[2023] UGTAT 59

## THE REPUBLIC OF UGANDA IN THE TAX APPEALS TRIBUNAL OF UGANDA AT KAMPALA **APPLICATION NO. 20 0F 2021**

## RWENZORI BOTTLING COMPANY LIMITED.................................... **VERSUS**

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UGANDA REVENUE AUTHORITY....................................

## BEFORE DR. ASA MUGENYI, DR. STEPHEN AKABWAY, MS. CHRISTINE KATWE.

## **RULING**

This application is in respect of an assessment of Shs. 732,372,537 arising from the respondent disputing the valuation method used by the applicant.

The applicant is a taxpayer, its principal business being the manufacture and sale of bottled water under the "Rwenzori" brand. Following a customs post clearance audit for the period January 2016 to June 2018, the respondent demanded additional customs taxes of Shs. 732,372,537 from the applicant on the basis that the latter had under declared its values for importation of wines and spirits. The objection was disallowed.

Issues

- 1. Whether the application is time barred? - 2. Whether the applicant is liable to pay the additional taxes assessed? - 3. Whether the applicant is properly before the tribunal? - 4. What remedy is available?

The applicant was represented by Mr. Ronald Kalema and Ms. Vanessa Irene Mbekeka while the respondent by Mr. Alex Ssali Alideeki and Mr. Sam Kwerit

The applicant's first witness, Mr. John Mukiibi, its accountant, testified that he applicant's core business is the production and sale of bottled water. It is the official distributor of

Distell limited which deals in alcoholic beverages. Distell limited offered preferential prices to the applicant because it had a potential big market for its products. In October 2018, the respondent conducted a post clearance audit on the applicant for the period 2016 to June 2018 which indicated that an additional tax of Shs. 1,333,136,302 was payable. The applicant disputed the audit findings. The applicant applied the transaction value method based on sales invoices. The respondent contended that the prices for the wines and the spirits were undervalued as other importers specifically Uganda Duty Free Shop limited declared higher prices for the same goods from Distell limited. The respondent therefore uplifted the applicant's prices.

The applicant's second witness, Mr. Petrus Richter, its Regional Business Manager, Central and West Africa, testified that Distell limited is a company resident in South Africa whose business is the manufacture and distribution of alcoholic beverages. He stated that the applicant is not related to Distell limited. They do not share common ownership, directorship, or management. Distell sought to improve its business in East Africa. In 2017, the applicant and Distell formed a commercial arrangement that would enable the former to distribute and sell the latter's ciders, wines, and spirits. The applicant became one of Distell's distributors in 2017. He testified that the applicant was the official distributor of Distell Limited which influenced the prices given to the former. He admitted that it was not its sole distributor. It purchased alcoholic products from Distell at prenegotiated prices. Distell did not charge all the customers the same prices during the period in question. The applicant was given products at a low price because it already had a wide business which would enable Distell to get a significant market share in Uganda. Mr. Petrus Richter stated that the prices on the invoices are the actual prices charged for the products sold. Distell invoiced the applicant US\$ 138,209.48 which the latter paid. Distel sold to Uganda Duty Free Shop at a higher price.

The respondent's witness, Mr. Enock Kiyemba, a tax auditor in its customs audit unit testified that the tax assessment of Shs. 732,372,537 resulted from under valuation of wines and spirits. He stated that the applicants declared lower values for wines and spirits than that of identical goods of sold by the same supplier to another importer in the same

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period. The applicant stated that because it did not avail the distribution agreement to the respondent, the latter applied the transactional value of identical goods.

The applicant submitted that the respondent made an objection decision which it communicated on 3^rd February 2021. The respondent amended its statement of reasons to contend that its objection decision was issued on 6^th March 2020 to defeat the applicant's application on the ground that it is time barred. It submitted that the respondent received additional information and there were various correspondences and meetings. The applicant cited Crown Beverages Limited v Uganda Revenue Authority Application 16 of 2020 where the Tribunal noted that.

"It is not clear how the respondent decided to treat the letter of 29^{th A}ugust 2018 as an objection decision when there were many other communications. It only communicates the outcome of the post customs clearance audit to the applicant. It is difficult for the Tribunal to state that the letter of 29th August 2018 was an objection decision in the absence of an objection by the applicant. It was also difficult for the Tribunal to say it was a final taxation decision when it had issues such as unaccounted for receipts for sugar still pending.

The applicant submitted that the demand of taxes was made in October 2020.

The applicant submitted that S. 229 of the East African Community and Customs Management Act (EACCMA) states that.

"A person affected by the decision or omission of the Commissioner or any other officer on matters relating to customs shall within thirty days of the date of the decision or omission lodge on application for review of that decision or omission".

It further submitted that S. 2 of the Tax Procedure Code Act defines a "tax decision" to mean-

(a) a tax assessment: or

(b) a decision on any matter left to the discretion, judgment, direction. opinion, approval,

satisfaction, or determination of the Commissioner"

The applicant contended it could only object where a final decision had been made. It submitted that a demand was made after the closure of a post customs clearance audit on 22^nd October 2020.

The applicant contended that due process was not followed under the Post Customs Clearance Audit (PCA). It cited Export Trading Company v Kenya Revenue Authority [2018] E KLR where the High Court stated that.

