Judgment summary
This case concerns a customs post clearance compliance review of Semi-Knocked Down (SKD) kits imported by D.T. Dobie and Company (K) Limited for local vehicle assembly under the Kenya Industrialization Transformation Programme. The Respondent issued a Notice of Demand dated 23rd September 2025 for Kshs. 1,395,796,692, later reduced on review to Kshs. 1,112,010,836 after expunging declarations falling outside the audit period of September 2020 to May 2025 (paras 4, 6).
The Appellant argued that the SKDs were imported duty-free pursuant to a National Treasury directive dated 19th December 2016, that the Respondent had facilitated and implemented that arrangement, and that a legitimate expectation of exemption had arisen. The Respondent maintained that the Appellant, as owner and importer of the goods, bore the primary statutory liability for duty under Section 130 of the EACCMA, irrespective of the National Treasury's undertaking.
The Tribunal dismissed the appeal, finding that no legal framework ever exempted SKDs from customs duty, that ownership and the incidence of duty remained with the Appellant throughout, and that the National Treasury undertaking was a private arrangement whose default could not be visited on the Respondent. The Review Decision confirming Kshs. 1,112,010,836 as due and payable was upheld.
Background
The Appellant is a private limited company incorporated in Kenya operating as an automotive dealership, including local vehicle assembly (para 1). The Respondent exercises delegated powers of the Commissioner-General of the Kenya Revenue Authority (para 2).
The dispute arose from the Appellant's importation of Semi-Knocked Down (SKD) kits for local assembly under the Kenya Industrialization Transformation Programme. The kits were imported duty-free pursuant to a National Treasury letter Ref. No. DFN/415/232/011 dated 19th December 2016, addressed to the Commissioner-General, under which the National Treasury undertook to settle applicable taxes on behalf of approved assemblers pending amendment of the revenue laws (para 3).
Following a Customs post clearance compliance review, the Respondent issued a Notice of Demand dated 23rd September 2025, Ref. KRA/CBC/PCA/627/2025, demanding unpaid duties of Kshs. 1,395,796,692 on the ground that the National Treasury undertaking had not been honoured (para 4). The Appellant objected by application for review received on 22nd October 2025 (para 5).
The Respondent's Review Decision of 21st November 2025 partially allowed the objection, expunging Kshs. 283,785,856 relating to declarations before the audit period of September 2020 to May 2025, and confirming the balance of Kshs. 1,112,010,836 as due and payable (para 6). The Appellant filed its Notice of Appeal on 19th December 2025 and lodged the present appeal (para 7).
Core dispute
The Appellant contended that the SKD kits were imported solely pursuant to a tripartite Letter of Commitment dated 7th September 2016 between the Government of Kenya, the Ministry of Industry, Trade and Cooperatives, and Volkswagen South Africa (PTY) Limited, under which the Government committed to ensuring duty exemption for car assemblers, and that the Respondent had facilitated this arrangement by issuing internal instructions and exemption codes over a sustained period, creating a legitimate expectation of exemption (paras 8(a)-8(b), 10-16).
The Appellant further argued that the demand breached fair administrative action principles, that the National Treasury fell within the definition of 'owner' under Section 2 of the EACCMA and should bear the liability, that the demand was procedurally improper for want of a pre-audit notice and adequate particulars, that it was time-barred under Section 135(3) of the EACCMA, and that the Respondent's reliance on Cale Infrastructure Ltd v Commissioner of Customs and Border Control & Another was misplaced on the facts (paras 8(c)-8(g)).
The Respondent maintained that the National Treasury undertaking did not absolve the Appellant, as owner and importer of the goods, from its primary statutory obligation to pay duty under Section 130 of the EACCMA, that no legitimate expectation could arise against clear provisions of the law given the National Treasury's own admission that SKDs were not legally exempt, that the audit was a desk audit not requiring a fifteen-day pre-audit notice, and that the confirmed assessment fell within the five-year statutory period (paras 39-53).
Court findings
The Tribunal declined jurisdiction over the Appellant's stand-alone claims of breach of fair administrative action under Article 47 of the Constitution and the Fair Administrative Action Act, 2015, holding these fall within the province of the High Court, and confined itself to statutory questions under the EACCMA, considering legitimate expectation only insofar as it bore on the correctness of the tax decision (paras 57-58).
On the first issue, the Tribunal found that no legal framework, whether the EACCMA, its Fifth Schedule, or the EAC Common External Tariff, exempted SKD kits from customs duty. The National Treasury's own letter and the Respondent's internal memorandum confirmed the tax-free treatment was an administrative accommodation pending legislative amendment that never occurred; the duty was therefore always lawfully chargeable (paras 59-64).
On the second issue, the Tribunal held that Section 130 of the EACCMA fixes the incidence of duty on the owner of the goods, and no provision transfers this incidence to a third party who merely undertakes to pay. Applying the inclusive definition of 'owner' in Section 2 of the EACCMA, the Tribunal found that ownership, possession, control and power of disposition over the SKDs remained with the Appellant throughout; the National Treasury's role was that of a policy sponsor and guarantor, not an owner with a beneficial interest (paras 65-78). The Tribunal treated the National Treasury undertaking as a private arrangement whose default could not defeat the Appellant's statutory liability, and found the High Court decision in Cale Infrastructure Ltd v Commissioner of Customs and Border Control & Another directly in point on this central issue notwithstanding factual distinctions raised by the Appellant (paras 79-83).
On the third issue, the Tribunal held that legitimate expectation cannot arise against clear provisions of the law, and that the Appellant's expectation, at its highest, was that the National Treasury would pay the duty, not that no duty was due (paras 84-90). The Tribunal found the assessment was not time-barred under Section 135(3) of the EACCMA, as declarations outside the five-year window had already been expunged at review stage, leaving only declarations within September 2020 to May 2025 (paras 91-93). The Tribunal further found no procedural impropriety, holding that the fifteen-day pre-audit notice requirement applies only to comprehensive field audits and not the desk audit conducted, and that the Appellant had shown no prejudice (paras 94-96). The Tribunal concluded the Appellant had not discharged its burden under Section 30 of the Tax Appeals Tribunal Act, 2013 to prove the Review Decision incorrect (para 97).
Outcome
The Tribunal dismissed the appeal in its entirety, upheld the Respondent's Review Decision dated 21st November 2025 confirming the assessment of Kshs. 1,112,010,836 as due and payable, and ordered that each party bear its own costs (para 98).
Major issues / areas of contention
- Whether, in the absence of a legal framework exempting Semi-Knocked Down kits from customs duty, the duty was lawfully chargeable on the importation.
- Whether the Appellant bears the incidence of the duty notwithstanding the National Treasury undertaking to settle applicable taxes.
- Whether the National Treasury fell within the definition of 'owner' under Section 2 of the EACCMA such that liability should be directed against it instead of the Appellant.
- Whether the doctrine of legitimate expectation could operate to shield the Appellant from a duty imposed by statute.
- Whether the demand was time-barred under Section 135(3) of the EACCMA.
- Whether the demand was procedurally improper for want of a pre-audit notice, questionnaire, and adequate particulars.
- Whether the Respondent's Review Decision was justified.