Judgment summary
The Appellant, Comply Industries Limited, imported brown sugar from Uganda between 2020 and 2024. Following a post-clearance compliance audit, the Respondent issued a Notice of Demand dated 15th April 2025 for short-levied import duties, having rejected the Appellant's declared transaction values and applied the transaction value of identical goods method instead.
The Appellant applied for a review of the demand on 14th May 2025, but the Respondent upheld its position in a decision dated 11th June 2025. The Appellant appealed to the Tribunal, arguing that the Respondent had wrongly departed from the primary transaction value method and had improperly applied the identical goods method without satisfying its legal preconditions.
The Tribunal held that the Respondent's rejection of the transaction value method, based on the absence of Incoterms and payment terms in the invoices, had no basis in law, and that the Respondent had failed to prove the invoices were falsified or the transactions were not genuine. The Tribunal further found that the Respondent had failed to demonstrate that the comparator goods met the statutory requirements for identical goods, including same producer, commercial level, quantity and timing of importation, and had failed to disclose the comparator transactions relied upon.
The Tribunal concluded that the Respondent's Review Decision dated 11th June 2025 was not justified and allowed the appeal, setting aside the decision.
Background
The Appellant is a company incorporated in Kenya whose principal business is sourcing, importation and supply of assorted commodities (para 1). The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 (para 2).
The Respondent carried out a post-clearance compliance audit of the Appellant's importation of brown sugar from Uganda from 2020 to 2024 (para 3). On 15th April 2025, the Respondent issued a Notice of Demand of short-levied import duties amounting to Kshs. 9,918,603 (para 4).
On 14th May 2025, the Appellant applied for a review of the Demand Notice. The Respondent upheld its initial demand via a letter dated 11th June 2025 (para 5). The Appellant sought enlargement of time to appeal, which the Tribunal granted by Ruling dated 7th November 2025, and filed its Notice of Appeal on 14th November 2025 (para 6).
Core dispute
The dispute centred on which customs valuation method under the Fourth Schedule to the East African Community Customs Management Act, 2004 (EACCMA) should apply to the Appellant's brown sugar imports. The Appellant argued that its declared values, supported by commercial invoices, were properly determined under the transaction value method (Method 1) under Section 122 and Paragraph 2 of the Fourth Schedule to EACCMA.
The Respondent contended that the Appellant's invoices lacked essential features of genuine commercial invoices, such as Incoterms and payment terms, rendering the transaction value unreliable. The Respondent therefore applied Method 2, the transaction value of identical goods under Paragraph 3 of the Fourth Schedule, using a benchmark FOB value of USD 1,000 per metric tonne, resulting in a demand for short-levied duties.
The Appellant disputed the Respondent's use of Method 2, arguing that the conditions precedent for its application, including same producer, quality, reputation, commercial level, quantity and timing of importation of the comparator goods, had not been satisfied, and that the Respondent had failed to disclose the comparator transactions relied upon.
Court findings
The Tribunal noted that Section 122(1) of the EACCMA requires customs value to be determined in accordance with the Fourth Schedule, which sets out six valuation methods applied in sequential order, with the transaction value method (Method 1) as the primary method (paras 118-120).
The Tribunal found that recourse to an alternative method such as Method 2 is only permissible once it is conclusively established that the transactional value cannot be determined, and that the Respondent must give justified reasons for departing from the sequence (para 123).
The Tribunal held that the Respondent's reliance on the absence of Incoterms and payment terms as a basis for rejecting the transaction value was not anchored in law, as neither the EACCMA, the Fourth Schedule, nor the EAC Customs Valuation Manual prescribes these as mandatory conditions for a valid commercial invoice (para 126).
The Tribunal referred to its own jurisprudence in Sintel Security Print Solutions v Commissioner of Customs and Border Control [2025] KETAT 121 (KLR) and Challenge Impex Ltd v Kenya Revenue Authority [2026] KETAT 255 (KLR), holding that mere suspicion regarding invoice appearance or formatting, without evidence of falsity or manipulation, cannot justify rejection of the transaction value (paras 127-128).
The Tribunal found that the Respondent had not alleged or proven that the invoices were falsified or that the transactions were not genuine, and that the Appellant had provided evidence of seller and buyer details, description of goods, price, and proof of payment (para 129).
The Tribunal further found that the Respondent's application of Method 2 was fatally flawed, as it failed to demonstrate how the comparator goods met the statutory definition of identical goods, including same producer, commercial level, quantity, and timing of importation, and had failed to produce data on the identical transactions used for comparison (paras 130-132).
Relying on Standard Resources Group Limited v Attorney General & 3 Others [2018] eKLR, the Tribunal held that failure to disclose supporting documents for identical transactions meant it could only be taken that no such identical transactions existed and that the Respondent acted arbitrarily (paras 132-133).
The Tribunal held that while Section 30 of the Tax Appeals Tribunal Act places the burden on the taxpayer to prove an assessment is excessive, this does not absolve the Respondent of its evidential burden to justify its departure from the primary method once the taxpayer establishes a prima facie case (paras 134-135). The Tribunal found the Appellant had established a prima facie case, shifting the burden to the Respondent, which the Respondent failed to discharge (paras 135-136).
Outcome
The Tribunal found the Appeal to be meritorious. It allowed the Appeal, set aside the Respondent's Review Decision dated 11th June 2025, and made no order as to costs (para 140).
Major issues / areas of contention
- Whether the Respondent was justified in rejecting the Appellant's declared transaction value method for customs valuation of imported brown sugar.
- Whether the Respondent properly applied the transaction value of identical goods method (Method 2) under Paragraph 3 of the Fourth Schedule to the EACCMA.
- Whether the Respondent discharged its evidential burden to substantiate the alleged undervaluation.
- Whether the Respondent's Review Decision dated 11th June 2025 upholding the demand for short-levied taxes was justified.