"This court notes that the importance of taxation and the collection of taxes for any government cannot be gainsaid. It must however be noted that the process and procedures leading to the collection of taxes must meet the relevant legal and constitutional thresholds in order to ensure the citizen's rights have not been violated and or threatened with violation".

The applicant submitted that a review of the correspondences between the parties and the PCA Manual depict that the audit was closed at the time when an attempt of recovery was made by the respondent.

The applicant submitted that an objection decision was issued on 3^rd February 2021 after meeting with the respondent. It submitted that letter of 6^th March 2020 cannot be the objection decision under S. 229(4) of the EACCMA. It submitted further that the application was filed without inordinate delay. It cited Uganda Revenue Authority v Consolidated Properties Limited, Civil Appeal 31 of 2000; where it was stated that "timelines set by statutes are matters of substantive law and not mere technicalities and must be strictly complied with". The applicant also cited Farid Meghani V Uganda Revenue Authority Civil Suit 6 of 2021 where it was stated that.

".... when a period of limitation is stated in days or a unit of time, the day of the event that triggers the period is excluded. Every day thereafter is counted, including intermediate Saturdays, Sundays, and legal holidays, the last day of the period. But if the last day is a Saturday, Sunday, or legal holiday, the period continues to run until the end of the next day that is not a Saturday, Sunday, or legal holiday".

The applicant submitted that the 45 days would lapse on 20^th March 2021 implying the application was filed within the statutory timelines.

On the second issue, the applicant submitted that S. 122 of the EACCMA states that "Where imported goods are liable to import duty of valorem, the value shall be determined in accordance with the Fourth Schedule and import duty shall be paid on that value" It submitted that the 4^th Schedule provides for six methods of valuation in determining customs value of imported goods. It submitted further that Paragraph 2 of Part 1 of the 4^th Schedule specifies that the first prescribed 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. The interpretation notes in Part II of the 4^th Schedule ("Interpretative Notes") set out the applicability of the valuation methods and they must be applied in their sequential order. The price actually paid or payable is the total payment made or to be made by the buyer to the seller (Notes to Article 1, Interpretative Notes)". The applicant cited Agaba Henry v Uganda Revenue Authority Application 83 of 2021 where the Tribunal noted that.

"It is irrelevant the price is determined by the whims and material needs of a seller. Method 1 is concerned with the transaction value actually paid and not the degree of usage or the condition of a used vehicle or of a seller or how the seller feels."

It submitted that its imports of wines and spirits from Distell limited were declared under the transaction value method basing on the price invoiced and paid. The respondent in the post customs clearance audit disregarded this method on the ground that the prices paid by the applicant were significantly low compared to the prices paid by other importers namely Uganda Duty Free Shop Limited.

The applicant submitted that the respondent's decision to compute the customs value of imported goods using a different method without following the sequence contravened S. 122(1) of EACCMA and Paragraph 2(1) and 9 of the 4^th Schedule and was illegal. It submitted that the East African Customs Valuation Manual ("the Manual"), at Paragraph 2.0 also provides for the six methods of valuation and specifies that they be applied in sequential order. It cited *Testimony Motors Limited* $v$ *The Commissioner of Customs* Uganda Revenue Authority Civil Suit 4 of 2011 where the Commissioner of Customs suspended the operation of the transaction value method for used vehicles and opted for an alternative method. The High Court however affirmed that the transaction value method must always be used except in very exceptional circumstances.

The applicant submitted that Article 1 of the Word Trade Organization Customs Valuation Agreement defines transaction value as "the price actually paid or payable for the goods when sold for export to the country of importation adjusted in accordance with the provisions. It submitted that price actually paid or payable is further described in a handbook on the WTO Customs Valuation Agreement by Sheri Rosenow and Brian J O'Shea on p. 27 as

"Transaction value is whatever amount the buyer agrees to pay the seller to obtain the goods. In other words, the buyer and seller themselves determine the customs value for imported goods."

The applicant contended given this definition, customs cannot reject an importer's declared price on the ground that it is lower than prevailing market prices. It argued that the customs value for the same kind of goods can vary in transactions between different buyers and sellers, or even between the same parties in different transactions over time The applicant provided a letter from Distell Limited and price listing for the wines and spirits. The invoices and proof of payment were never disputed. The applicant cited Airtel Uganda Limited v Uganda Revenue Authority Application 39 of 2019; where the Tribunal stated that.

"So, the first question the Tribunal has to determine is what is the price of the BPN2 the applicant imported? In Royal Electronics Limited v Uganda Revenue Authority TAT 37 of 2017, the Tribunal stated that the most reliable source of information on imports is the import documents. So, what do the import documents show?"

It is, therefore, erroneous for the respondent to assert that the prices paid by the applicant were significantly low, yet the documentation provided including the commercial invoices, packing lists, and proof of payment were not red flagged. The applicant submitted that the decision by the respondent to disregard the transaction value method is arbitrary and not objective.

The applicant submitted that the circumstances surrounding a sale shall be examined and the transaction value shall be accepted provided that the relationship did not influence the price. It cited Paragraph 1(4) of the 4^th Schedule which states that.

"A person who associates with another person in business, such that one is the sole agent, distributor or sole concessionaire, however described, of the other shall be deemed to be related for the purposes of this schedule if they fall within the criteria of subparagraph 3. " It submitted that the relationship between the applicant and Distell limited was merely a business relationship. Distell limited had other companies it transacted with distributors

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such as Uganda Duty Free Shop Limited, which shows that the applicant was not a related party being a sole distributor.

