[2023] KETAT 568 (KLR)

Giant Furniture Limited v Commissioner of Customs and Border Control (Tax Appeal 1042 of 2022) [2023] KETAT 568 (KLR) (19 October 2023) (Judgment)

Neutral citation: [2023] KETAT 568 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1042 of 2022

E.N Wafula, Chair, D.K Ngala, CA Muga, SS Ololchike, AM Diriye & GA Kashindi, Members

October 19, 2023

Between

Giant Furniture Limited

Appellant

and

Commissioner of Customs and Border Control

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated under the Companies Act of the Laws of Kenya and is in the business of importing and distributing household furniture made in China to Supermarkets and other retailers within Nairobi and its environs.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 460 Laws of Kenya. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all revenue. Under Section 5(2) of the Act with respect to the performance of its function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Appellant imported household furniture on which the Respondent raised additional assessments amounting to Kshs. 208,026,534. 00 by applying a Valuation method different to that which the Appellant had used. Accordingto the Appellant the Respondent applied Valuation methods 3 and 4 without proper justification.

4. The Respondent‘s post clearance audit team conducted post clearance audit of the household furniture imported by the Appellant pursuant to the provisions of Sections 235 and 236 of the East African Community Customs Management Act (EACCMA), 2004. The Audit was held on 3rd June, 2022 and after a meeting with the Appellant on the same date the Respondent issued a demand for Kshs. 211,264,369. 00.

5. On 21st March, 2022, the Appellant responded to the letter and on 22nd June,2022 the Appellant was issued with a demand of KShs. 212,795,443. 00. Being dissatisfied with the Respondent‘s demand dated 22nd June 2022, the Appellant objected to the new assessment on 20th July, 2022.

6. The Respondent issued a review decision on 19th August, 2022 and the Appellant still being dissatisfied with the decision filed its Notice of Appeal dated 16th September, 2022 on 22nd September, 2022.

The Appeal 7. The Appellant filed its Memorandum of Appeal dated 16th September, 2022 on 22nd September, 2022 setting out the following grounds of appeal: -i.That the Respondent erred in law and fact in finding that the Appellant has underpaid import taxes even though from all the verification reports, verification was done and Valuation and Tariff Department agreed with the prices.ii.That the Respondent erred in law and fact in carrying out the Post Clearance Audit (PCA) in contravention to the provisions of Sections 235(1) and 236 of EACCMA 2004. iii.That the Respondent has erred in its construction and application of the law as relates to the computation of import duty, Value Added Tax and interest.iv.That the Respondent acted unreasonably, capriciously and is motivated by malice and extraneous considerations in issuing the various tax demands.v.That the Respondent alleged claim of underpayment of import duty is inaccurate as the goods were lawfully cleared by the Respondent during Importation.vi.That the Respondent outrightly contravened the doctrine of legitimate expectation that rests a presumption on the Respondent to follow certain procedures at arriving at the tax liability and the benefits that accrue from it.vii.That the demand by the Respondent for extra taxes from the Appellant in respect of "undervaluation" is unjustified, unmerited and without any legal basis.

The Appellant‘s Case 8. The Appellant has set out its case in the Statement of Facts dated 16th September, 2022 and filed on 22nd September, 2022.

9. The Appellant stated that since its incorporation in Kenya it has been importing households‘ furniture from China and distributing the same to the local traders. The goods had been declared, verified and cleared by the Respondent and that even in some instances F147 were raised. The Appellant further stated that the Respondent raised additional assessment on the said verified and uplifted entries and demanding an additional Kshs.208,026,534. 00 by applying valuation methods 3 and 4 without proper justification of the same.

10. The Appellant further stated that Respondent went against the provision of Section 23(1)(c) of the Tax Procedures Act No. 29 of 2015 (hereinafter‗TPA‘) that provides as follows:―(1) A person shall—(a)………………………………….(b)………………………………….(c)subject to subsection (3), retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law.‖

11. According to the Appellant, when the audit was completed and on 3rd June 2022, they held an ‗exit meeting‘ where the demand had increased to Kshs. 211,264,369. 00. The Appellant stated that it responded to the ‗exit meeting‘ vide a letter dated 21st March, 2022 and raised fundamental issues which were neither addressed or answered by the Respondent. Instead, without any communication from the Respondent the Appellant received an additional demand for Kshs. 212,795,443. 00, on 22nd June, 2022. which was higher than the previous demand, without explanation.

12. Accordingly, the Appellant stated that the receipt of the demand on 22nd June, 2022 was 90 days from the date of its response on 21st March, 2022 which went against the ‗customer care chapter‘ of the Respondent which recommends that the Respondent ought to have responded to the Appellant within seven days of receiving its response.

13. On 20th July, 2022, the Appellant objected to the new assessment giving a detailed account on its objection and attaching evidence to support the objection including extract of valuation reports during the clearing processes of the consignment. However, according to the Appellant, no communication was received from the Respondent until 19th August 2022 when the Respondent issued a review decision and demand notice without factoring the Appellant grounds of objection.

14. The Appellant stated that in its opinion the objection was not handled carefully and diligently by the Respondent for the following reasons: -a.The Appellant availed all the documents needed for the review of the Valuation of the items.b.The Appellant stated that the Respondent failed to review the objection and never asked for further documents which the Appellant was more than willing to either avail or explain reasons for their unavailability.c.The Appellant stated that whilst it endeavored to settle the issue on the taxes speedily, the Respondent was still stuck on its calculations even though the Appellant had provided all the necessary documentation and calculations towards the same.

