[2023] KETAT 218 (KLR)

Johnwin Investment Limited v Commissioner of Customs & Border Control (Appeal 277 of 2022) [2023] KETAT 218 (KLR) (5 May 2023) (Judgment)

Neutral citation: [2023] KETAT 218 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 277 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, AK Kiprotich & Jephthah Njagi, Members

May 5, 2023

Between

Johnwin Investment Limited

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

1. The Appellant is an entity that trades in carpets and rugs imported from various parts of the world.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority (KRA) Act, and the Kenya Revenue Authourity is charged with the responsibility of among others, assessment, collection, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. Pursuant to an audit, the Respondent established that the consignments imported by the Appellant were grossly undervalued compared to both identical and similar goods and subsequently uplifted the value of the consignments imported by the Appellant thereby issuing a demand notice dated 25th August 2021 amounting to Kshs. 53,997,928. 00.

4. The Appellant objected to the said demand on 23rd September 2021 and requested the Respondent to allow it time until 30th September 2021 to submit further documents. The Respondent allowed 7 days from 24th September 2021.

5. The Appellant submitted a second objection letter on 22nd October 2021 dated 19th September 2021 and a third one on 20th September 2021.

6. On 2nd November 2021, the parties met and the Appellant was allowed a further 7 days to provide documents for an objective review of the demand notice. On 10th November 2021, it sought a further 45 days to provide the requested documents. This was allowed by the Respondent who further stated that a review decision would be issued 30 days from the date of receipt of the said documents.

7. The Appellant submitted some, and not all, requested documents on 24th December 2021.

8. The Respondent issued its review decision on 21st January 2022, upholding the demand notice.

9. Following its dissatisfaction with the Respondent’s decision, the Appellant appealed by filing a Notice of Appeal to the Tribunal on 17th March, 2022.

The Appeal 10. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated and filed on 17th March, 2022:-i.That the Respondent erred in law and fact by raising a demand of Kshs. 53,997,928. 00 arrived at by uplifting the value of carpet consignments imported by the Appellant on the basis that they were grossly undervalued compared to both identical and similar goodsii.That the Respondent erred in law and fact in failing to use the Transaction Value Method in determining the value of the Appellant’s consignments for customs purposes thereby contravening Section 122(1) of EACCMA and Paragraph 2( I) and 9 of the Fourth Schedule.iii.That the Respondent erred in fact and law by basing the decision to uplift on a previous shipment, in particular entry number 2021MSA7721479, whose declared values were uplifted and extrapolated on the Appellant’s other shipments imported between the year 2019 and 2020. iv.That the Respondent erred in law and fact by failing to appreciate that the carpets imported by the Appellant are of different qualities, widths, weight, and thickness and further imported from different countries. It would therefore be prejudicial to the Respondent to extrapolate the findings of one shipment and infer the same on other presupposed shipments.v.That the Respondent erred in law and in fact by failing to provide the Appellant with data used in the computation of the weight to square meters (SQM) ratio of 2. 081 that was used as the basis for the value uplift for the purposes of determination of the customs duty.vi.That the Respondent's additional assessment is imaginary and unsupported.

Appellant’s Case 11. The Appellant’s case is premised on the following documents:i.The Appellant’s Statement of Facts dated and filed on 17th March 2022 together with the documents attached thereto.ii.The Appellant’s written submissions dated and filed on 28th November 2022 together with the authorities attached thereto

12. That the Appellant is clear that the East African Community Customs Management Act (EACCMA) provides clarity on the determination of value for customs purposes. Section 122 of the Act provides that:“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.”