In reply, the respondent submitted the applicant's application was lodged outside the prescribed period of 45 days. The respondent cited S. 229 of the EACCMA which states.

"A person directly affected by the decision or omission of the commissioner or any other officer on matters relating to customs shall within thirty days of the date of the decision or omission lodge an application for review of that decision or omission."

The respondent further cited S. 230 of the EACCMA which states that.

- "1) A person dissatisfied with the decision of the Commissioner under S. 229 may appeal to the Tax Appeals Tribunal established in accordance with S. 231. - (2) A person intending to lodge an appeal under this section shall lodge the appeal within forty-five days after being served with the decision and shall serve a copy of the appeal on the Commissioner".

The respondent submitted further that S. 16 of the Tax Appeals Tribunal Act provides that an application to a tribunal for review of a taxation decision shall be lodged with the tribunal within thirty days after the person making the application has been served with a notice of the decision.

The respondent submitted that the Commissioner on 17^th February 2020, communicated the audit findings to the applicant. The applicant lodged an application for review of that decision in a letter dated 24^th February 2020. The Commissioner issued its decision on 6^th March 2020 wherein he stated that.

"In line with the provisions of S. 229 (4), East Africa Community Customs Management Act, 2004 as amended, we draw your attention to the issues raised therein and we respond as follows..."

The respondent submitted that the Commissioner concluded that; "in absence of satisfactory information, WE MAINTAIN THE ASSESSED LIABILITY OF Shs. 732,372,537 AS PAYABLE." The respondent submitted further that, the Commissioner, having considered all the grounds raised by the applicant in its objection, decided to maintain the assessed liability as payable. This amounted to a decision by the Commissioner. The Commissioner concluded further in the letter that "...we shall take the

matter of this audit as complete...". The Commissioner had 30 days within which to make a decision pursuant to S. 229 (4) of the EACCMA. This decision was made in March 2020 in which the tax liability of Shs. 732,372,537 was maintained as payable.

The respondent cited S. 1(1)(g) defines a taxation decision to mean. "An assessment, determination, decision or notice". The respondent cited Cable Corporation (U) Limited v URA HCCA 1 of 2011 where Justice Madrama stated that.

"... The matter which aggrieves the taxpayer from the objection decision becomes a dispute and where it is in dispute as in the appellants case, it is in my opinion the general rule that the Commissioner or the respondent as in this case may be considered to be functus officio after making the objection decision provided for under section 99 (5) and 100 (1) of the Income Tax Act. Upon perusal of the letter the essential ingredients of the law as to the contents of an objection decision have been fulfilled... In conclusion, the respondent having made a firm decision on the 12^th of August 2008 and reaffirmed the same decision in unequivocal language on the 23^rd of September 2008, it cannot be said to have left the matter open to negotiations or further review. Neither can its correspondence of 26^th of February 2010 to the appellant and responding to the letter of the appellant's Tax Consultants of 16^th February 2010 be said to have reopened the matter..."

The respondent submitted that the decision made by it on 6^th March 2020, having aggrieved the applicant, became a dispute and the applicant only had recourse to the Tribunal. Any form of correspondences with the respondent did not in any way re-open the matter as the respondent had become functus officio after making the decision. The respondent also cited Africa Renewal Ministries Limited v Uganda Revenue Authority Miscellaneous Application 93 of 2022, where the Tribunal stated that once an objection decision has been made the respondent does not have powers to review it. The powers to review the objection decision lie with the Tribunal, whether it is clear or not. In Cable Corporation Limited on Uganda Revenue Authority, (supra) the tribunal agreed with the applicant that time continues to run if there is further communication that opens the subject by reviewing the assessment.

The respondent submitted that S. 68 of the Tax Procedure Code Act provides for validity of tax decisions. It states that.

"The validity of a tax decision, a notice of a tax decision, or any other document purporting

to be made or executed under a tax law is not-

- a) Affected by reason that any of the provisions of the tax law under which it is made have not been complied with. - b) Quashed or deemed to be void or voidable for want of form; or - c) Affected by reason of any mistake, defect, omission, or commission in it"

The respondent submitted that in Cable Corporations Case (supra) the Court had to look at whether the objection decision had the essential ingredients of the law. It stated that "Upon perusal of the letter the essential ingredients of the law as to the contents of an objection decision have been fulfilled..." It submitted further that S. 229 (4) the EACCMA sets out three essential ingredients for a decision made under S. 229 to be valid. Such a decision has to be.

1. Delivered within a period not exceeding thirty days of receipt of the application and

any other further information the Commissioner may require.

2. Communicated in writing to the person lodging the Application

3. Stating the reasons for the decision

The respondent submitted that the letter issued on $6^{\rm th}$ of March 2020 was a valid decision under S. 229 (4) in as far as it was delivered within 30 days from the date that the applicant objected It was communicated in writing to the applicant and it stated the reasons for the decision. The decision was also conclusive in as far as it maintained the assessed liability of Shs. 732,372,537 as payable. The respondent submitted that in Uganda Revenue Authority v Uganda Consolidated Properties Limited Civil Appeal 31 of 2000 the Court of Appeal stated that "Timelines set by statutes are matters of substantive law and not mere technicalities and must be strictly complied with". The applicant did not comply with the timelines. The respondent invited the tribunal to dismiss this application for having been filed out of time. On the second issue, the respondent submitted that the applicant is liable to pay the tax assessed of Shs. 732,372,537 under S. 122 of the EACCMA, and its 4^th Schedule. The respondent submitted that S. 122 read with the 4^th Schedule provides that.