Appellant‘s Prayers 15. The Appellant therefore prayed for the following orders from the Tribunal:a.That the Appeal be allowed and the additional assessment amount be set aside on the basis of incorrect interpretation of law and fact by the Respondent.b.That once the Respondent's confirmed assessments are set aside the Tribunal ought to consider the substance of the case.c.That the demand for Kshs. 208,026,534 together with interest and resultant penalties be set aside and in place thereof, the Honourable Tribunal find that no tax is payable.d.That costs be borne by the Respondent.

The Respondent‘s Case 16. The Respondent‘s case is as set out in its Statement of Facts dated 21st October, 2022 and filed on even date.

17. The Respondent stated that on 5th January 2022, it issued a notice of intention to audit to the Appellant and sent the notice vide electronic mail on the same date. Thereafter, the Respondent held an entry meeting on 21st of January 2022 during which session it explained the reason for the audit to the Appellant.

18. The Respondent contended that it then conducted a Post Clearance Audit (hereinafter ‗PCA‘) pursuant to Sections 235 and 236 of EACCMA, 2004 commencing on 25th of January 2022 with an exit meeting held on 3rd of June 2022. Upon conclusion of the audit, the Respondent relayed the findings of the audit vide an electronic mail addressed to the Appellant and dated 3rd June, 2022.

19. The Appellant replied to the findings of the Respondent through its letter dated 21st March 2022 and pursuant to Sections 135 and 249 of EACCMA,2004 the Respondent proceeded to issue a demand notice for the amount of Kshs. 212,795,443. 00 vide an electronic mail dated 22nd June, 2022.

20. The Respondent stated that it explained to the Appellant that the tax assessment was based on the undervaluation of various products imported by it. The Respondent further stated that the Appellant failed to prove the price actually paid or payable was in accordance with provisions of Section 122 and Fourth Schedule of EACCMA,2004.

21. The Respondent further asserted that the Appellant applied for review of the tax demand on 20th July, 2022 and having considered the application, the Respondent issued a review decision on 19th August 2022, reducing the assessed principal taxes and accrued interest to Kshs. 208,026,534. 00. The Appellant being dissatisfied with the review decision of the Respondent lodged this Appeal to the Tribunal.

22. The Respondent relied on the provisions of Sections 135,229,235 and 249 and the Fifth Schedule to EACCMA,2004 to respond to the Appellant‘s grounds of appeal. The Respondent reiterated its position as stated in the objection decision communicated to the Appellant and responded to the Memorandum of Appeal and Statement of Facts as hereinafter outlined.

23. The Respondent averred that the Appellant failed to prove the price actually paid for or payable on the imported furniture in accordance with provisions of Section 122 and the Fourth Schedule of EACCMA,2004. The Respondent further claimed that it requested the Appellant on several occasions to supply it with various supporting documents not limited to but including: -a.custom documents,b.foreign purchase ledgers andc.Bank statements to enable them carry out the Post Clearance Audit.

24. The Respondent maintained that the Appellant availed documents that were incomplete which it deemed vague thereby forcing the Respondent to make further requests for supporting documents. That the required documents were not availed and an analysis of the Appellant's data pointed to vague description of goods and undervaluation by using one-unit price for various products. That accordingly, it was impossible for the Respondent to rely on the transaction value method to ascertain the tax payable.

25. The Respondent avowed that the Appellant was informed in detail as to the faults found with its documents and the Respondent accorded ample opportunity to the Appellant to remedy the situation and provide samples of the invoices attached to the demand notice. The Respondent also contended that due to the obscurity of the documentation provided by the Appellant, the Respondent opted to apply the provisions of paragraph 3 of the Fourth Schedule of EACCMA, 2004 which allows the use of the transaction value of identical goods method [method 2] in the event the customs value of the imported goods cannot be determined under the provisions of paragraph 2 [method 1]. In so doing, the Respondent considered the commercial levels, quantities and time of importation of the goods.

26. The Respondent emphasized that EACCMA,2004 is very clear on the determination of customs value pursuant to Section 122(1) of the said Act, which provides as follows:“Where imported goods are liable to import duty ad valorem, then the value of such goods shall be determined in accordance with the Fourth Schedule and import duty shall be paid on that value".

27. The Respondent averred that in its opinion, the Fourth Schedule of EACCMA, 2004 is the reference point in determining the appropriate method of valuation out of the six methods of customs valuation that are outlined therein. The methods of valuation should be applied sequentially where there is doubt. The Respondent stated that the Appellant failed to provide the appropriate documents to prove the applicability of the transaction value method and that furthermore, the analysis of the Appellant's data pointed to vague description of goods and undervaluation by using one-unit price for various products.

28. The Respondent stated that Sections 235 and 236 of EACCMA, 2004 empowered it to inspect and carry out customs audits within a period of five years and verify the accuracy of the entry of the goods and it is on this basis that the Respondent rightly assessed and demanded the sum of Kshs. 212,795,443. 00 which was due.

29. The Respondent stated that the objective of the PCA is to ensure that customs transactions have been declared in compliance with customs laws and procedures and where the customs officers with sufficient evidence satisfy themselves that there was short levy, the same is demanded under Section 135 of EACCMA, 2004. More particularly, the Respondent upheld that Section 235 and 236 gives it powers to call for documents and conduct a PCA on the import and export operations of a taxpayer within a period of five years from the date of importation or exportation. Where the PCA reveals that taxes were short levied, or erroneously refunded, sections 135 and 249(1) empowers it to recover any such amount short levied or erroneously refunded with interest at a rate of two percent per month for the period the taxes remain unpaid. The Respondent averred that conducting the PCA on the Appellant's imported furniture is backed by statute.

