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November 10, 2023

Kenya High Court ruling provides clarity on what constitutes manufactured tobacco

  • In recent litigation, the Kenya Revenue Authority disputed the customs tariff classification of imported tobacco.
  • The dispute was driven by a difference in the technical interpretation of the term manufacturing.
  • The High Court determined that, in assessing the nature of a good, due consideration should be given to the degree of processing and fitness for consumption.


In Income Tax Appeal No E173 of 2021 Commissioner Customs & Border Control v. Jayraj Impex Limited, the High Court issued a decision regarding the definition of the term "manufacturing," specifically as it pertains to leaf tobacco. In the case, a dispute had arisen as to what degree of product processing could be deemed as tantamount to the product's being a manufactured good. The Court held that a product would be deemed to be manufactured if it is ready for consumption in the state that it is in.

Brief facts

The dispute involved the tariff classification of imported tobacco. The Respondent had imported Sawaj Pandhaarpuri Tobacco and declared it as unmanufactured tobacco under HS Code 2401.20.00 of the East African Community Common External Tariff (EACCET). The Respondent asserted that although the product had undergone a degree of processing including stemming, stripping, fermenting, and blending, the product was unfit for consumption. Further processing would be required to make it fit for consumption; hence the product was unmanufactured.

The Commissioner, on the other hand, classified the product as chewing tobacco under HS Code 2403.99 of the EACCET. The Commissioner asserted that the tobacco was fully processed and that the addition of additives to make the product ready for use was performed by the final consumer, rather than the Respondent.

The matter had first been tried before the Tax Appeals Tribunal, which ruled in favor of the Respondent. The Tribunal had relied on the decision in TAT Appeal No. 266 of 2020, Eric Ogola Adula v Commissioner of Customs and Border Control, to hold that the product was unmanufactured hence classifiable under heading 2401 and would only qualify to be classified under heading 2403 upon the addition of additives and grinding. The Commissioner appealed the TAT decision to the High Court.

Analysis and determination

The Court analyzed the contested HS Codes and their respective explanatory notes and found that the factors relevant to the tariff classification of tobacco were the description of the product, use of the product and material making it. A laboratory analysis of the product established that it contained nicotine only and no additives.

Based on these findings, the Court agreed with the Tribunal and determined that the product was unmanufactured as it was unfit for consumption. The tobacco was therefore correctly declared by the Respondent as unmanufactured tobacco under HS Code 2401.20.00.


Except for the Income Tax Act and the Excise Duty Act, other Kenyan tax statutes do not define the term "manufacturing." There is conflicting jurisprudence on whether interpretation from one tax statute could be relied on in the interpretation of other tax statutes. Some decisions, including National Bank of Kenya Ltd v Commissioner of Domestic Taxes (Income Tax Appeal E155 & 533 of 2020 (Consolidated)) [2022] KEHC 10549 (KLR), Commissioner of Domestic Taxes v Co-operative Bank ML ITA No. E095 of 2020 and HCCOMMITA/E045/2022 Kenya Revenue Authority v Equity Bank Kenya Ltd., have held that definitions in one tax statute should be applied strictly in the interpretation of that statute, while others, like Stanbic Bank Limited v Commissioner of Domestic Taxes (Tax Appeal E156 of 2020 & E018 of 2021), have upheld a wider application of definitions in the interpretation of other tax statutes.

Previously, the decisions in Commissioner of Customs and Border Control v Kenya Breweries Limited [Income Tax Appeal e157 of 2021] and Suntory Beverage and Food Kenya Limited v Commissioner of Customs & Border Control [TAT Appeal No. 832 of 2021] offered clarity on the degree of processing that would cause a product to be classified as a finished product — specifically, that the product as presented should be ready for consumption without undergoing further processing.

The term "manufacturing" is used in the terms of several headings and subheadings of the EACCET. However, neither the EACCET nor the East Africa Community Customs Management Act (EACCMA) define it. This has been a source of great contention between importers and the Revenue Authority where an importer may declare an import as a raw material or intermediate good, while the Revenue Authority takes the standpoint that it is a finished good, resulting in disputes on the quantum of duties payable on the imports. In the absence of clarity on the issue, the Court's decision offers a much-needed guidance in the interpretation of tax law, particularly for customs purposes.


The decision reinforces the consideration of degree of processing and fitness for consumption in assessing the nature of a good. Taxpayers may rely on the test established in the decision as a guide in determining the tariff classification of their imports.


For additional information with respect to this Alert, please contact the following:

Ernst & Young (Kenya), Nairobi

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor


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