Commissioner of Customs and Border Control v Kenya Breweries Limited

This alert brings to your attention the High Court of Kenya ruling in the case of Commissioner of Customs and Border Control v Kenya Breweries Limited (Tax Appeal E157 of 2021).

The main dispute between the parties was the classification of the Apple Concentrate (an ingredient used for manufacturing Cider, an alcoholic beverage). Kenya Breweries Limited (KBL) believed the concentrate should be classified under Chapter 21 (edible preparations) specifically under HS code 2106.90.20 which attracts a duty rate of 10%. The Commissioner on the other hand, argued that the Concentrate was classifiable under Chapter 22 (beverages, spirits & vinegar), specifically under HS Code 2206.00.90 which attracts a duty rate of 25%.

In a Judgement delivered on 25th June 2021, the Tribunal ruled in favour of KBL and stated that the Apple Concentrate was a raw material for the manufacture of cider, an alcoholic beverage, and the duty applicable was 10%. The Kenya Revenue Authority (KRA) appealed the TAT ruling at High Court. The High Court on 31^st October 2022 similarly ruled in favour of KBL.

The background of the case, the respondents submission, appellants submissions, issue(s)for determination and the High Court’s determination, have all been summarised 

KBL is involved in the manufacture and distribution of both alcoholic and non-alcoholic beverages. KBL imports Alcoholic Fermented Apple Plus for use in the manufacture of cider and had reached an agreement with the KRA on the classification of the product under HS code 2206.00.90.

In the normal course of business, KBL now intended to import fermented apple concentrate for the manufacture of its Cider product. It is on this basis that in July 2019, KBL (Respondent) requested for the Commissioner’s (Appellant) opinion on the tariff classification of the fermented apple concentrate.

The Appellant in a letter dated 24th September 2019, stated that following a test, a sample of the Concentrate was found to have alcoholic strength by volume of 14.06% and as such fell under tariff code HS Code 2206.00.90 of the EAC Common External Tariff (CET) which attracts duty at the rate of 25%.

Further vide a letter dated 17th January 2020, the Respondent formally applied for a tariff classification ruling with respect to the concentrate. In the letter, the Respondent opined that the Concentrate should be classified under the HS Code 2106.90.20 (preparations of a kind used in manufacturing of beverages).

The High Court decision is good news to companies in the manufacturing sector who import cider concentrate as a raw material for use in the manufacture of various products.

The decision also provides further clarity on the interpretation of the CET as it brought out the aspect of “intended use of a product” which as reiterated in the ruling should be considered in determining the correct tariff classification of a product.

Notwithstanding this win for the taxpayers, it is important that businesses evaluate their specific cases to ensure that they are classifying their products and accounting for tax correctly.

KPMG is happy to assist on any issues arising from this decision and any other matters relating of classification of goods.

Click the link below to read more.