Judgment summary
The Appellant, Pigeon Baby Lab Kenya Limited, a wholly owned subsidiary of Pigeon Corporation of Japan, imported a consignment of baby feeding bottles and used the Transaction Value Method to declare customs value. The Respondent uplifted the value and demanded uplifted duty of Kshs 149,904.00, relying on the Transaction Value of Identical Goods method under the Fourth Schedule to the EACCMA (paras 1 to 3).
The Appellant objected, and the Respondent's Review Decision dated 25th November 2025 upheld the assessment. The Appellant appealed, arguing that the Respondent erred in disregarding the Transaction Value Method, that the relationship with its related supplier, Pigeon Indonesia, did not influence pricing, and that the Respondent failed to satisfy the statutory prerequisites for applying the Transaction Value of Identical Goods method (paras 4 to 7).
The Tribunal identified one issue for determination, namely whether the Respondent was justified in applying the transaction value of identical goods method of customs valuation (para 107). The Tribunal found that the Respondent had not justified its departure from the primary valuation method, had not demonstrated how the Appellant's change of business strategy negatively affected duty collection, and had not disclosed comparative data on identical goods (paras 117, 120, 123). The appeal was allowed and the Review Decision set aside (para 125).
Background
The Appellant is a limited liability company incorporated in Kenya, manufacturing, selling, importing and exporting baby and child care products, and is a wholly owned subsidiary of Pigeon Corporation, incorporated in Japan (para 1).
The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995, Cap 469 Laws of Kenya, mandated under Sections 5(1) and 5(2) to collect and administer tax revenue (para 2).
The Respondent imposed a value uplift on a consignment of baby feeding bottles imported by the Appellant and demanded uplifted duty of Kshs 149,904.00 (para 3). The Appellant objected by letter dated 31st October 2025 (para 4). The Respondent reviewed the objection and, by letter dated 25th November 2025, issued a Review Decision upholding the assessment (para 5). The Appellant filed its Notice of Appeal dated 24th December 2025 (para 6).
Core dispute
The dispute concerned whether the Respondent was entitled to disregard the Transaction Value Method declared by the Appellant for imports of baby feeding bottles from its related supplier, Pigeon Indonesia, and instead apply the Transaction Value of Identical Goods method under Paragraph 3 of the Fourth Schedule to the EACCMA.
The Appellant argued that the relationship between it and Pigeon Indonesia did not influence the price, that its Transfer Pricing Policy demonstrated arm's length pricing, and that the Respondent failed to communicate grounds for finding that the relationship influenced pricing as required by Paragraph 2(2) of the Fourth Schedule to the EACCMA. It also argued that the Respondent failed to satisfy the statutory prerequisites for applying the Transaction Value of Identical Goods method, including disclosure of comparable data.
The Respondent argued that an analysis of importation data showed declared values were lower than previous identical imports following the Appellant's change of business model in August 2024 to import from the related company, Pigeon Indonesia, and that it was irrefutable that the relationship influenced the transfer price. The Respondent relied on Section 122(4) of the EACCMA and WTO Decision 6.1 procedures to justify departing from the Transaction Value Method.
Court findings
The Tribunal framed a single issue for determination: whether the Respondent was justified in applying the transaction value of identical goods method of customs valuation (para 107).
The Tribunal noted that Section 122(1) of the EACCMA requires customs value to be determined in accordance with the Fourth Schedule, and that the Fourth Schedule sets out six valuation methods to be applied sequentially, beginning with the Transaction Value Method, from which departure requires valid reasons (paras 110 and 111).
The Tribunal observed that the Respondent's main justification for departing from the Transaction Value Method was that the Appellant and Pigeon Indonesia were related and that this relationship influenced the reduction in FOB prices after the Appellant changed its business model in August 2024 (para 114). The Tribunal held that, under Paragraph 2(2) of the Fourth Schedule to the EACCMA, the fact that the buyer and seller are related is not in itself a ground for regarding the transaction value as unacceptable (paras 115 and 118).
The Tribunal found that the Respondent had not faulted the Appellant's change of business strategy or explained how it negatively affected the imposition or collection of import duty (para 117). It further found that the Respondent had not brought out the considerations, such as distance, mode of transport, supply of raw material or tax jurisdictions, that would render goods identical to the Appellant's goods so as to justify departure from the primary valuation method (para 120).
The Tribunal noted that the Appellant had imported a similar consignment in June 2025 which was cleared without uplift, and that the Respondent had not addressed this, which may have created a legitimate expectation (para 121). The Tribunal concluded that the Respondent failed to adduce data showing the Appellant's consignment was identical to other cleared consignments, and was therefore not justified in departing from the Appellant's valuation method (paras 123 and 124).
Outcome
The Tribunal found the appeal meritorious and allowed it. The Respondent's Review Decision dated 25th November 2025 was set aside. Each party was ordered to bear its own costs (para 125).
Tp method highlighted
The Appellant stated that it had an existing Transfer Pricing Policy as required under the Income Tax (Transfer Pricing) Rules 2006, documenting arm's length pricing arrangements with its non-resident related parties, including Pigeon Indonesia (para 26).
The Appellant asserted that it carried out a comprehensive benchmarking analysis of comparable companies and established that its gross margins fell within the identified inter-quartile range, supporting that pricing from non-resident related parties was at arm's length (para 27).
The Respondent, in its Review Decision, examined the Transfer Pricing Policy and observed that Pigeon Indonesia and Pigeon India both employed their own manufacturing plants, production lines, machinery, equipment, buildings and warehouses as assets, and argued that the Appellant's explanation that Pigeon India bought from Pigeon Indonesia and added a mark up before selling to Pigeon Kenya did not make business sense (paras 80, 100).
The Respondent submitted that the Appellant's explanations and the contents of the Transfer Pricing Policy did not tally, and that the Appellant's assertion of extra costs incurred by Pigeon India, such as assembly fees and mark ups, was unsupported by documentation (paras 99 and 101).
Major issues / areas of contention
- Whether the Respondent erred in law by failing to furnish the Appellant with reasons for its Review Decision, contrary to Section 229(4) of the EACCMA.
- Whether the Respondent erred in disregarding the Transaction Value Method as the primary customs valuation method under Section 122 and the Fourth Schedule of the EACCMA.
- Whether the relationship between the Appellant and its related supplier, Pigeon Indonesia, influenced the price of the imported products.
- Whether the Respondent followed the correct procedure for upsetting the Transaction Value Method under Paragraph 2 of Part 1 of the Fourth Schedule to the EACCMA.
- Whether the Respondent satisfied the mandatory statutory prerequisites for applying the Transaction Value of Identical Goods method under Paragraph 3 of the Fourth Schedule to the EACCMA.
- Whether the Respondent was justified in applying the transaction value of identical goods method of customs valuation (the single issue framed by the Tribunal).