Silpack Industries Ltd v Kenya Revenue Authority (Tax Appeal E782 of 2025) [2026] KETAT 204 (KLR) (29 May 2026) (Judgment)

 REPUBLIC OF KENYA IN THE TRIBUNAL OF KENYA AT NAIROBI COUNTY COURT NAME: TAX APPEALS TRIBUNAL CASE NUMBER: TATC/E782/2025 Silpack Industries Limited 1st Appellant - Versus - Kenya Revenue Authority 1st Respondent JUDGMENT # BACKGROUND 1. The Appellant is a limited liability company incorporated in Kenya with its registered offices in Nairobi. It is a manufacturer of corrugated cartons and synthetic packaging materials whose plant is at Industrial Area Nairobi. 2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subSection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 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 vide two letters dated 20th and 21st June 2022 respectively, notified the Respondent that the stock and the building licensed as a Bonded Warehouse had been destroyed by a fire. Subsequently, the Respondent's Officers from Nairobi Customs Station – Bonded Warehouse Team visited the site. 1. The Respondent issued demand on taxes payable on the stock balance on 28th June 2022 amounting to Kshs 80,348,667. Further communication was sent to the Appellant on 15th May 2024 as a reminder of the demand issued on 28th June 2022. The Appellant responded to the letter on 18th August 2022 disputing the tax demand based on Sections 141(c), 143, 144 and 247 of the East African Community Customs Management Act, 2004 (EACCMA). 2. The Respondent received information that the Appellant had received compensation from its insurer/guarantor. It then issued another demand letter dated 15th May 2024 for duty of the goods that were covered under a Customs Security Bond (CB6- security for goods in the Appellant's Facility). The Respondent demanded Kshs 88,453,971. The Respondent also sent a similar demand to the Appellant's guarantor (issuer of the CB6), APA Insurance on 12th June 2024. 3. Subsequently, the Respondent issued a letter dated 16 th April 2025 explaining to the Appellant reasons why duty was payable in the case. The Appellant lodged an application for review via a letter dated 14th May 2025. 4. The Respondent reviewed the Appellant's application and proceeded to issue review decision vide a letter dated 9th June 2025 confirming the demand as issued on 15th May 2024 and 28th June 2022. 5. Dissatisfied with the decision, the Appellant lodged Notice of appeal dated 8th July 2025 and filed on 9th July 2025. # THE APPEAL 1. The Appellant filed the Memorandum of appeal dated 21st July 2025 and filed on even date raising the following grounds of appeal: 1. That the Commissioner erred in law and in fact by demanding payment of taxes on goods that were destroyed by an accidental fire while still under customs control, contrary to Sections 143 and 144 of the EACCMA, which provide for the remission of duty on goods lost or destroyed before being released for home consumption. * 1. That the Commissioner erred in law and fact by failing to appreciate that it is trite law that incidence of tax is on the goods, and the tax liability in the circumstances of the subject matter herein was extinguished by virtue of the fire completely destroying the subject goods. 2. That the Commissioner erred in law and in fact by disregarding the forensic audit report conducted by an independent auditor appointed by the Appellant's guarantor, which confirmed that the fire was accidental and that there was no evidence of foul play or negligence on the part of the Appellant. 3. That the Commissioner erred in law and in fact by misapplying Section 109(1) of the EACCMA to justify the liquidation of the security bond, despite the absence of a taxable event and the fact that the goods had not been irregularly removed for home use or consumed in the domestic market. 4. That the Commissioner erred in law and in fact by purporting to levy tax on goods which had not left customs control, and furthermore there is no financial benefits that has accrued to the Appellant but rather it is a loss to it. 5. That the Respondent erred in law and in fact by issuing tax demands containing inconsistent figures, thereby creating uncertainty and lack of clarity on the actual amount of tax assessed and demanded, which is prejudicial to the Appellant and contrary to the principles of fairness and transparency in tax administration. 6. That the Commissioner erred in law and in fact by making a tax demand based on a bond whose legal validity had expired, despite the expiry extinguishing any liability arising thereunder. By executing a bond with a legally defined lifespan of three years, the Respondent created a legitimate expectation that no liability would arise or be enforced after its expiry, barring any customs procedural violations by the Appellant. As such, the Respondent is estopped from relying on the said bond as it had no legal justification to fall back on the said bond to hold the Appellant liable. 7. That the Commissioner erred in law and in fact by failing to exercise the discretion granted under Sections 143 and 144 of the EACCMA, which empower the Commissioner to remit or waive taxes on goods that have been lost or destroyed while under customs control and prior to entry into home consumption. 