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  1. The Appellant asserted that based on the transactional cost and applying the guidelines provided for under Schedule IV of EACCMA and the WTO Agreement on Customs Valuation (ACV) the total tax payable was KES 6,009,359.00. The Appellant attached the C.17 form for Entry Number. 2019 ICD 8735 in support of this contention.

 

JUDGMENT

 

  1. The Appellant is a limited liability company incorporated in Kenya and is in the business of importing and distributing alcoholic beverages.
  1. The 1stand 2nd Respondents are principal officers of Kenya Revenue Authority appointed under Section 11 (4) of the Kenya Revenue Authority Act.
  1. The 2ndRespondent carried out a verification exercise on goods imported by the Appellant and on 18th February 2019 made a tax demand for the amount of KES 1,465,249.00 against the Appellant on account of entry number 2019 ICD 78735.
  1. The Appellant objected to the tax demand on 6thMarch 2019. Subsequently the 2nd Respondent confirmed the assessment vide its letter elated 27th March 2019.
  2. The Appellant being dissatisfied with the Respondents confirmation of the assessment of 27thMarch 2019 filed a notice of appeal on 8th May 2019 and this Appeal on 22nd May 2019.

THE APPEAL

  1. The Appellant cited the following as its grounds of appeal in the Memorandum of Appeal filed on the 22ndMay, 2019:-
  2. The Appellant having applied and calculated the taxes payable for Entry number 2019 ICD 78735 based on schedule IV of the East African Community Customs Management Act, 2004 (EACCMA) and the World Trade Organization (WTO) Agreement on Customs Valuation (ACV) Principles, the Respondents erred in law and in fact by holding that there was undervaluation.
  3. The Respondents erred in law and in fact by failing to use and base its calculation of the tax payable on the transactional value of the goods imported.
  4. The Respondents erred in law and in fact by failing to realise that the customs duty payable is based on the transaction value of the goods.
  5. The Respondent erred in fact by failing to realise that the transaction value of the goods is evidenced by use of documents such as purchase order, invoices and/or the receipts of monies paid.
  6. The Respondents erred in law and in fact by failing to realise the transactional value of the goods is what is attained after an arms-length negotiation and is not based on an investigative examination.
  7. The Respondents erred in fact by failing to take into account the Appellant’s documents detailing the transactional costs of the goods.
  8. The Respondents erred in law and in fact by failing to apply the established formula as laid out under Schedule IV of the EACCMA and based its assessment on an investigative examination.
  9. The Respondents erred in law and in fact in issuing a tax assessment not based on the established principles in international trade or any known law.
  10. The Respondents erred in law and in fact by failing to disclose the test applied in their assessment,
  11. The Respondent erred in law by failing to give a written explanation for the demand of additional tax, as per Section 229 and section 122(2) of EACCMA, 2004 and hence contravened Section 122(6) EACCMA, 2004.
  12. The Respondents erred in law and in fact by failing to consider the decisions, rulings, opinions, guidelines, and interpretations given by the

Directorate, the World Trade Organisation or the Customs Cooperation Council in their assessment.

  1. The Respondents erred in law and in fact by making a tax demand of KES 1,465,249.00 for Entry Number 2019 ICD 78735 having based calculations on non-existent formula and/or law.
  2. The Respondents erred in law in its decision that the Appellant had undervalued the goods and hence liable under Section 203 of the EACCMA 2004.
  3. The Respondents breached the Appellant’s legitimate expectation as to the consistency of the law. The Appellant has been importing similar goods and basing its calculations on Schedule IV, and there has been no notice on the change of the law or practice.

THE APPELLANTS CASE

  1. It was the Appellant’s case that in assessment of the tax payable, it applied the guidelines provided for under Schedule IV of EACCMA and the WTO Agreement on Customs Valuation (ACV) Principles.
  2. The Appellant stated that on 3rdDecember 2018 it made a purchase order for certain alcoholic drinks which arrived on 6th February 2019. The Appellant asserted that it filled an Import Declaration Form and that it based the duty due on the transactional value, relying on the Commercial Invoice

as guided by Section 122 and Schedule IV of EACCMA and the WTO Agreement on Customs Valuation (ACV) Principles.