"The methods of valuation have to be applied sequentially and once the transaction value method is considered inapplicable on valid grounds, the Customs Authority must proceed to determine the value of goods by following Customs valuation rules and methods based on contemporaneous imports".

The respondent submitted that the 4^th Schedule of the EACCMA provides that due regard should be made to the decisions, rulings opinions, guidelines and interpretations given by the Directorate, the World Trade Organization, or the Customs Council. Article VII (2) (c) of the General Agreement on Tariffs and Trade 1994 provides that.

"When the actual value is not ascertainable in accordance with sub-paragraph (b) of this paragraph, the value for customs purposes should be based on the nearest

ascertainable equivalent of such value".

It submitted that it is trite law that the first and primary method of valuation is the transaction value method; the $2^{nd}$ is the transaction value of identical goods, the $3^{rd}$ is the transaction value of similar goods method, the $4^{\rm th}$ is the deductive value method, the $5^{\rm th}$ is computed value method and the 6^th is the fallback value method. For the transaction value to be applied, it must, first and foremost, be based on the price actually paid or payable.

The respondent contended that the customs value is the transaction value, if all the conditions laid out in Article III of GATT have been fulfilled. One of the conditions is that the sale should not have been subject to any conditions for which a value cannot be determined with respect to the goods being valued. And where such a value cannot be determined, it will be regarded as an indirect payment by the buyer to the seller and part of the price actually paid or payable. The respondent submitted that the applicant admitted that the latter had a relationship with Distell limited. Paragraph 3 of the $4^{\rm th}$ Schedule to the EACCMA inter alia states a relationship exists where,

"(b) They are legally recognized partners in business."

(4) A person who associates with another person in business, such that one is the sole agent, distributor, or sole concessionaire, however described, of the other shall be

deemed to be related for the purposes of this Schedule if they fall within the criteria of subparagraph 3".

The respondent submitted that the transactional value method cannot be used in customs valuation where the relationship influenced the price actually paid or payable. Paragraph 2 of the WTO Customs Valuation Agreement provides that.

"(a) In such circumstances surrounding the sale shall be examined and transaction value shall be accepted provided that the relationship did not influence the price".

The respondent submitted that the applicant's witness, Mr. Petrus Ritcher confirmed that the parties had a relationship where the price paid was influenced by that relationship. This was also confirmed by John Mukiibi. The respondent submitted in *Dow Chemical* International Pvt. Limited. v CC, Kandla 2008 (226) ELT 420 (Tri Abd.) it was held that.

"The onus to establish that the price was reduced due to genuine commercial considerations is on the appellant."

The court held further that

"The appellant is closely related to the foreign based related supplier and their indenting agent. The presumption that such a lower price to the appellant is in view of the relationship is reasonable and it is up to the appellant to have the adduced evidence that there was no reduction due to relationship. They have not been able to explain satisfactorily the reason for the difference in price between supply made to them and another importer. Theoretically, it is possible that the price can be lower due to fluctuations in the market. But in the light of relationship between the appellant and the foreign based supplier the onus is on them to prove that the price reduction was on genuine commercial considerations."

The respondent submitted that the applicant having conceded to being related with the exporter of the wines and spirits and that this relationship influenced the transaction, the transaction value method was inapplicable.

The respondent submitted that "A Handbook on the WTO Customs Valuation Agreement" by Sheri Rosenow and Brian J O'shea, states that:

"Customs valuation based on the transaction value method is largely based on documentary input from the importer. A. 17 of the Agreement confirms that customs administrations have the right to "satisfy themselves as to the truth or accuracy of any statement, document or declaration."

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The respondent submitted that if the reasonable doubt still exists after reception of further information for in absence of a response, customs may decide that the value cannot be determined according to the transaction value method. Before a final decision is taken, customs must communicate its reasoning in writing to the importer, who, in turn, must be given reasonable time to respond. S. 122 (4) of the EACCMA provides that.

"Nothing in the 4^th schedule shall be construed as restricting 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 process."

The respondent submitted that in *Royal Electronics Limited v Uganda Revenue Authority* Application 37 of 2017, the Tribunal held that the most reliable source of information on imports is the import documents." The respondent submitted that the applicant did not avail any relevant information. The only information that was availed by the applicant related to a totally different period from the one under audit.

In rejoinder, the applicant it reiterated that it has discharged the burden of proof placed on it. It submitted that the application was brought within the stipulated time. It submitted that the respondent failed to produce the letter or assessment of 24^th February 2020. The applicant contended that the letter of 17^th February 2020 was not an objection but mere feedback on the respondent on issues arising from an exit meeting. There was no mention of an assessment or demand to which the law prescribes for a taxpayer to object to.