30. Further, with regard to the Appellant‘s allegation that the Respondent contravened the doctrine of legitimate expectation. The Respondent claimed that it did not contravene the doctrine of legitimate expectation as alleged by Appellant since it wholly complied with the clear and relevant provisions of the law and that therefore, the Respondent‘s conclusion was that the allegations of the Appellant as laid out in its Memorandum of Appeal and Statement of Facts were unfounded in law and not supported by evidence except where the Respondent agreed.

31. The Respondent averred that all the legal procedures and administrative fairness were adhered to in conducting the audit. The Respondent further averred that it did not act in malice or in motivation of other extraneous factors while conducting the PCA.

Respondent‘s Prayers 32. In view of the foregoing, the Respondent prayed that this Honourable Tribunal finds: -a.That this Appeal be dismissed with costs to the Respondent.b.That the assessment raised by the Respondent amounting to Kshs. 208,026,534. 00 inclusive of interest be found due and payable as per the objection decision rendered by the Respondent.

Submissions By The Parties. 33. In its written submissions dated 27th March, 2023 and filed on 3rd April, 2023, the Appellant identified four issues for determination whilst the Respondent, in its written submissions dated 18th April, 2023 and filed on 19th April, 2023 analyzed the four issues identified by the Appellant for determination as outlined below:

i. Whether the Respondent erred in Law and facts in uplifting customs duty on the Appellant's imported goods during the Post Clearance Audit.The Appellant submitted as follows with regard to this issue for determination: 34. That the Respondent erred in uplifting customs duty on the imported goods declared in strict adherence to the taxation laws of Kenya since Section 122(1) of EACCMA,2004 is clear on the determination of value for customs purposes and provides as follows:-'Where imported goods are liable to import duty ad valorem, then the value of such goods shall be determined in accordance with the Fourth Schedule and Import duty shall be paid on that value".

35. That an ad valorem tariff is a charge levied on imports, defined in terms of a fixed percentage of value. That the Fourth Schedule of EACCMA, 2004 provides six methods of valuation in determining customs values of imported goods. That these methods are listed as follows: -a.The Transaction Value methodb.The Transaction Value of Identical goods methodc.The Transaction Value of Similar goods methodd.The Deductive Value methode.The Computed Value methodf.The Fall-back Value method

36. That paragraph 2(1) of the Fourth Schedule of EACCMA ,2004 provides that;“The customs value of the imported goods shall the the transaction value which is the price actually paid of payable for the goods when sold for export to the partner state adjusted in accordance with the provisions of paragraph 9 ... "

37. That it used the first method, ie; the transaction value method and paid the tax as per its computations. To buttress its position, it cited the case of Testimony Motors Limited v the Commissioner of Customs (Uganda Revenue Authority) 2012 HC Civil Suit No. 212 in which the court affirmed the position that the transaction value method must always be used except in very exceptional circumstances. The paragraph of the case that it relied own stated inter alia, that: -“... I agree with the plaintiff submission that section 122 of East African Community Customs Management Act, 2004 subsection I therefore is couched in mandatory terms. It provides that the value of such goods shall be determined in accordance with the Fourth Schedule and import duty shall be paid on the value. It does not give any discretions power on the Commissioner to rely on alternative methods without following the procedures or directives laid out in the Fourth Schedule. The primary method which was agreed upon is the method that must first be attempted. It is only upon failure of the primary method that alternative methods can be applied ... "

38. That in the objection decision, the Respondent indicated that it used other methods to value the imported goods other than the transaction value method as provided for in the Fourth Schedule of EACCMA, 2004. That according to the Respondent, the declared unit values were lower compared to the values of similar goods imported from the same region. That however, the Respondent never demonstrated to it the ‗similar goods‘ or consignment with which it made the comparisons.

39. That it provided all required documents and that it is common knowledge that furniture is in different sizes, materials, designs, shapes, colour and make yet the Respondent failed to demonstrate how these were compared or how these variations were taken into considerations while coming up with the values. It cited Wallpaper Kenya v Commissioner of Customs & Border Control TATC 279 of 2020 in which the Tribunal affirmed that it is incorrect to use the region as a basis of similar goods comparisons and base the uplifts on this. In this case it was stated inter alia that:“... It is common knowledge that wallpaper may come in different qualities and designs. The quality therefore would determine the applicable value ... while Italy may be from the European region, China is definitely from the Asian region, it would therefore be incorrect for the Respondent to use that reason as a basis to issue the uplift ... "It also hoped that the Tribunal would find the Respondent to have erred in law and fact in uplifting customs duty on its imported goods.The Respondent analysed this issue of determination as identified by the Appellant by making the following submissions:

40. That it acted procedurally and within the confines of the law in uplifting customs duty on the Appellant's imported furniture and that it is the Appellant who failed to prove the price actually paid for or payable on the imported furniture pursuant to the provisions of Section 122 and the Fourth Schedule of EACCMA, 2004.

41. That it requested the Appellant on several occasions to supply it with various supporting documents not limited to but including, custom documents, foreign purchase ledgers and bank statements to enable them carry out the PCA. That however, the Appellant provided incomplete and vague documents.