8. That the Commissioner erred in law and in fact by upholding a tax demand that is contrary to established customs procedures and the spirit of the EACCMA, which recognizes that tax liability arises only when goods are entered for home use or otherwise diverted into the domestic market. # THE APPELLANT’S CASE 1. The Appellant’s case is premised on its Statement of facts dated and filed on 21st July 2025 and written submissions on dated and filed 25th March 2025. 2. In further support of its case the Appellant relied on the following documents: 3. Notification of fire dated 20th June 2022 and 21st June 2022; 4. General Bond doe security of warehouse dated 25th August 2020; 5. Forensic fire investigation report dated 15th June 2022. 6. Demand for unpaid taxes on stock destroyed by fire in BNBI525 dated 28th June 2022; 7. The Appellant’s letters dated 18th August 2022; 9th April 2024; 8. Demand notice dated 15th May 2024; 9. Notice of liquidation of the outstanding security bond dated 12th June 2024; 10. Appellant letter dated 10th July 2024; 11. Demand dated 16th April 2025; 12. A letter from Appellant’s advocates dated 14th May 2025; and 13. Review decision dated 9th June 2025. 14. The Appellants averred that on 15 th June 2022, at approximately 6.00 p.m., the Appellant's factory, stores and bonded warehouse were adversely affected by a fire accident that broke out in the said premises. The Appellant stated that it deployed various appropriate means to confine the spread of the fire, including but not limited to reporting to relevant authorities, including the Respondent. 15. The Appellant averred that it notified the Respondent of the fire incident vide its letters dated 20th June 2022 and 21st June 2022 as the fire had affected the goods located in the Customs bonded warehouse No. BNBI 525 within the Appellant's manufacturing plant. The letter dated 21st June 2022 specifically detailed the materials lost within the said bonded warehouse. 16. Pursuant to the requirements of the EACCMA, the Appellant had secured a General Bond for security of warehoused goods, with its guarantor being APA Insurance Company Limited. The bond was executed in the prescribed Form CBO to cover goods warehoused under customs control at the Appellant's bonded facility. It was duly issued on 25th August 2020 for a fixed term of three (3) years. Upon the expiry of the said period, the bond was not renewed, and no replacement or extension was effected. 1. Pursuant to the said fire incident that affected the bonded goods, APA Insurance Company Limited, acting as the Appellant's guarantor, engaged an independent auditor to conduct a forensic audit. The audit conclusively established that the fire was accidental and that there was no evidence of foul play attributable to the Appellant. Consequently, the guarantor settled the insurance claim as compensation for the loss suffered, exclusive of any applicable taxes as there was no tax liability to be settled as the goods were completely destroyed by fire. 2. According to the Appellant, the Respondent, upon receiving the Appellant's letters dated 20th June 2022 and 21 st June 2022, issued a demand to the Appellant dated 28th June 2022, seeking payment of unpaid taxes amounting to Kshs 80,348,667 on stock destroyed by the fire, with a directive for the amount to be settled within 30 days. The Respondent issued the demand notwithstanding the Appellant's full disclosure that the destroyed goods remained under customs control and had neither been released for home consumption nor utilized in the domestic market, in accordance with applicable customs procedures. 3. In response to the Respondent's Demand of 28th June 2022, the Appellant vide its letter dated 18th August 2022, invoked the provisions of Sections 141(c), 143 and 144 of EACCMA. In its analysis, the Appellant stated that taxes are only applicable when goods are consumed in the domestic market and for which financial benefits accrue to the owner of such goods. That in this case, the Appellant asserted that the goods did not enter into home consumption as per customs procedures and protocols but were in fact completely destroyed by fire while still under customs control. 1. Subsequently, the Appellant vide its letter dated 9th April 2024 requested the Respondent to absolve it of any tax liability and to withdraw the subject demand letter pursuant to Sections 143 and 144 of EACCMA on grounds that the goods were destroyed while still under custom control. The Appellant stated in the said letter that the quoted provisions empower the Respondent to remit the payment of taxes or simply put, withhold the levying of taxes for destroyed goods. 2. In response to the Appellant's letter of 9th April 2024, the Respondent vide its letter dated 15th May 2024, referenced "Demand for Unpaid Stock Destroyed by Fire in BNBI 525 Kshs 88,453,971 stated that the goods were covered under bond (CB6) for taxes payable to the Commissioner and as a result it upholds its earlier demand. 