The High Court has upheld a decision by a tribunal to block the Kenya Revenue Authority (KRA) from reclassifying a wastewater treatment plant imported by ACO Drainage Limited, dealing a setback to the taxman’s bid to impose higher duties.
The ruling ends a two-year taxation dispute over whether the equipment should be taxed as water purification machinery or as a device for treating “other liquids”.
The court found that customs officials misread the tariff schedule and failed to justify shifting the importer into a costlier residual category.
The case stemmed from ACO Drainage’s 2023 importation of a Rox Ecological Total Oxidation Sewage Treatment Plant, designed to treat wastewater before discharge.
The company declared the plant under a Harmonised System Code covering machinery for filtering or purifying water.
However, the KRA, through the Commissioner of Customs and Border Control, insisted the plant fell under a different code applicable to machinery for filtering or purifying other liquids. The distinction altered the tax bill and triggered a demand for additional duties and penalties.
ACO contested the reclassification and sought a technical tariff ruling. Despite a physical inspection of the machinery and a consultative meeting, customs officials maintained their position and issued a revised ruling in October 2023.
The company then challenged the decision at the Tax Appeals Tribunal, which in January 2025 sided with the importer and set aside the customs rulings.
The commissioner subsequently moved to the High Court, arguing that the tribunal had misunderstood the rules governing tariff classification and wrongly equated sewage with water.
In dismissing the appeal, the court ruled that the dispute hinged on the correct interpretation of the Harmonised System and the General Rules of Interpretation used globally for classifying goods.
The court noted that Heading 8421 covers machinery for filtering or purifying liquids or gases, and the subheading cited by the importer “specifically refers to filtering or purifying machinery and apparatus for water”.
The court agreed with the tribunal that the plant’s function was decisive, as it treats sewage wastewater “to reduce human waste content”—a process the judge deemed a form of water purification.
The ruling further clarified that the tariff description does not rigidly distinguish between "filtering" and "purifying," as both processes fall under the same subheading.
KRA had contended that sewage is not water and that the equipment should be classified under the residual category for "other liquids."
The court rejected this argument, stating that the residual code applies only where goods are not more specifically described elsewhere. "Specific descriptions prevail over general ones," the court affirmed, reiterating long-standing principles of tax interpretation.
The court also dismissed claims that the tribunal had over-relied on the manufacturer’s description, ruling that it had properly considered the product manual, explanatory notes, and the plant’s intended use.
It found no legal error or perverse finding warranting the overturning of the tribunal’s decision.
"The Tribunal’s reasoning aligns with precedent and principles of statutory interpretation, which hold that in taxing statutes, one must look at what is clearly stated, no implication or equity applies," the court ruled.
It emphasized that customs authorities must base reclassifications on clear tariff rules and technical evidence.
