[2024] KETAT 1589 (KLR)

Urhome International Kenya Limited v Commissioner of Customs & Border Control (Tax Appeal E519 of 2023) [2024] KETAT 1589 (KLR) (11 October 2024) (Judgment)

Neutral citation: [2024] KETAT 1589 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E519 of 2023

E.N Wafula, Chair, E Ng'ang'a, Jephthah Njagi & G Ogaga, Members

October 11, 2024

Between

Urhome International Kenya Limited

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya whose business activity is manufacturing ceramic building materials among other activities.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, the Authority 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. The Appellant made entry number 23MBAIM404058194 which was subjected to a customs duty uplift by the Respondent.

4. The Appellant, through the letter dated 27th July 2023, appealed to the Respondent against the decision to uplift duty on its goods and opted to have the goods released under surety and/or guarantee.

5. The Respondent in a letter dated 4th August 2023 dismissed the Appellant’s appeal.

6. The Appellant being dissatisfied with the review decision filed its Notice of Appeal dated 25th August 2023.

The Appeal 7. The Appellant filed its Memorandum of Appeal on 28th August 2023 raising the following grounds:a.That the Respondent erred in law and fact by uplifting the customs value of the various consignments.b.That the Respondent erred in law and fact in disregarding all the documentation provided by the Appellant in coming up with the customs value of its consignment.c.That the Respondent erred in law and fact by not using the transaction value in determining the customs value of the consignments made by the Appellant.d.That the Respondent erred in law and fact in failing to disclose the basis of the finding that the consignments were allegedly mis-declared.

Appellant’s Case 8. The Appellant’s case is premised on its Statement of Facts filed on 28th August 2023, and the documents attached thereto.

9. The Appellant stated that it imported various raw materials under customs entry number 23MBAIM402652722 which was subjected to a customs duty uplift by the Respondent.

10. The Appellant protested against the customs duty uplift through a letter dated 2nd June 2023 in which it opted to have its goods released under surety/guarantee as provided for under Section 122(3) of the East African Community Customs Management Act (EACCMA) as, according to the Appellant, the operations in its factory had ground to a halt.

11. The Respondent in a letter dated 17th July 2023 maintained its decision and dismissed the Appellant’s appeal and protest.

12. According to the Appellant, it also imported various raw materials under customs entry number 23MBAIM404058194 which were subjected to a customs uplift by the Respondent. The Appellant objected to the Respondent’s action through the letter dated 27th July 2023. It was the Appellant’s case that the Respondent, in a letter dated 4th August 2023, maintained its decision and disregarded the Appellant’s appeal and protest.

13. Apart from the above entries, the Appellant further stated that it imported various raw materials under customs entry number 23MBAIM403687223 which was subjected to a customs uplift by the Respondent. The Appellant being aggrieved protested against the decision to uplift its goods and opted to have its goods released under surety/guarantee as provided for under Section 122(3) of EACCMA in a letter dated 30th August 2023.

14. The Appellant asserted that the decision of the Respondent to uplift the values of the various imports has no basis whatsoever in law and in fact. It maintained that its imports adhered to Section 122(1) of EACCMA and provisions of Paragraph 2 of the 4th Schedule that allow for the calculation of duty payable.

15. Contrary to the Respondent’s assertions that the Appellant did not provide documentary evidence, the Appellant averred that it provided all relevant documentary evidence as used in determining the import duty payable. The documents included the commercial invoice from its supplier Houselife Building Limited, which outlined the cost and quantities of the imported goods under invoice number UR230007B, the sales contract for the consignment and the payment transaction from Standard Chartered showing payment to the supplier.

16. For entry number 23MBAIM404058194, the Appellant stated that there is no proof of payment to the supplier simply because the goods were bought on credit and are to be paid as per the agreement between the Appellant and its supplier. The Appellant stated that the Respondent’s argument that proof of payment was not provided does not hold water because the Appellant and its supplier have an agreement to pay on credit. It maintained that this is an internal business decision that is meant to prevent any cash flow disturbances that might occur.