  1. The Appellant further stated that on 11thFebruary 2019 it imported similar goods under Bill of Lading number MEDUBO018239 and that the said goods were declared under Import Declaration Form number E1811015201.
  2. The Appellant contended that the transaction value of the goods could be established from an invoice number 540935 which amount under the CIF contract included the costs, freight and insurance. The Appellant asserted that the price was based on an arms-length negotiation between the parties.
  3. The Appellant asserted that based on the transactional cost and applying the guidelines provided for under Schedule IV of EACCMA and the WTO Agreement on Customs Valuation (ACV) the total tax payable was KES 6,009,359.00. The Appellant attached the C.17 form for Entry Number. 2019 ICD 8735 in support of this contention.
  4. The Appellant submitted that it went ahead to pay the self-assessed custom tax amount of KES 6,009,359/= which had been calculated based on Schedule IV of EACCMA and the WTO Agreement on Customs Valuation ACV. The Appellant attached a copy of the receipt from the Respondent for this amount.
  5. The Appellant asserted that despite making this payment, calculated based on the Transaction Value, the Respondent made a further Tax Demand of KES 1,465,249.00 under Section 229(4) of EACCMA basing their assessment on what they referred to as an investigative examination conducted on the consignment. The Appellant attached a copy of the tax demand dated 18th February 2019 for this amount from the Investigations and Enforcement Department.
  6. According to the Appellant, the additional tax charged and/or uplift was not based on any law, was arbitrary, and was against the Appellant’s legitimate expectation in view of the canon on certainty of taxes.
  7. The Appellant asserts that it made a request for a review and/or explanation but that the same went unanswered. The Appellant referred to a letter dated 1stApril 2019 from the Appellant to the Respondent in which the Appellant stated that the values declared by it were based on an arm’s length transaction between it and the supplier in France. The Appellant further asserted that this was “consistent with the WTO Agreement on Customs Valuation (ACV) Principles which do not recognise uplifts but rather demonstrated transactional value.”
  8. The Appellant complained that the Respondent was continuing to insist on the adjusted customs value against which the additional assessments were being demanded. The Appellant reiterated that it had requested to be officially informed on how the additional taxes had been determined but that contrary to expectation the Respondent’s letter ignored its request and instead only affirmed and demanded payment of the additional tax.
  9. The Appellant contends that despite the Respondent failing to offer explanation regarding the formula used to arrive at a different figure, the Respondent went on to demand for the excess and arbitrary tax.
  10. The Appellant submitted that the Respondent without colour of right and in total disregard of established rules, made additional tax demands by its letter dated 13thFebruary 2019 on the Appellant’s other consignment under entries number 2019 MSA 7119868 and 2019 MSA 7120191 which the Appellant protested.
  11. The Appellant asserted that in spite of this and in order to secure the release of the consignment and the entries numbeh 2019 ICD 78735,

2019 MSA 7119868 and 2019 MSA 7120191 the Appellant issued a bank guarantee of KES 1,949,252.00 drawn on NIC Bank Limited. The Appellant attached a copy of bank guarantee dated 12th April 2019 from NIC Bank Limited and a Surety Undertaking from Britam Kenya Limited in support of this assertion.

  1. The Appellant insisted that in view of the failure of the Respondent to explain the applied formula and the total disregard of the accepted and known formula, the decision of the Respondent was draconian, unjustifiable, arbitrary, unlawful illegal and in bad faith.
  2. The Appellant framed five issues for determination in its submission namely:
  3. Whether the Appellant applied the correct formula to arrive at the customs payable?
  4. Whether the Respondents paid regard to the documents provided by the Appellant?
  5. Whether the Respondents notified the Appellant of the alleged change and application of Business Intelligence Data Management (BIDM) on calculation of the customs due?
  6. Whether the Respondent breached the legitimate expectation of the Appellant as to the certainty of taxes/customs?
  7. Whether the appeal should be allowed and who should bear the costs of this Appeal?
  8. Whether the Appellant applied the correct formula to arrive at the customs payable
  9. The Appellant submitted that the customs payable is determined based on Schedule IV of EACCMA and the WTO Agreement on Customs Valuation (ACV) principles and that this is based on the transaction value of the goods. The Appellant further submitted that the customs value of imported goods is the transactional value, which is the price actually paid or payable for the goods when sold for export.
  10. The Appellant submitted that although the Act lays out instances where the transactional value may be departed from, this case is not among those the Commissioner may depart from the transactional value because the prices in this case are attained from arms-length negotiations. The Appellant asserted that the importer of the goods and the person the goods are being

sourced from are not related and that such relationships may not influence the purchase price of the imported goods.

