Introduction
1. This Judgment is in respect of an appeal lodged by the Kenya Revenue Authority (KRA), hereinafter referred to as "the Appellant," against the decision of the Tax Appeals Tribunal (hereinafter, "the Tribunal") in TAT No. 908 of 2022, delivered on 20th December 2023, in which the Tribunal found in that the goods imported by Cadbury Kenya Limited (CKL), hereinafter referred to as "the Respondent," should be valued using the Transaction Value Method.
2. The background of the dispute is that vide a letter dated 12th April 2022, the Respondent applied for an Advance Ruling under Section 248A of the East Africa Community Customs Management Act, 2004 (EACCMA) in respect of certain products (“Mondelez products”) it intended to start importing from its related parties.
3. In its application for Advanced Ruling, the Respondent (CKL) informed the Appellant that prior to May 2022, it provided sales support services in Kenya to the suppliers, Mondelez Egypt Foods S.A.E. and Mondelez South Africa (Pty) Ltd, who are its related parties. During that period, a third party, Hasbah Kenya Limited (“Hasbah”), acted as the importer of record and was responsible for the importation, distribution, and sale of Mondelez products in Kenya. Hasbah declared customs values based on the Transaction Value Method.
4. The Respondent, in the said letter, informed the Appellant that it intended to change to a new business model as from May 2022, under which it was to take over the supply chain obligations previously handled by Hasbah. Under this new model, CKL became the distributor of Mondelez products in Kenya, purchasing directly from Mondelez related entities (Mondelez International AMEA PTE Limited in Singapore and directly from manufacturing entities in COMESA countries like Egypt and Eswatini).
5. The Respondent informed KRA that under this new business model, the intercompany prices would be lower than those previously paid by Hasbah, citing reasons such as CKL providing sales support services without compensation from foreign entities, making royalty payments for intellectual property use (costs not incurred by Hasbah), and a direct relationship with sellers ensuring a full margin on sale. CKL proposed that, taking into account the changes, the appropriate valuation method would be the Transaction Value Method.
6. On 15th May 2022, KRA declined to issue the advance ruling, stating that CKL's request was for the "application of valuation method" and not a "valuation request" under the WTO Trade Facilitation Agreement. KRA further opined that the Transaction Value Method would not apply, given that the change in business model was merely an "internal business structure change" which would not affect the customs value. Consequently, KRA advised CKL to use the Transaction Value of identical goods, that is, the values declared in Hasbah's previous importations.
7. On 17th June 2022, CKL sought a review of this decision, providing further details on the new business model and explaining why the price would be lower. However, on 14th July 2022, KRA affirmed its initial ruling, stating no new information was provided.
8. Dissatisfied with KRA's review decision, CKL appealed to the Tax Appeals Tribunal. On 20th December 2023, the Tribunal rendered its judgment, setting aside KRA's review decision and finding that CKL's goods should be valued using the Transaction Value Method.
9. Aggrieved by the decision of the Tribunal, the Appellant lodged the instant appeal to this Court, raising the following eight (8) grounds of appeal: -
i. That Tribunal erred in law and fact in failing to find that the appeal before it was premature.
ii. That the Tribunal erred in fact and law in holding that the Respondent made a valuation request contrary to the World Customs Organization's Technical Guidelines on Advance Rulings for Classification, Origin and Valuation.
iii. That the Tribunal erred in fact and in law in holding that the best method for valuation is the transactional value, contrary to the provisions set out in the Fourth Schedule of the East Africa Community Customs Management Act (EACCMA).
iv. That the Tribunal erred in fact and law in holding that the Respondent satisfied all the Conditions provided in Paragraph 2 of the Fourth Schedule of EACCMA.
v. That the Tribunal erred in fact and law in failing to recognize that the Respondent's change of business model does not impact the value of the product being traded.
vi. That the Tribunal erred in fact and law in its interpretation of the Arm's Length Principle contrary to the provisions of Article 9, Paragraph 1 of the Model Convention with Respect to Taxes on Income and Capital and the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.
vii. That the Honourable Tribunal erred in law and fact in failing to consider the Appellant's mandate under EAССМА.
viii. That the Honourable Tribunal misapplied the law and facts and therefore arrived at the wrong decision.