42. That upon it analyzing the Appellant's data it found that there was vague description of goods and under valuation since the Appellant used one-unit price for various products. That therefore, it could not rely on the transaction value method to ascertain the tax payable as the Appellant‘s documents were vague and incomplete.

43. That it explained to the Appellant, through electronic mails exchanged between them, the problems with its documents in detail. That the Appellant was accorded ample opportunity to remedy the situation. That in fact, it attached samples of the types of invoices it required to their demand notice to assist the Appellant but these appear to have been ignored.

44. That due to the obscurity of the documentation provided by the Appellant it opted to apply the provisions of the Paragraph 3 [method 2] of the Fourth Schedule of EACCMA, 2004 which allows the use of the transaction value of identical goods in the event the customs value of the imported goods cannot be determined under the provisions of Paragraph 2 of the Fourth Schedule of EACCMA, 2004. In applying the provisions of paragraph 3 EACCMA,2004, it considered the commercial levels, quantities and time of importation whilst also submitting that Section 122(1) of EACCMA, 2004 is very clear on the determination of customs value as it provides as follows:-―imported goods are liable to import duty ad valorem, then the value of such goods shall be determined in accordance with the Fourth Schedule and import duty shall be paid on that value‖.

45. It did not err in uplifting customs duty on the Appellant‘s imported goods during the PCA.

ii. Whether the Respondent was justified in carrying out Post clearance Audit on the Appellant imported goods.The Appellant submitted as follows with regard to this issue for determination: 46. In the Appellant‘s view, a PCA was justified pursuant to the provisions of the World Customs Organization Guideline for PCA Volume 1 June 2018 which required that in order for a PCA to be justified or carried out there ought to be an element of tax fraud or tax evasion; the consignment is an express cleared consignment; No valuation or verification is/was done or the PCA would happen where the consignee requested for the same in writing.

47. That the provisions of Sections 236 and 235 of EACCMA,2004 provide as follows:“Inspection or Audit…‖ and that therefore it was important to delve into the definition of the word "or" as used by the drafters of the legislation i.e., EACCMA 2004. Accordingly, the definition of the term "or"? is:i.It is a word used to indicate an alternative, usually only before the last term of a series: hot or cold; this, that, or the other.ii.It is a word used to indicate the second of two alternatives, the first being precede d by either or whether: Your answer is either ingenious or wrong. I didn't know whether to laugh or cry.iii.It is a word used to indicate the first of two alternatives, with the force of either or whether.

48. That the Advance Oxford dictionary defines "or" - as an alternative to each other and from the foregoing discussion, it suggested that the term Inspection or Audit infers that only one should be done by the Respondent. That the drafters intended the Respondent to carry only one action per consignment. That it was envisioned that if the Respondent inspects, verifies and carries out a valuation at the point of entry and clears the goods for importation then the Respondent cannot turn around to audit what it verified, inspected and approved at a later date. That hence it postulated that this was the reason why the rules of PCA were formulated on circumstances under which the PCA can take place.

49. That since on entry the Respondent prepared a report, there was evidence of inspections valuations and verifications by the Respondent and that therefore the Respondent could not turn around and audit its own verification and approvals. That verification, inspection and valuation were carried out by officers of the Respondent in accordance with the provisions of the EACCMA, 2004 and other relevant customs documents and the correct taxes paid. It was therefore ultra vires for the Respondent to turn around and purport to raise more taxes.

50. That it provided additional evidence and documentation to show that the samples of the imports underwent the requisite verification and approvals by the Respondent at the ports of entry. That accordingly, the core mandate of the PCA is to confirm the very fact for which importation was declared and allowed as accurate and the Respondent was therefore estopped from changing that position. That the PCA was being undertaken post facto after the Respondent had accepted its application.

51. That the Respondent‘s decision failed the test of administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair and that it erred in going against the provisions of Section 235(1) of EACCMA, 2004 read in tandem with Section 23(1) and (3) of TPA which provide as hereunder.

52. That Section 235(1), EACCMA, 2004 provides that: -“The proper officer may, within five years of the date of importation, exportation or transfer of manufacture of any goods.

53. That Section 23(1)(c) of the TPA provides as follows:-“Subject to subsection (c), retain the documents for a period of five years from the end of the reporting period to which it relates or such shorter period as may he specified in a tax law"

54. That Section 23 (1) (c) of TPA only provides for the keeping of documents and answering questions as pertains to the documents kept and the Respondent erred in law by demanding and raising taxes on documents which are beyond the requirements of the law. Further, that the assessments relating to 2017 are out of scope by law for the review by the Respondent since Section 235 of EACCMA,2004 requires that the Respondent can request documents "within five years". That the entries for year 2017 went back 6 years and were out of the scope for a review and therefore any purported assessment is null and void. That the section also does not support PCA.

