Judgment summary
This appeal concerned a demand by the Kenya Revenue Authority for Kshs 33,012,176 in short levied import duty, VAT, IDF and RDL, issued against Challenge Impex Limited. The Respondent had rejected the Appellant's declared transaction value on the basis that the commercial invoices produced contained differences in font style and instances of overwriting, and instead applied the transaction value of identical goods method under the Fourth Schedule to the EACCMA.
The Appellant objected and, after an unfavourable Objection Decision dated 9th September 2025, appealed to the Tribunal. The Respondent did not file a response or participate in the hearing.
The Tribunal identified the sole issue as whether the Respondent erred in deviating from the transactional value method in favour of the transaction value of identical goods method. It found that the Appellant had produced invoices and corresponding bank statements substantially matching the declared values, and that the Respondent had not produced evidence that the invoices were falsified or that the declared consideration differed from the actual price paid. The Tribunal held that the Respondent had no lawful basis for rejecting the transaction value method and allowed the appeal.
Background
The Appellant is a limited liability company incorporated in Kenya (para 1). The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469, with the Kenya Revenue Authority mandated under Sections 5(1) and 5(2) of that Act to collect and administer tax revenue (para 2).
By a demand notice dated 17th July 2025, the Respondent demanded Kshs 33,012,176 from the Appellant in respect of short levied import duty, VAT, IDF and RDL (para 3). The Appellant objected by letter dated 11th August 2025 (para 4). The Respondent issued an Objection Decision dated 9th September 2025 confirming the total sum of Kshs 33,012,176 as due and payable (para 5). The Appellant filed a Notice of Appeal dated 6th October 2025 and filed on 8th October 2025 (para 6), followed by a Memorandum of Appeal dated 13th October 2025 (para 7).
Core dispute
The Appellant argued that the assessment was not arrived at objectively, ignored known principles of taxation, breached its legitimate expectation, and that the Respondent was estopped from demanding further taxes having already inspected and released the consignments at importation (para 7). It also argued that the Respondent had not shown which identical goods were used to determine the transaction value, and that there was no requirement under WTO procedures or the EACCMA for invoices to have a specific font (para 7).
The Respondent's Objection Decision rejected the Appellant's declared transaction value on the basis that the invoices provided were not genuine, citing differences in font style and instances of overwriting, and applied the transaction value of identical goods method instead (para 30, 39).
The Tribunal framed the issue for determination as whether the Respondent erred in deviating from the transactional value method in favour of the transaction value of identical goods method (para 28).
Court findings
The Tribunal set out the sequential valuation methods under 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, noting that these are applied sequentially and that transaction value is the primary method (paras 33 to 35).
Citing Commissioner Investigations and Enforcement v Eastern Consulting Management Limited [2022] KEHC 12202 (KLR) and Commissioner of Customs and Border Control v Keppel Investments Limited [2023] KEHC 18548 (KLR), the Tribunal reiterated that the Commissioner may only resort to alternative valuation methods once the transaction value cannot be determined or satisfied (paras 36 to 37).
The Tribunal found that the Respondent's justification for rejecting the transaction value, namely font differences and overwriting on the invoices, was not accompanied by evidence of falsification or of a discrepancy between the declared invoice values and the actual consideration paid (para 39). It held that mere suspicion arising from the appearance or formatting of an invoice, without supporting evidence of falsity or manipulation, cannot justify rejection of the transaction value under Paragraph 2 of the Fourth Schedule to the EACCMA (para 39).
Applying Section 223 of the EACCMA and Section 30 of the Tax Appeals Tribunal Act, and referencing Commissioner of Domestic Taxes v Bosky Industries Limited (Income Tax Appeal E049 of 2022) [2025] KEHC 7965 (KLR), the Tribunal explained that the burden of proof in tax matters oscillates between the taxpayer and the Respondent (paras 40 to 41). Having found that the Appellant produced commercial invoices and corresponding bank statements substantially matching the declared values, the Tribunal held that the evidential burden shifted to the Respondent to justify its allegation that the invoices were not genuine, which the Respondent failed to do (paras 42 to 43).
The Tribunal concluded that the Respondent had no legal basis for proceeding to the transaction value of identical goods method and that the impugned assessment was not supported by sufficient factual or legal justification (paras 44 to 48).
Outcome
The Tribunal held that the Respondent erred in deviating from the transactional value method in favour of the transaction value of identical goods method (para 48).
The appeal was allowed, the Objection Decision dated 9th September 2025 was set aside, and each party was ordered to bear its own costs (para 49).
Tp method highlighted
The dispute concerned customs valuation methods under the Fourth Schedule to the EACCMA rather than transfer pricing. The Tribunal considered whether the Respondent could lawfully depart from the primary transaction value method, being the price actually paid or payable for the goods, in favour of the transaction value of identical goods method, which is the next method in the sequential hierarchy set out in Paragraphs 2 to 8 of the Fourth Schedule (paras 33 to 35). The Tribunal held that departure from the transaction value method requires cogent evidence that the statutory conditions for its rejection are satisfied, and found that no such evidence had been established in this case (paras 44 to 46).
Major issues / areas of contention
- Whether the Respondent erred in deviating from the transaction value method in favour of the transaction value of identical goods method under the Fourth Schedule to the EACCMA.
- Whether the Respondent had lawful grounds to reject the Appellant's commercial invoices as not genuine based on font differences and overwriting.
- Where the burden of proof lies between the taxpayer and the Commissioner under Section 223 of the EACCMA and Section 30 of the Tax Appeals Tribunal Act.
- Whether the Appellant's production of invoices and bank statements discharged its evidential burden and shifted the burden to the Respondent.
- The effect of the Respondent's failure to file a response or participate in the hearing.