17. The Appellant averred that it was right in using the transactional value as specified in the Fourth Schedule Paragraph 2(1) of EACCMA, 2004 as the general law of customs when dealing with imports is to use the transactional value to calculate duty and if not applicable move to the other methods of calculating duty.

18. According to the Appellant, the goods had a determinable value as clearly illustrated on the invoices and that the use of the goods by the Appellant did not result in the Seller (supplier) accruing any proceeds. The Appellant further stated that it was not related to the supplier directly or indirectly. Therefore, the Appellant stated that the subsequent value uplift and use of the wrong method of custom value determination by the Respondent is not only highly prejudicial against the Appellant but is also an act of bad faith on its part and prejudicial to the legitimate commercial interest of the Appellant.

19. The Appellant submitted that it provided all the necessary documentation to the Respondent for purposes of ascertaining the custom value of the consignments hence there was no reason whatsoever for the Respondent to ignore those documentations to use an alternative method of valuation.

20. Apart from the foregoing, the Appellant averred that the primary method of customs valuation is the Transaction Value Method (TVM) and that alternative methods are to be applied upon failure of the TVM and that the alternative methods should be applied sequentially. It maintained that since the primary method of custom valuation had not failed, there was no reason whatsoever for the Respondent to resort to uplifting the customs values of the consignments.

21. The Appellant further averred that it is not related to its supplier, hence the Respondent did not have to determine the custom duty payable by applying test values considering the relationship between the importer and exporter. Therefore, the Appellant argued that the subsequent action of the Respondent resorting to applying the transactional value of similar goods method in determining the transaction value of the product is unfair, unjust and manifestly not within the ambit of the law.

22. It is the Appellant’s case that the Respondent’s decision to sustain the uplift tax rate despite the protest letters issued by the Appellant and all necessary documentation provided, was contrary to the due process and consequently contravenes the provisions of the PCA Manual and East African Community Customs Management Act (EACCMA), 2004 and, violated Article 47 of the Constitution of Kenya 2010. It also argued that the Respondent’s decision to ignore all the necessary documentation that the Appellant provided was in contravention of Section 122 Paragraph 1 of the EACCMA 2004.

23. The Appellant asserted that the imposition of the lifted tax value rate by the Respondent is arbitrary and highly prejudicial and that the Appellant shall suffer irreparable economic loss unless the Tribunal intervenes.

Appellant’s Prayers 24. The Appellant prayed for orders that:-a.The decision of the Respondent contained in the letter dated 4th August 2023 be set aside;b.The uplift on consignments imposed on the Appellant be set aside;c.The Appeal be allowed with costs to the Appellant; andd.Any other orders that the Honourable Tribunal may deem it.

Respondent’s Case 25. The Respondent’s case is premised on:a.Statement of Facts dated and filed on 22nd December 2023; andb.Written submissions dated 30th May 2024.

26. The Respondent stated that the Appellant through its clearing agent Elavon Agencies Limited lodged two entries under numbers 23MBAIM402652722 and 23MBAIM404058194 on 25th May 2023 and 21st July 2023 for the importation of raw materials and paid a total tax of Ksh.3,227,025. 00 and Kshs 1,561,405. 00 respectively.

27. That the declared unit value under entry number 23MBAIM402652722 were as followsa)Adhesive USD 0. 72/kgb)PE Film USD 2. 1/kgc)Self-adhesive tape USD 0. 87/kgd)Non-woven USD 1. 6/kge)Spandex USD 0. 3125/kg

28. That the Respondent physically verified the imports and the findings were that the values of some specific imports for the declared units were low and the recommended applicable FOB was as follows-a)Adhesive USD 2. 34/kgb)PE Film USD 2. 1/kgc)Self -adhesive tape USD 0. 87/kgd)Non-woven USD 1. 6/kge)Spandex USD 1. 9/kg

29. The Respondent averred that it decided against applying the transactional value method on the Appellant’s imports as result of discrepancies under the import declaration forms and the Appellant’s documents presented.

30. With regards to entry number 23MBAIM404058194, the Respondent asserted that the declared unit value for Super Absorbent Resin FOB was USD 323. 80 and again after physical verification it was found by the Respondent to be low and the recommended applicable FOB after the uplift was USD 1940 per metric tonne.