10. The Appeal was canvassed by way of written submissions, which were highlighted in court on 16th May 2025. The Appellant filed its submissions dated 23rd October 2024, whilst the Respondent filed theirs dated 23rd October 2024.
Analysis and Determination
11. The jurisdiction of this Honourable Court to hear appeals from the Tax Appeals Tribunal is established by Section 32 of the Tax Appeals Tribunal Act and Legal Notice No. 226 of 2015, which provides as follows: -
“32. Appeals to the High Court on decisions of the Tribunal
(1) A party to proceedings before the Tribunal may, within thirty days after being notified of the decision or within such further period as the High Court may allow, appeal to the High Court, and the party so appealing shall serve a copy of the notice of appeal on the other party.
(1A) A party that has appealed against the decision of the Tribunal in subsection (1) shall within two days of lodging a notice of appeal, serve a copy of the notice on the other party.
(2) The High Court shall hear appeals made under this section in accordance with rules set out by the Chief Justice.”
12. It is settled law that the duty of a first appellate court is to evaluate afresh the evidence adduced before the trial court in order to arrive at its own independent conclusion, but bearing in mind that it neither saw nor heard the witnesses testify. As stated in the case of Selle & Another v Associated Motor Boat Co Ltd & Others [1968] EA 123 where the court therein held that the appellate court was not bound by the findings of fact of the trial court but that in re-considering and re-evaluating the evidence so as to draw its own conclusions, it always had to bear in mind that it neither saw nor heard the witnesses and thus make due allowance in that respect.
13. Having carefully considered the memorandum and record of Appeal, the Respondent’s Statement of Facts, and the parties’ respective submissions, the Court identifies the following issues for determination: -
i. Whether the Tax Appeals Tribunal erred in law by failing to find that the appeal before it was premature.
ii. Whether the Tax Appeals Tribunal was right in finding that the Respondent’s application for a valuation ruling under Section 248A of the EACCMA was valid.
iii. Whether the Tax Appeals Tribunal erred in law and in fact by holding that, on the facts of the case, the Transaction Value Method is the best method for the customs valuation of goods imported by the Respondent from its related entities.
Whether the Appeal was premature
14. In its memorandum of appeal, the Appellant contended that the Tribunal erred by failing to find that the Respondent's appeal was premature. Though this ground was not taken up in the Appellant’s submissions, the Respondent submitted on it, arguing that the Appellant never raised the issue at the Tribunal level, either orally or through a formal preliminary objection, and cannot therefore raise it at the current/appellate stage.
15. It is a well-established principle that parties are bound by their pleadings. As held in Barclays Bank (T) v Jacob Muro, a party cannot introduce new arguments not pleaded without due amendment. Similarly, the case of Commissioner of Domestic Taxes v Airtel Networks Kenya Limited [2023] eKLR cited by the Respondent affirms that this Court's duty, in its capacity as an appellate court in tax matters, is to adjudicate disputes based on matters that had been placed before, and pronounced upon by the Tribunal. The Appellant, by not raising this issue at the Tribunal, forfeited the opportunity for a determination on it, and cannot therefore bring it up at the appellate stage.
16. In any event, I note that the Respondent's appeal to the Tribunal was lodged following the Appellant's Review Decision 14th July 2022, which is explicitly an appealable decision under Section 230(1) of the EACCMA.
17. It therefore follows that this ground of appeal fails, not only because it was not taken up at the Tribunal, but also because, contrary to the Appellant’s averments, the Respondent’s Appeal before the Tribunal was in law ripe.