3. The Appellant issued a follow-up letter dated 10th July 2024, reiterating the contents of the earlier correspondence and drawing attention to the Respondent's letter dated 12th June 2024, which had been addressed to the Appellant's guarantor. It stated that in said letter, the Respondent demanded the liquidation of the outstanding security bond guaranteed in favour of the Appellant under bond number GENR20/10004145KE. The Respondent further stated that while the guarantor had compensated the Appellant for the goods destroyed by fire, it was still required, pursuant to Section 109(1) of the EACCMA, to pay taxes amounting to Kshs. 88,453,971 for the outstanding bond in force. 4. The Appellant averred that there is lack of clarity on the actual tax amounts as purportedly demanded by the Respondent, as is evident from the varied demands made of Kshs. 80,348,667 and Kshs. 88,453,971. 5. According to the Appellant, despite the Appellant's various correspondence and its full disclosure that the destroyed goods were still under customs control and had neither entered home consumption nor consumed in the domestic market as per the custom procedures, and despite the meeting held on 11th April 2025 of the parties, the Respondent continued and made a further demand vide its letter dated 16th April 2025 demanding for unpaid taxes on stock destroyed by fire in BNBI525. The Respondent stated that the insurance for the value of goods is taken separately for compensation and the bond covering the value of taxes is taken under the tax regime. 1. It was the Appellant’s case that upon receipt of the letter dated 16th April 2025 and pursuant to the provisions of Section 229(1) of EACCMA, the Appellant applied for review of the decision by the Respondent vide its letter dated 14th May 2025. In response thereto, the Respondent vide its letter dated 9th June 2025 upheld its previous position as per its letters dated 28th June 2022 and 16th April 2025. 2. The Appellant maintained that the tax demand issued by the Respondent is unfounded, having been made after the expiry of the customs security bond and despite clear evidence that the loss of goods resulted from an accidental fire, as confirmed by a forensic audit. The Appellant further asserted that the goods in question remained under customs control and had not been irregularly released for home consumption. 3. The Appellant also stated that the Respondent's reliance on an expired customs security bond as the basis for the tax demand is unlawful, unprocedural and in violation of the Appellant's legitimate expectation and ought to be estopped from making the tax demands herein against the Appellant. 4. The Appellant submitted that customs duty is not payable on goods destroyed while under customs control in a bonded warehouse; that the Respondent unlawfully enforced and/or sought to liquidate the customs bond; and that the Respondent cannot enforce a bond after expiry of its validity period. 5. The Appellant submitted that, the goods in question were stored in the Appellant's bonded warehouse, remained under customs control at all material times, and were completely destroyed by an accidental fire before they could be entered for home consumption. In those circumstances, it submitted that no taxable event arose within the meaning of the EACCMA. The Appellant cited the case of **APA Insurance Limited v Commissioner of Customs and Border Control [2023] KETAT 574 (KLR)**, to submit that the Tribunal restrained enforcement of customs bonds where the goods or conditions giving rise to the bond's enforceability had ceased to exist. The Tribunal held that bonds should only be enforced where the underlying conditions remain unfulfilled and a taxable event has occurred. 1. The Appellant further submitted that the physical subject of taxation ceased to exist, and no provision of the EACCMA deems insurance proceeds to constitute goods capable of entry for home consumption. It maintained that customs duty is levied on goods, not on insurance proceeds, and the mere receipt of monetary compensation does not amount to the reintroduction or reinstatement of goods into a bonded warehouse. It relied on the case of **Commissioner of Domestic Taxes v ICEA Lion General Insurance Company Limited [2025] KEHC 14865 (KLR)**, wherein the Court affirmed that insurance proceeds are purely indemnificatory and cannot be equated to income or economic benefit capable of taxation. 1. It submitted that the Respondent failed to consider and determine the Appellant's request for remission, thereby abdicating a statutory duty imposed under Section 141 of EACCMA. It submitted that the discretion conferred is not optional and must be exercised judiciously upon consideration of the relevant facts. It relied on the case of **Republic v Commissioner of Domestic Taxes** **(Large Taxpayers Office) Ex-Parte Unilever Tea Kenya Limited [2017] KEHC 9113 (KLR)**, to submit that the courts held that failure to consider a relevant request or to exercise statutory discretion renders the decision unlawful. 1. The Appellant maintained that the Respondent attempted to rely on an expired bond, thereby acting ultra vires and in disregard of the legal certainty attached to timebound obligations as well as contrary to its own Guidelines on bonds. It relied on the case of **Republic v Commissioner of Customs** # Services; Imperial Bank Ltd (Ex parte) (2015] KEHC 6939 (KLR), where the court held as follows; *"It is my view and I so hold that the Respondent having by its conduct in executing bonds whose lifespans were limited led the ex parte applicant to believe that after the expiry of the said bonds the ex parte applicant would not be called upon to meet liability thereunder."