13. The Appellant submits that according to Section 122 of EACCMA, the Fourth Schedule is the reference point in determining the value of imported goods liable to ad valorem import duty, and that the Fourth Schedule provides for 6 methods of valuation in determining customs value of imported goods, namely:i.The Transaction Value Method (Method l / the Primary Method)ii.The Transaction Value of Identical Goods Method (Method 2)iii.The Transaction Value of Similar Goods Method (Method 3)iv.The Deductive Value Method (Method 4)v.The Computed Value Method (Method 5)vi.The Fall-back Value Method (Method 6)

14. That the Interpretative Notes in Part II of the Fourth Schedule ("Interpretative Notes") set out the applicability of the valuation methods. i.e. that they must be applied in their sequential order. i.e.:i.Method 1 must be attempted first.ii.Method 2 can only be considered if value cannot be determined under the first method.iii.Methods 3 to 6 follow the same procedure.iv.Method 6 can only be applied where all the previous methods are not applicable.v.The only exception is that the sequence of Methods 4 and 5 may be reversed but at the request of the importer. A customs officer cannot decide to reverse the order of the methods.

15. That the Respondent's decision to compute the customs value of imported goods using a different method without following the sequence outlined above contravenes Section 122(I) of EACCMA and Paragraph 2(1) and 9 of the Fourth Schedule. Paragraph 2(1) 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 adjusted in accordance with the provisions of Paragraph 9, but where…,"

16. That Paragraph 9 provides that the transaction value of imported goods is the total price paid or payable for the imported goods when sold for export to the Partner State in the ordinary course of trade under fully competitive conditions. That the price actually paid or payable is the total payment made by the buyer to or for the benefit of the seller of the imported goods and includes payments made as a condition for sale of the imported goods by the buyer to the seller.

17. That a quick look at the document in relation to the entry in contention (2021MSA7721479) which include the C17B, bill of lading, import invoice clearly showing the quantity and description of the goods imported, KEBS certificate, packing list and proforma invoice will show the exact quantity of 495 SQM and the price per SQM and the price actually paid by the Appellant.

18. That the Respondent is therefore required to justify the application of one customs valuation method as opposed to another, in this case its application of the identical and similar goods method and may not arbitrarily shift from one method to another.

19. That the Respondent in its review decision dated 21st January 2022, stated that a joint verification exercise had been carried out which established a huge discrepancy in the total square meters (SQM) declared against the actual SQM verified. The Appellant's declared SQM was 495 SQM against the verified 7863. 32 SQM. That the Respondent went further on to state that a weight to SQM ratio of 2. 081 was used as the basis for the value uplift for the purpose of determination of customs value.

20. That Article 17 of the WTO Customs Valuation Agreement confirms that customs administrations have the right to satisfy themselves as to the truth or accuracy of any statement, document, or declaration. A decision regarding cases where customs administrations have reasons to doubt the truth or accuracy of the declared value, the following procedures should be observed in such cases:i.As a first step, customs may ask the importer to provide further explanation that the declared value represents the total amount actually paid or payable for the imported goods.ii.If reasonable doubt still exists after reception of further information (or in absence of a response), customs may decide that the value cannot be determined according to the transaction value method.iii.Before a final decision is taken, customs must communicate its reasoning to the importer, who, in turn, must be given reasonable time to respond. In addition, the reasoning of the final decision must be communicated to the importer in writing.

21. That taking note of the procedures prescribed under Article 17 above, the Appellant submits that the Respondent in its final decision of 21st January 2022 failed to provide the Appellant with an explanation in writing as to how the customs value was determined under the transaction value of identical goods and subsequently be given a reasonable time to respond

22. That taking note of this key process under Article 17 is further substantiated by various guidelines that govern the rules of valuation and more importantly what is required when the Respondent has resorted to the use of the transaction value of identical goods method.

23. That the World Customs Organization Guide to Customs Valuation and Transfer Pricing states that “It is important to note that when the alternate methods are used, there should be a process of consultation between Customs administrations and the importer with a view to determining a proper basis of value for Customs purposes.”

24. That the same is further reinforced under The East African Community Customs Valuation Manual under Chapter 2. 2.1 which provides that where the customs value of imported goods cannot be determined under the provisions of Paragraph 2 of the Fourth Schedule to the EACCMA, 2004, there should be normally a process of consultation with the importer with the aim of determining the customs value under Method 2 (Transaction Value of Identical Goods).