Whether the Tribunal erred in finding that there was a valid Valuation Request
18. The Appellant disputes that the Respondent made a valid valuation request, citing the World Customs Organization’s (WCO) Technical Guidelines on Advance Rulings. According to the Appellant, the request by the Respondent was for an “application of a valuation method” and not a “valuation request” provided under the WTO trade facilitation agreement. The Appellant, in its letter of 15th May 2022, in response to the Respondent’s application for private ruling, specifically stated as follows: -
“...we have perused through your request and noted that the request made is for the application of valuation method and not a valuation request provided under the WTO trade facilitation agreement. [emphasis added].
19. The Respondent countered the Appellant’s arguments and stated that its application for Advance Ruling fully complied with Section 248A of the EACCMA, the WCO guidelines, as well as the information provided in the Appellant’s own website that an advance ruling request can be made in respect of “Determination of the appropriate valuation methodology or criteria and the application thereof, to be used for determining the customs value under a particular set of facts.”
20. Section 248A(1)(c) of the EACCMA explicitly allows a person intending to import goods to apply for advance binding rulings on "customs valuation." I have perused the Respondent's letter of 12th April 2022, and note that it clearly stated that its intention was to apply for a ruling on the appropriate customs valuation methodology to be applied on importation in accordance with section 248A of the EACCMA 2004. This, in my view, unequivocally demonstrates a request for a valuation ruling. The Section provides as follows: -
“(1) A person intending to import goods may make a written application to the Commissioner for advance binding rulings on any of the following –
(a) tariff classification;
(b) rules of origin; or
(c) customs valuation.
(2) Subject to subsection (1) and upon direction from the Commissioner, the applicant shall furnish to the Commissioner sufficient information that may be used to make the decision.
(3) The Commissioner shall, within thirty days of receipt of the sufficient information, issue an advance ruling or give reasons for the inability to issue an advance ruling on the application.
(4) The decision issued under subsection (3) shall be binding on the Commissioner and the applicant for a period not exceeding twelve months.”
21. The WCO Technical Guidelines on Customs Valuation, as cited by the Respondent, prescribe the essential elements of a valid valuation request. These include the particulars of the applicant, a description of the transaction, the nature of the relationship between the parties, and any specific information relevant to the valuation issue raised. I am satisfied that the Respondent’s application, which detailed its new business model, the involvement of related entities, and the rationale for anticipated pricing differences, fell squarely within the scope of these requirements.
22. Further, as correctly observed by the Respondent, the Appellant’s argument that the application did not amount to a valid “valuation request” under the East African Community Customs Management Act (EACCMA) is contradicted by its own conduct. The Appellant proceeded to issue an Advance Ruling in response to the very application it now disputes, as evidenced by its letter dated 15th May 2022.
23. In my view, this act of issuing a ruling on the merits of the application constitutes an acknowledgment of its validity. Even assuming arguendo that there were any formal deficiencies in the application (which I do not find), the Appellant’s responsive conduct effectively regularized and validated the request.
24. It is pertinent to highlight the provisions of Article 3 of the World Trade Organization (WTO) Agreement on Trade Facilitation, which establish the framework for advance rulings. Under this Article, WTO Members are obligated to issue advance rulings on matters relating to the tariff classification and origin of goods. Additionally, Members are encouraged to extend the scope of advance rulings to other areas, including customs valuation and conditions for relief or exemption from duties. Article 3 provides, in relevant part, as follows:
“ARTICLE 3: ADVANCE RULINGS
1. Each Member shall issue an advance ruling in a reasonable, time-bound manner to the applicant that has submitted a written request containing all necessary information. If a Member declines to issue an advance ruling, it shall promptly notify the applicant in writing, setting out the relevant facts and the basis for its decision.”
2. “An advance ruling issued by a Member shall be binding on that Member in respect of the applicant that sought it. The Member may provide that the advance ruling is binding on the applicant.”
