturer, in a package intended for sale with, or of a kind usually sold with the goods in a sale by retail: and(b)the package-(i)is not marked or labelled with a net weight; or(ii)is not commonly sold as containing, or is not commonly reputed to contain, specific quantity or weight: and(c)the owner of the goods is unable to satisfy the Commissioner of the correct net weight of the package the excisable goods shall be liable to excise duty according to the gross weight of the package and its contents.

68. The Appellant submitted that packaging is a necessary addition to the manufacturing process as its specific tariff class of beverage products can only be valued once contained in some form of packaging and being liquid content measured by their volume.

Whether the Respondent has failed to appreciate the fundamental distinction between the facts of Beiersdorf East Africa Limited vs. Commissioner of Domestic Taxes (TAT Appeal no. 789 of 2022) and the facts of the Appellant’s case which rendered the TAT decision in the said case completely inapplicable given the unique and different circumstances of the Appellant’s case. 69. The Appellant submitted that that the case of TAT Appeal no.789 of 2022 Beiersdorf East Africa Limited vs Commissioner of Domestic Taxes, which the Respondent placed heavy reliance on while dismissing the Appellant’s claim, is not applicable to the circumstances of the Appellant’s case herein. The issues raised in the particular case are exhaustively provided in the Appellants statement of facts. In conclusion the Appellant submitted that Beiersdorf case is not similar to the circumstances of Appellant as the Tariff applicable to their case only reads “imported glass bottles” and not glass bottled roll-ons, which they manufacture and that the appellant however manufactures bottled water and similarly packaged beverages as described in HS Code 2202. 90. 00.

Whether the Respondent acted in breach of the Constitution 70. The Appellant submitted that the acts of the Respondent was not only discriminative and unfair but also illegal and amounting to violations of its fundamental rights and freedoms.

71. It submitted that the Respondent violated Article 27 (4) of the Constitution by denying the Appellant the relief on raw materials under Section 14 (1) of the Excise Duty Act while granting the same relief to other manufacturers who source materials and produce preforms for packaging of their own products. To reiterate their case the Appellant cited the case of Okiya Omtatah Okoiti vs. Commissioner General, Kenya Revenue Authority & 2others [2018] eKLR.

72. The Appellant submitted that the Respondent breached Article 47 of the Constitution on fair administrative action when it declined the Appellant’s excise duty declarations more than a year after the date they were lodged, in direction contravention of the requirement to discharge administrative duties in an expeditious, efficient, reasonable and procedurally fair manner. Further that the Respondent acted in breach of Article 47 of the Constitution when it arbitrarily, unreasonably and illegally declined the appellant's claim which was grounded in law pursuant to Section 14 (1) of the Excise Duty Act as read together with HS Code 2202. 90. 00.

73. In conclusion, the Appellant submitted that the Respondent's demand for Kshs. 10,284,385. 59 alleged to be excise duty on preforms purchased between September 2021 and June 2022 is not supported by law of fact, whether under the Excise Duty Act or under any tax legislation.

Appellant’s Prayers 74. The Appellant prays that this Honourable Tribunal:a.Allows this Appeal be allowed.b.Annuls the Respondent's Objection Decision dated 29 November 2023 based on the grounds above, as well as the information contained in the Statement of Facts attached; and,c.Upholds the Appellant respective Notice of Objection dated 8th September 2023 and 11th October 2023. d.Awards costs of this Appeal be awarded to the Appellant.

The Respondent’s Case 75. The Respondent’s case is premised on its;a.Statement of Facts dated 12th January 2024 and filed on 15th of January 2024 together with the documents attached thereto; and,b.Written submissions dated and filed 2nd May 2024.