55. That the Respondent failed at all points to demonstrate why it carried PCA and why it did not adhere to the requirements of the five-year rule of record keeping and submitted that that the assessment should be annulled Ex debito justitiae.The Respondent analysed this issue of determination as identified by the Appellant by making the following submissions:

56. The Respondent submitted that its actions were not only within its mandate but were also lawful and justifiable in line with the provisions of Sections 236 and 135 of EACCMA,2004 which state as follows:That Section 236 provides that:-“The Commissioner shall have the powers to-a.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 and other data related to the goods;b.question any person involved directly or indirectly in the business, or any person in the possession of documents and data relevant to the goods or entry;c.inspect the premises of the owner of the goods or any other place of the person directly or indirectly involved in the operations; andd.examine the goods where possible for the goods to be produced. ''That Section 135 provides as follows:-1Where any duty has been short levied or erroneously refunded, then the person who should have paid the amount short levied or to whom the refund has erroneously been made shall, on demand by the proper officer, pay the amount short levied or repay the amount erroneously refunded, as the case may be; and any such amount 1nay be recovered as if it were duty to which the goods in relation to whicl1 the amount was short levied or erroneously refunded, as the case may be, were liable .2. Where a demand is made for any amount pursuant to sub-section (1), the amount shall be deemed to be due front the person liable to pay it on the date on which the demand note is served upon him or her, and if payment is not made within thirty days of the date of such service, or such further period as the Commissioner' may allow, a further duty of a sum equal to five percent of the amount demanded shall be due and payable by that person by way of a penalty and a subsequent penalty of two per cent for each month in which he or she defaults.3. The proper officer shall not make any demand after five years from the date of the short levy or erroneous refund, as the case may be, unless the short levy or erroneous refund had been caused by fraud on the part of the person who should have paid the amount short levied or to whom the refund was erroneously made, as the case may be.''

57. That it carried out a PCA in pursuant to the provisions of Section 236 of EACCMA, 2004, on the importations made by the Appellant with a focus on furniture. That this is in line with its statutory mandate to administer, assess and collect taxes and the Appellant was therefore misguided in attempting to play the role of the Legislature in amending Section 236 of EACCMA,2004 which empowers the Respondent to verify the accuracy of documents and entry records and also carry out physical examination of goods.

58. That it was not limited to carrying out one action per consignment as alleged by the Appellant and that this was the intention of the drafters of the EACCMA, 2004. That the Appellant ought to have taken judicial notice of the countless judgments of superior courts which have held that tax laws are interpreted strictly and should leave no room for intendment. That in this regard the Respondent cited the Court of Appeal in Nyaga v Housing Finance Company Ltd {Kenya Civil Appeal No. 134 of 1987 in which it was held that:-―Where a party has a statutory right of action, the court will not usually prevent' that right from being exercised except that the court may interfere if there was no basis on which the right could be exercised or it was exercised oppressively [Henry Wanyama Khaemba v Standard Chartered Bank Ltd & 3 others [2005] eKLR]‖

59. That the Tribunal has no reason to interfere with the its statutory action of demanding taxes rightly owed by the Appellant as it was within the confines of the law and it exercised its mandate judiciously and reasonably and that apart from mere allegations, the Appellant had not proved which procedure(s) if any, were flouted by it in demanding the taxes due from the Appellant nor how it behaved arbitrarily, irrationally, illegally and unreasonably as alleged.

60. That it was therefore not in breach of Article 47 of the Constitution of Kenya as alleged by the Petitioner and cited In H.C. Miscellaneous Civil Application No. 534 of 2007, Republic vs. (Kenya Revenue Authority & 2 Others, Ex- parte Arrow Hi-fi (E. A.) Limited, a Customs valuation case in which the learned Judge found at page 11 that;“I hold that what the Respondents did was within clear· meaning if the, relevant law and also specifically permitted by the law. The clear words of statute as set out above allowed the Respondents to make the assessment where the taxman is within the four' corners of the enabling law, the Court must uphold the provisions and it cannot substitute its sense of fairness or decision and would have no right to do so."

61. That it quoted Hon. Mativo J in Republic v Commissioner of Domestic Taxes Ex parte Sony Holdings Limited [2019) eKLR on canvassing the issue of when an administrative or quasi-judicial decision can be challenged for illegality, irrationality and procedural impropriety where it was held that:“An administrative decision is flawed if it is illegal. A decision is illegal if it:-a.contravenes or exceeds the terms of the power which it authorizes the making of the decision;b.pursues an objective other than that for which the power to make the decision was conferred;c.is not authorized by any power;d.contravenes or fails to implement a public duty. These being the grounds upon which the impugned decision can be challenged, find and hold that the applicant has failed to present grounds to demonstrate that the impugned conduct of decision is legally frail."

62. That the Appellant in this case had failed to present grounds to demonstrate that the impugned tax decisions were not legal and thus its issue must fail.

iv. Whether the Respondent erred in raising an uplift on consignment which had already been uplifted during importation via Fl47. The Appellant submitted as follows with regard to this issue for determination: 63. That in the Appellant‘s analysis, a number of entries reappraised had already suffered uplifts by the execution of Fl47 and that by raising more taxes the Respondent acted in an unjust manner and was subjecting the Respondent to double taxation. That accordingly, it is against the provisions of the law to uplift the same entry twice.

64. That it illustrated double taxation and in its view the Respondent had valued and collected appropriate taxes as provided for under the law. That according to it the analysis also reinforced its observation that valuation, verification and inspection were in accordance with the law and there was no justification for the audit pursuant to the provisions of Section 236 of EACCMA,2004 and therefore the assessment and the additional taxes therein raised ought to have been annulled.The Respondent analysed this issue of determination as identified by the Appellant by making the following submissions:

65. The Respondent stated that whereas the transactional value method is first in the hierarchy of valuation methodologies, it does not prevent it from departing from it. That it opted to apply the provisions of Paragraph 3 [method 2] of the Fourth Schedule of EACCMA, 2004 due to the obscurity of the documentation provided by the Appellant. That under this Paragraph the Respondent applied the use of the transaction value of identical goods method since the customs value of the imported goods could not be determined under the provisions of Paragraph 2 [method 1] of the Fourth Schedule of EACCMA, 2004. That in applying the provisions of Paragraph 3[method 2] of the Fourth Schedule of EACCMA, 2004, the Respondent considered the commercial levels, quantities and time of importation.