25. Furthermore, Paragraph 9 of Article 3 of the WTO Agreement on Trade Facilitation, under the heading “Definitions and Scope,” defines an advance ruling as follows:-
“9. Definitions and scope:
(a) An advance ruling is a written decision provided by a Member to the applicant prior to the importation of a good covered by the application that sets forth the treatment that the Member shall provide to the good at the time of importation with regard to:
(i) the good's tariff classification; and
(ii) the origin of the good.(3)
(b) In addition to the advance rulings defined in subparagraph (a), Members are encouraged to provide advance rulings on:
(i) the appropriate method or criteria, and the application thereof, to be used for determining the customs value under a particular set of facts;"
26. In view of the foregoing, the Court finds no fault in the Tribunal’s conclusion that the Respondent had submitted a valid valuation request within the meaning of Section 248A(1)(c) of the East African Community Customs Management Act (EACCMA), and in conformity with the applicable World Customs Organization (WCO) Technical Guidelines.
Whether the Tribunal was right on the Transaction Value Method
27. On this, the Appellant argued that the Transaction Value Method is not applicable due to the related-party transaction and the perceived lack of impact on value due to the business model change.
28. The relevant portions of the Appellant’s letter of 15th May 2022 (which it sustained in the review decision of 14th July 2022), stated that: -
“…we have perused through your request and noted that the request made is for the application of valuation method and not a valuation request provided under the WTO trade facilitation agreement.
Furthermore, we note that a third party who is unrelated to the exporters in Egypt and South Africa has previously imported the goods in question. From your submissions CKL incorporated in Kenya provides sales support services in Kenya whilst the third party is responsible for importation and distribution on Mondelez range of products in Kenya. The distributor is also responsible for clearance of the goods and subsequent distribution and sales of goods.
CKL intends to change its business model, take up the supply chain obligations previously taken up by third party and subsequently sell the imported products at an operating margin which is enough to foster the Company’s self-reliance, while still maintaining its marketing and promotional costs and obligations. This implies that there is no transaction between the related parties hence transaction value method does not apply upon the adoption of the new model.……
In addition it is noted that CKL is already incorporated in Kenya taking care of sales support services while the third party is responsible for importation and distribution of products. The mere change of business model does not impact on the value of the products since the same roles done in the country of importation are only changing hands from third party to CKL, hence the change of model is an internal business structure change/process change and has nothing to do with the value of the products considering it is the same(identical) product being traded.
The OECD, arms length principle is very clear on related pa or payable by the unrelated party transactions. In your case a third party is already importing the goods forming a clear basis for valuation, which is the price paid.
The 4th Schedule in the EACCMA 2004 clearly guides on the sequential application of valuation methods when the Transaction value method fails, like in this case.
In conclusion, preliminary analysis of your submission indicates that your request falls short of the rules governing the transaction value method. We therefore guide that you apply the transaction value of unrelated parties (as per the third party previous importations).
29. The Respondent, for its part, maintained that the Transaction Value Method is the primary and most appropriate method for determining the customs value of the subject goods. It argued that the set of facts presented in its application satisfied all the conditions required for the application of this method.
30. The substantive legal framework governing customs valuation is found under Section 122 of the East African Community Customs Management Act (EACCMA). Subsection (1) provides that imported goods liable to ad valorem duty shall be valued in accordance with the methods prescribed in the Fourth Schedule to the Act. It states as follows:
“122. Determination of value of imported goods liable to ad valorem import duty
(1) Where imported goods are liable to import duty ad valorem, then the value of such goods shall be determined in accordance with the Fourth Schedule and import duty shall be paid on that value.”