31. It also stated that entry number 23MBAIM404058194 was reviewed as a result of the Appellant’s invoices lacking signatures from parties to the contract. The Appellant protested the said value guidance and the same was referred to the Respondent’s valuation and tariff analysis form the Southern region for determination of the applicable values and taxes payable.

32. According to the Respondent, the Appellant through its clearing agent with regards to entry number 23MBAIM402652722 requested to put up a bank guarantee in a letter dated 2nd June 2023 awaiting the determination of their case. The Respondent granted the Appellant’s request. The bank guarantee was done by 1&M bank under payment guarantee No/003/CB/LG/1043/2023 amounting to Kshs 2,010,713. 00.

33. The Respondent analysed and reviewed the documents presented before it and came to the following findings particulars of findings for entry 23MBAIM402652722:a.The imports had failed to provide additional information to support the declared valuesb.The declared transaction value was found to be low compared to prevailing FOB values from similar importations from the same Country of origin.

34. The Respondent in view of the findings declined the transaction value and sustained the values as recommended by the valuation verification team through the letter dated 17th July 2023.

35. That the Respondent with regards to entry number 23MBAIM404058194 did also request a bank guarantee and the same was secured by I&M Bank vide a bank guarantee number TS/CB/LG/0215/2023.

36. That the Respondent analysed and reviewed the documents provided by the Appellant including the invoice, proforma invoice and packing list and found that the commercial invoice No. UR23-00100 dated the 9th June 2023 did not bear terms of payments and no evidence of payment was provided.

37. The Respondent in view of the findings that the supporting documents were insufficient in demonstration of the declaration and in consideration of accepted transaction values of similar importations upheld the application of FOB USD 1,940 per metric tonne of super absorbent resin as recommended by the Southern region through the letter dated 4th August 2023. The Appellant aggrieved by the said decisions appealed against the decision dated 4th August 2023 be also set aside.

38. In response to ground 1 of the Memorandum of Appeal and further averments in the Statement of Facts that the uplifts by the Respondent had no basis in law, the Respondent submitted that it acted within the law and that under Section 236 of the EACCMA 2004 the Respondent is clothed with the requisite powers as regards to inspection and audit of imports and as such the uplifts were proper in law.

39. The Respondent further averred that the deviation from the transactional value was as a result of discrepancies in the import declaration form and the invoices used by the Appellant in the said transaction. The Respondent noted that with reference to import 23MBAIM402652722 the import total amount invoiced on the Import Declaration Form was USD 116,333. 49. However, the amounts on the invoice presented to the Respondent was valued at USD 96,241 and USD 177,111. It is on this discrepancy that the Respondent deviated from the transactional value.

40. In response to ground 2 of the Memorandum of Appeal and subsequent averments in the Statement of Facts that the Respondent disregarded all documentation provided by the Appellant in coming up with the customs value of the consignments, the Respondent averred that the documents presented by the Appellant were considered and reviewed. In conclusion, the same were found to be insufficient as supporting the transaction value as the same were found to contain discrepancies with regards to amounts invoiced and quantities imported by the Respondent.

41. In response to ground 3 of the Memorandum of Appeal and further averments in the Statement of Facts by the Appellant that the Respondent erred in law by not using transaction value in determining customs value of the imports, the Respondent stated that even though the transaction value is the primary valuation method, the Respondent is empowered under Section 122 and the Fourth Schedule to the EACCMA 2004 to apply any one of the other six valuation methods.

42. In response to ground 4 of the Memorandum of Appeal and subsequent averments by the Appellant that the Respondent failed to disclose the basis of the findings that the consignments were mis-declared, the Respondent averred that at all times the Appellant was informed of the basis for why the transactional value could not be applied through the letters dated 17th July 2023 and 4th August 2023 as such this ground of appeal is misconceived and far from the truth.

43. The Respondent averred that in the execution of its mandate under EACCMA it is bound by law to investigate any reasonable suspicion of misdirection of description, quantities and value of goods.