25. That further, The World Customs Organization Decision 6. 1 reaffirms that transaction value is the primary basis for valuation as per the GATT agreement and also states that:-“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.”

26. That the WTO Customs Valuation Agreement sets out a fair, uniform, and neutral system for determining the value of imported goods on which customs officials levy duties. That this system bars the use of arbitrary or fictitious customs values.

27. That in view of the above, it is key to note that there were no consultations between the Respondent and the Appellant, and neither were the data and entries relied on by the Respondent in the computation of transactional value of identical goods for the said period shared and discussed with the Appellant.

Appellant’s Prayers 28. The Appellant made the following prayers;a.That this Appeal be allowed.b.That the Respondent's demand notice dated 25th August 2021 and the subsequent review decision dated 21" January 2022 be set aside.c.That the Respondent be restrained from taking any enforcement mechanisms with respect to the demand for taxes in the years of contention pending the determination of this matter.

The Respondent’s Case 29. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal: -i.The Respondent’s Statement of Facts dated and filed on 14th April 2022 together with the documents attached thereto.ii.The Respondent’s written submissions filed on 14th November 2022 together with the legal authorities filed therewith.

30. That the Respondent’s audit established that an analysis of carpets was rather difficult owing to the different types, widths, brands, quality and thickness. That however, there was an outright case of undervaluation of SQM for all importations by the Appellant. That for example: imports of wall to wall identical brand - EBADAA carpets from AE (Abu Dhabi National Carpet Factory) have higher yields per container of above Kshs. 1. 8 million for a 40ft container as illustrated in the comparative analysis in the table below:Entry No Month Importer Supplier Yield-40ft USD/SQM N.W

2020ICD231480 Sept Tripex Enterprises Ltd Abu Dhabi National Carpet- 1,837,025, 6USD 40ftcontainer= 16,754

Item1 3,950SQM Wall to wall carpet Ebadaa 6USD

2020MSA7620324 Late Aug Johnwin Investment Abu DhabiNational Carpets 1,000,831 1. 7USD 40ft container= 22,000

Item 1 4,453 SQM USD 9,130 13,876 kg STC wall to wall mosque carpets Superdyna ADNC 2 USD

Item 2 2,000 SQM-USO 5,500 6,614KG STC wallto wall carpets EBADAA ADNC 2. 75 USO

31. That from the analysis, it was evident that heavier carpets should be more expensive than lighter ones. That however, it is the opposite for the Appellant's imports. That the rate used for identical products (Same COO/Supplier) is USD 2. 75 per SQM compared to Company XYZ at 6 USD/SQM.

32. That further, another proof of deliberate undervaluation of SQM, see table below on the Appellant's import consignments picked randomly for the year 2020:ENTRY NO ITEM NO DATE CIFVALUE ITEM TAX-ID+ VAT

7686548 1 23-Nov-20 2,084,728 886,009

7588993 1 23-Jul-20 2,079,096 883,616

7639175 1 6-Sep-20 2,078,713 8S3,453

7639190 1 16-Sep-20 2,078,713 883,453

7600116 1 05-Aug-20 2,078,519 883,371

7682607 1 16-Nov-20 2,078,304 883,279

7685193 1 20-Nov-20 2,078,304 883,279

7511511 1 24-Apr-20 2,078,224 883,245

33. That the data shows identical taxes paid for all consignments, even though they purport they are of different attributes. That in this case, the taxes should have varied as one indication of this. That the explanation of the above table shows that the Appellant did not declare the price actually paid/payable (transaction value), and instead worked backwards from a similar average of taxes payable.

34. That following the findings of gross undervaluation as established by the desk audit the Respondent opted to do a comprehensive audit. That the Respondent issued a notice of intention to do a comprehensive audit dated 7th May, 2021.

35. That through this notice the Appellant was requested to have important documents ready for audit such as bank statements, supplier ledgers, original import documents, audited financial statements, etc.