31. The six methods provided for customs valuation of imported goods under the Fourth Schedule to the EACCMA are as follows: -
i. Transaction Value Method
ii. Transaction Value Method of Identical Goods
iii. Transaction Value Method of Similar Goods
iv. Deductive Value Method
v. Computed Value Method
vi. Fallback Value Method
32. Paragraphs 1 and 2 of the Interpretative Notes to the Fourth Schedule establishes a mandatory sequential order for the application of the six customs valuation methods. It affirms that the Transaction Value Method, set out under Paragraph 2, is the primary method. The remaining methods—namely, the transaction value of identical goods, similar goods, deductive value, computed value, and fallback method—may only be applied in the prescribed order and only where the conditions of the preceding method are not met. The inter
“PART II
INTERPRETATIVE NOTES
Sequential Application of Valuation Methods
1. Paragraph 2, 3, 4, 5, 6, 7 and 8 define how the customs value of imported goods is to be determined under the provisions of this Schedule. The methods of valuation are set out in a sequential order of application. The primary methods for customs valuation is defined in Paragraph 2 and imported goods are to be valued in accordance with the provisions of this paragraph whenever the conditions prescribed therein are fulfilled.
2. Where the customs value cannot be determined under the provisions of paragraph 2, it is to be determined by proceeding sequentially through the succeeding paragraphs to the first such paragraph under which the customs value can be determined. Except as provided in Paragraph 5, it is only when the customs value cannot be determined under the provisions of a particular paragraph that the provisions of the next paragraph in the sequence can be used.”
33. This sequential structure underscores the legal requirement that customs authorities must exhaustively consider and eliminate each method in turn before proceeding to the next.
34. Transaction Value is defined under Paragraph 2(1) of the Fourth Schedule to the EACCMA as the "price actually paid or payable for the goods when sold for export to the Partner State." Notably, Paragraph 2(2) addresses the valuation of goods where the importer and exporter are related. It clarifies that the existence of a relationship between the parties is not, by itself, a ground for rejecting the declared transaction value, unless it can be shown that the relationship influenced the price. The paragraph provides as follows:
“2(a). In determining whether the transaction value is acceptable for the purposes of subparagraph (1), the fact that the buyer and the seller are related within the meaning of Paragraph (1) shall not in itself be a ground for regarding the transaction value as unacceptable. In such case the circumstances surrounding the sale shall be examined and transaction value shall be accepted provided that the relationship did not influence the price...”
35. In determining whether the transaction value is acceptable, Paragraph 2(2) enjoins KRA to take into account any demonstrated differences in commercial levels, quantity levels, the elements enumerated in Paragraph 9 and costs incurred by the seller in sales in which the seller and the buyer are not related that are not incurred by the seller in sales in which the seller and the buyer are related."
36. From the foregoing, it is clear that a transaction value may still be acceptable for customs valuation purposes even where the buyer and seller are related, provided that the relationship did not influence the price. The key test, as set out in Paragraph 2(2) of the Fourth Schedule, is whether the declared price “closely approximates” the transaction value in sales of identical or similar goods between unrelated parties under comparable conditions.
37. In applying this test, necessary adjustments must be made for the elements specified in Paragraph 9—including commissions, packing costs, assists, royalties, and transport-related expenses—as well as for any costs incurred by the seller in sales to unrelated parties that are not incurred in related-party transactions. [emphasis added].
38. In the present case, the Respondent, in its application for an Advance Ruling, explicitly articulated the reasons for the anticipated price difference between its new business model and the previous importations made by Hasbah. In its letter dated 12th April 2022, the Respondent outlined the following key factors accounting for the pricing differential:
i. That, unlike Hasbah, CKL (the Respondent) provides added sales support services without compensation from the foreign entities.
ii. That CKL makes royalty payments for the use of intellectual property, which Hasbah did not.
iii. That the direct relationship between CKL and the manufacturing entities ensures the inclusion of the full margin upon sale.
39. Contrary to the Appellant’s assertions, this Court finds that the reasons advanced by the Respondent reflect commercial realities and provide a valid basis for the pricing differential observed under the new business model, as compared to the previous model involving Hasbah, an unrelated third party.