  1. The Appellant asserts that it supplied the Respondent with the relevant documents to wit the invoices and the payment slips but that the Respondent blatantly failed, neglected and/or refused to pay regard to the same. The Appellant insisted that the Respondent failed to explain the method it used to arrive at the higher tax demanded despite several inquisitions from the Appellant.
  2. The Appellant argues that the Respondent is required to justify the application of one customs valuation method as opposed to another and that the Respondent cannot arbitrarily shift from one method to another.
  3. The Appellant further asserts that the Respondent did not take into account the quantities declared by the Appellant. The Appellant argues that the Respondent claims to have paid regard to:
  4. Import entry 2019 ICD 78735
  5. IDF No. E1811O152O1
  6. Commercial invoice no. F26044247 & F2604480
  7. Import certificate No. KRA 201800000643
  8. KEBS inspection and approval documents
  9. Certificate of conformity number S-201/12/523172

 

  1. The Appellant set out two tables (Table A and B) showing the difference between the calculations by the Respondents (Table A) versus the Appellant’s calculations (Table B) as set out below.

TABLE A

Product Vol (L) Number Of Cases Quantity

Per Case

 Total

Quantities

 Total

Volume(Liters)
Southern Comfort (12*700ML) 0.7 160 12 1,920 1,344
Soutliern Comfort (12*1L) 1 90 12 1,080 1,080
Daniels(12*350ml) 0.35 1,120 12 13440 4,704
Jack Daniels

(6700M1)

 0.7 359 6 2,154 1,508
Jack Daniels

(6*700ml Honey)

 0.7 90 6 540 378
1,819 48 19,134 9,014

 

 

TABLEB

Product Vol (L) Number Of

Cases

 Quantity

Per Case

 Total

Quantities

 Total

Volume(Litcrs)
Southern Comfort (12*700ML) 0.7 200 12 2400 1,680
Southern Comfort (12*1L) 1 50 12 600 600
Daniels (12*350ml) 0.35 972 12 11,664 4,082
Jack Daniels

(6*700Ml Honey)

 0.7 50 6 300 210
Jack Daniels

(6*700ml Honey)

 0.7 90 6 540 378
Jack Daniels

(12*700ml Honey)

 0.7 270 12 3240 2268
Jack Daniels

(12*700ml Honey)

 0.7 107 12 1284 898.8
Totals 1,739 60 20,028 10,116.8
  1. The Appellant submitted that the Respondent did not consider the consignment set out in the last two rows in the Appellant’s calculations in Table B (highlighted). The Appellant argues that the Respondent’s calculation on the amounts due are erroneous, leave alone the allegations of the declared value of the consignment. The Appellant stated that its calculation and the Respondent’s calculations on the quantity go to the root of the dispute.
  2. The Appellant submitted that the Respondent based its calculations on the lower quantity of imports than what was declared by the Appellant; and that this was not only deceiving and dishonourable, but that it was also meant to ensure that the figures fit the Respondent’s narrative and to justify the illegal additional customs duties charged.
  3. The Appellant insisted that the test applied by the Respondents is not being understood for the reason that it submitted the documentation required to ensure that fairness prevails in the whole exercise. Instead, as seen from the Respondent’s calculation the values applied are without explanation as to where the same were sourced.
  4. The Appellant submitted that the fact that the Respondents identified a lower quantity of the goods imported without an explanation as to why they chose to disregard part of the consignment depicts irrationality and the formula applied cannot be verified.

 

  1. Whether the Respondents paid regard to the documents provided by the Appellant
  2. The Appellant argued that the Respondent failed to use the documents identified herein to base its calculations. The Appellant submitted that if the Respondents had paid regard to the documents provided, nothing explains why it arrived at a different figure on the quantity imported.
  3. The Appellant alleged that the Respondent acknowledges that the Appellant made a correct declaration on the imported quantities, what is not understood is why they put less figure than was presented.
  4. The Appellant argued that the formula applied where the Respondents chose to disregard part of the consignment in calculating the duty due was beyond the understanding of the Appellant. The Appellant stated that it concluded that this formula and the values attached thereto were possibly cooked in order to arrive at the finding the Respondent desired.
  5. Whether the Respondent notified the Appellant of the reasons for demand of additional customs
  6. The Appellant submitted that the Respondents’ decision to issue an additional tax demand without a basis or explaining how the unit value was arrived at in determining the customs value of the imported goods is unfair, unreasonable, arbitrary and not based on law. The Appellant alleged that this is the reason the Respondent had arbitrarily chosen not to provide reasons for its departure from the use of the transactional value it had

previously used in assessing taxes payable on similar imports by the Appellant as would be required by Section 122 of the EACCMA read together with the Fourth Schedule.

