TAT 1054 OF 2022 PROFILE_INTERNATIONAL

Public

Automated Summary

Tax Type

Customs Duty on Imported Goods

Key Facts

Profile International Kenya Limited (Appellant) appealed against a customs tax assessment of Kshs. 72,428,405.95 by the Commissioner for Customs & Border Control (Respondent). The dispute centers on whether the Respondent correctly applied valuation methodologies under the East African Community Customs Management Act (EACCMA) when determining the customs value of imported VISION PLUS television sets. The Appellant argued it provided sufficient documentation (bank statements, contracts, ledgers) to prove transaction value but claimed the Respondent improperly used comparative pricing for 'similar' goods instead. The Tribunal found the Respondent failed to follow the sequential valuation methods outlined in EACCMA and did not establish a valid basis for departing from the transaction value method.

Issues

  • Whether the demanded tax is due and payable, considering whether the Appellant provided sufficient documentation to prove the transaction value and whether the Respondent's request for additional documents was justified under the law.
  • Whether the Respondent applied the correct valuation methodology with respect to the goods imported, specifically whether they followed the sequential methods outlined in Section 122 of EACCMA and the Fourth Schedule, and whether they used goods that are not similar or identical for valuation purposes.

Tax Years

  • 2018
  • 2020
  • 2019

Holdings

  • The Tribunal concluded that the Appellant's inability to provide telegraphic transfer slips was beyond its control and not a valid basis for penalization, given the sufficiency of other documents submitted.
  • The Tribunal ruled that the Respondent's failure to share the market survey report and rationale for valuation methodology violated the Appellant's right to fair administrative action under Article 47 of the Constitution.
  • The Appeal was partially allowed, with the Respondent's review decision of 12th August 2022 set aside, and the Respondent ordered to conduct a fresh assessment within 90 days of the judgment.
  • The Tribunal found that the Respondent did not apply the correct valuation methodology as required by Section 122 of EACCMA and the Fourth Schedule, failing to follow the sequential order of valuation methods and not providing a rationale for departing from the transaction value method.
  • The Tribunal determined that the Respondent's demand for additional tax was not justified due to the Appellant providing sufficient documentation (bank statements, supplier agreements) to prove the transaction value, and the lack of evidence showing the Respondent's comparative prices were legally valid.

Remedies

  • The appeal was partially allowed, indicating that some of the appellant's claims were successful while others were not.
  • The Tribunal ruled that each party shall bear their own costs incurred during the appeal process.
  • The respondent is ordered to undertake a new assessment in accordance with the specified legal provisions within 90 days following the judgment's delivery.
  • The Tribunal set aside the respondent's review decision from August 12, 2022, which had confirmed the tax assessment.

Tax Issue Category

Customs Valuation / Classification

Legal Principles

  • The Tribunal found that the Respondent failed to satisfy the burden of proof by not providing a rationale for departing from the transaction value method outlined in Section 122 of the EACCMA. The Appellant provided sufficient documentation (bank statements, supplier agreements) to establish the transaction value, and the Respondent's reliance on comparative pricing without sharing market survey details or justifying the methodological shift was deemed insufficient.
  • The case centered on the application of the Arm's Length Principle under the WTO Valuation Agreement and EACCMA's Fourth Schedule. The Tribunal emphasized that valuation methods must be applied sequentially, starting with transaction value (Method 1), and only use comparative pricing (Method 3) if the transaction value is unverifiable. The Respondent's use of non-similar goods and failure to follow this hierarchy violated the principle.

Disputed Tax Amount

72428405.95

Precedent Name

  • Commissioner of Domestic Taxes vs Galaxy Tools Ltd (2021) eKLR (Income Tax Appeal No. E 088 of 2020)
  • CMC Aviation Ltd vs Cruisair Ltd (1) (1978) eKLR 103
  • BASF East Africa Limited vs Commissioner of Customs and Border Control (2021) eKLR
  • National Social Security Fund Board of Trustees vs Commissioner of Domestic Taxes, Key Revenue Authority (2016) eKLR
  • Gira Enterprises vs. Commissioner of Customs on 23 August, 2005 (Customs, Excise and Gold Tribunal- Mumbai)
  • Kenya Revenue Authority vs Man Diesel & Turbo Se, Kenya (2021) eKLR
  • Osho Drapers Ltd vs. Commissioner of Domestic Taxes (2022) eKLR (Income Tax Appeal No. E147 of 2020)

Cited Statute

  • Constitution of Kenya, 2010
  • Kenya Revenue Authority Act, CAP 469 of the laws of Kenya
  • World Trade Organisation Customs Valuation Agreement
  • East African Community Customs Management Act, 2004
  • Fair Administrative Actions Act No. 4 of 2023

Judge Name

  • Eric Nyongesa Wafula
  • Delilah K. Ngala
  • Spencer S. Ololchike
  • Christine A. Muga
  • Mohamed A. Diriye

Passage Text

  • The Tribunal ... finds that the Respondent did not apply the correct valuation methodology with respect to the goods imported.
  • The Appeal be and is hereby partially allowed ... set aside and annul the review decision dated 12th August, 2022 issued by the Respondent.
  • It is the Tribunal's considered view that the certified bank statements ... would have sufficed to prove the value of the goods.