76. In its Statement of Facts, the Respondent stated that it carried out a review of the Appellant excise duty declarations and the analysis established that the Appellant claimed non-qualifying excise input for the period September 2021 and June 2022. Upon conclusion of the exercise the Respondent established that despite being in the business of manufacturing bottled water and beverages the Appellant made claims of packaging materials (bottles and preforms bottles) contrary to the provisions of Section 14 of the excise Duty Act 2015

77. That On 6th September 2023 the Appellant was issued with a preassessment notice and was requested to amend its returns within 7 days thereof to be in line with the provisions of Section 14 of the Excise Duty Act. The Appellant failed to amend the returns and the Respondent proceeded to raise assessments dated 14th September 2023. The Appellant being aggrieved lodged an objection notice on 11th October 2023. The Respondent considered the Appellant objection and rendered an Objection Decision on 29th November 2023 rejecting the objection and confirming the taxes of Kshs. 10,284,381. 74.

78. The Respondent stated in detail in its Objection Decision that while the packaging may be essential in completion of formation of the product, it is not a raw material and the product is complete and ready for consumption even without the packaging material

79. The Respondent in its statement of facts addressed the issues raised by the Appellant in the Memorandum of Appeal and Statement of Facts under the following headingsa.Whether the Appeal before the Tribunal has been validly lodged;b.Whether the preforms used to make bottles for packaging water and beverages are raw materials;c.Whether the additional assessments are legally justified; and,d.Whether the Appellant has discharged burden of proof.

80. The Respondent argued that the Appeal herein is invalid as the same has been filed contrary Section 13 of the Tax Appeals Tribunal Act.

81. On whether preform is a raw material the Respondent defined raw material as “basic substances found in their natural, modified or semi processed state, used as an input to a production process for subsequent modification or transformation into a finished good.” As such while packaging material is essential to complete the formation of the product, it is not a raw material and the product is complete and ready for consumption even without the packaging material.

82. The Respondent averred that packaging materials are not raw materials in the manufacture of excisable goods within the Section 14 of the Excise Duty Act, 2015 and hence there is no relief for excise duty incurred in purchasing packaging materials. It referred to the Court of Appeal decision in Mjengo Limited, vs. Commissioner of Domestic Tax [2016] eKLR the court held that;“there was no evidence that beyond importing, sorting and packaging the rice as imported, there was any change in its state as a result of any process undertaken by the appellant. We are therefore in agreement with the decision of the lower court that “packaging alone did not amount to manufacture.”

83. The Respondent thus found that raw materials are the basic material from which a product is made or materials that are in their natural state before they are processed or used in manufacturing. As such, while packaging material is essential to complete the formation of the product, it is not a raw material and the product is complete and ready for consumption even without the packaging material.

84. The Respondent contends that packaging materials are not raw materials in the manufacture of excisable goods within the Section 14 of the Excise Duty Act, 2015 and that though the preform undergoes processing (blowing), it is not the final product, water and beverages are the final process. Thus, there is no relief for excise duty incurred in purchasing packaging materials.

85. The Respondent states that it relied on the case of TAT Appeal No. 789 of 2022: Beiersdorf East Africa Limited vs. Commissioner of Domestic Taxes (supra).

86. The Respondent states that it correctly concluded that the mere fact that bottled or similarly packaged waters and non-alcoholic beverages are charged excise duty does not automatically qualify them for a set-off in accounting for excise duty on the finished product.

87. The Respondent states that pursuant to the provisions of Section 24 (2) of the Tax Procedures Act, it is not bound by the tax return or information provided by the Taxpayer and that she is empowered to assess any taxpayer based on information available to her.

88. The Respondent states that Section 31 of the Tax Procedures Act allows the Respondent to make additional assessment based on the information placed before it using her best judgment.

89. That the Appellant bears the burden to prove that the additional assessments were excessive or improper and from the documents adduced in support of their Appeal, the same is not evident and therefore the Appellant has failed to discharge this burden as required by Section 56 (1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunals Act.

90. The Respondent pleads that it acted at all times in pursuant to the relevant tax laws including the Constitution and considered all of the documentation availed.

91. The Respondent pleads that the Appellant has failed to prove that the assessment was excessive and/or the Respondent's Objection decision ought to have been made differently.

