Judgment summary
This is a tax appeal before the Tax Appeals Tribunal at Nairobi concerning the correct customs tariff classification of an imported heat pump. The Appellant, a supplier of tiles, carpets and related building products, imported a Stiebel Eltron DHW Heat Pump SPH-A300 and classified it under HS Code 8418.61.20, which attracts 0% import duty as a heat pump for industrial use.
The Respondent reclassified the product to HS Code 8418.61.90, the residual "other" category attracting 25% duty, on the basis that manufacturer literature described the product as intended for domestic hot water use. The Appellant sought a review, which the Respondent rejected, upholding the reclassification.
The Tribunal held that the Respondent was justified in reclassifying the product, finding that the manufacturer's product information showed the heat pump was designed and intended for domestic use, notwithstanding that it could also be used in small commercial settings. The appeal was dismissed and the review decision upheld, with each party bearing its own costs.
Background
The Appellant is a private limited company incorporated in Kenya whose principal activity is the supply and distribution of tiles, carpets, wallpaper, hot water systems, parts, lamps and other building and interior furnishing products (paragraph 1).
The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya, with functions under Sections 5(1) and 5(2) of that Act relating to assessment, collection and accounting for revenue (paragraph 2).
The Appellant imported a Stiebel Eltron DHW Heat Pump SPH-A300 vide Entry No. 2SEMK1M400848670 (paragraph 3). The Respondent reclassified the product from HS Code 8418.61.20 to HS Code 8418.61.90 and demanded additional duty by letter dated 29th August 2025 (paragraph 4).
The Appellant applied for a review by letter dated 2nd September 2025. The Respondent reviewed the application and, by letter dated 5th September 2025, upheld the tariff ruling and issued a Review Decision (paragraph 5). The Appellant, aggrieved by that decision, filed its Notice of Appeal dated 17th October 2025 on 20th October 2025 (paragraph 6).
Core dispute
The dispute concerned whether the imported Stiebel Eltron DHW Heat Pump SPH-A300 should be classified under HS Code 8418.61.20, which the Appellant contended applied as a heat pump for industrial use attracting 0% import duty, or under HS Code 8418.61.90, the residual "other" category preferred by the Respondent, attracting import duty at the rate of 25% (paragraphs 97 and 99).
There was no dispute that the product fell under Heading 84.18, covering refrigerators, freezers and other refrigerating or freezing equipment, and heat pumps other than air conditioning machines of heading 84.15 (paragraph 98). The dispute was confined to the correct subheading.
The Appellant argued that the heat pump's technical specifications, operational capacity and use in commercial premises such as hotels, student residences and clinics demonstrated industrial use, and that the term "industrial use" was undefined and ambiguous under the EACCET and its Explanatory Notes, such that any ambiguity should be resolved in the Appellant's favour (paragraphs 49 and 102).
The Respondent maintained that the manufacturer's website, product data sheet and installation manual described the product as a Domestic Hot Water (DHW) heat pump intended for domestic space heating and hot water production, and that there was no ambiguity requiring resolution in the Appellant's favour (paragraphs 64, 69 and 82).
Court findings
The Tribunal identified a single issue for determination: whether the Respondent was justified in reclassifying the Appellant's Stiebel Eltron DHW Heat Pump SPH-A300 from HS Code 8418.61.20 to HS Code 8418.61.90 (paragraph 95).
The Tribunal noted that classification is governed by the General Rules for the Interpretation (GIRs) of the Harmonized System, and that GIR 1 requires classification to be determined according to the terms of the headings and any relevant Section or Chapter Notes, with recourse to subsequent Rules only where those provisions do not resolve the classification (paragraph 100).
The Tribunal found that the manufacturer's literature, including product information, technical data sheets and user documentation, described the SHP series as Domestic Hot Water (DHW) heat pumps designed for domestic hot water production using ambient heat (paragraph 103). It held that the Appellant had not placed sufficient technical evidence before the Tribunal to demonstrate that the SHP-A300 was specifically engineered or manufactured for industrial processes, industrial production, or industrial heating applications (paragraph 105).
The Tribunal concluded that the appliance was intended to provide domestic hot water, albeit capable of serving that purpose in small commercial establishments, and that the locations where the units might ultimately be installed could not override the manufacturer's description of the product itself (paragraph 106).
The Tribunal rejected the Appellant's argument that the absence of a definition of "industrial use" in the EACCET automatically created ambiguity to be resolved in the Appellant's favour, finding that there was no ambiguity, since the product was described and intended by the manufacturer to be used domestically, and the fact that it could also be used in an industrial environment did not negate that intended domestic use (paragraph 107).
Outcome
The Tribunal found that the appeal lacked merit and dismissed it in its entirety (paragraph 109(a)).
The Respondent's Review Decision dated 5th September 2025 was upheld (paragraph 109(b)).
Each party was ordered to bear its own costs (paragraph 109(c)).
Major issues / areas of contention
- Whether the Stiebel Eltron DHW Heat Pump SPH-A300 should be classified under HS Code 8418.61.20 (heat pumps for industrial use, 0% duty) or HS Code 8418.61.90 (other, 25% duty).
- Whether the term "industrial use" under the EACCET and Explanatory Notes to Heading 84.18 was ambiguous, requiring resolution in favour of the taxpayer.
- Whether the Respondent misunderstood the operating model and functionality of the heat pump, including reliance on an installation manual for a different Stiebel Eltron model (WPLS) rather than the SHP-A300 in dispute.
- Whether the residual "other" classification should only be applied as a last resort where no more specific classification is available.
- Whether classification should turn on the manufacturer's stated intended use of the product or on the locations and manner in which the product could actually be installed and used.