36. That a reminder was sent to the Appellant on 24th May, 2021 reminding the Appellant of the timelines to allow a good audit work plan, but the Appellant failed to acknowledge.

37. That the Respondent issued another notice of its intention to carry out a comprehensive audit on 4th June 2021.

38. That the Appellant responded on 10th June, 2021, but did not give an actionable date for the audit, on account that its accountant was on leave. That the Respondent notified the Appellant to quote a date for the audit but this went unanswered.

39. That following the failure by the Appellant to provide the requested documents to enable the Respondent conduct a comprehensive audit, the Respondent issued an assessment based on the intercepted consignment that established gross undervaluation of the actual SQM under entry 2021MSA7721479.

40. That the demand notice dated 25th August, 2021 was served on the Appellant vide the same email of communication, and stated the basis of assessment, and its failure to cooperate for a comprehensive field audit.

41. That a schedule of workings was sent on the same date, 25th August, 2021, upon realization that it had been omitted from the demand notice email.

42. That on 13th September, 2021, the Respondent wrote an email to the Appellant reminding it that should it have a contrary opinion to the assessment in the demand notice, it should provide documents as requested in the notice of audit.

43. That on 23rd September, the Appellant objected to the assessment, and requested the Respondent to allow it until 30th September 2021 to submit the requested documents.

44. That on 24th September, 2021 (noting that the extension letter had a typing error and instead read August), the Respondent wrote back to the Appellant and allowed it 7 days from the date of that letter to submit requested documents. That it was sent on same date. That despite the extension the Appellant failed to provide the requested documents.

45. That on 22nd October, 2021 the Appellant submitted a second objection letter referenced JIL/KRA/003/2021 dated 19th October 2021 on account of different attributes of the carpets imported. That the Appellant submitted a third objection letter referenced JWIL/KRA/002/2021 dated 20th October 2021, which stated that the Respondent's notice did not have the schedule of entries, even though these had been earlier sent in a separate email on the date of the demand notice.

46. That on 2nd November, 2021, the Appellant held a meeting with the Respondent and promised to provide requested documents to allow a field comprehensive audit to be conducted to resolve the matter.

47. That vide a letter dated 2nd November, 2021 the Appellant was allowed a further 7 days to provide documents to allow an objective review of the demand notice.

48. That on 10th November, 2021, the Appellant sought a further 45 days to provide the requested documents.

49. That the Respondent in the spirit of trade facilitation allowed the Appellant the 45 days requested via a letter dated 15th November, 2021, and notified the Appellant that a review decision would be issued 30 days from the date the documents were submitted.

50. That on 24th December, 2021, the Appellant submitted copies of documents albeit not all. That the Appellant failed to provide documents such as bank statements, supplier ledgers, TT copies as proof of payment as detailed in the intention to audit letter. That this was not sufficient proof, as already the desk audit had established that the documents as attached could not be relied on for transaction value method, hence why the Respondent departed to identical valuation method, using own assessed value under the intercepted entry.

51. That on 21st January, 2022, a review decision was issued upholding the demand notice following failure by the Appellant to provide any other evidence in support of the transactional value method. That it also provided a schedule from one supplier, with identical description, even though the description as declared in the Simba System was different.

52. It is the Respondent's case that it allowed the Appellant many chances to prove its transaction value, given that the invoices attached were not reliable to ascertain the price actually paid or payable. That the Appellant, despite being given various time extensions, failed to provide any proof of bank transactions, supplier ledgers, supplier contracts, payment slips, etc. That in the absence of the requested documents and with the establishment of the glaring inconsistencies the Respondent had no option but to depart from the transaction value method.

53. That Section 5(2) of the Kenya Revenue Authority Act places an obligation on the Respondent to enforce all tax laws. It provides that:“In the performance of its functions, the Authority it mandated to Administer and enforce the provisions of the written laws, set out in part II of the First Scheduled relating to revenue and for that purpose, to assess, collect and account for all revenues in accordance with those laws.......to advise the Government on all matters relating to the administration and collection of revenue under the written laws.”