* # Appellant’s prayers 1. The Appellant prayed for the following reliefs 2. The Appeal be allowed; 3. The tax decision issued by the Respondent vide the letter dated 9th June 2025 upholding the tax Demand made on 28th June 2022 and 16th April 2025, be set aside and vacated; 4. An order be issued directing the Respondent to withdraw all enforcement actions, including demands for bond liquidation, arising from the impugned tax decision; 5. The cost of the appeal be awarded to the Appellant. # THE RESPONDENT’S CASE 1. The Respondent filed its Statement of facts dated and filed on 20th August 2025 and written submissions dated 11th March and filed on 12th March 2026. 2. On whether the Respondent erred in demanding import duty on goods that were destroyed by fire inside the Appellant's bonded warehouse the Respondent averred that import duty and other taxes should be paid for all imported goods liable for import duty and other taxes at the point of entry for home consumption. 3. The Respondent however, stated that there are instances where the Respondent upon application by an importer, part or a Section of the importers manufacturing plant/godown may be licenced as a bonded warehouse for purpose of holding dutiable goods which duty has not paid until the time the importer is ready to pay the duty. 4. The Respondent cited Section 62 (1) of EACCMA which states as follows; *The Commissioner may, on application, license any building or any other place as warehouse for the deposit of goods liable to import duty.* 1. The Respondent averred that the Appellant's/importers licenced/bonded warehouse operates like a debt owing to the Commissioner on duty payable by importers. It noted that just like any other secured debts there are conditions that must be met and of one of the conditions is that the bonded warehouse must be secured by insurance bonds to secure the taxes due from the bonded goods. 2. The Respondent cited Section 62. (4) of EACCMA which states as follows; *The Commissioner may require the person applying for a licence to furnish such security as the Commissioner may think appropriate as a condition to the grant of the licence.* *106. The Commissioner may require any person to give security for the due compliance by that person with this Act and generally for the protection of the Customs revenue; and, pending the giving of such security in relation to any goods subject to Customs control.* 1. The Respondent averred that goods in the bonded warehouse holds the interest of both the Commissioner in terms of taxes and the importer in terms of the imported goods hence both interests must be protected. In this case, the goods holding both the Commissioner's and Appellant's interest were destroyed in the fire and the Appellant sought compensation from the insurance on the goods destroyed by the fire and completely ignored the duty payable on the said goods. 2. The Respondent contended that Appellant categorically chose to rely on Sections 141,143 and 144 of EACCMA with respect to rebates, remission and refunds on duty in instances where imported goods are destroyed while still under customs control. The Respondent averred that the said provisions are distinct in the sense that the refunds are subject to duty which had already been paid and subsequently the goods are destroyed before leaving the Customs Controlled area. 3. The Respondent averred that Section 142(2) clearly state that rebate is not allowable where the insurer of the goods has compensated the affected party. It stated that in the case herein the Appellant has confirmed in both its pleadings and correspondences with the Respondent that it was compensated by the insurance. 4. Furthermore, the Respondent argued that the Appellant neither provided the insurance policy nor disclosed the amount it was compensated for the Respondent to make a determination on the same. 5. Contrary to the Appellant's assertion that the liability on the goods was extinguished when the goods were destroyed, the Respondent averred that the insurance doctrine of subrogation takes the Appellant back to the state it was before the incident occurred. It contended that the state would be the goods being placed back in the custom's bonded warehouse. 6. It contended that the same was done in monetary form hence the goods are no longer in the bonded warehouse but have been released for home use through the compensation henceforth liable for duty. 1. The Respondent averred that the Appellant has not demonstrated before this Honourable Tribunal how after being taken back to the position it was (the bonded warehouse) before the fire incident through money or compensation, how it treated the goods/compensation in the bonded warehouse. 2. The Respondent stated that the Appellant having been compensated or taken back to where it was before the fire incident, the dutiable goods remained and are liable to duty upon demand by the Respondent. 