KRA Loses KSh116 Million Tax Battle Over Drifield’s Irrigation Imports

High Court ruling shields Drifield from KSh116.3 million demand after judge finds its imported pipes formed part of functional irrigation systems.

The Kenya Revenue Authority has lost a KSh116.3 million customs battle over drip-irrigation equipment.

The High Court rejected KRA’s attempt to overturn a ruling favouring Drifield Limited.

Justice Aleem Visram dismissed the Commissioner’s appeal on September 17, 2026.

He upheld a November 2023 decision by the Tax Appeals Tribunal favouring Drifield.

The dispute began with an audit covering the company’s imports between April 2017 and April 2022.

KRA initially demanded KSh133.59 million after questioning Drifield’s tariff classifications.

It later reduced the demand to KSh116.33 million following Drifield’s formal objection.

The case hinged on an important customs question with millions of shillings at stake.

Were the imported products ordinary plastic pipes or components of complete irrigation systems?

The answer determined whether the goods attracted substantial import duty and value-added tax.

The Tax Dispute

Drifield imports irrigation equipment, including drip systems, accessories, flat driplines and lateral driplines.

KRA said the company had wrongly classified PE pipes and flat driplines under Heading 8424.

That classification attracted zero import duty and zero VAT under the disputed tariff treatment.

The authority instead insisted on tariff codes 3917.21.00 and 3917.39.00 for those imports.

Those classifications attracted 25 per cent import duty and 16 per cent VAT, respectively.

KRA issued its first demand notice on May 26, 2022, seeking KSh133,592,893.

Drifield objected to that demand on June 22, 2022, challenging the proposed reclassification.

A month later, KRA issued its review decision and reduced the assessment significantly.

The revised demand stood at KSh116,333,315, according to the court record.

Drifield subsequently appealed to the Tax Appeals Tribunal on August 18, 2022.

The Tribunal delivered its judgement on November 24, 2023, rejecting KRA’s reclassification.

It found that Drifield’s irrigation systems belonged under tariff heading 8424.

KRA then moved to the High Court, raising nine grounds against the Tribunal’s decision.

The authority argued that Drifield had imported individualised units rather than complete irrigation systems.

It also claimed some necessary components had been bought locally, leaving incomplete systems.

That distinction mattered because KRA said Heading 8424 required complete functional irrigation systems.

The Documents Spoke

Drifield mounted its defence around the description appearing across its import documents.

Commercial invoices, packing lists and bills of lading described the consignments consistently.

They referred to the goods as “Drip Irrigation System Complete With Accessories”.

Drifield argued that the components therefore formed a functional irrigation unit.

The company relied heavily on Note 4 to Section XVI governing functional machines.

That provision directs classification according to the clearly defined function performed collectively.

For Drifield, that function was plainly irrigation for agricultural and horticultural purposes.

Justice Visram found those documents significant when assessing the imported goods’ character.

He said the Tribunal was entitled to rely upon the documentary evidence before it.

Crucially, KRA had not established that the consignments contained only isolated pipes.

Nor had it produced sufficient evidence proving essential components were purchased locally.

That left the Tribunal with an evidential basis for treating the imports as functional systems.

The High Court therefore declined to substitute its own factual assessment for that Tribunal finding.

The judge stressed that the appeal before him concerned questions of law only.

His task was testing the Tribunal’s legal reasoning rather than conducting another trial.

The Functional Test

The decisive issue became how customs law treats components working together.

Under GIR 1, classification depends upon tariff headings and relevant Section or Chapter Notes.

The court found that the Tribunal had correctly applied those principles.

It had considered both Heading 8424 and the competing Heading 3917.

The explanatory notes under Heading 8424 proved particularly important in the analysis.

They describe irrigation systems as interconnected components performing a unified irrigation function.

Those components can include control stations, distribution networks and surface dripper lines.

The notes also describe such systems as functional units under Note 4 to Section XVI.

KRA argued that every listed component needed to accompany each imported consignment.

Justice Visram rejected that interpretation because the explanatory notes contain no such requirement.

He highlighted the wording that irrigation systems “usually include” specified components.

That language, he found, does not require every component in every individual shipment.

More importantly, the components need not be physically assembled when imported.

The critical question concerns whether they are intended to perform the defined function together.

That distinction ultimately weakened KRA’s argument that Drifield imported merely ordinary plastic pipes.

The judge acknowledged that Heading 3917 can cover plastic pipes and driplines.

However, classification changes when those products form components of an established functional irrigation system.

In that situation, Note 4 supports classification according to the system’s collective function.

The High Court therefore found the Tribunal’s conclusion legally sustainable.

KRA’s Evidence Gap

KRA also relied on a World Customs Organization classification opinion from March 2016.

The authority argued that the opinion supported classification of drip lines under Heading 3917.

But the High Court found that the opinion had never been placed before the Tribunal.

KRA introduced the document later through submissions filed before the High Court.

Justice Visram held that submissions could not expand the evidential record.

The Tribunal therefore could not have been faulted for ignoring unavailable evidence.

The judge nevertheless recognised WCO materials as potentially useful tariff interpretation aids.

However, he found the particular opinion insufficient to settle this dispute.

It concerned drip lines and lateral pipes, rather than components presented as functional systems.

KRA’s argument over legitimate expectation suffered an even simpler problem.

The Tribunal had never actually made a finding on legitimate expectation.

Its judgement focused exclusively on whether the reclassification was justified.

Justice Visram therefore described KRA’s ninth ground as misconceived.

There was no Tribunal finding on legitimate expectation for the High Court to review.

The final result was decisive: KRA’s appeal failed in its entirety.

The High Court upheld the Tribunal’s November 2023 judgement favouring Drifield.

It also awarded Drifield the costs of the High Court proceedings.

The ruling carries significance beyond the KSh116.3 million disputed assessment.

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It shows why the legal character of imported goods can matter more than individual components.

For specialised equipment, customs classification may depend upon the collective function.

Here, the evidence persuaded the court that irrigation was that defining function.

KRA’s reclassification attempt therefore failed because its evidence did not establish otherwise.

The court’s reasoning also underscores the importance of accurate import documentation.

In this case, those documents helped preserve Drifield’s original tariff classification.

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