54. That in fulfilling its mandate, the Respondent is not bound by the tax returns of the Appellant. That the Respondent may asses a taxpayer's tax liability using any information available to the Respondent. That Section 24(2) of the Tax Procedure Act, 2015 provides that:-“The Commissioner shall not be bound by a tax return or information provided by, or on behalf of, a taxpayer and the Commissioner may assess a taxpayer's tax liability using any information available to the Commissioner.”

55. That Section 23 of the Tax Procedures Act requires the Appellant to keep tax records in a manner that its tax liability can be easily determined. That the Appellant was required to avail the documents as provided under Section 59 of Tax Procedures Act. That the Respondent requested for the documents but the Appellant did not avail all the required documents.

56. It is the Respondent’s submission that it is required to use best judgement using the available information whenever confronted with a case where the Appellant has refused to avail documents. That the Respondent is guided by the case of Republic vs. Kenya Revenue Authority Ex-Parte Jeffer Mujtab Mohamed (2015) eKLR where Hon Odunga J held that:“a taxing authority is not entitled to pluck a figure from the air and impose it upon a taxpayer without some rational basis for arriving at that figure and not another figure. Such action would be arbitrary, capricious and in bad faith. It would be an unreasonable exercise of power and discretion and that would justify the court intervening”

57. That the Appellant did not discharged its burden as provided under Section 56(1) of the Tax Procedures Act to demonstrate that the formula used to raise the assessment was in error. That the Appellant failed to discharge its burden by adducing evidence.

58. That the Court in Alfred Kioko Muteti vs. Timothy Miheso & Another [2015) eKLR held that:“A party can only discharge its burden upon adducing evidence. Merely making pleadings is not enough. "In reaching its findings, the Court stated that: "Thus, the burden of proof lies on the party who would fail if no evidence at all were given by either party.... Pleadings are not evidence ...”

59. That in the case of Kenya Revenue Authority vs. Man Diesel &Turbo Se, Kenya [2021] eKLR the Court held that:“By placing the burden of proof on the party in possession of relevant information, the possibility of destruction of adverse information is minimized and time is saved by making that party responsible for culling through its own records to meet its burden. Placing the burden of proof on the government in tax cases would detract from these goals. Taxpayers might be tempted to destroy adverse relevant evidence and tax collection costs would increase because of the Revenue Authority's difficulty in finding relevant information.”

60. The court went ahead to state that:“Placing the burden of proof in tax cases on the tax payer reflects the unique nature of the tax system. This is evident from the three-fold justifications for placing the burden on the tax payer. These are: - (a) the presumption of correctness; (b) the government's need for revenue and, (c) the taxpayer's possession of evidence. The taxpayer's burden of proof comprises two parts: - establishing, with evidence, the underlying facts on which the law is to operate (and in this regard, the standard of proof to which each/act must be proved is relevant); and - that the operation of the law when applied to those facts establishes that the assessment is excessive or erroneous.”

61. That the Appellant failed to provide records requested. That the records requested were relevant to the transaction. That further, the records are or ought to be available to the Appellant. That guided by the above case the Appellant was supposed to look for the documents from its records and avail them to the Respondent. That until then the Respondent's case, has not been demolished to shift the burden of proof from the Appellant to the Respondent.

62. The Respondent submitted that the Appellant having not provided the documents for verification it correctly used the identical and similar goods value in raising the assessment.

Respondent’s Prayers 63. The Respondent prayed that the Tribunal;a.Dismisses the Appeal with costs for lack of merit.b.Upholds the Respondent’s objection decision dated 21st January, 2022.

Issues For Determination 64. The Tribunal upon due consideration of the pleadings and the written submissions of the parties was of the considered view that the Appeal raises the following single issue for its determination:Whether the assessment is justified

Analysis And Determination 65. The Tribunal having ascertained the issue for determination as set out above proceeds to deal with the same as hereunder.