3. On whether the Respondent erred in enforcing the bond, the Respondent stated that the terms of the said bond are very clear that no party will be discharged from the said bond until all the condition therein are met. It stated that the above position is fortified by Section 106,107, 108 and 109 of EACCMA. 4. The Respondent cited Section 109(1) of EACCMA which provides as follows; 5. Where the conditions of any bond have not been complied with the Commissioner may by notice in writing require the person who has given security under it to pay to him or her the amount of the security within fourteen days of the notice: and on failure to comply with the notice, the Commissioner may enforce payment of the security as though it were duty due and unpaid. 6. Nothing in this Section shall, unless the Commissioner otherwise allows, discharge the person who has given security under Section 108 from the obligations entered into by him or her under this Act or under any other law. 7. According to the Respondent, from the above Section of the law, it is clear that the Respondent is empowered to enforce payment upon failure to comply with the conditions of the bond. 8. The Respondent averred that the Appellant/guarantor of the importer had the duty to ensure duty on the imported goods are settled as required under the terms of the bond. The Respondent also contended that Section 107(3) of EACCMA allows the Respondent to enforce any bond that is unaccounted for since the said provision grants the Respondent the discretion to discharge either the bonds at the lapse of the three years or not which discretion the Respondent has not exercised and therefore the issue of expired bond does not arise. 9. The Respondent stated that the Appellant and its guarantor having guaranteed payment of duty in the bonded warehouse, it was incumbent on the Appellant/guarantors to ensure compliance with all the conditions in the bond and have themselves freed and discharged from the bond obligations. 1. On the issue of the demanded figures varying, the Respondent stated that where else the principal amount would remain the same, the interest and penalty on the outstanding taxes will keep on accruing until the outstanding amount is fully settled explaining the variances on the figures at different times of demand. 2. The Respondent submitted that did not err in demanding import duty for goods in the Bonded warehouse. The Respondent also submitted that it did not err in fact and law in demanding for liquidation of the Bonds executed to secure duty. 3. The Respondent submitted that the goods liable for duty are not in the bonded warehouse. Therefore, whichever way they came out of the bonded warehouse, they are deemed to have released for home consumption and are therefore liable for duty. In support of its case, the Respondent relied on the # case of Atta Kenya Limited v Commissioner – Customs and Border **Control & 4 others (Civil Case E030 of 2020) [2025] KEHC12135(KLR).** 1. The Respondent submitted that Section 142(2) states that rebate is not allowable where the insurer of the goods has compensated the affected party. It urged the Tribunal to interpret the law strictly. In this regard, it cited the case of **Kenya Revenue Authority v Ndegwaſ20251(KLR)** where the Court of Appeal reaffirmed the principle of strict interpretation of tax statutes and cited with approval the decision in **Cape Brandy Syndicate v Inland Revenue** **Commissioners**, where Rowland J. stated: *"...in a taxing Act, one has to look merely at what is clearly said. There is no room for intendment as to a tax. There is no equity about tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied one can only look fairly at the language used. If a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be."* 1. The Respondent submitted that since the Appellant failed to satisfy the Respondent in accordance with Section 141 of EACCMA the same remained as civil debt due and collectable upon demand. It relied on the case of **Bamburi** **Cement Plc v Commissioner of Customs & Border Control [2025] KETAT 392** where the Tribunal reaffirmed the statutory rule under Section 130(1) of EACCMA that: *Where goods are liable to duty, such duty becomes a civil debt due to the state and is payable by the owner of the goods.* 1. The Respondent relied on the case of **Monarch Insurance Company Limited v Commissioner of Customs & Border Control** to support position that the onus of proving that the Appellant is not liable to the full amount of the Bond rests on the Appellant. 1. The Respondent maintained that the tax demand issued was properly founded in fact and law, and that the review decision was fair, reasonable, and made in accordance with statutory provisions. # Respondent’s prayers 1. The Respondent prayed that the Appeal be dismissed with costs to the Respondent and that the tax demand as confirmed by the review decision be upheld. # ISSUES FOR DETERMINATION 1. The Tribunal has considered the parties’ pleadings and submissions, and has identified the following issue for determination: # Whether duty is payable on goods destroyed while under custom control in a bonded warehouse; 1. **Whether the Appellant was liable to pay duties by virtue of insurance compensation received; and** 2. **Whether the Respondent erred in seeking to enforce the customs bond.