  1. The Appellant further argued that the unreasonableness of the Respondents’ decision is seen by the Respondents applying a formula or BIDM which the Respondent purport to have rolled out on 11thFebruary 2019” to affect imports that were already in the country at the time. This, the Appellant argued, amounts to a retrospectively applying the law to affect those imports that were procured without such notice.
  2. The Respondent relies on Republic v Commissioner of Domestic Taxes (Large Taxpayers Office) Ex-Parte Unilever Tea Kenya Limited [2017] eKLR in which the court quoted from Keroche Industries Limited vs. Kenya Revenue Authority & 5 Others (2007) eKLR where the court stated:

“In order to ascertain whether or not the Respondents decision and the intended action is an abuse of power the court has taken a fairly broadviewofthe major factors such as the abruptness, arbitrariness, oppressiveness and the quantum of the amount of tax imposed retrospectively and its potential to irretrievably ruin the applicant. AH these are traits of abuse of power. Statutory power must be exercised fairly… The applicant in conducting its affairs is entitled to reiy on certainty and regularity of law. The capriciousness, oppression and arbitrary application of the tariff retroactively is the

 

an tithesis of certainty and regularity of law… One of the ingredients of the rule of law is certainty of law. Surely the most focused deprivations of individual interest in life, liberty or property must be accompanied by sufficient procedural safeguards that ensure certainty and regularity of law. This is a vision and a value recognized by our Constitution and it is an important pillar of the rule of law. No one including a zealous taxman should be allowed to violate these principles. ”

  1. Whether the Respondent breached the legitimate expectation of the Appellant as to the certainty of taxes/ customs
  2. The Appellant submitted that it is in the business of importing and distributing alcoholic beverages; and that it has relied on the use of transaction value of the goods to calculate the customs payable. The Appellant asserted that it has demonstrated that the value was obtained from an arms-length negotiation and that there would be no basis for the exporter to offer a less value than what was in the market. The Appellant argued that the Respondent has not demonstrated that it made any enquiries on the prices from the exporter in France. According to the Appellant, such an enquiry on the applicable prices would have been issued to any interested party.
  3. The Appellant submitted that under Section 107 of the Evidence Act the evidential principle that he who alleges must prove has not been discharged

by the Respondent. The Appellant argued that there is no basis of implying that the Appellant declared less values while there is no basis for verification of the alleged values by the Respondent.

  1. The Appellant submitted that legitimate expectation was that the import duty would be based on the transactional value and that if there was such a departure from the known formula, the Appellant’s expectation was to be given sufficient notice.
  2. The Appellant avers that the Respondents’ allegation was that it developed BIDM and rolled it out on 11thFebruary 2019 and that this was notified to the Appellant and other importers is untrue. The Appellant asserted that there was no prior notification, and that the application of the additional taxes was done arbitrarily. According to the Appellant, this breached its legitimate expectation. The Appellant cited the case of Republic v. Attorney General & Another Ex Parte Waswa & 2 Others [2005] 1 KLR280 as quoted in Republic v Commissioner of Domestic T axes (Large Ta xpay ers Office) Ex- Pa rte Unilever Tea Kenya Limited [2017] eKLR where it was stated that:

“The principle of a legitimate expectation. ..is a principle, which should not be restricted because it has its roots in what is gradually becoming a universal but fundamental principle of law namely the rule of law with its offshoot principle of legal certainty, ifthe reason for the principle is for the challenged bodies or decision makers to dem onstrate regularity, predictability and certainty in their dealings, this is, in turn enables the affected parties to plan their affairs, lives and businesses with some measure of regularity, predictability, certainty and confidence. The principle has been very abiy defined in public ia w in the last century but it is dear that it has its cousins in private law of honouring trusts and confidences, it is a principle, which has its origins in nearly every continent. Trusts and confidences must be honoured in public law and therefore the situations where the expectations shall be recognised and protected must of necessity defy restrictions in the years ahead. The strengths and weaknesses of the expectations must remain a centra! roie for the public law courts to weigh and determine. ”

  1. The Appellant submitted that the principle of legitimate expectation is meant to ensure that bodies or decision makers such as the Respondent demonstrate regularity, predictability and certainty in their dealings which in turn enables affected parties to plan their affairs, lives, and businesses with some measure of regularity, predictability, certainty, and confidence.
  2. Whether this appeal should be allowed and who should bear the cost
  3. The Appellant avers that it has shown that the quantity of goods evaluated by the Respondent was less than the quantity imported by the Appellant. According to the Appellant, incidentally the customs duty from the five entries are equivalent to the taxes that the Respondent is seeking from the

 

Appellant. The Appellant submitted that the calculations are therefore erroneous hence the uplift tax is illegally demanded.