66. This dispute arose from the Respondent’s assessment of additional customs duties on the Appellant’s consignments on the basis that they were undervalued.

67. On its part, the Appellant averred that the Respondent was not justified in applying a different method of customs valuation from the one that the Appellant declared. That further, the Respondent did not consider the explanation, documentation and evidence provided by the Appellant in relation to its imported carpets.

68. The Appellant further submitted that the Respondent should not rely on an assumption that all its entries were grossly undervalued based on one entry (2021MSA7721479) to uplift the customs value of all its consignments imported during the period under dispute.

69. The Tribunal has reviewed in detail the documents provided by the parties and established that the assessment by the Respondent was based on a shipment, entry number 2021MSA7721479, that was intercepted by the Respondent and was found to be undervalued. It is clear to the Tribunal that the Respondent compared this shipment to a similar shipment of STC wall to wall mosque carpets Superdyna ADNC, imported by a different trader that imported from the same supplier, Abu Dhabi National Carpet Factory.

70. The quantities differed, i.e. 4453m2 imported by the Appellant vis a vis 3950m2 imported by the other trader. Further, the total taxes paid by the other trader were much higher than those paid by the Appellant yet the Appellant’s quantity as declared was higher. This was the basis of the uplift of all other consignments by the Respondent.

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

72. The Fourth Schedule provides six methods of determining the customs value of imported goods, namely:i.Transaction Value Method (Method 1)ii.Transaction Value Method of Identical goods (Method 2)iii.Transaction Value Method of Similar goods (Method 3)iv.Deductive Value Method (Method 4)v.Computed Value Method (Method 5)vi.Fallback Value Method (Method 6)

73. The Interpretive Notes in Part II of the Fourth Schedule (Interpretive Notes) set out the applicability of the valuation in that they should be applied in “sequential order of application” as follows:i.Method 1 must be attempted firstii.Method 2 can only be considered if the customs value cannot be determined under the first methodiii.Method 3 to 6 follow the same procedure as Method 2iv.Method 6 can only be applied where all the previous methods are not applicable andv.The only exception is that the sequence of methods 4 and 5 may be reversed.

74. The Tribunal is also clear that under the EACCMA the transaction value method is the primary method of valuation and that the Respondent can only resort to the other methods of valuation after the first method fails.

75. It is clear to the Tribunal that the Respondent, in its assessment, deviated from the use of the transaction value method of valuation due to the fact that it established that a consignment by the Appellant, as detailed above, had been undervalued.

76. Paragraph 2(1) of the Fourth Schedule states as follows regarding the transaction value of goods:“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 adjusted in accordance with the provisions of Paragraph 9, but where—(a)there are no restrictions as to the disposition or use of the goods by the buyer other than restrictions which:(i)are imposed or required by law or by the public authorities in the Partner State;(ii)limit the geographical area in which the goods may be resold; or(iii)do not substantially affect the value of the goods;(b)the sale or price is not subject to some condition or consideration for which a value cannot be determined with respect to the goods being valued;(c)no part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue directly or indirectly to the seller, unless an appropriate adjustment can be made in accordance with the provisions of Paragraph 9; and(d)the buyer and seller are not related, or where the buyer and seller are related, that the transaction value is acceptable for customs purposes under the provisions of subparagraph (2).”

77. Further, Paragraph 3(1) of the Fourth Schedule provides as follows regarding the use of the transaction value of identical goods method:(a)Where the customs value of the imported goods cannot be determined under the provisions of paragraph 2, the customs value shall be the transaction value of identical goods sold for export to the Partner State and exported at or about the same time as the goods being valued:(b)In applying the provisions of this paragraph, the transaction value of identical goods in a sale at the same commercial level and in substantially the same quantity as the goods being valued shall be used to determine the customs value and where no such sale is found, the transaction value of identical goods sold at the different commercial level or in different quantities, adjusted to take account of differences attributable to commercial level or to quantity, shall be used, provided that such adjustments can be made on the basis of demonstrated evidence which clearly establishes the reasonableness and accuracy of the adjustment, whether the adjustment leads to an increase or decrease in the value;”