66. That this sequence exists for a reason where the Respondent is dissatisfied with the transaction value method and it may with reasonable cause depart from the use of transactional value method, as is the case in this matter thus the uplift was fair and procedural.

67. That it did not err in uplifting the value of the imported furniture as alleged by the Appellant.

iv. Whether the Respondent erred by applying valuations method 2& 3 over Method 1 without proper explanation.The Appellant submitted as follows with regard to this issue for determination: 68. The Appellant submitted that the Respondent stated that it chose methods 2[transaction value of identical goods method] and 3 [transaction value of similar goods method] for lack of documentation and that the Respondent contradicted itself in its reply dated 22nd June, 2022 in which it stated the following:“why methods 2&3 were chosen over method l" Para 5‘ that was not the case as seen in your commercial invoices ..."

69. That this confession contravenes the Respondent‘s earlier averment that documents were not availed to it because in paragraph 3 of the said letter dated 22nd June, 2023, it stated as follows:“it should be noted that during the audit period you failed to avail the requested documents to prove the Transactional Value Method"

70. That the Fourth Schedule Paragraph 2 of the EACCMA provides the following:-“(1)The Customs value of imported goods shall be the transaction value, which is the price actually paid or payable for the goods for export to the partner state adjusted in accordance with the provisions of Paragraph 9 but where - "That accordingly, the Respondent did not demonstrate how the transaction value method failed after having confessed reviewing its documents and having visited its premises during the audit. That likewise, the Respondent, has not demonstrated how it fulfilled the requirements set out for method 2 & 3 in paragraph 3(1) (b) and Paragraph 4(1) (b) and it is for this reason that the Respondent cannot purport to recalculate taxes on this basis as it is unjustified, incompetent and with wrong intent meant to injure the taxpayer. It asserted that the Respondent failed to review and/or ask for further documentation during review hence the Appellant was convinced that the documentation was sufficient for the review.

71. It cited Mungangia Tea Factory Company Limited & Others v Commissioner of Domestic Taxes [2020] eKLR, in which the judges observed the following:-"However, the collection of these taxes must not appear to be punitive, arbitrary, abrupt, discriminatory, or unfair because if the taxpayer's closes shop because of the perceived irregularity, arbitrariness or frustrations, there will be no tax to collect‖

72. That based on the case it cannot be made to close shop to comply with tax administration. Furthermore, that according to it, the behavior of the Respondent highly negates the principal mission of Kenya Revenue Authority. That the Kenya Revenue Authority mission statement provides as follows: " ... Building trust through facilitation so as to foster compliance with tax and customs legislation ... ".

73. That the Respondent failed to apply the tenets of administration of justice as enshrined in the Constitution of Kenya and therefore the Tribunal should protect the taxpayer from such since the Respondent also failed to exercise the best judgment principle in its assessment as enunciated in Digital Box Limited versus Commissioner of Investigation & Enforcement TAT No. 115 of 2017. It averred that the assessment violates express provisions of EACCMA, 2004 and the TPA and also contravened the tax principle of avoiding double taxation.

The Respondent analysed this issue of determination as identified by the Appellant by making the following submissions: 74. The Respondent in reply to the 5th issue for determination that was raised by the Appellant, it referred to Section 122 of EACCMA, 2004 which provides for the manner in which the customs value of goods shall be determined for purposes of imposing import duties as follows: -(a)Where imported goods are liable to import duty ad valorem, then the value of such goods shall be determined in accordance with the Fourth Schedule and import duty shall be paid on that value.b.Upon written request, the importer shall be entitled to an explanation in writing from the proper officer as to how the Customs value of the importer's goods was determined.c.Where, in the Course of determining the customs value of imported goods, it becomes necessary for the Customs to delay the final determination of such customs value, the delivery of the goods shall, at the request of the importer be made:Provided that before granting such permission, the proper officer require the importer to provide sufficient guarantee in the form of a surety, a deposit or some other appropriate security as the proper officer may determine, to secure the ultimate payment of customs duties for which the goods may be liable.SUBPARA d.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.SUBPARA e.The Council shall publish in the Gazette judicial decisions and administrative rulings of general application giving effect to the Fourth Schedule.‖

75. That Paragraph 2 of the Fourth Schedule in turn in its interpretation section states that Paragraphs 2, 3, 4, 5, 6, 7 and 8 of the said Schedule define how the customs value of imported goods is to be determined. Further, that the methods of valuation are set out in sequential order of application, and the primary method for customs valuation is defined in Paragraph 2 [method 1],and it is only where the customs value cannot be determined under the provisions of paragraph 2[ method 1], that the value will then be determined by proceeding sequentially through the succeeding paragraphs.

76. That Paragraph 2 [ method 1] of the Fourth Schedule in this regard provides that the customs value of imported goods shall be the transaction value, which is the price actually paid or payable for the goods when sold for export to the Partner State which is adjusted in accordance with the provisions of Paragraph 9.

