Judgment summary
Alphastone Limited, a sugar importer and trader, appealed against a demand notice and subsequent objection decision issued by the Kenya Revenue Authority following a post clearance audit of its sugar imports from Uganda, Zambia and Malawi for the years 2021 to 2024.
The audit identified under-declaration of customs values, leading to a demand notice dated 7th March 2025 for Kshs 12,957,283 [3]. After an objection process, the Respondent confirmed a principal tax demand of Kshs 11,543,691 in an objection decision dated 7th August 2025 [6].
The Tribunal considered whether the Respondent was justified in departing from the transaction value method to the transaction value of identical goods method under the Fourth Schedule to the EACCMA. It examined the documentary evidence submitted by the Appellant, including invoices, Single Administrative Documents (SADs) and SWIFT payment confirmations, and found significant inconsistencies and gaps in verification for most consignments, save for one transaction relating to Uganda.
The Tribunal held that the Appeal was partially meritorious and varied the objection decision accordingly.
Background
The Appellant is a private limited company registered under the Companies Act CAP 486, specialising in the import and trade of sugar [1]. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469, mandated to collect and administer tax revenue [2].
The Respondent conducted a post clearance audit on the Appellant's sugar importations pursuant to Sections 234, 235 and 236 of the East African Community Customs Management Act (EACCMA) 2004, identifying under-declaration of customs values [3].
A demand notice was issued on 7th March 2025 for short-levied duties of Kshs 12,957,283 [3]. The Appellant requested more time to respond on 4th June 2025, which was granted [4]. The Appellant lodged a Notice of Objection on 14th July 2025, providing commercial invoices, SWIFT payment confirmations, executed sale contracts and bills of lading [5].
The Respondent noted discrepancies between declared customs values and actual bank remittances and confirmed the assessment via an objection decision dated 7th August 2025, demanding principal tax of Kshs 11,543,691 [6]. The Appellant lodged its Notice of Appeal on 18th September 2025, filed on 19th September 2025 [7].
Core dispute
The Appellant argued that the Respondent unjustifiably and capriciously departed from the Transaction Value method under Section 122 and the Fourth Schedule of the EACCMA, and that the arbitral use of a fixed FOB value (initially referenced at Kshs 1000/MT in the grounds of appeal) was inconsistent with the EACCMA and the WTO Valuation Agreement.
The Appellant contended that its invoices bore the requisite features of proper tax invoices, that it had provided sufficient documentation, and that the Respondent acted in bad faith, vindictively, and without considering all material facts when issuing the demand notice and objection decision.
The Respondent maintained that material variances existed between the Appellant's invoices and actual bank remittances, undermining the reliability of declared transaction values under Section 122(1) of the EACCMA. It asserted that it was therefore justified in applying Method 2 (transaction value of identical goods), using comparative FOB reference values of Tanzania/Uganda USD 1,000/MT and Zambia/Malawi USD 850/MT [52], [58], [59].
The single issue identified by the Tribunal for determination was whether the Respondent was justified in deviating from the transaction value method to the transaction value of identical goods method [82].
Court findings
The Tribunal set out the sequential valuation methods under Paragraphs 2 to 8 of the Fourth Schedule to the EACCMA, namely transaction value, transaction value of identical goods, transaction value of similar goods, deductive value, computed value and fall back value, applied in that order per the Interpretative Notes [88], [89].
The Tribunal noted that under Section 223 of the EACCMA, the onus is on the person claiming lawful importation to prove the proper duties or lawful importation [91], and that the Appellant bore the duty to demonstrate that the Respondent erred in deviating from the transaction value method [92].
On examining the documents, the Tribunal found that some SWIFT payment confirmations were illegible and therefore inadmissible [94]. For Malawi imports, SADs and invoices could not be matched due to similar descriptions [95]; three invoices dated 21st August 2023 each reflected an identical value of USD 950,000 CFR Nairobi, yet a SWIFT payment confirmation showed only USD 200,000 paid on 12th October 2023, with no explanation for the discrepancy [96].
For Zambia imports, an invoice dated 3rd March 2024 showed a total cost of USD 307,500, while two SWIFT payment confirmations (dated 18th May 2023 for USD 106,000 and 29th August 2023 for USD 140,000) did not reconcile with the invoice figures or dates [97].
For Uganda imports, the Appellant produced commercial invoices and SADs but generally failed to produce corresponding SWIFT payment confirmations, save for one instance: a SWIFT payment confirmation dated 2nd May 2025 for USD 21,000.00 corresponded with a commercial invoice dated 2nd May 2024, which the Tribunal found capable of verification [98], [99].
The Tribunal held that, save for this single verified consignment, the Appellant failed to discharge its evidentiary burden under Section 223 of the EACCMA, and the Respondent was therefore justified in rejecting the declared transaction values and applying the transaction value of identical goods method for the remaining consignments [100], [101]. The Tribunal found that the Appellant had only partially demonstrated that the Respondent erred [102].
Outcome
The Tribunal held that the Appeal was partially meritorious [103].
It ordered that the Appeal be partially allowed, that the SWIFT payment confirmation dated 2nd May 2025 for USD 21,000.00 and the invoice dated 2nd May 2024 be allowed, and that the review decision dated 7th August 2025 be varied so that the sugar import corresponding to that SWIFT payment and invoice be determined based on the Transaction Value method.
All other claims by the Appellant were dismissed. The Respondent was directed to revise the review decision dated 7th August 2025 to take into account this variation within thirty days of the judgment. Each party was ordered to bear its own costs [103].
Tp method highlighted
The dispute concerned customs valuation methods under Section 122 of the EACCMA and the Fourth Schedule, rather than transfer pricing between related parties. The Respondent applied Method 2, the transaction value of identical goods, after rejecting the Appellant's declared transaction values under Method 1 due to discrepancies between invoices and bank remittances. The Tribunal confirmed that the Fourth Schedule methods apply sequentially, starting with transaction value (Paragraph 2), and only where this cannot be determined may the Commissioner move to subsequent methods such as transaction value of identical goods (Paragraph 3) [86]-[90].
Major issues / areas of contention
- Whether the Respondent was justified in deviating from the Transaction Value method to the Transaction Value of Identical Goods method under Section 122 and the Fourth Schedule of the EACCMA.
- Whether the demand notice and objection decision were issued in bad faith, vindictively, or in contravention of the law.
- Whether the invoices submitted by the Appellant bore the requisite features of conventional tax invoices, including Incoterms and payment terms.
- Whether the Respondent's use of comparative FOB reference values (Tanzania/Uganda USD 1,000/MT and Zambia/Malawi USD 850/MT) was arbitrary or unlawful.
- Whether the Respondent adequately examined the Appellant's records and considered all material facts before confirming the assessment.
- Where the burden of proof lies under Section 223 of the EACCMA in establishing lawful importation and proper customs valuation.
- Whether the amount demanded was correctly calculated and would punitively affect the Appellant's business.