** **ANALYSIS AND FINDINGS** 1. Having identified the issues for determination, the Tribunal proceeds to analyse the same as hereunder: # Whether duty is payable on goods destroyed while under **custom control in a bonded warehouse** 1. It is not disputed that the Appellant’s goods were razed down accidentally by fire while in a bonded warehouse. It is also not disputed that the Appellant had not paid duty on those goods as at the time of the accident. 2. It is also not disputed that the Appellant issued a bond as security for the goods under the warehouse. What is disputed is whether the Respondent can rely on the bond bearing in mind that the subject matter of the bond was destroyed and whether the Respondent can enforce a bond that had lapsed. 3. The Appellant cited Sections 141(c), 143 and 144 of EACCMA among others to support its case while the Respondent cited Sections 107,108, 109 and of the EACCMA 142(2) among others to support its case. 4. Section 143 of EACCMA provides for repayment of customs duty when goods are returned or destroyed by fire. In particular, Section 143(1) provides as follows: ***143.*** *(1) Subject to Section 144 and to such conditions as the Commissioner may impose, where it is shown to the satisfaction of the Commissioner—* 1. *that goods were imported in pursuance of a contract of sale and that the description, quality, state or condition of the goods was not in accordance with the contract or that the goods were damaged before the goods were delivered out to Customs control: and* 2. *that the importer with the consent if the seller has either—* 3. *returned the goods unused to the seller and for that purpose complied with the provisions of Section 75 as to entry in like manner as if they had been goods to which that Section applies; or* 4. *destroyed the goods unused, the Commissioner shall refund any Customs duty paid on the importation of the goods.* 5. Section 144 of the EACCMA that the Appellant cited provides for refund of duty. Section 144(1) thereof provides that: ***144.*** *(1) Subject to any regulations, the Commissioner shall refund any Customs duty paid on the importation of the goods —* *(a)of any import duty, or part thereof which has been paid in respect of goods which have been damaged or pillaged during the voyage or* *damaged or destroyed while subject to Customs control; (b)of any import or export duty which has been paid in error.* 1. Section 144 of the EACCMA is not applicable to this appeal for the reason that the Appellant had not paid duty on those goods therefore, the Appellant cannot claim a refund from the Respondent under the said provision. 2. Section 141 of EACCMA provides for remission of duty. In particular, the Appellant cited Section 141(c) which provides as follows: ***141.*** *Where any goods are lost or destroyed by accident either—* *(c)in any Customs area or warehouse, before the goods are delivered out of Customs control to the owner, then, if the Commissioner is satisfied that such goods have not been and will not be consumed in a Partner State, the Commissioner may remit the duty payable in respect of the goods.* 1. Article 1 of the **Protocol on the Establishment of the East African Customs Union** defines ‘‘duty’’ as, ***‘‘any duty leviable under any customs*** ***law and includes surtax.’’*** While it defines “remission” as, ***‘‘the waiver of duty or refrainment from exacting of duty.’’*** 1. Consequently, duty remission as used under Section 141 of the EACCMA means, the waiver of duty or refrainment from exacting of duty in the event that the circumstances under the said Section are established. 2. The Tribunal has carefully considered the requirement under the Section 141 (c) of the EACCMA. The provision empowers the Commissioner to remit duty where goods are lost or destroyed by accident while still under Customs control and where the Commissioner is satisfied that such goods have not been and will not be consumed in a Partner State. In the present Appeal, the evidence on the record demonstrates that the goods in question were accidentally destroyed by fire while stored in the bonded warehouse and before release for home consumption. The Respondent did not dispute the occurrence of the fire, the location of the goods at the time of destruction, or the forensic findings confirming absence of foul play or negligence. 3. The Respondent relied on Section 142 of the EACCMA to argue that remission or rebate could not issue where the insurer had compensated the owner of the goods. However, the Tribunal notes that Section 142 specifically addresses rebate of duty in circumstances where imported goods are damaged before delivery out of Customs control. The provision contemplates situations where duty liability remains partially attributable to goods whose value has merely due to damage. 