44. The Respondent cited the provisions of the EACCMA under Section 236(a) which provides that, ‘‘The Commissioner shall have the powers toa.Verify the accuracy of the entry of goods or documents through examination of books, records, computer stored information, business system and all relevant customs documents, commercial documents and other data related to the goods.’’

45. The Respondent relied on Section 122(4) of the EACCMA which provides that:“Nothing in the Fourth Schedule shall be construed as restricting or calling into question the rights of the proper officer to satisfy himself or herself as to the truth or accuracy of any statement, document or declaration presented for customs valuation purposes.”

46. The Respondent averred that it is under this dictate of Section 122(4) of the EACCMA that the Respondent possesses the primary role to verify values declared by importers and ensure that the methods are correctly applied. According to the Respondent, the purpose of verification of customs valuation is to ensure, inter alia, that the declared value is realistic considering commercial practices of the industry of identical or similar goods.

47. The Respondent asserted that with regards to 23MBAIM402652722 the Appellant provided proof of payments but failed to offer satisfactory explanation to support its declared values and the same was also found to be low compared to prevailing FOB values from similar importations from the same country of origin.

48. With regards to 23MBAIM404058194 the Respondent argued that the Appellant failed to offer satisfactory explanation to support that indeed the agreement between the suppliers was on credit.

49. The Respondent relied on the WTO Custom Valuation Agreement decision regarding cases where the customs administration have reasons to doubt the truth or accuracy of the declared value (also known as the decision on shifting the burden of proof) which decision states partly as follows;“Taking into account Article 17 of the Agreement, paragraph 6 of Annex III to the Agreement, and the relevant decisions of the Technical Committee on Customs Valuation; Decides as follows:-“When a declaration has been presented and where the customs administration has reason to doubt the truth or accuracy of the particulars or of documents produced in support of this declaration, the customs administration may ask the importer to provide further explanation, including documents or other evidence, that the declared value represents the total amount actually paid or payable for the imported goods, adjusted in accordance with the provisions of Article 8. If, after receiving further information, or in the absence of a response, the customs administration still has reasonable doubts about the truth or accuracy of the declared value, it may, bearing in mind the provisions of Article 11, be deemed that the customs value of the imported goods cannot be determined under the provisions of Article 1. Before taking a final decision, the customs administration shall communicate to the importer, in writing if requested, its grounds for doubting the truth or accuracy of the particulars or documents produced and the importer shall be given a reasonable opportunity to respond. When a final decision is made, the customs administration shall communicate to the importer in writing its decision and the grounds therefor.”

50. The Respondent averred that all necessary procedures were followed in informing the Appellant of the low values from its declarations and the Appellant information provided was not satisfactory to explain why the Respondent should not have applied the other methods of valuation. It is therefore, the Respondent’s contention that the said import uplifts on the Appellant were done in strict conformity with the customs laws applicable as a result of the various discrepancies.

51. In further support of its case, the Respondent identified two issues for determination. First, whether the Respondent applied the correct valuation method in respect of the goods imported; and second, whether the taxes are due and payable.

i.Whether the Respondent applied the correct valuation method in respect of the goods imported. 52. The Respondent submitted that it was properly guided by Section 122 of EACCMA which provides for the guidelines on valuation. It further submitted that it was properly guided by Section 102 of EACCMA when it issued its decision on the uplifts. The Respondent further submitted that it relied on Section 236(2) of EACCMA which allows it to verify accuracy of the entry of goods or documents through examination of records.

53. The Respondent submitted that the inaccuracy of the Appellant’s entries meant that the Respondent could not rely on transactional value method. Pursuant to Section 122(4) of the EACCMA, the Respondent submitted that it was within its authority to satisfy itself as to the truth or accuracy of any statement, document or declaration presented for customs valuation purposes.