77. That its actions to undertake a PCA of the Appellant‘s documents, assess additional tax thereon, and to also apply the transaction value of identical goods method as the method of valuation of the custom value of the Appellant's goods are clearly allowed by the foregoing provisions of the law, and to this extent it did not make any error of law or substantive illegality in reaching its decision. That the the method of valuation used is dependent on the facts of each case, which is dependent on the information available at the material time which will inform the its decision to adopt one method as opposed to another.

78. That pursuant to EACCMA, 2004, the value of the imported goods shall be the transaction value of such goods, that is; the price actually paid or payable for the goods when purchased by the Appellant at the time and place of importation, where the buyer and seller of the goods are not related and the price is the sole consideration for the sale subject to such other conditions as may be specified in the rules made in this behalf.

79. That the law contemplates that where it has a 'reason to doubt' the truth or accuracy of the declared value, it may ask the Appellant to provide further explanation to the effect that the declared value represents the total amount actually paid or payable for the imported goods. This doubt arose when the Respondent considered the documents by the Appellant which are used to determine the transactional value method.

80. That the documents provided by the Appellant to support the transactional value method were not sufficient to deduce what the transactional value of the goods was. Upon analyzing the Appellant‘s data, it found that the description of goods was vague and undervaluation by using one-unit price for various products and the transactional value method is only used when the value of the goods or services can be determined. The value of the goods could not be determined and in the absence of the Transactional Value method, the next method according to the Fourth Schedule is the identical goods method.

81. That it applied fairness by giving the Appellant a chance to provide supporting documents and from the electronic mails exchanged between the parties, it explained in detail to the Appellant the anomalies in its documents and accorded the Appellant ample opportunity to remedy the situation by attaching samples of the faulty invoices to the demand notice. That the Appellant's contention that the Respondent acted unreasonably in employing the transaction value of identical goods method and issuing its decision is therefore unfounded.

82. That it cited Associated Provincial Picture Houses vs Wednesbury Corporation (1948)1KB 223 in which it was held that the court should in considering whether it acted unreasonably, investigate its actions to see if it tools into account any matters that ought not to be, or disregarded matters that ought to be considered.

83. That it is the burden of the taxpayer to prove that a tax decision is incorrect pursuant to Section 56(1) of TPA. That the same provision is buttressed in Section 30 of the Tax Appeals Tribunal Act (TAT) which provides that:―In a proceeding before the Tribunal, the Appellant has the burden of proving-awhere an appeal relates to an assessment, that the assessment is excessive; orbin any other case, that the tax decision should not have been made or should have been made differently.‖

84. That the Appellant was required to provide all requisite documents as required by law to discharge its burden of proving that the assessments as issued by it was incorrect or excessive. That the Appellant failed to discharge its burden of proof in asserting that the confirmed assessments were excessive. That it therefore maintains that the assessments were issued pursuant to the law and the taxes demanded therefrom are due and payable.

Issues for Determination 85. The Tribunal having carefully considered the pleadings and submissions made by the parties is of the considered view that the Appeal herein distils into the following three (3) issues for determination:i.Whether the Post Clearance Audit was lawfully undertaken.ii.Whether the Respondent used the correct method to value the consignment imported by the Appellant.iii.Whether the Respondent was justified in assessing and demanding the additional taxes on the basis of the method used.

Analysis and Findings i. Whether the Post Clearance Audit was lawfully undertaken. 86. The Appellant contested and raised as a ground of Appeal the manner in which the PCA was undertaken by the Respondent.

87. Post Clearance Audits (PCA) are anchored in Section 236 of EACCMA, 2004 which provides as follows: -―The Commissioner shall have powers to –a.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 and other data related to the goods;b.question any person involved directly or indirectly in the business, or any person in the possession of documents and data relevant to the goods or entry;c.inspect the premises of the owner of the goods or any other place of the person directly or indirectly involved in the operations; andd.examine the goods where possible for the goods to be produced.‖

88. The Tribunal is of the view that the Guidelines issued by the World Customs Organization as updated in June 2018 are a useful benchmark for how the PCA ought to be carried out and these guidelines are further embodied in Section 235 of EACCMA, 2004. The Respondent is permitted by law to undertake a PCA. The Tribunal holds a further view that an audit in this context is in effect a form of moderation that enables uniformity and fairness in the valuation of imported goods and ensures equity and fairness in business practices particularly in respect of pricing of goods, in this case, household furniture.

89. Accordingly, the Tribunal finds that a PCA is not merely undertaken where there is suspected fraud or evasion but also is a useful exercise that can be used to verify the accuracy of the value of a consignment imported into Kenya. It is also a practice recommended by the World Customs Organization.

90. The Appellant averred that the Respondent had completed several forms F147. This reinforces the position of the Tribunal that the completion of form F147 by the Respondent enables it to independently assess and verify the value of imported goods as declared. However, the PCA is more in-depth and provides assurance to the Respondent of the verification and accuracy of the value of an imported consignment of any kind.

91. The Tribunal has also found that the Appellant‘s assertion that the period 2017 was outside the purview of the PCA is inaccurate since the Respondent issued it with a notice of intention to audit on 5th January, 2022.

92. On the basis of the foregoing analysis the Tribunal finds that the PCA was lawfully undertaken.

ii. Whether the Respondent applied the law in the choice of the method used to value the consignment imported by the Appellant. 93. This dispute arose from the Respondent‘s assessment of additional customs duties on the Appellant‘s consignment on the basis that it was undervalued. In its pleadings, the Appellant raised as its first and fifth grounds of this Appeal, the misapplication of paragraph 3 [method 2] and 4 [method 3] of the Fourth Schedule of EACCMA,2004.