40. Given the change in the supply chain structure, it is commercially reasonable that the prices at which the Respondent’s related-party exporters sell the “Mondelez products” to Hasbah, a third party, would differ from the prices at which similar products are sold to CKL, a related party. The mere existence of a pricing difference does not, without more, demonstrate that the relationship influenced the price.
41. It is instructive to note that Paragraph 2(2) of the Fourth Schedule to the EACCMA expressly permits adjustments in determining the transaction value to account for factors such as “costs incurred by the seller. Specifically, it allows for the consideration of “costs incurred by the seller in sales in which the seller and the buyer are not related that are not incurred by the seller in sales in which the seller and the buyer are related.”
42. This provision recognizes that customs values of goods imported from related parties may legitimately differ from the customs values of the same goods imported from the same sellers by third parties.
43. The Act requires that the Transaction Value Method be applied first, and recourse is only to be had to the next and subsequent valuation methods if the Transaction Value Method is found to be inapplicable.
44. In the present case, I note that the Appellant outrightly dismissed the Transaction value method and resorted to the second method (Transaction Value of Identical Goods), merely because the parties were related, without first undertaking the analysis required under Paragraph 2(2) of the Fourth Schedule to determine the applicability/suitability of the method. This approach by the Appellant obviously violated the sequential applicability of the methods as provided under the explanatory notes to the Fourth Schedule.
45. Before I conclude, it is important to clarify that despite this Court having found that the prices at which CKL is to import the subject goods are generally likely to be lower than those at which Hasbash is importing the same goods (factoring in the additional costs loaded by the sellers on the sales to Hasbah), a definitive determination of the actual customs values at import can only be made once all the requisite data for such adjustments, as contemplated under paragraph 2(2), is made available. This level of inquiry and determination was beyond the scope of the present appeal.
46. In view of the foregoing, this Court finds no fault in the reasoning or conclusion reached by the Honourable Tribunal. The Appeal is found to be without merit and is accordingly dismissed with costs to the Respondent.
47. The Judgment of the Tax Appeals Tribunal in Tax Appeal No. 908 of 2022 delivered on 20th December 2023 is hereby upheld.
48. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT THIS
31ST DAY OF JULY 2025
ADO MOSES
JUDGE
In the Presence of:
Moses C/A
Ms. Almadi…. ………………for the Appellant
Ms. Muna…. ……………..for the Respondent
1. This Judgment is in respect of an appeal lodged by the Kenya Revenue Authority (KRA), hereinafter referred to as "the Appellant," against the decision of the Tax Appeals Tribunal (hereinafter, "the Tribunal") in TAT No. 908 of 2022, delivered on 20th December 2023, in which the Tribunal found in that the goods imported by Cadbury Kenya Limited (CKL), hereinafter referred to as "the Respondent," should be valued using the Transaction Value Method.
2. The background of the dispute is that vide a letter dated 12th April 2022, the Respondent applied for an Advance Ruling under Section 248A of the East Africa Community Customs Management Act, 2004 (EACCMA) in respect of certain products (“Mondelez products”) it intended to start importing from its related parties.
3. In its application for Advanced Ruling, the Respondent (CKL) informed the Appellant that prior to May 2022, it provided sales support services in Kenya to the suppliers, Mondelez Egypt Foods S.A.E. and Mondelez South Africa (Pty) Ltd, who are its related parties. During that period, a third party, Hasbah Kenya Limited (“Hasbah”), acted as the importer of record and was responsible for the importation, distribution, and sale of Mondelez products in Kenya. Hasbah declared customs values based on the Transaction Value Method.
4. The Respondent, in the said letter, informed the Appellant that it intended to change to a new business model as from May 2022, under which it was to take over the supply chain obligations previously handled by Hasbah. Under this new model, CKL became the distributor of Mondelez products in Kenya, purchasing directly from Mondelez related entities (Mondelez International AMEA PTE Limited in Singapore and directly from manufacturing entities in COMESA countries like Egypt and Eswatini).