92. The Respondent submitted that the following issues fall for determination: -i.Whether the Respondent erred in law and fact by disallowing the Appellant’s claim of excise tax paid on “preform bottles” used for the manufacture of excisable materials which is in line with Section 14 of the Excise Duty Act;ii.Whether the Respondent erred in law and fact by stating that a preform bottle (packaging) does not form part of raw materials; andiii.Whether the Respondent erred in law by failing to appreciate the distinction between the instant case and TAT Appeal No. 789 of 2022; Beiersdorf East Africa Limited vs. Commissioner of Domestic taxes.

Whether the respondent erred in law and in fact by disallowing the appellant's claim of excise tax paid on “preform bottles” used for the manufacture of excisable materials which is in line with section 14 of the excise duty act 93. The Respondent submitted that it is erroneous for the Appellant to conclude that the packaging materials imported cannot be construed as a raw material for the manufacture of the Appellant’s excisable goods.

94. The Respondent submits that the manufacture of alcoholic beverages involves multistage processes including mixing various inputs in order to arrive at the final products ready for consumption. That for packaging to be construed a raw material in the manufacturing process the Appellant needed to demonstrate how the same is used in the value chain, other than for storage purposes before arriving at the final product.

95. The Respondent submitted that according to it, Excise Duty Act does not define what amounts to a raw material and therefore the word should be given its ordinary meaning which essentially are the inputs/goods or inventory that are needed to manufacture the final products.

96. The Respondent submission is that to constitute a raw material used for the manufacture of the final product therefore, the material must be an essential ingredient of the final product that ultimately affects the composition or the state of the final product and in the absence of the stated raw material in the manufacturing process, the final product cannot be attained in its desired form and ultimately consumed/used in its completed form. The Respondent cited the case of Stearns Coal & Lumber Co. vs. Thomas, where it was found that when a raw material is converted into a finished product complete and ready for the final use intended, it ceases to be a “raw material.”

97. The Respondent submits that there is congruence, in the diverse definitions of the term raw material that connotes an input into a process on the basic material, which leads to the production or manufacture of a new and useful product that is suitable for use. The Respondent submitted that the industrialised process alluded to by the Appellant affect the packaging of the bottled water and beverages. The water and/or beverages are finished goods and are ready for consumption even without the packaging.

98. The Respondent’s submission is that, in order to be construed a material in the manufacturing process, the raw material must be one that either is used:a.In the production of the excisable goods;b.In any intermediate or uncompleted process in the production of excisable goods; and,c.In the distilling, rectifying, compounding, or denaturing of spirits.

99. The Respondent reiterated its position by stating that the above position was confirmed by both the High Court and the Court of Appeal in the case of Mjengo Limited vs. Commissioner of Domestic Tax [2016] eKLR, which equally interrogated whether packaging amounts to a manufacture. That the Court of Appeal, in dismissing the Appeal from the High court stated as follows:“24. In the present case, there was no evidence that beyond importing, sorting and packaging the rice as imported, there was any change in its state as a result of any process undertaken by the appellant. We are therefore in agreement with the decision of the lower court that packaging alone did not amount to manufacture.”

100. That the High Court in the same case reiterated as follows;“28. Even if packaging of rice were to be construed to include manufacture as contended by the appellant, I do not agree that the appellant was making or packaging anything from raw or partly manufactured materials. The appellant imports rice, which is neither raw nor partly manufactured material, then processes, cleans and packages the same. That cannot amount to “manufacture” under the Act.”

101. The Respondent submits that the Appellant should not be allowed to offset excise duty on packaging as it is distinct from the finished product.

102. The Respondent submits that it applied Section 14 of the Excise Duty Act appropriately and its decision to disallow the Appellant's claim was justified.

Whether the Respondent erred in law and fact by stating that a preform bottle (packaging) does not form part of raw materials. 103. The Respondent relied on the Black’s Law Dictionary and Merriam-Webstar dictionary which defines the term “raw material”.

104. The Respondent submitted that the finished good/product in this case is the bottled water and/or beverage and that for the preform to qualify as a part of the raw materials it has to be demonstrated that it underwent a manufacturing or altering process as a component of the finished product.

105. The Respondent stated that the above was the finding of the Tax Appeals Tribunal in the case of TAT Appeal No. 789 of 2022: Beiersdorf East Africa Limited v Commissioner of Domestic taxes.