54. The Respondent relied on WTO Custom Valuation agreement decision regarding cases where custom administration have reason to doubt the truth or accuracy of the declared value (also known as decision on shifting the burden of proof) which decision states in part as follows:‘Taking into account Article 17 of the Agreement, paragraph 6 of Annex III to the Agreement, and the relevant decisions of the Technical Committee on Customs Valuation; Decides as follows:‘‘When a declaration has been presented and where the customs administration has a reason to doubt the truth or accuracy of the particulars of documents produced in support of this declaration, the customs administration may ask the importer to provide further explanation including documents or other evidence that the declared values represent the total amount actually paid or payable for the imported goods, adjusted in accordance with the provisions of Article 8. If, after receiving further information or in the absence of a response; the customs administration still has reasonable doubt about the truth or accuracy of the declared value, it may, bearing in mind the provisions of Article 11, be deemed that the customs value of the imported goods cannot be determined under the provisions of article 1. Before taking a final decision, custom administration shall communicate to the importer, in writing if’ requested its grounds for doubting the truth or accuracy of the particulars or documents produced and the importer shall be given a reasonable opportunity to respond. When a final decision is made, the customs administration shall communicate to the importer in writing its decision and the grounds therefor.’’

55. The Respondent submitted that the Appellant ought to have produced evidence to demonstrate the transactional value of the goods. The Respondent cited the case of National Security Fund Board of Trustees v Commissioner of Domestic Taxes, Kenya Revenue Authority (2016) eKLR to support the preposition that a party needs to provide evidence to support its assertions. The Respondent also submitted that it was upon the Appellant to produce evidence to support the purchase value of the goods to satisfy the requirement of Section 122(4) of EACCMA.

56. The Respondent relied on the case of Gira Enterprises—Vs-Commissioner of Customs on 23 August, 2005 (Customs, Excise and Gold Tribunal — Mumbai) where the India court held that when the declared value is ridiculously low compared to the ordinary competitive price of comparable goods contemporaneously imported, such declared values cannot be adopted as customs value.

57. The Respondent submitted that the Fourth Schedule provides for the following methods to be applied by the Respondent which are sequentially applied in determining the transaction value they include;a.Transactional value method;b.Transactional value method of identical goods;c.Transaction value method of similar goods;d.Deductive value method;e.Computed value method; andf.Fall back value method.

58. The Respondent submitted that considering that the Appellant’s transaction value method could not be substantively proved, pursuant to the Fourth Schedule the Respondent was to apply the next valuation method.

59. According to the Respondent, the next valuation method was the transactional value of identical goods but since the imports by the Appellant’s were not identical as to other imports, the Respondent applied the next valuation method which was the transactional value method of similar goods coming from the same country of origin.

60. The Respondent submitted that based on the definitions of ‘identical goods’ and ‘similar goods’ under 4th Schedule of EACCMA, the Respondents submitted that the applicable transactional value should be the similar goods.

61. The Respondent in applying the transactional value method for similar goods relied on the case of Gira Enterprises-Vs-Commissioner of Customs on 23 August, 2005 (Customs, Excise And Gold Tribunal —Mumbai) supra held that:20. It is not necessary that in every case of import the importer declares the price actually paid by him or payable by him. Therefore, if in a given case the Revenue notices identical goods have been imported by other importers in comparable transactions at a different rate (normally higher rate) then Revenue is enabled by Rules 5 to reject the valuation made by the importer and determine the price actually paid or payable by the importer.21. In the case at hand, no doubt the revenue claims to have some information based on certain alleged imports made at the Bombay port at the relevant point of time that the import in question took place. According to the revenue, those imports at Bombay were declared and valued at a much higher rate than the value declared by the appellants herein. Therefore, the valuation of the goods imported by the appellant was found unacceptable. Hence, the procedure under Rule was resorted to.”

62. The Respondent submitted that the transaction value as declared by the Appellant was questionable. It further submitted that whereas the transactional value method is the first in the hierarchy of valuation methodologies, this does not prevent the Respondent from departing. The Respondent was given a reason that there were no additional information to support the transactional value method and there being no identical goods the Respondent applied the similar goods method.

ii. Whether the taxes are due and payable. 63. On this issues, the Respondent submitted that the Appellant had already paid for the amounts using the transactional value method pending the Respondent’s review which is itself were short levied as the proper valuation method ought to have been the transactional value for similar goods as earlier advised by the Southern Region Valuation and Tariff team. Therefore, the Respondent maintained that the taxes are due and payable.