  1. The Appellant asserts that it has demonstrated that the formula applied in arriving at the value for the goods is not clearly understood; and that there is no basis for using different figures from the transaction value. The Appellant maintained that the Respondent has not explained how it arrived at the figures. According to the Appellant, the Respondent purported to apply the BIDM retrospectively noting that the same was rolled out on 11th February 2019 while the transactions culminating to the Appellant’s import declaration begun way back on 3rdDecember 2018.
  2. The Appellant asserted that it had shown that the Respondent had not produced any evidence of the alleged notice to the Appellant and other importers regarding the use of BIDM.
  3. The Appellant concluded by arguing that it has shown that the actions of the Respondent breached its legitimate expectation as to the certainty of law or practice; and that in this regard it is unable to order its affairs or predict the payable tax. The Appellant submitted that accordingly the uplift/additional tax charged is illegal and not founded on any principle; and that the actions of the Respondent are draconian, unjustifiable, arbitrary, unlawful, illegal and in bad faith.

The Appellant’s Prayers

  1. The Appellant prays that:
  2. The decision dated 18thFebruary, and confirmed vide letter dated 27th March 2019 be set aside and annulled and consequently the tax demand of KES 1,465,249.00 be also set aside.
  3. The Appellants Self Tax Assessment and/or Calculation on entry number

2019 ICD 78735 be upheld.

  1. That Tax Demands based on a similar formula for Entries number

2019 MSA 7119868 and 2019 MSA 7120191 be annulled.

  1. The Appellants Tax Assessment and /or Calculation Entries no

2019 MSA 7119868 and 2019 MSA 7120191 be upheld.

  1. The guarantee issued under protest by the Appellant to the Respondents as a result of the Respondents levying an additional tax be refunded and/or released to the Appellant.
  2. Costs of this appeal be awarded to the Appellant.

THE RESPONDENT’S CASE

  1. It was the Respondent’s submission that on 8th February 2019, the Appellant’s consignment was targeted for 100% verification during routine profiling of Simba The Respondent’s officers targeted the Appellant’s consignment declared on entry no 2019 ICD 78735 container number CAXU6816931, which was suspected of undervaluation.
  2. According to the Respondent, its investigation was occasioned by the reasonable suspicion of mis-declaration of description, quantities and value of goods to avoid payment of correct duties.
  3. The Respondent stated that the verification was to determine whether declaration had been done in accordance with the Customs laws and procedure i.e., determine whether the declared customs value and quantity was consistent with the provisions of Section 122 of East Africa Community Customs Management Act (hereinafter referred as EACCMA) as read with the fourth schedule of EACCMA.
  4. The Respondent reiterated that the Tax computation was arrived at after

investigative examination conducted on the Appellant’s consignment and therefore the decision reached vide the letter dated 27th March 2019 was lawful and justified.

  1. The Respondent submitted that it reviewed the following documents.
  2. Import entry 2019 ICD 78735
  3. IDF No. El811015201
  4. Commercial invoice no. F26044247 & F2604480
  5. Import certificate No. KRA 201800000643
  6. KEBS inspection and approval documents
  7. Certificate of conformity number S-201/12/523172

 

  1. The Respondent added that on 14thFebruary 2019 its investigations team proceeded to ICDE to carry out the verification whose findings were as set out below:
PRODUCT VOL

(L)

 NUMBER

OF CASES

 QNTY

PER

CASE

 TOTAL

QUANTI

TIES

 TOTAL

VOLUME (LITRES
Southern Comfort

(12*7OOM1s)

 0-7 160 12 1,920 1,344
Southern Comfort (12*1L) 1 90 12 i,o8o 1,080
■’ack Daniels (i2*350mls) 0-35 1,120 12 13,440 4,704
Jack Daniels (6*7OOmls) 0.7 359 6 2,154 1,508
Jack Daniels (6*7OOmls

honey)

 0-7 90 6 540 378
TOTAL 1,819 4» 19,134 9,014

 

  1. The Respondent asserted that guided by the Business Intelligence Data Management (BIDM) values issued by the Valuation and Tariffs section of the Customs and Border Control Department, it established that the description, tariff and quantities of the goods had been correctly declared but that their declared values were lower than the values issued by the Valuation and Tariff section. According to the Respondent, guided by the BIDM values for wines and spirits dated 11thFebruary 2019 computed the applicable customs values as shown below:
PRODUCT NUMB

ER OF

CASES

 QNT

Y

PER

CAS

E

 TOTAL

QUAN

TITIES

 TOTAL VOLU ME (LITRE S UNIT

VALUE (USD)

 FOB

(USD)

 CIF (KSHS)
：Southern

Comfort

(12*700M1s)

 160 12 1,92O 1,344 5 9,696 1,121,895
Southern

Comfort (12*iL)