The applicant reiterated that it is not liable to pay the tax of Shs. 732,372,537 assessed. It contented that Article $VII(2)(c)$ of GATT 1994 is applicable when the actual value for customs purposes is not ascertainable. It admitted that though it was a distributor for the wines and spirits it was not a sole distributor or concessionaire. It contended that the respondent did not present the import document of Duty-Free Shop Limited whose goods it alleges are identical.

The applicant relied on the doctrine of estoppel by conduct citing Lord Denning in *Crabb v Arun District Council* [1976] 1 Ch. 183 that:

"Equity comes in, true to form, to mitigate the rigours of strict law. it will prevent a person from insisting on his strict legal rights, whether arising under a contract, or on his title

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deeds, or by statute, when it would be inequitable for him to do so having regard to the dealings which have taken place between the parties."

The applicant also cited S. 114 of the Evidence Act 6 which states:

"when one person has, by his or her declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon that belief, neither he or she or his or her representative shall be allowed in any suit or proceeding between himself or herself and that person or his or her representative, to deny the truth of that thing."

The applicant also cited Pan African Insurance Company (U) Limited v International Air *Transport Association* HCCS. 667 of 2003 where Justice Lameck Mukasa stated that.

"The doctrine of estoppel by conduct prevents a party against whom it is set up from denying the truth of the matter. The principle is that where a party has by his declaration, act or omission intentionally caused the other to believe a thing to be true and act upon such belief he cannot be allowed to deny the truthfulness of that thing."

Having listened to the evidence, perused the exhibits and read the submissions of the parties this is the ruling of the tribunal.

The applicant is a company dealing in the manufacture and sale of bottled water of the "Rwenzori" brand. Following a customs post clearance audit for the period January 2016 to June 2018, the respondent demanded additional customs taxes of Shs. 732,372,537 from the applicant on the ground that the latter had under declared its values of imports of wines and spirits during the audit period.

Before the Tribunal may handle the application on its merits, it has to dispose of the preliminary objection raised by the respondent that the applicant's application was filed out of time. The law relating to preliminary objections is provided for under O. 6 R. 28 of the Civil Procedure Rules which provides that.

"Any party shall be entitled to raise by his or her pleadings any point of law, and any point so raised shall be disposed of by the court at or after the hearing; except that by consent of the parties, or by order of court on the application of either party, a point of law may be set down for hearing and disposed of at any time before the hearing".

In Mukisa Biscuit Manufacturing Co. Limited v West End Distributors Limited [1996] EA 696 Sir Charles Newbold stated that.

"A preliminary objection consists of a point of law which has been pleaded or which arises by clear implication out of pleadings and which if argued as a preliminary point may dispose of the suit".

Therefore, the Tribunal will dispose of the preliminary objection first. In the event it is sustained the application will be dismissed.

The respondent contended that the applicant's application was time barred. In Uganda Revenue Authority v Uganda Consolidated Properties Limited, (supra) it was stated that "Timelines set by statutes are matters of substantive law and not mere technicalities and must be strictly complied with". S. 16 of the Tax Appeals Tribunal Act provides that an application to a tribunal for review of a taxation decision shall be lodged with the tribunal within 30 days after the person making the application has been served with notice of the decision. S. 25(1) of the Tax Procedures Code Act provides that "a person dissatisfied with an objection decision may, within 30 days after being served with a notice of the objection decision, lodge an application with the Tax Appeals Tribunal for review of the objection decision".

This application arose from an additional assessment of Shs. 732,372,537 that was issued under the East African Community Customs Management Act (EACCMA). The application was filed on 19^th March 2021. The applicant contends that the objection decision was made and communicated on 3^rd February 2021. The respondent amended its statement of reasons to state that its objection decision was issued on 6^th March 2020. The applicant submitted that letter of 6^th March 2020 cannot be an objection decision under S. 229(1) of the EACCMA which states that.

"A person affected by the decision or omission of the Commissioner or any other officer on matters relating to customs shall within thirty days of the date of the decision or omission lodge on application for review of that decision or omission".

S. 230 of the EACCMA provides that.

"A person dissatisfied with the decision of the commissioner under section 229 may appeal to a tax appeals Tribunal established in accordance with section 231."

So, the Tribunal must determine whether the letter issued on 6^th March 2020 was a decision of the Commissioner which may be appealed to the Tribunal.

S. 2 of the Tax Procedure Code Act defines a "tax decision" to mean-

(a) a tax assessment: or

(b) a decision on any matter left to the discretion, judgment, direction. opinion, approval, satisfaction, or determination of the Commissioner other than-

- (i) a decision made in relation to a tax assessment. - (ii) a decision to refuse, issue or revoke a practice note or an omission to issue or revoke a practice note. - (iii) a decision or omission that affects a tax officer or employer or agent of the Authority; - (iv) the compoundment of an offence under any tax law; or - (v) a decision to refuse, issue or revoke a private ruling or an omission to issue or revoke a private ruling."

S. 1(k) of the Tax Appeals Tribunal Act defines a taxation decision to mean any assessment, determination, decision, or notice. In Cable Corporation v Uganda Revenue *Authority* Civil Appeal 1 of 2011 the Court noted that "A review of the meaning of a taxation decision under section 1(k) of the Tax Appeals Tribunal Act shows that it means "any assessment, determination, decision or notice." The Tax Procedure Code Act S.2 excludes from a taxation decision any decision made in relation to a tax assessment. The effect of this is make a taxation decision under the Tax Procedure Code Act narrower than that under S.1 of the Tax Appeals Tribunal Act. The Tax Procedure Code Act was enacted after the Tax Appeals Tribunal Act. Its intention was to limit the definition of a taxation decision. Therefore, a decision in relation to a tax assessment may not amount to a taxation decision.