1. The circumstances of the present Appeal are materially different. The goods in issue were not merely damaged but were completely destroyed by accident fire while under the Customs control. Further, the Appellant had not paid duty capable of rebate or refund under Sections 142, 143, or 144 of the EACMMA. The applicable provision is therefore Section 141 (c), which specifically govern remissions of duty in cases involving destruction of goods before release into home consumption. Consequently, the limitations under Section 142 (2) regarding insurer compensation cannot be construed as extinguishing or overriding the Commissioner’s discretion under Section 141 2. in the absence of the express statutory language to that effect. 3. The Tribunal finds that the Respondent failed to properly exercise the statutory discretion conferred under Section 141 (c) of the EACCMA. The Respondent neither demonstrated that it considered the remission despite the undisputed destruction of the goods while under Customs control. In the Circumstances, the Respondent’s decision to demand duty notwithstanding the fulfilment of the conditions contemplated under Section 141 (c) was unreasonable and inconsistent with the object and purpose of the provision. 4. The Tribunal appreciates that under the customs warehousing regime, liability to customs duty ordinarily accrues upon importation of dutiable goods, though payment thereof is suspended during the period the goods remain under Customs control. However, Section 141 (c) of the EACCMA operates as a statutory mechanism through which the Commissioner may extinguish or refrain from exacting such duty where goods are accidentally destroyed before release into the home consumption. Accordingly, while contingent duty liability may have existed in relation to the imported goods, the same became subject to remission upon fulfilment of the conditions stipulated under Section 141 (c) 5. Consequently, pursuant to Section 141(c) of EACCMA, duty was not payable on goods destroyed while under custom control in a bonded warehouse. The Tribunal therefore finds that the Respondent erred in demanding taxes on destroyed goods which were not consumed in a Partner State. # Whether the Appellant was liable to pay duties by virtue of insurance compensation received 1. It is at this juncture that Tribunal addresses the issue of insurance compensation paid to the Appellant. It is not disputed that the Appellant’s insurer compensated the Appellant for the loss. What is disputed is whether the Respondent can seek taxes on the basis that the Appellant was compensated by the insurer. 1. The Tribunal notes that a contract of insurance is all about the principle of indemnity. The principle ensures that after a loss occurs, the insured is financially compensated to the same position the insured was immediately before the incident, but the insured is not permitted to make a profit from the loss. In the case of Madison Insurance Company Ltd v. Solomon Kinara t/a Kisii Physiotheraphy Clinic [2004] eKLR, the Court of Appeal observed: - “In their book “The Law of Insurance”, 2nd Edition, under the heading “The Contract of Insurance” and sub-heading “Indemnity” at page 4, Preston and Colinvaux state as follows: ‘Indemnity, it has been said, is the controlling principle in insurance law, and by reference to that principle a great many difficulties arising on insurance contracts can be settled. Except in insurance on life and against accident, the insurer contracts to indemnify the assured for what he may actually lose by the happening of the events upon which the insurer’s liability is to arise, and in no circumstances, is the assured in theory entitled to make a profit of his loss. That rule might be inferred as being the intention of the parties, having regard to the aim of a contract of insurance, but there are further powerful reasons for its application. Were it not so, the two parties to the contract would not have a common interest in the preservation of the thing insured and the contract would create a desire for the happening of the event insured against. Where in fact the assured has a prospect of profit, there and there only can arise the temptation to crime, fraud or such carelessness as may bring about the destruction of the thing insured’. That is very powerful language, but the passage nevertheless brings out the basic concept underlying the contract of insurance, namely that the party whose property is being insured pays premium not with the intention of making any profit out of the transaction, but rather with the intention that were the items assured to be destroyed, stolen or damaged, the other party offering the policy would replace the stolen or destroyed item or pay the reasonable charges for its repair”. 1. Further, in the case of **Crisp v Security Nat’l Ins. Co, 369 S.W. 2d 326 (1963),** the court stated that; *‘‘Indemnity is the basis and foundation of insurance coverage not to exceed the amount of the policy, the objective being that the insured should neither reap economic gain or incur a loss if adequately insured.’’* 1. The Tribunal is persuaded that the insurance compensation received by the Appellant did not constitute release of the goods into the home consumption nor did it create a new taxable event under the EACCMA. Customs duty is chargeable upon goods imported for home use or otherwise consumed with the customs territory. In the present Appeal, the physical goods forming the subject of taxation had ceased to exist as a result of the accidental fire. The insurance proceeds merely indemnified the Appellant for the commercial loss suffered and did not substitute, recreate, or reintroduce the destroyed goods into the customs territory for purposes of customs consumption. 