 90 12 1,080 1,080 6 6,685 773,524
Jack Daniels

(i2*350mls)

 1,120 12 13,440 4,704 4 53,491 6,189,30

6
Jack Daniels

(6*7oomls)

 359 6 2,154 1,508 7 14,970 1,732,169
Jack Daniels

(6*7OOmls honey)

 90 6 540 378 8 4,433 512,975
TOTAL 1,819 48 19434 9,014 30 89,27

6

 10,329,

870

 

  1. The Respondent assessed the extra taxes due to be as follows:

 

 

 

CIF IN $ 89,276
EX. RATE 115.707
CIF IN KES 10,329,870
TAX HEAD PAYABLE PAID DUE
ID 2,582,467 1,823,392 759,075
^EXCISE DUTY 2,128,617 2,128,617 –
VAT 2,369,415 1,799,293 570,122
IDF 206,597 145,871 60,726
RDL 154,948 109,404 45,544
PENALTY 29,305 – 29,782
TOTAL 7,471,349 6,006,577 1,465,249

 

  1. The Respondent thereafter demanded additional taxes due on entry number

2019 MSA7112403 amounting to Kshs 1,465,249.00 vide a letter dated 18th February 2019. The Appellant however disputed the assessment by its letter of 6th March 2019. The Respondent issued its objection decision on 27th March 2019 which is the subject of the appeal.

  1. The Respondent reiterated that the tax computation was arrived at after an investigative examination on the Appellant’s consignment and that the decision reached vide its letter of 27thMarch 2019 was lawful and justified.
  2. The Respondent asserted that in execution of its mandate under EACCMA it is bound by law to investigate any reasonable suspicion of misdirection of description, quantities and value of goods.
  3. According to the Respondent, the demand for extra revenue arose from a declaration of lower values of the imports by the Appellant contrary to section 203 of EACCMA which states:

 

A person who, in any matter relating to the Customs—

  • makes or causes to be made any declaration, certificate, application, or other document, which is false or incorrect in any particular; or
  • • •

commits an offence and shall be liable on conviction to imprisonment for a term not exceeding three years or to a fine not exceeding ten thousand dollars.

  1. The Respondents asserted that the undervaluation by the Appellant led to a loss of revenue amounting to KES 1,465,249.00.
  2. The Respondent stated that various importers had been engaged in under declaration of import values. As a result, the Respondent engaged various stakeholders on ways of curbing this malpractice. The Respondent submitted that several meetings were held in this regard.
  3. The Respondent stated that as a result, it developed Business Intelligence Data Management (BIDM) dated 11th February 2019 to be used in determining the value of imports. The Respondent maintained that all the importers were notified of the same.
  4. According to the Respondent, after the investigations it was established that the Appellant undervalued the imports to lower the duty payable. This was done after verification of the consignment; the process was guided by the BIDM values issued by the Respondents.
  5. The Respondent avers that at all stages it involved the Appellant of the process it undertook as evidenced by correspondence attached by the

Appellant in their Appeal documents including the fact that the Respondent gave the Appellant a go ahead to provide a security bond to cover for taxes and fines as requested therefore the allegations that the decision was not based on any law is unfounded.

  1. The Respondent denies that it had acted in a draconian, unjustified, arbitrary, unlawful, or illegal manner, or that it has acted irrationally or in bad faith; or that it has abused its power in arriving at its decision in this case. According to the Respondent these allegations had no basis and that the Appellant had failed to provide any evidence to back these allegations.
  2. The Respondent argued that it demonstrated that it acted within the law in all its dealing with the Appellant and fully complied with the procedures in exercise of its statutory duties. According to the Respondent, the Appellant’s assertion cannot stand, as it is made in bad faith and completely lacking in merit.
  3. Respondent insisted that it acted within the East African Community Customs Management Act and that all the decisions made were within the law.
  4. The Respondent submitted that it considered the provisions of Section 122 (4) of EACCMA in arriving at its conclusion. This Section states that:

“Nothing in the Fourth Schedule shall be construed as restricting or callinginto question the rights of the proper officer to satisfy himself

or herself as to the truth or accuracy of any statement, document or declaration presented for customs valuation purposes. ”

  1. The Respondent asserted that it called into question the documents and declarations made by the Appellant on account of the low values declared and that the Appellant failed to offer a satisfactory explanation to support its averments.
  2. The Respondent relied on Section 236 of EACCMA which states that:

“The Commissioner shall have the powers to—

  • verify the accuracy of the entry of goods or documents through examination of books, records, computer stored information, business systems and all relevant customs documents, commercial documents andother data related to the goods;
  • question any person in voived directly or indirectly in the business, or any person in the possession of documents and data relevant to the goods or entry;
  • inspect the premises of the owner of the goods or any otherplace oftheperson directly or indirectly involved in the operations; and
  • examine the goods where possible for the goods to be produced. ”

 

  1. The Respondent submitted that by dint of Section 122(4) of EACCMA, the burden of proof rests with the Appellant to satisfy the Commissioner that the documents and declarations were accurate which burden the Appellant failed to discharge.