S. 2 of the Tax Procedure Code Act defines an objection decision to mean a decision within the meaning of S. 24. S. 24(5) of the Tax Procedure Code Act states.

"The Commissioner may make a decision on an objection."

- (a) To a tax assessment, affirming, reducing, increasing, or otherwise varying the assessment to which the objection relates; or - (b) To any other tax decision, affirming, varying or setting aside the decision."

The Tax Appeals Tribunal Act S. 1 defines an objection decision to mean a taxation decision made in respect of a taxation objection. In Cable Corporation v Uganda Revenue Authority Civil (supra) the court noted that "An objection decision is a decision in respect to a taxation objection made to the Commissioner against a notice of assessment while a "taxation decision" means any assessment, determination, decision or notice. So, the Tribunal has to resolve when was the objection or taxation decision made?

It is not in dispute that the respondent conducted an audit on the applicant for the tax periods in issue. The Customs Post Clearance Audit is provided for under S. 236 of the EACCMA which states:

"The Commissioner shall have the powers to-

- (a) verify the accuracy of the entry of goods or documents through examination of books, records, computer stored information, business systems and all relevant customs documents, commercial documents and other data related to the goods. - (b) Question any person involved directly or indirectly in the business, or any person in the possession of documents and data relevant to the goods or entry; - (c) Inspect the premises of the owner of the goods or any other place of the person directly or indirectly involved in the operations; and - (d) Examine the goods where possible for the goods to be produced"

The Customs Post Clearance Audit (PAC) Manual sets out guidelines on the operationalization of the EAC Customs Post Clearance audits under the EACCMA to verify taxpayers' compliance with provisions of the Act. It has the effect of 'soft law' in international law on the application of post clearance audits under the EACCMA in the Partner States of the East African Community. On reporting it states that

> "Reporting is the means by which auditors communicate audit results to clients and senior management. This communication is an ongoing process, which takes place throughout the phases of the audit. Findings may be communicated by exit interviews, letters and final reports. Reports should include the purpose, objectives, scope, findings as well as applicable conclusions, requirements and recommendations."

If there are going to have many findings, it has to be clear which finding amounts to a taxation decision. Otherwise, the Tax Appeals Tribunal may be flooded with many applications because every time the respondent makes a finding or decision, it may claim that it amounts to a taxation decision.

The EAC Customs Post Clearance Audit Manual. states that the final audit findings should be communicated to the taxpayer through a management letter. Clause 3.4.4, of the manual reads.

## "3.44. Management letter

Once the exit meeting is conducted, necessary adjustments shall be made to the preliminary report and a management letter shall be prepared. Both shall be submitted to the supervisor for review and approval.

The final audit findings communicated to the taxpayer through the management letter shall include the following: -

- (a) The period covered by the audit - (b) The legal basis for the audit - (c) The objective of the audit - (d) Documents examined - (e) The work done - $(f)$ Findings - (g) Conclusions - (h) Recommendations.

Clause 3.5 mentions follow up. It states.

## "3.5.1. Demand note/assessment

This is a notice issued to the taxpayer calling for payment of additional taxes resulting from an audit. It is done through a written notice to the taxpayer giving him a time frame within which payment of the additional taxes must be made. (Appendix 19)."

The respondent is required to issue a management letter to a taxpayer after an audit and a demand note/ assessment which conforms to Appendix 19.

On 6^th March 2020, the respondent wrote to the applicant in a letter titled "FEEDBACK ON YOUR RESPONSE TO THE CUSTOMS POST CLEARANCE AUDIT FINDINGS FOR THE PERIOD JANUARY 2016 TO JUNE 2018," and stated.

"Unless you have any new information to provide as evidence of the assessed liability herein identified within 5 working days from the receipt of this letter, we shall take the

matter of the audit as complete and go ahead and officially communicate the same to you by way of a management letter."

In the said letter it cannot be denied that the amount assessed of Shs. 732,372,537 was mentioned. The said letter gave the applicant a window to provide any new information within 5 working days on receipt of the letter. There is no evidence that new information was provided within 5 working days of receipt of the letter. However, the said letter stated that it will officially communicate to the applicant by way of a management letter. The letter of 6^th October 2020 cannot be taken as an objection decision. It merely stated the respondent's intention to complete the audit if the applicant did not provide new information within 5 days of receipt of the letter. The said letter did not attach an additional assessment. It cannot be an objection decision because there is no evidence that the applicant objected to any assessment. In Cable Corporation v Uganda Revenue Authority Civil (supra) the court noted that.

"From the facts reviewed above the appellant objected to an assessment pursuant to a comprehensive audit of the appellant. The objection to the assessment is at page 51 of the record of the appellant."

The court further stated that.

... In conclusion, the respondent having made a firm decision on the 12^th of August 2008 and reaffirmed the same decision in unequivocal language on the 23^rd of September 2008, it cannot be said to have left the matter open to negotiations or further review."