106. The Respondent thus urges the Tribunal to find that the Respondent did not err instating that a preform bottle does not form part of the raw materials for the finished product.

Whether the Respondent erred in law by failing to appreciate the distinction between the instant case and TAT Appeal No. 789 of 2022; Beiersdorf East Africa Limited vs. Commissioner of Domestic Taxes. 107. The Respondent submitted that unlike in the above stated case, the Appellant herein is a manufacturer of varied categories of non-alcoholic beverages; that include bottled water, ready to drink, carbonated soft drinks and energy drinks and claimed excise duty on bottles and preform bottles which was disallowed by the Commissioner. That the Tax Appeals Tribunal in the Beiersdorf found that;“the liquid content packaged in the glass bottle is the product that undergoes processing and may be packaged in different materials or containers.”

108. The Respondent submits that in both cases it is apparent that: -a.The liquid content packaged in the glass bottle for Beiersdorf and plastic bottle for the Appellant is the product that undergoes processing; and,b.Both the Appellant’s liquid product and Beiersdorf liquid product can be packaged in different materials or containers. In this instant case, the Appellant's product and/or beverages can be consumed without the bottles. Beverages can be consumed using sachets and tetra packs.

109. The Respondent submits that the Beiersdorf case is the best fit and an appropriate point of reference to be used by the Respondent.

110. The Respondent submits that the mere fact that the imported plastic bottles and locally sourced plastic bottles are charged excise duty does not automatically qualify them for a set-off in accounting for excise duty on the finished product.

111. That the Respondent submits that it has plastic bottles as alleged by the Appellant is not a raw material in the manufacture of the excisable goods. Therefore, the duty paid on the plastic bottles if any should not be offset against the duty paid on the final product in compliance with Section 14 of the Excise Duty Act.

Respondent’s Prayers 112. The Respondent prays that;a.The Appeal be struck out with costs;b.The Excise Duty assessments raised by the Respondent amounting to Kshs. 10,284,381. 74 be confirmed; and,c.The principal taxes and interest be found due and payable as per the Objection Decision rendered by the Respondent.

Issues for Determination 113. After perusing the Memorandum of Appeal and parties' Statements of Facts together with their submissions and documentation attached therewith, the Tribunal is of the considered view that the following are the issues for determination:i.Whether the Appeal is properly before the Tribunal;ii.Whether the Respondent erred in disallowing the Appellant’s claim of excise tax in respect of imported preforms for making plastic bottles for packaging of its bottled products under Section 14 of the Excise Duty Act.

Analysis and Findings 114. The Tribunal wishes to analyse the issues as hereinunder.

i. Whether the Appeal is properly before the Tribunal 115. The Respondent contended that the Appeal offends Section 13 of the Tax Appeals Tribunal Act for being filed without the Objection Decision annexed.

116. The Appellant, having noted the error, filed an Application under Certificate of Urgency seeking leave to be allowed to file the Objection Decision

117. The Respondent opposed the Application stating that the Appellant’s Appeal was not filed as per Section 13 (2) which states;“The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of—(a)a memorandum of appeal;(b)statements of facts;(c)the appealable decision; and(d)such other documents as may be necessary to enable the Tribunal to make a decision on the appeal.”

118. The Tribunal notes that Section 13 (3) of the Tax Appeals Tribunal Act permits the Tribunal to extend time for filing the documents referred to in Section 13(2).

119. Further Section 13(4) of the Act provides as follows:“An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period.”

120. The Appellant filed its appeal on 14th December 2023 and filed the Application seeking to file the Objection Decision on 28th February 2024. The Respondent entered appearance and filed Response on 12th January 2024.

121. The Tribunal notes that the Appellant attributes the failure to inadvertence on one of its advocates owing to limited experience and the Tribunal is inclined to find that the Application ought to be allowed and the Supplementary record of Appeal annexing the Objection decision be deemed properly filed.