64. The Respondent relied on Section 135 of the EACCMA which provides as follows:-135. (1)where 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 may be recovered as if it were duty to which the goods in relation to which the amount was short levied or erroneously refunded, as the case may be, were liable.”

65. The Respondent therefore, submitted that the short levied amounts on the Appellant’s imports are due and payable pursuant to Section 135 of the EACCMA and the same meets all the required requirements and as such the same are due and payable and the Respondent should reassess the Appellant for the payment of the same.

66. Finally, the Respondent relied on the case of Republic v Kenya Revenue Authority Exparte Bata Shoe Company (Kenya) limited [2014] eKLR where the Court held that:-“Payment of tax is an obligation imposed by the law. It is not a voluntary activity. That being the case, a taxpayer is not obliged to pay a single coin more than is due to the taxman. The taxman on the other hand is entitled to collect up to the last coin that is due from a taxpayer.”

Respondent’s prayers 67. The Respondent prayed that this Honourable Tribunal be pleased to dismiss the Appellant’s Appeal and upholds the Respondent’s review decisions issued on the 17th July 2023 and 4th August 2023.

Issue for Determination 68. The Tribunal having considered the Memorandum of Appeal, the parties’ Statements of Facts and submissions, puts forth the following issue for determination:Whether the Respondent was justified in relying on Transaction value method of similar goods instead of Transactional value method;

ANALYSIS AND FINDINGS 69. The Tribunal having determined the issue falling for its determination proceeds to analyse the same as hereunder.

70. Whereas the Appellant appealed against the Respondent’s decision dated 4th August 2024 for entry number 23MBAIM404058194, the Appellant pleaded its case against the Respondent’s decisions on entry numbers 23MBAIM402652722 and 23MBAIM403687223.

71. The Tribunal has abstained from examining the Respondent’s decisions on entry numbers 23MBAIM402652722 and 23MBAIM403687223. on grounds that the Appellant failed to file a Notice of Appeal signaling appealing against the Respondent’s decisions in relation to these entries.

72. The Tribunal examined the Respondent’s review decision dated 4th August 2023 regarding entry number 23MBAIM404058194.

73. In support of this entry, the Appellant provided Single Administrative Document (SAD) dated 21st July 2023; commercial invoice number UR23-0010 dated 9th June 2023, sales contract dated 10th May 2023 and KRA payment slip dated 21st July 2023.

74. Pursuant to Respondent’s decision dated 4th August 2023, the Respondent rejected the transactional value method concerning entry number 23MBAIM404058194 on grounds that invoice number UR23-0010 dated 9th June 2023 bears no terms of payment and that no evidence of payment was provided. The Appellant in response, admitted that there is no proof of payment to the supplier because the goods were bought on credit and are to be paid as per the agreement between the Appellant and its supplier. The Appellant maintained that this is an internal business decision that is meant to prevent any cash flow disturbances that might occur.

75. The Tribunal has examined the sales contract dated 10th May 2023, which bears transaction amount of USD 45,600; invoice number UR23-0010 dated 9th June 2023 bearing transaction amount of USD 45,600. The Tribunal also examined the SAD dated 21st July 2024 and notes that it bears transaction amount of Kshs USD 45,600. The Tribunal notes that the said contract was valid until 6th December 2023. Clause 2 of the contract indicates that payment for the goods was to be done 90 days after arrival. The payment was to be by bank FOB.

76. On strength of the SAD dated 21st July 2024 and bearing in mind that clause 2 of the contract indicates that payment for the goods was to be done 90 days after arrival, and considering that the Respondent issued its decision vide a letter dated 4th August 2024 before the lapse of the 90 days under the said contract, it is plausible that the Appellant may have obtained the goods on credit as the Appellant claimed.

77. Section 122(1) of the East African Community Customs Management 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.’’

