The Tax Appeals Tribunal has sided with matchbox manufacturer Match Masters Limited in a dispute over the classification of foldable packaging material for safety matches.
The tribunal quashed the Kenya Revenue Authority’s (KRA) revocation of an advance tariff ruling against the company, saying that the taxman is cannot revoke a tariff ruling on a product without valid justification.
An advance tariff ruling is a written instruction by the tax authority stating how an importer’s goods should be retreated at the Customs point. The instructions are usually given before the importation of goods.
“Tariff rulings provide a basis upon which taxpayers plan their business affairs hence such an unjustified change is arbitrary, oppressive, and unreasonable. Consequently, the tribunal finds that the respondent erred in its decision to reclassify the appellant’s products from HS Code 3606.90.00 to 4819.20.00. The appellant’s appeal is therefore merited,” the tribunal chaired by Robert Mutuma Mugambi said in its October 4, 2024 decision.
Match Masters Limited applied for an advance tariff ruling on August 4, 2023 for its foldable packaging material coated with combustible substances.
KRA issued a tariff ruling and classified the product under HS Code 3606.90.00, which covers pyrotechnic products and combustible materials, but later revoked the ruling on November 17, 2023 and reclassified the product under HS Code 4819.20.10, which pertains to packaging materials.
The firm contested this decision on the grounds that there was no legal basis for revocation within 12 months, as stipulated by Section 248A of the East African Community Customs Management Act (EACCMA).
The company argued that the original classification should remain binding for 12 months and that the revocation was arbitrary.
Match Masters Limited maintained that it had provided the necessary product samples and information to the Commissioner of Customs and Border Control during its initial application.
The company emphasised that Section 248A of the EACCMA does not allow for a tariff ruling to be revoked unless it is based on incomplete, inaccurate or misleading information, none of which applied in this case.
The manufacturing firm argued that international guidelines, including those of the World Customs Organisation (WCO), also restrict the revocation of advance rulings unless there is false or misleading information.
For its part, the KRA defended the revocation asserting that the decision was informed by new information obtained during a verification process. The taxman argued that the product had been reclassified based on a change in its description, from match skillets to foldable packaging material for safety matches, and that the HS Code should be amended accordingly.
The taxman claimed that it also relied on the WCO guidelines, which allow for the modification or revocation of rulings, and argued that the original ruling was erroneously issued. Moreover, the respondent highlighted that the advance ruling was set to expire in August 2024, making the revocation consistent with international practices.
The tribunal, however, found that the revocation was unjustified because there had bee no change in the product’s chemical composition or intended use that would warrant a reclassification.
The tribunal ordered the reinstatement of the original HS Code 3606.90.00 for Match Masters Limited’s product.
