Customs Valuation and the Primacy of the Transaction Value Method

Written by Globis Mandela

TAX & CUSTOMS

The customs valuation of imported goods has long been a recurring flashpoint between importers and the Kenya Revenue Authority (KRA), particularly where KRA conducts Post Clearance Audits (PCAs) and raises retrospective demands for allegedly short-levied duties. A common thread in these disputes is KRA’s tendency to bypass the primary transaction value method and substitute it with alternative valuation methods, often without satisfying the stringent legal preconditions for doing so. In a significant judgment delivered recently in Ruka Property Solutions Limited v Commissioner of Customs and Border Control (TAT Appeal No. E653 of 2025), the Tax Appeals Tribunal has provided important clarity on the proper application of the customs valuation hierarchy under the East African Community Customs Management Act, 2004 (EACCMA), in a matter in which our firm represented the taxpayer.

BRIEF FACTS OF THE CASE

The Dispute at a Glance

The dispute arose from a PCA conducted by KRA in respect of the Appellant’s importation of brown sugar from Uganda and the Kingdom of Eswatini between 2020 and 2023. Following the audit, KRA issued a Notice of Demand for alleged short-levied import duties amounting to KES 21,233,346. KRA’s demand was premised on rejecting the Appellant’s declared transaction values, principally because the commercial invoices lacked Incoterms and explicit payment terms. KRA then proceeded to apply the transaction value of identical goods method under Paragraph 3 of the Fourth Schedule to EACCMA, using undisclosed benchmark FOB prices, to arrive at an uplifted duty demand.

The Appellant applied for a review of the demand pursuant to Section 229(1) of the EACCMA, furnishing comprehensive documentation, including commercial invoices for all entries, certificates of origin, proof of payment, KRA payment slips, bank statements, and transaction ledgers reconciling payments to specific consignments. KRA’s Review Decision upheld the demand in its entirety. Aggrieved with the review decision, the appellant appealed to the Tax Appeals Tribunal.

ANALYSIS OF THE CASE

Arguments Before the Tribunal

Before the Tribunal, the Appellant submitted that the EACCMA Fourth Schedule establishes a strict sequential hierarchy of six valuation methods, with the transaction value method under Paragraph 2 as the primary and preferred method. The Appellant argued that departure from this method is only permissible where there exist valid and demonstrable reasons showing that the declared value is unreliable, and that no such reasons existed in the present case. In particular, the Appellant contended that neither the EACCMA, its Regulations, nor the EAC Customs Valuation Manual prescribes the inclusion of Incoterms or explicit payment terms as a precondition for accepting a commercial invoice. The Appellant relied on Rocket Products Limited v Uganda Revenue Authority (Application No. 196 of 2023) and Sintel Security Print Solutions v Commissioner of Customs and Border Control (Tax Appeal E147 of 2024) [2025] KETAT 121 (KLR), both of which confirmed that the absence of Incoterms cannot, in itself, constitute a ground for departing from the primary valuation method.

The Appellant further challenged KRA’s purported application of the identical goods method, submitting that the Respondent had failed to satisfy the cumulative requirements for invoking that method. Those requirements derive from three distinct sources: first, Paragraph 1 of Part I of the Fourth Schedule, which defines “identical goods” as goods that are the same in all respects, including physical characteristics, quality and reputation, and which must have been produced in the same country as the goods being valued; second, Paragraph 3(1)(a) and (b) of the Fourth Schedule, which requires that the comparator goods were exported at or about the same time as the goods under valuation, and were sold at the same commercial level and in substantially the same quantity (with documented adjustments where they differ); and third, the EAC Customs Valuation Manual, which additionally requires that the comparator goods were produced by the same manufacturer or producer, recognising that different producers may have materially different cost structures, quality standards, and market positioning. KRA’s demand was entirely silent on all of these factors. It did not identify the manufacturers of the comparator goods, adduced no evidence of quality or grading parity, disclosed no details of the timing of the comparator importations, and made no reference to commercial level or quantity adjustments. The Appellant relied on Standard Resources Group Limited v Attorney General & 3 Others [2018] eKLR to argue that where a customs authority relies on identical-goods transactions to uphold a duty assessment, it must disclose those transactions and demonstrate that their failure to do so amounts to an arbitrary exercise of power.