72.

The Respondent cited Halsbury’s laws of England, 4th Edition 12 (2)

Customs and Excise that:

“Customs authorities need not determine the customs

valuation of imported goods on the basis of the transaction

value method if, in accordance with the prescribed procedure,

they are not satisfied, on the basis of reasonable doubts, that,

for these purposes, the dedared value represents the total

amount paid or payable. ”

73.

The Respondent submitted that the Appellant “erred in holding” that the

Respondent ought to have employed the transaction value method whereas

the Appellant did not satisfy the doubts expressed by the Respondent on

the customs value of the goods or the price actually paid for the goods.

74.

The Respondent further cited the case of Sheria Sacco Society Limited v

Commissioner of Domestic Taxes [2019] eKLR where the court stated that:

“The SA CCO however needs to appreciate that what the Tribunal was dealing with was an appeal against the Commissioners’ confirming notice that the $A CCO had taxes to pay. When one appreciates that then the submissions of the Commissioner, under this head, are correct that the burden of proof lay on the SA CCO. This is what is provided under Section 30(b) of the Tax Appeal Tribunal A ct cap 40. That section provides:

In a proceeding before the Tribunal, the Appellant has the burden ofproving-

  1. Where an appeal relates to an assessment, that the assessment is excessive; or
  2. in any other case, that the tax decision should not have been made or should have been made differently. ”

The Respondent’s Prayers

  1. The Respondents prays that:
  2. The Tribunal upholds its tax demand of KES 1,465,249.00 as confirmed by the objection decision elated 27th March 2019’ and that.
  3. The Appeal be dismissed with costs to the Respondent.

ISSUE FOR DETERMINATION

  1. Having carefully studied the parties’ pleadings and all the documents attached to the Appeal and after hearing the submissions, the Tribunal was of the view that the only issue for determination was Whether the Respondent’s assessment of additional customs duties the Appellant’s imported goods was proper in law.

ANALYS1SAND DETERMINATION

Whether the Respondent’s assessment of additional customs duties on the Appellant’s Imported goods was proper in law.

  1. The Respondent stated that it verified the Appellant’s declaration to determine whether the declared customs value and quantity was consistent with the provisions of Section 122 of East Africa Community Customs Management Act (hereinafter referred as EACCMA) as read with the fourth schedule of EACCMA.
  2. The Respondent reiterated that the tax computation was arrived at after investigative examination conducted on the Appellant’s consignment and therefore the decision reached vide the letter dated 27th March 2019 was lawful and justified.
  3. On its part, the Appellant raised three issues in its submissions. First, the Respondent’s assessment was wrong in that it was based on lower quantities than what it imported and that this was done deliberately to match the amounts demanded by the Respondent. Second, the method applied by the Respondent was not backed by law.
  4. On the issue of the Respondent having used lower quantities to determine additional taxes payable, the Tribunal noted that the Respondent had conceded that it had verified the imported goods against the Appellant’s declaration and found that the Appellant’s declarations were correct. The

Tribunal therefore let the matter rest where it lay. Furthermore, it was not clear how the Appellant would have been prejudiced if the Respondent determined additional tax based on a lower quantity than what the Appellant had imported.

  1. On the second issue relating to the method used by the Respondent to determine Customs Value of imported goods, The Appellant submitted that the customs payable is determined based on Schedule IV of EACCMA and the WTO Agreement on Customs Valuation (ACV) principles and that this is based on the transaction value of the goods. The Appellant further stated that the customs value of imported goods is the transactional value, which is the price actually paid or payable for the goods when sold for export.
  2. The Appellant added that although the Act lays out instances where the transactional value may be departed from, this case is not among those the Commissioner may depart from the transactional value because the prices in this case are attained from arms-length negotiations. The Appellant asserted that the importer of the goods and the person the goods were sourced from were not related and that such relationships may not influence the purchase price of the imported goods.
  3. The Tribunal does not agree with the Appellant that the only method of determining value is the Transaction Value method. Indeed, Section 122 and the Fourth Schedule to the EACCMA 2004 require the Customs Value of imported goods be determined using one of the Six methods of valuation.