2. The Respondent did not demonstrate any legal basis under the EACCMA upon which insurance compensation maybe be treated as imported goods liable to the customs duty. Further, there was no evidence before the Tribunal that the insurance compensation included customs duty payable to the Respondent or that the Appellant derived any unjust enrichment contrary to the principle of indemnity. 3. In the circumstances, the Tribunal finds that the Respondent erred in seeking to impose customs duty solely on account of compensation paid by the insurer. # Whether the Respondent erred in seeking to enforce the customs bond 1. Section 107 (3) of the EACCMA provides that a bond issued under the Act may, unless sooner discharged by due performance of its conditions, be discharged by the Commissioner upon expiration of the three years from the dates thereof. The provisions therefore contemplates that bonds are not intended to subsist indefinitely and that the Commissioner retains discretion either to discharge the bond or to require fresh security where circumstances justify continues exposure. 2. The Tribunal has examined the bond produced before it and notes that the same was executed on the 25th August 2020 for a period of three years. The Respondent did not place before the Tribunal any evidence demonstrating renewal, extension, replacement, or continuation of the bond beyond the stated period. Neither did the Respondent demonstrate that fresh security was demanded pursuant to Section 107 (3) of the EACCMA. 1. The Tribunal further notes that although the fire incident occurred during the subsistence of the bond, the Respondent only commenced enforcement proceedings against the Appellant and the guarantor in the year 2024, after the expiry of the bond period. In the absence of the evidence showing renewal or preservation of the bond obligation beyond the stated duration, the Tribunal is unable to find that the Respondent lawfully invoked the bond in 2024.s 2. While Section 109 of the EACCMA empowers the Commissioner to enforce a bond where its conditions have not been complied with, such enforcement must nevertheless occur within the legal framework governing the existence and validity of the bond itself. Enforcement powers under Section 109 cannot operate independently of Section 107 (3), which regulates the lifespan and discharge of the customs bonds. 3. In the circumstances of this Appeal, and the absent evidence of the renewal, extension, or continuing security obligations, the Tribunal finds that the Respondent failed to establish a lawful basis for enforcement of the bond in the year 2024. 4. Whereas the Section 109 of the EACCMA grants the Respondent powers to enforce the bond, the enforcement ought to have been done within three years as provided under Section 107(3) of EACCMA. Suffice to note that the Respondent did not demonstrate that the bond was renewed. 5. The Tribunal in the case of **Apa Insurance Limited v Commissioner of Customs and Border Control (Tax Appeal 1353 of 2022) [2023] KETAT 574 (KLR)** emphasised that the Responded can only enforce provisions of a bond within the required times. 1. It is the Tribunal’s considered view that even if the bond in issue was still valid which the Tribunal has found to be the contrary, considering the prevailing circumstance of the case, the Respondent would still be forced to discharge the bond under Section 141(c) of the EACCMA. 2. Consequently, the Tribunal finds that the Respondent erred in threatening to enforce the provisions of the bond in the year 2024 yet the bond was issued in the year 2020. 3. Accordingly, having carefully considered the pleadings, evidence, statutory provisions, and submissions by the parties, the Tribunal finds that the Respondent failed to properly exercise the discretion conferred under Section 141 (c) of the EACCMA and erred in demanding customs duty on goods that were accidentally destroyed while still under Customs control. 4. The Tribunal further finds that the insurance compensation received by the Appellant did not constitute a taxable event capable of attracting customs duty and that the Respondent failed to establish a lawful basis for the enforcement of the customs bond in the circumstances of this Appeal. 5. Based in the foregoing the Tribunal finds and holds that Respondent erred in seeking to enforce the customs bond. # FINAL DECISION 1. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is meritorious and proceeds to makes the following orders: - 2. The Appeal be and is hereby allowed; 3. The Review Decision dated 9th June 2025 be and is hereby set aside; and 4. Each party to bear its own cost. 5. It is so ordered. # DATED AND DELIVERED AT NAIROBI THIS 29TH DAY OF MAY 2026 SIGNED BY/FOR: **★ TH E JUDICIAR Y O F KENY A ★** **HON. ROBERT MUGAMBI MUTUMA (CHAIRPERSON) HON. EUNICE NJERI NGANGA HON. BONIFACE KIBIY TERER DOMINIC KIPKEMOI RONO HON. BILLY GRAHAM OKUMU MIJUNGU** Tax Appeals Tribunal Tribunal Date: 2026-05-29 14:56:41