After an audit, the respondent is required to issue a taxpayer with a management letter and an additional assessment if new taxes arose. In this case the respondent promised to issue a management letter. The correspondences not conforming to appendix 19 of the East African Post Clearance manual indicating the assessment during an audit can be considered as decisions made in relation to a tax assessment but do not amount to a taxation decision under S. 2 of the Tax Procedure Code Act. That is a decision made under clause (i) in relation to a tax assessment. As the Commissioner stated he was going to officially communicate by a management letter which would amount to the taxation decision. The management letter and the demand note/assessment as indicated in Appendix 19 can be considered taxation decisions. The management letter which the respondent promised to communicate the final position was not adduced in evidence. S. 229(1) of the EACCMA provides that a person directly affected by the decision or omission of the Commissioner or any other officer on matters relating to customs may lodge an application for review. The taxpayer on receipt of a management letter or an assessment was required to apply for review to the Commissioner. On review by the Commissioner under S. 229 an aggrieved party would proceed to the Tax Appeals Tribunal Act under S. 230 of the EACCMA. In the absence of the management letter in evidence and or a tax assessment, the Tribunal cannot tell when the respondent made a taxation decision giving rise to a right to the applicant to seek for review against it. There was no assessment, which is a taxation decision adduced in evidence. The respondent made demand notices on 22^nd October 2020 and 22^nd November 2020 in exhibit R8. The said demand letters are decisions made in relation to a tax assessment. However, the actual tax assessment was not adduced as evidence.

On 3^rd February 2021, the respondent in a letter on the feedback on the outstanding liability from the post clearance audit stated that a decision was made to maintain the liability. The applicant responded on 8^th February 2021. On 17^th February 2021, the respondent communicated and stated that.

"It is imperative to note that the matter of objection to the tax liability arising from the valuation of wines and spirits has been prolonged. We have objectively and transparently admitted all your concerns within the legal framework and extended further courtesy for review of this matter and we feel the decision we have communicated is correct and final.

Pursuant to Section 25(1) of the Tax Procedure Code Act, 2014, as amended, a person dissatisfied with an objection decision may, within 30 days after being served with a notice of the objection decision lodge an application with the Tax Appeals Tribunal for review of the objection decision. Thank you."

The said letter mentions the applicant objecting. It shows that the decision of the respondent is final. In Crown Beverages Limited v Uganda Revenue Authority Application 16 of 2020 the Tribunal noted that "an objection decision should be final on all issues pending". The respondent treated the said communication not as a taxation decision but as an objection decision where the aggrieved party may file an appeal within 30 days of receipt.

Having failed to provide the applicant with the management letter, the respondent issued a letter of 17^th February 2021which both parties treated as an objection decision. While the EACCMA provides for a taxation decision to be made in respect of a grievance by a taxpayer in custom matters, the Tax Appeals Tribunal Act and the Tax Procedure Code Act provide for inter alia for an appeal from an objection decision. In this case there was no review of a taxation decision under Sections. 229 and 230 of the EACCMA but an objection decision under S. 16 of the Tax Appeals Tribunal Act and S. 24 of the Tax Procedure Code Act. The Tribunal will not chase away an aggrieved taxpayer who did not apply for a review of the taxation decision under Sections 229 and 230 of the EACCMA but proceeded under the Tax Appeal Tribunal Act and the Tax Procedure Code Act. This is because the taxpayer, though it applied under different streams of the law it still acted legally.

The respondent has failed to prove that the applicant's application is time barred. In the circumstances the preliminary objection is overruled. The Tribunal will proceed to handle the application on its merits.

The second issue relates to the valuation method applicable to the wines imported by the applicant from Distell Limited in South Africa. The respondent contends that the applicant had a relationship with Distell limited which affected the valuation method used by the latter. The respondent contended that identical goods were imported by Duty Free shop Limited at a lower price. The respondent used the second valuation method of goods of an identical nature which the applicant objected to resulting in this application.

The law relating to valuation of importation of goods is provided for under S. 122(1) of the EACCMA which states 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".

Paragraph 2(1) of the 4^th Schedule of the EACCMA states.

"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."

Paragraph $3(1)(a)$ of the same Schedule provides that.

"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".

In John Kamanyire V Uganda Revenue Authority Application 7 of 2015, the tribunal stated that.

"The Schedule is clear. In order to determine the customs values of imported goods, the taxing authority should apply the methods provided in the schedule in a sequential order. The taxing authority cannot apply the fall back method when the transaction option is available"

In *Agaba Henry v URA* Application 83 of 2021, the tribunal stated that.

"The respondent was not justified in uplifting the customs value of the applicant's motor vehicle without sequentially applying the valuation methods set out in Part 2 of the Fourth Schedule".

In this case the respondent opted to use the transactional value of identical goods because it contended that there was another company that sold the same goods at a lower price. The applicant contended that in its agreement with Distell limited it was offered a lower price because of the big market it had in Uganda which would enable it sell the latter's products.

The applicant presented invoices, packing lists and proof of payment. In Royal Electrical Limited v Uganda Revenue Authority Application 37 of 2017 the tribunal stated that "The most reliable source of information on imports is the import documents." A witness from

Distell limited testified on the price paid by the applicant. The respondent disputed the price in the import documents. S. 122(4) of the EACCMA provide that.

> "Nothing in the fourth schedule shall be construed as restricting 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 process."