 

Paragraph 2 and 9 of part 1 of the fourth Schedule to the EACCMA however emphasises that the Transaction Value method is the Primary Method.

  1. One of the primary roles of customs in the clearance of goods is to verify values declared by importers to ensure that the methods are properly applied. In particular, the purpose of verification of customs valuation is to inter alia ensure that Declared value is realistic considering commercial practices of the industry and identical or similar goods.
  2. This obligation is drawn from Section 122 (4) of EACCMA provides that:

“Nothing in the Fourth Schedule shall be construed as restricting or calling into question the rights of the proper officer to satisfy himself or herself as to the truth or accuracy of any statement, document or declaration presented for customs valuation purposes. ”

  1. In this regard, customs administrations have developed test values determined based on Customs value determined in past import transactions occurring at about the same time between unrelated buyers and sellers of identical or similar goods, deductive or computed values calculated for identical or similar goods, and any other information available to it as triggers of doubts to the truth or accuracy of the particulars or of documents produced in support” of declarations made by the importers. In the instant case, the Respondent submitted that it had created database dubbed Business Intelligence Data Management (BIDM) following consultation with stakeholders.
  2. The WTO Agreement Valuation Decision Regarding Cases where Customs

Administrations Have Reasons to Doubt the Truth or Accuracy of the

Declared Value (also known as the Decision on Shifting the Burden of Proof), made during the Uruguay Round shifted the burden of proof on to the importers when Customs, based on the information on prices and other

data available to it, “has reason to doubt. The said decision partly states as

follows:

“Taking into account Article 17 of the Agreement, paragraph 6 of

Annex /// to the Agreement, and the relevant decisions of the

Technical Committee on Customs Valuation.

Decides as follows:

  1. When a declaration has been presented and where the customs administration has reason to doubt the truth or

accuracy of the particulars or of documents produced in support of this declaration, the customs administration may ask the importer to provide further explanation, including documents or other evidence, that the declared value represents the total amount actually paid or payable for the imported goods, adjusted in accordance with the provisions of Article 8. if, after receiving further information, or in the absence of a response, the customs administration still has reasonable doubts about the truth

or accuracy of the declared value, it may, bearing in mind the provisions of Article 11, be deemed that the customs value of the imported goods cannot be determined under the provisions of Article 1. Before taking a final decision, the customs administration shall communicate to the

importer, in writing if requested, its grounds for doubting the truth or accuracy of the particulars or documents produced and the importer shall be given a reasonable opportunity to respond. When a final decision is made, the customs administration shall communicate to the

importer in writing its decision and the grounds therefor. ”

  1. It was the Appellant’s case that it supplied the Respondent with the relevant documents to wit the invoices and the payment slips but that the Respondent blatantly failed, neglected and/or refused to pay regard to the same. The Appellant insisted that the Respondent failed to explain the method it used to arrive at the higher tax demanded despite several inquisitions from the Appellant.
  2. It is apparent that the Respondent was not satisfied with the information provided. Although the Act does not set the standard of satisfaction of proof to satisfy the Respondent, the Tribunal was of the view that such a standard would be substantially met if information was provided to show that the value declared closely estimated the test values or that the test values were not realistic considering commercial practices of the industry and identical or similar goods.
  3. The Tribunal took note of the Appellant’s contention that it was not informed of the reasons for review of its declared values, yet it challenged the use of an internal database by the Respondent on the grounds that it was not consulted before implementation of the database. The Tribunal was of the view that databases on customs are administrative tools used by customs administrations the world over and are not an invention of a kind requiring public participation envisaged in the public participation Act. Furthermore, the Respondent argued that the database was assembled with information obtained from stakeholders. The Tribunal also notes that the

EACCMA does not lay any burden on the Respondent, to satisfy the appellant.

  1. Based on the foregoing the Tribunal found that the action taken by the Respondent to review declared value based on objectively collected data was not arbitrary and the Appellant had failed to prove that the assessment by the Respondent was wrong. The Tribunal was therefore of the view that the Appeal lacks merit and must fail.

FINAL DECISION

  1. The Orders which recommend themselves from the findings above and which the Tribunal hereby make are as follows:-
  2. Appeal is hereby dismissed.
  3. The Objection decision dated 27thMarch, 2019 is hereby upheld.
  4. Each party to bear its costs.
  5. It is so ordered

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Janron Consult, Tax Consultant Kenya, Customs Tax Consultant Kenya, Tax Advisory Kenya

Talk to Janron Consult for the following:

Ministry of Health Exemptions

Treasury Exemptions

Advance Ruling Application to KRA

Objection to KRA Rulings on Customs Value

Objections to KRA Rulings on HS Classification

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