78. Based on the above provisions, the Tribunal found that the Appellant did not conform to any of the exceptions under Paragraph 2 that would create a reason to deviate from the transaction value method. However, the Respondent raised doubts based on and investigation it undertook that established that an import from the same supplier by a different importer had markedly higher taxes paid compared to the Appellant. The Tribunal is of the view that based on this finding by the Respondent, there was reason to uplift the value of the Appellant’s specific consignment that was found to be undervalued, i.e. 2021MSA7721479.

79. The Respondent, in its assessment however, did not detail the data that it used to uplift all other consignments by the Appellant based on identical goods imported during the audit period stated by the Respondent, i.e. 2016 to 2020. It stated that it used a weight to SQM ratio computed on the basis of the one shipment whose details it compared to an importer that imported identical goods on or about the same time as the Appellant’s consignment. This is contrary to the provisions on the use of the transaction value method of identical goods as provided under Paragraph 3(1)(b) of the Fourth Schedule.

80. The Tribunal would like to reiterate that Paragraph 3(1)(b) of the Fourth Schedule states as follows regarding the use of the second method of valuation;“In applying the provisions of this paragraph, the transaction value of identical goods in a sale at the same commercial level and in substantially the same quantity as the goods being valued shall be used to determine the customs value and where no such sale is found, the transaction value of identical goods sold at the different commercial level or in different quantities, adjusted to take account of differences attributable to commercial level or to quantity, shall be used, provided that such adjustments can be made on the basis of demonstrated evidence which clearly establishes the reasonableness and accuracy of the adjustment, whether the adjustment leads to an increase or decrease in the value;” (Emphasis ours)

81. The Tribunal states that, having reviewed the methods of customs valuation as detailed in the Fourth Schedule, it did not find a basis under the customs value of identical goods method that allows for the use of a method that extrapolates based on a ratio to arrive at a customs value.

82. As regards the averment by the Respondent that the Appellant provided some, and not all, requested documents, the Tribunal notes that the Respondent’s customs declaration system should contain all declarations made by the Appellant for its imports. Further, in line with the assessment made by the Respondent on the Customs entry 2021MSA7721479 and the comparison to a similar importer in a bid to establish identical goods’ values that could be used for uplift, it is the Tribunal’s view that all consignments by the Appellant that are the subject of this dispute should have been subjected to similar comparisons to establish the uplift values under the Customs value of identical goods method and not a ratio used as a general basis to uplift the values of the Appellant’s consignments.

83. That further, through a review of the schedule of workings provided by the Respondent, the Tribunal notes that the shipments under review were of varying descriptions, qualities, widths and thicknesses which is not in dispute by the parties. That even with no further details on the specifications, the different kinds of carpets, as listed by the Respondent in its pleadings, should have been subjected to specific comparisons with identical or similar importations for an uplift to have been properly undertaken by the Respondent as per the provisions of the Fourth Schedule. The Tribunal is of the considered view that this is contrary to Paragraph 3(1)(b) of the Fourth Schedule.

84. In the circumstances the Tribunal finds that the tax demand by the Respondent based on the uplift of the values of the imports on the part of the Appellant was improper and completely unjustified.

Final Decision 85. In view of the foregoing, the Tribunal finds that the Appeal is merited and accordingly makes the following Orders: -a.The Appeal be and is hereby allowed.b.The Respondent’s Review Decision dated 21st January, 2022 be and is hereby set aside.c.Each Party to bear its own costs.

86. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 5TH DAY OF MAY, 2023. ………………………….ERIC N. WAFULACHAIRMAN…………………CYNTHIA B. MAYAKA GRACE MUKUHAMEMBER MEMBER……………………………………………………ABRAHAM KIPROTICH JEPHTHAH NJAGIMEMBER MEMBER