5. The Respondent informed KRA that under this new business model, the intercompany prices would be lower than those previously paid by Hasbah, citing reasons such as CKL providing sales support services without compensation from foreign entities, making royalty payments for intellectual property use (costs not incurred by Hasbah), and a direct relationship with sellers ensuring a full margin on sale. CKL proposed that, taking into account the changes, the appropriate valuation method would be the Transaction Value Method.
6. On 15th May 2022, KRA declined to issue the advance ruling, stating that CKL's request was for the "application of valuation method" and not a "valuation request" under the WTO Trade Facilitation Agreement. KRA further opined that the Transaction Value Method would not apply, given that the change in business model was merely an "internal business structure change" which would not affect the customs value. Consequently, KRA advised CKL to use the Transaction Value of identical goods, that is, the values declared in Hasbah's previous importations.
7. On 17th June 2022, CKL sought a review of this decision, providing further details on the new business model and explaining why the price would be lower. However, on 14th July 2022, KRA affirmed its initial ruling, stating no new information was provided.
8. Dissatisfied with KRA's review decision, CKL appealed to the Tax Appeals Tribunal. On 20th December 2023, the Tribunal rendered its judgment, setting aside KRA's review decision and finding that CKL's goods should be valued using the Transaction Value Method.
9. Aggrieved by the decision of the Tribunal, the Appellant lodged the instant appeal to this Court, raising the following eight (8) grounds of appeal: -
i. That Tribunal erred in law and fact in failing to find that the appeal before it was premature.
ii. That the Tribunal erred in fact and law in holding that the Respondent made a valuation request contrary to the World Customs Organization's Technical Guidelines on Advance Rulings for Classification, Origin and Valuation.
iii. That the Tribunal erred in fact and in law in holding that the best method for valuation is the transactional value, contrary to the provisions set out in the Fourth Schedule of the East Africa Community Customs Management Act (EACCMA).
iv. That the Tribunal erred in fact and law in holding that the Respondent satisfied all the Conditions provided in Paragraph 2 of the Fourth Schedule of EACCMA.
v. That the Tribunal erred in fact and law in failing to recognize that the Respondent's change of business model does not impact the value of the product being traded.
vi. That the Tribunal erred in fact and law in its interpretation of the Arm's Length Principle contrary to the provisions of Article 9, Paragraph 1 of the Model Convention with Respect to Taxes on Income and Capital and the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.
vii. That the Honourable Tribunal erred in law and fact in failing to consider the Appellant's mandate under EAССМА.
viii. That the Honourable Tribunal misapplied the law and facts and therefore arrived at the wrong decision.
10. The Appeal was canvassed by way of written submissions, which were highlighted in court on 16th May 2025. The Appellant filed its submissions dated 23rd October 2024, whilst the Respondent filed theirs dated 23rd October 2024.
Analysis and Determination
11. The jurisdiction of this Honourable Court to hear appeals from the Tax Appeals Tribunal is established by Section 32 of the Tax Appeals Tribunal Act and Legal Notice No. 226 of 2015, which provides as follows: -
“32. Appeals to the High Court on decisions of the Tribunal
(1) A party to proceedings before the Tribunal may, within thirty days after being notified of the decision or within such further period as the High Court may allow, appeal to the High Court, and the party so appealing shall serve a copy of the notice of appeal on the other party.
(1A) A party that has appealed against the decision of the Tribunal in subsection (1) shall within two days of lodging a notice of appeal, serve a copy of the notice on the other party.
(2) The High Court shall hear appeals made under this section in accordance with rules set out by the Chief Justice.”
12. It is settled law that the duty of a first appellate court is to evaluate afresh the evidence adduced before the trial court in order to arrive at its own independent conclusion, but bearing in mind that it neither saw nor heard the witnesses testify. As stated in the case of Selle & Another v Associated Motor Boat Co Ltd & Others [1968] EA 123 where the court therein held that the appellate court was not bound by the findings of fact of the trial court but that in re-considering and re-evaluating the evidence so as to draw its own conclusions, it always had to bear in mind that it neither saw nor heard the witnesses and thus make due allowance in that respect.