122. The Tribunal’s decision is informed by its overriding objective to do justice to parties without undue regard to technicalities as espoused in Article 159 (2) (d) of the Constitution on Judicial Authority which states;“(2)In exercising judicial authority, the courts and tribunals shall be guided by the following principles—(a)………(b)……..(c)……(d)justice shall be administered without undue regard to procedural technicalities; and”

123. The Tribunal holds and find that the Appeal is properly on record and proceeds to consider it substantively.

ii. Whether the Respondent erred in disallowing the Appellant’s claim of excise duty in respect of imported preforms for making plastic bottles for packaging of its bottled products under Section 14 of the Excise Duty Act. 124. The Appellant impugns the decision of the Respondent dated 29th November 2023 arguing that it is founded on misapprehension of Section 14 (1) of the Excise Duty Act, The section states:“14. Relief for raw materials(1)Where excise duty has been paid in respect of excisable goods imported into, or manufactured in Kenya by a licensed manufacturer and which have been used as raw materials in the manufacture of other excisable goods (hereinafter referred to as "finished goods"), the excise duty paid on the raw materials shall be offset against the excise duty payable on the finished goods.”

125. The genesis of the contention is the Respondent’s assessment and demand dated 6th September 2023 wherein it required the Appellant to pay Kshs. 10,284,385. 59 as wrongly claimed non-qualifying input excise duty for the period September 2021 to June 2022. The Respondent accused the Appellant in the assessment of claiming input excise duty on packaging products which is not envisioned by Section 14 (1) of Excise Duty Act.

126. The Appellant stated that it manufactures and trades in wide-ranging categories of non-alcoholic beverages under the Excise Duty Act, comprising of bottled water, carbonated soft drinks, ready to drink and energy drinks. The aforesaid beverages are classified under HS Code 2202. 90. 00 as ‘Bottled or similarly packaged waters and other non-alcoholic beverages, not including fruit or vegetable juices.

127. It is not in contention that the Appellant engages in manufacture and trade in wide range of non-alcoholic beverages, including bottled water, carbonated soft drinks, ready to drink and energy drinks.

128. The Tribunal notes that the contest revolve around the interpretation of whether prefoams are raw materials for manufacture of packaging material as claimed by the Respondnet or they are as a raw material in the process of manufacturing the finished excisable products as claimed by the Appellant. The excisable products in this case is as stated in Part I of the First Schedule of the Excise Duty Act as “excisable goods" “Bottled or similarly packaged waters and other non-alcoholic beverages, not including fruit or vegetable juices”

129. According to the Black’s Law Dictionary, a raw material is defined as;“basic substances found in their natural, modified or semi processed state, used as an input to a production, process for subsequent modification or transformation into a finished good.”

130. The Respondent stated in detail in its Objection Decision that while the packaging may be essential in the completion of formation of the product, it is not a raw material and the product is complete and ready for consumption even without the packaging material

131. The Appellant on the other hand stated that it manufactures and trades in wide-ranging categories of non-alcoholic beverages under the Excise Duty Act, comprising of bottled water, carbonated soft drinks, ready to drink and energy drinks, which beverages are classified under HS Code 2202. 90. 00 and classified in the First Schedule of the Excise Duty Act as “Bottled or similarly packaged waters and other non-alcoholic beverages, not including fruit or vegetable juices”. The Appellant stated that it uses plastic bottles, that it manufactures internally by procuring preforms locally and internationally, as its primary packaging material for its finished product.

132. While the Respondent considers preform as a raw material for production of the finished packaging product that is bottles it does not consider prefoams as a raw material for manufacture of the final excisable product that is bottled water nonalcoholic beverages not including fruit or vegetable juices. The Appellant on the other hand maintains that preform is a raw material for manufacture of bottles to be used in packaging the finished product that is bottled water and non-alcoholic beverages that they manufacture and is therefore part of the manufacturing process.

133. To support its position, the Appellant stated that the manufacturing of its finished goods involves the manufacturing of the bottles from preforms, preparation of the liquid beverages and together with other components such as the bottles caps and labels are combined to ultimately produce the Appellant’s finished products.