78. On the other hand, Paragraph 2 (1) of the Fourth Schedule to the EACCMA 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…”

79. From the foregoing provisions of the Fourth Schedule to EACCMA, custom value can either be the amount actually paid, or amount to be paid in future. This means that a taxpayer is able to acquire goods on debt and when that happens, tax ought to be based on the value of the credit. This is true bearing in mind that Note to Paragraph 2 of PART II of the fourth schedule defines ‘Price Actually Paid or Payable in the following terms:1. The price actually paid or payable is the total payment made or to be made by the buyer to or for the benefit of the seller for the imported goods. The payment need not necessarily take the form of a transfer of money. Payment may be made by way of letters of credit or negotiable instruments. Payment may be made directly or indirectly. An example of an indirect payment would be the settlement by the buyer, whether in whole or in part, of a debt owed by the seller.” (Emphasis added)

80. Pursuant to the foregoing, the law allows a taxpayer to import goods on a debt. The duty is then assessed on the debt (payable amount). What the Respondent needed to do is satisfy itself that a taxpayer actually obtained the goods on credit and assess the duty accordingly. The issue then is whether the Respondent discharged this mandate while assessing the Appellant’s taxes in relation to assessment number in this case, 23MBAIM404058194.

81. The Tribunal has established that vide an agreement dated 10th May 2023 the Appellant acquired goods worth USD 45,600. The seller then issued an invoiced number UR23-0010 dated 9th June 2023 bearing transaction amount of USD 45,600. The Appellant then imported the goods and declared the same vide SAD dated 21st July 2024 wherein the transaction value was USD 45,600. The said agreement was valid until 6th December 2023. Clause 2 of the agreement indicated that payment for the goods was to be done 90 days after arrival and the payment was to be by bank FOB. Based on these facts, the Respondent ought to have assessed the payable duty based on USD 45,600 as the Appellant declared.

82. Since the Respondent did not question the validity of the sales contract dated 10th May 2023, the Tribunal agrees with the Appellant that the goods in relation to entry number 23MBAIM404058194 were bought on credit as evidenced in the sales contract.

83. The Respondent did not provide cogent reason to deviate from using USD 45,600 as the transaction value. That the Appellant did not provide evidence of payment at the time of making the import declaration or at the time of filing this Appeal is neither here nor there because, whereas the law allows the Appellant to import goods on credit, the law does not stop the Respondent from assessing duty on goods imported on credit.

84. The above citation from the contract addresses the Respondent’s concern raised in the decision dated 4th August 2023 that the commercial invoice No. UR23-0010 dated 9th June 2023 bears no terms of payments.

85. Further, the Tribunal is of the considered view that the documentation provided by the Appellant in relation to 23MBAIM404058194 was consistent and sufficient and the Respondent ought not to have disregarded the documentation provided by the Appellant in coming up with the customs value of its consignment.

86. Subject to the foregoing, the Tribunal agrees with the Appellant that the primary method of customs valuation is the Transaction Value Method (TVM) and that alternative methods are to be applied upon failure of the TVM and alternative methods should be applied sequentially. The Tribunal notes that since the primary method of custom valuation had not failed in relation to entry number 23MBAIM404058194, and there were no allegations of fraud from the Respondent, there was no reason for the Respondent to resort to uplifting the customs values of the consignments.

87. The Tribunal reiterates its finding in the case of Shreeji Chemicals Limited vs. Commissioner of Investigation and Enforcement TAT Appeal No. 339 of 2018, where it held as thus:-“it is settled law that fraudulent conduct must be distinctly alleged and distinctly proved and it is not allowable to leave fraud to be inferred from facts.”

88. The Tribunal therefore finds that that the Respondent erred in relying on the transaction value method of similar goods instead of transactional value method in respect of Entry Number 23MBAIM404058194.

Final Decision 89. The upshot to the foregoing analysis is that the Tribunal finds the Appeal is meritorious and consequently makes the following Orders:-a.The Appeal in relation to Entry Number 23MBAIM404058194 be and is hereby allowed;b.Each party to bear its own costs.

90. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 11THDAY OF OCTOBER, 2024ERIC NYONGESA WAFULACHAIRMANEUNICE N. NGA’NG’A JEPHTHAH NJAGIMEMBERGLORIA A. OGAGAMEMBER