On the burden of proof, the Appellant submitted that while Section 223 of the EACCMA accords KRA’s averments prima facie evidentiary weight, and Section 30 of the Tax Appeals Tribunal Act places a burden on the taxpayer to demonstrate that a tax decision is incorrect, this statutory burden only arises after the Commissioner has first laid a proper factual and legal foundation for the impugned assessment. Relying on Bidco Africa Ltd v Commissioner of Customs & Border Control (TAT Appeal E179 of 2025) and Commissioner for Investigations and Enforcement v Menengai Oils Limited [2021] eKLR, the Appellant argued that once a taxpayer adduces credible, uncontroverted documentation supporting its declared customs values, the Respondent’s presumption of correctness disappears. The burden shifts back to the Commissioner to rebut that evidence with concrete, objective material. KRA had adduced no such rebuttal evidence.

KRA, for its part, maintained that the Appellant imported sugar at FOB values materially below prevailing benchmarks for comparable goods from Uganda and Eswatini, justifying the uplift applied. It contended that Section 223 of the EACCMA placed the onus on the Appellant to prove payment of proper duty, and that the supplementary documentation had only been produced at the appeal stage.

TRIBUNAL'S DECISION

The Tribunal allowed the appeal in its entirety. It found that the law requires departure from the transaction value method only where there exist valid and demonstrable reasons showing that the declared value is unreliable. In the present case, the Appellant had produced commercial invoices, certificates of origin, proof of payment, and bank records establishing a prima facie genuine transaction, which the Respondent never rebutted. The Tribunal further held that the Respondent failed to demonstrate why the identical goods method was more appropriate than the transaction value method, and, crucially, did not provide the identity of the comparator goods’ manufacturers, their quality, commercial level, or pricing benchmarks. Relying on Republic v KRA (ex parte J. Mohamed) Civil Application No. 312 of 2011, the Tribunal affirmed that a taxing authority is not entitled to adopt a figure arbitrarily and impose it on a taxpayer without a rational basis for arriving at that figure; rather, any other such conduct is arbitrary, capricious, and amounts to bad faith. Accordingly, the Review Decision was set aside in its entirety.

Ruka Property Solutions Limited v Commissioner of Customs and Border Control — TAT Appeal No. E653 of 2025

SIGNIFICANCE OF THE DECISION

What This Decision Means for Importers

This judgment makes a valuable contribution to the developing body of customs valuation jurisprudence in Kenya and the EAC. It affirms several important propositions:

• The transaction value method is the default, not a concession.

Under Paragraph 2 of the Fourth Schedule, the price you actually paid is the starting point for customs valuation. KRA must have cogent, legally grounded reasons to move away from it.

• The identical goods method is not a free-standing audit tool.

Before KRA can invoke Paragraph 3, it must satisfy requirements drawn from Paragraph 1 (definition, including the same country of production), Paragraph 3(1)(a) and (b) (same time, commercial level, and quantity), and the EAC Customs Valuation Manual (same manufacturer). It must also disclose the specific comparator transactions. Benchmark figures asserted without particularisation will not survive challenge.

• A well-documented transaction is your primary shield.

Once an importer produces credible, uncontroverted evidence of genuine arm’s-length transactions, such as commercial invoices, proof of payment, bank statements, or certificates of origin, the Commissioner’s presumption of correctness is displaced. The burden then lies with KRA to demonstrate, with disclosed and verifiable evidence, that the assessment is correct.

The practical implication is straightforward. If your business faces a PCA and receives a demand based on undisclosed benchmarks, rejected invoices, or alternative valuation methods applied without a proper legal and evidential foundation, the position is eminently challengeable. In such circumstances, importers are entitled to insist that KRA explain, with specificity, why the declared transaction value has been rejected, identify the comparator transactions relied upon, and demonstrate compliance with the strict sequential hierarchy of valuation methods under the EACCMA. Where KRA cannot do so, there is a strong basis to contest the assessment before the Commissioner at the review stage and, if necessary, before the Tax Appeals Tribunal or the superior courts. In practical terms, this decision underscores the importance of maintaining complete documentation and seeking timely professional advice whenever a PCA results in a disputed uplift.