134. The Appellant stated that the bottles are manufactured by loading the preforms at the hopper and sorting the machine. While in the machine, the preforms are subjected to heating at the oven at a temperature of 55 to 85 degrees Celsius. The preforms are then stretched, pre-blown (between4 to 9 bars), and further blown (between 28 to 32 bars in accordance with the mould’s shape. It then undergoes a cooling process at the chiller for enhancing their wall and base strength at 4 to 8 degrees Celsius. Preforms are therefore raw materials used in the manufacturing of the bottled beverages. The above cited position has not been rebutted by the Respondent.

135. To rebut the above position of the Appellant, the Respondent submitted that the industrialized process alluded to by the Appellant affect the packaging of the bottled water and beverages. The water and/ or beverages are finished goods and are ready for consumption even without the packaging.

136. The Tribunal refers to the Cambridge Dictionary to define “Bottled” as contained, stored, or sold in bottles and observes that, a bottled product requires raw materials inclusive of preforms to create the finished product, which in this case is developed from preforms. As such, the Tribunal holds and find that preforms are raw materials that are used to manufacture bottles that are necessary for the finished products of the Appellant.

137. The Tribunal notes that both the Appellant and the Respondent cited the case TAT Appeal No.789 of 2022 Beiersdorf East Africa Limited vs. Commissioner of Domestic Taxes. While the Respondent’s analysis and conclusion of the case is that facts are similar with the present case, the Appellant maintained otherwise stating that whereas the Beiersdorf case (supra) involved the importation of glass bottles as a final product, the instant case involves the importation or local procurement of preforms in their intermediate state for further manufacturing into the final product.

138. Tribunal has perused the cited case and notes that it revolved around the nexus between the imported glass bottle as finished product contrary to the present case where the bone of contention is the relationship between preforms and bottles which are used to package the finished products

139. In the Beiersdorf case (supra), what the Appellant manufactured was the roll-on liquid as its final product and imported packaging materials in its finished state.

140. In the present case, the Tribunal finds that the fact that the end product is known as bottled water and similarly packaged non-alcoholic beverages means that, as long as the Appellant doesn't import the bottles but import preforms to manufacture the same, it is to be treated as a raw material.

141. Therefore, the instant case is distinct from the Beiersdorf case (supra), because in that case the Appellant only imported glass bottles (finished product) purposely to package roll-on while in this case the preform is a raw material as it is an intermediate product in the production chain of bottled water (finished product).

142. The Respondent also cited the case of Mjengo Ltd vs. Commissioner of Domestic Taxes [2016] eKLR, the distinction is the same, the rice imported was only sorted and packaged. Preforms undergo an elaborate process resulting in a finished product in the form of bottles.

143. In view of the reasons afore cited, the Tribunal departs with the position taken by the Respondent that the preforms are finished products. For all intents and purposes, the Appellant does not use preforms to package its products. It manufactures bottles from the preforms.

144. Additionally, tariff HS Code 2202. 90. 00 is the only class that specifies the excisable product inclusive of the accompanying packaging. All the other classes of excisable beverages only specify the liquid content.

145. This position is supported by the provisions of Section 12 of the Excise Duty Act which specifies Bottled or similarly packaged waters and other non-alcoholic beverages, not including fruit or vegetable juice as a class of excisable goods that cannot be sold in their state other than accompanied by a type of packaging, in the Appellant’s case being bottles.

146. It is therefore the Tribunal’s finding that the Respondent erred in disallowing the Appellant’s claim of excise duty in respect of imported preforms for making plastic bottles for packaging its bottled products under Section 14 of the Excise Duty Act.

147. Consequently, the Appellant’s Appeal succeeds.

Final Decision 148. The upshot to the foregoing is that the Appeal is meritorious and the Tribunal consequently makes the following orders; -a.The Appeal be and is hereby allowed;b.The Respondent’s Objection Decision dated 29th November 2023 be and is hereby set aside; and,c.Each party to bear its own costs.

149. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 1ST DAY OF AUGUST 2024. *ROBERT M. MUTUMA - CHAIRPERSON**BERNADETTE GITARI - MEMBERMUTISO MAKAU - MEMBERELISHAH N. NJERU - MEMBERABDULLAHI DIRIYE - MEMBER