94. On its part, the Appellant has avowed that the Respondent was not justified in applying a different method of valuation from the one that the Appellant declared. The Appellant further avowed that the Respondent did not consider the documentation, explanations, and evidence provided by the Appellant in relation to its imported household furniture.

95. The Tribunal notes that Section 122 as read in tandem with the Fourth Schedule of EACCMA,2004 provides for the manner in which valuation should be undertaken. Specifically, the Fourth Schedule as the interpretativeSection defines how the value of the imported goods is to be determined.Paragraphs 2,3,4,5,6,7 and 8 of the said Schedule are applied sequentially through the succeeding paragraphs.

96. The Tribunal is of the view that under the Fourth Schedule of EACCMA,2004 the transaction value method is the primary method of valuation and the Respondent can only resort to the other methods of valuation after method 1 fails.

97. The Tribunal having reviewed the pleadings and submissions of both parties is of the view that the Appellant did not discharge its burden of proof by providing adequate information and documents to enable the Respondent to use the same and apply the transaction value method, method 1, pursuant to paragraph 2 of the Fourth Schedule of EACCMA, 2004. It is notable that the Appellant did not adduce adequate evidence during the hearing to enable the Tribunal take a divergent view.

98. The Tribunal takes a further view that even though the Appellant was opposed to the use of the other methods, namely methods, 2[transaction value of identical goods] and 3 [transaction value of similar goods], it was unable to provide the requisite support documentation to support the use of paragraph 2 of EACCMA,2004. The Appellant used a one-unit price for the products in the consignment, vaguely described the imported goods and thereby undervalued the consignment. The Appellant did not adduce evidence to prove that it did not use this system.

99. The Tribunal finds and agrees that the Respondent was unable to rely on method 1 and outlined this fact in its demand notice dated 22nd June, 2022 and also in its review decision dated 19th August, 2022. In the said letters the Respondent outlined its reasons for applying paragraph 3 [method 2- transaction value of identical goods] and 4 [method 3-transaction value of similar goods] of the Fourth Schedule of EACCMA, 2004 in determining the value of the consignment. The Tribunal reiterates its position that given the obtaining documentation that the Respondent could not rely on the transaction value method due to the Appellant being unable to provide reliable information. However, the Tribunal finds that the reasons provided by the Respondent in applying method 2 and 3 were unsatisfactory.

100. The Tribunal is of the further view that in its demand notice and review decision, the Respondent had an opportunity to evaluate its use of the methods and explain in detail, to the Appellant, the circumstances under which it valued parts of the consignment using method 2 and also why it moved sequentially to choose method 3 over method 2 for parts of the consignment. It is the finding of the Tribunal that these methods were used interchangeably, contrary to the provisions of the Fourth Schedule of EACCMA, 2004.

101. Having observed that the Respondent used method 2 and 3 to value the consignment interchangeably, the Tribunal noted the following as the areas in which the Respondent‘s explanations [in the said letters] were ambiguous: -a.The Respondent did not explain the manner in which it sequentially applied method 2 [transaction value of identical goods] and method 3[ transaction value of similar goods] nor did it explain the part/parts of the consignment to which it applied method 2 as well as the part/parts of the consignment on which it applied method 3. b.The Respondent did not provide a report on how it compared the transaction value of identical goods on sale at the same commercial level (where method 2 was applied) and also how it moved to compare the transaction value of similar goods at the same commercial level (where method 3 was applied).c.The Respondent did not outline how it adjusted the values of the consignment pursuant to Paragraph 3 (2) of the Fourth Schedule of the EACCMA, 2004 and Paragraph 4(3) of the Fourth Schedule of EACCMA,2004.

102. The Tribunal is of the view that instead of evaluating the methods and applying them sequentially as required by law, during the audit, the Respondent placed too much reliance on the previous records of the consignments and import information of the Appellant, during the audit thereby making its report ambiguous.

103. In view of the foregoing, the Tribunal holds that the Respondent did not correctly apply the law in the choice of method used to value the consignment imported by the Appellant.

iii. Whether the Respondent‘s assessment and demand for additional taxes was justified. 104. The Tribunal having found that the PCA was lawfully undertaken but that the Respondent did not apply the law in carrying out the valuation of the consignment imported by the Appellant, the Tribunal therefore finds that the Respondent‘s assessment and demand for additional taxes was unjustified.

Final Decision 105. The upshot of the foregoing analysis is that the Appeal partially succeeds and the Tribunal accordingly proceeds to make the following final Orders:a.The Appeal is partially allowed.b.The Respondent‘s review decision dated 19th August, 2022 be and is hereby set aside.c.The Respondent to undertake the assessment afresh and justify the sequential application of the use of methods 2 and 3 on the specific consignments of goods imported by the Appellant in detail, by providing a report on the data and information on the comparables used and the adjustments made to every item in the consignment.d.Each party to bear its own costs.

106. It is so ordered.

DATED and DELIVERED at NAIROBI this 19th DAY of October, 2023. ERIC NYONGESA WAFULA - CHAIRMANDELILAH K. NGALA - MEMBERCHRISTINE A. MUGA - MEMBERSPENCER S. OLOLCHIKE - MEMBERABDULLAHI M. DIRIYE - MEMBERGEORGE KASHIDI - MEMBER