There are two main reasons that the respondent gave for rejecting the transaction value method applied by the applicant. The first reason was that the applicant had a relationship with Distell limited which is a condition that may lead to the rejection of the transaction value. The second reason given by the respondent was that Distell limited sold identical goods to Duty Free limited at a higher price. The respondent cited Article VII(2)(c) of GATT 1994 which provides that:

"When the actual value is not ascertainable in accordance with sub paragraph (b) of this paragraph, the value for customs purposes should be based on the nearest ascertainable equivalent of such value."

The respondent contended that the nearest ascertainable value was that of identical goods imported by another importer. There is need to make the picture clear. The prices of the goods imported by the applicant were ascertained by the respondent. The respondent did not dispute the import documents nor the amount the applicant paid for the imports. It merely rejected the price by the applicant because of the relationship it had with Distell limited which offered higher prices to another party.

In order to determine whether the respondent was justified in denying the transaction value method one has to look at provisions in S. 122 of the EACCMA in respect of related parties. As already stated, S. 122 provides.

(1) The customs value or transaction value, which is the price actually paid actually paid or payable for the goods when sold for export to the Partner State in accordance with the provisions of Paragraph 9, but where—

The said Section gives restrictions. In relation to related parties its states under S.122 $(1)(d)$ that

"The buyer and seller are not related, or where the buyer and seller are related, that the transaction is acceptable for customs purposes under the provisions of subparagraph (2)"

The fourth Schedule defines related parties in Part 1 - interpretation. These include a person who associates with another person in business, such that one is the sole agent or distributor or sole concessionaire. The applicant witnesses admitted that the applicant is a distributor of wines and spirits from Distel limited. However, there is no evidence that the applicant is a sole distributor of wines and spirits from Distell limited. There was also Duty Free limited. If the applicant was a sole distributor, then the respondent would not have compared its prices with Duty Free limited. The presence of Duty Free limited on the market means that the applicant is a not a sole distributor. Black's Law Dictionary 10^th Edition p. 577 defines a distributor as "a wholesaler, jobber, or other manufacture or supplier that sells chiefly to retailers and commercial users." The respondent did not disclose whether Duty Free Shop Limited was a wholesaler or retailer. In the event the applicant was a wholesaler and Duty Free Shop Limited was a retailer that would explain the differences in the prices offered to each.

Parties being related, prima facie does not stop the respondent from using the transaction method. S. 122 of the EACCMA states that a buyer and seller may be related, but the transaction values is acceptable for custom purposes under subparagraph 2 which states that.

- "(a) In determining whether the transaction value is acceptable for the purposes of subparagraph (1), the fact that the buyer and the seller are related within the meaning of Paragraph (1) shall not in itself be a ground for regarding the transaction value as unacceptable. In such cases the circumstances surrounding the sale shall be examined and the transaction value accepted provided that the relationship did not influence the price. If, in light of information provided by the importer or otherwise, the proper officer has grounds for considering that the relationship influenced the price, he shall communicate his grounds to the importer and such importer shall be given reasonable opportunity to respond and where the importer so requests, the communication of the grounds shall be in writing. - (c) In the sale between related persons, the transaction value shall be accepted the goods valued in accordance with the provisions of subparagraph (1) whenever

the importer demonstrates that such value closely approximates to one of the following accruing at or about the same time.

- (i) the transaction value in sales to unrelated buyers of identical or similar goods for export to the Partner State. - (ii) the customs value of identical or similar goods as determined under the provisions of Paragraph 6. - (iii) the customs value of identical or similar goods as determined under the provisions of Paragraph 7.

Provided that, in applying the provisions under subparagraphs 2(a) and (b) of this Paragraph, due account shall be taken to demonstrate differences of commercial levels, quantity levels, the elements enumerated in paragraph 9 and costs incurred by the seller in sales in which the seller and the buyer are not related that are not incurred by the seller in sales in which the seller and the buyer are related.

A reading of the said Section indicates that the fact that parties are related is not a ground for rejecting the transaction value. It has to be shown that the relationship between the parties affected the price. There is no evidence adduced to show that the relationship between the applicant and Distell limited affected the price. For instance, if the applicant was the sole distributor of spirits and wines for Distell, the respondent could have adduced evidence to show that the Distell limited gives higher prices to its distributors in another Partner State. The circumstances around the sale should be examined to see if they influenced the price. We already stated that it is important to know whether both purchasers were wholesalers, or one was a retailer.

The respondent contended that the prices to the applicant by Distell limited were lower than those given to Duty Free Shop limited. However, the respondent did not adduce any invoice, receipts, and other imports documents of Duty Free Shop Limited for the Tribunal to verify that the prices to the latter were lower than those given to the applicant. The respondent merely presented workings in exhibit 10 which is not even titled. The author and source of the said information is not disclosed. The Tribunal like any other court cannot work on hearsay information.

Therefore, in light of the above considerations, we find that the valuation method used by the respondent to determine the tax assessed against the applicant was unwarranted. For this reason, we find that the applicant is not liable to pay the additional tax assessed. The application is allowed with costs to the applicant.

$25n$

Dated at Kampala this

day of January

2023.

DR. ASA MUGENYI

CHAIRMAN

Aming DR. STEPHEN AKABWAY **MEMBER**

mistre Kerture

MS. CHRISTINE KATWE **MEMBER**