13. Having carefully considered the memorandum and record of Appeal, the Respondent’s Statement of Facts, and the parties’ respective submissions, the Court identifies the following issues for determination: -
i. Whether the Tax Appeals Tribunal erred in law by failing to find that the appeal before it was premature.
ii. Whether the Tax Appeals Tribunal was right in finding that the Respondent’s application for a valuation ruling under Section 248A of the EACCMA was valid.
iii. Whether the Tax Appeals Tribunal erred in law and in fact by holding that, on the facts of the case, the Transaction Value Method is the best method for the customs valuation of goods imported by the Respondent from its related entities.
Whether the Appeal was premature
14. In its memorandum of appeal, the Appellant contended that the Tribunal erred by failing to find that the Respondent's appeal was premature. Though this ground was not taken up in the Appellant’s submissions, the Respondent submitted on it, arguing that the Appellant never raised the issue at the Tribunal level, either orally or through a formal preliminary objection, and cannot therefore raise it at the current/appellate stage.
15. It is a well-established principle that parties are bound by their pleadings. As held in Barclays Bank (T) v Jacob Muro, a party cannot introduce new arguments not pleaded without due amendment. Similarly, the case of Commissioner of Domestic Taxes v Airtel Networks Kenya Limited [2023] eKLR cited by the Respondent affirms that this Court's duty, in its capacity as an appellate court in tax matters, is to adjudicate disputes based on matters that had been placed before, and pronounced upon by the Tribunal. The Appellant, by not raising this issue at the Tribunal, forfeited the opportunity for a determination on it, and cannot therefore bring it up at the appellate stage.
16. In any event, I note that the Respondent's appeal to the Tribunal was lodged following the Appellant's Review Decision 14th July 2022, which is explicitly an appealable decision under Section 230(1) of the EACCMA.
17. It therefore follows that this ground of appeal fails, not only because it was not taken up at the Tribunal, but also because, contrary to the Appellant’s averments, the Respondent’s Appeal before the Tribunal was in law ripe.
Whether the Tribunal erred in finding that there was a valid Valuation Request
18. The Appellant disputes that the Respondent made a valid valuation request, citing the World Customs Organization’s (WCO) Technical Guidelines on Advance Rulings. According to the Appellant, the request by the Respondent was for an “application of a valuation method” and not a “valuation request” provided under the WTO trade facilitation agreement. The Appellant, in its letter of 15th May 2022, in response to the Respondent’s application for private ruling, specifically stated as follows: -
“...we have perused through your request and noted that the request made is for the application of valuation method and not a valuation request provided under the WTO trade facilitation agreement. [emphasis added].
19. The Respondent countered the Appellant’s arguments and stated that its application for Advance Ruling fully complied with Section 248A of the EACCMA, the WCO guidelines, as well as the information provided in the Appellant’s own website that an advance ruling request can be made in respect of “Determination of the appropriate valuation methodology or criteria and the application thereof, to be used for determining the customs value under a particular set of facts.”
20. Section 248A(1)(c) of the EACCMA explicitly allows a person intending to import goods to apply for advance binding rulings on "customs valuation." I have perused the Respondent's letter of 12th April 2022, and note that it clearly stated that its intention was to apply for a ruling on the appropriate customs valuation methodology to be applied on importation in accordance with section 248A of the EACCMA 2004. This, in my view, unequivocally demonstrates a request for a valuation ruling. The Section provides as follows: -
“(1) A person intending to import goods may make a written application to the Commissioner for advance binding rulings on any of the following –
(a) tariff classification;
(b) rules of origin; or
(c) customs valuation.
(2) Subject to subsection (1) and upon direction from the Commissioner, the applicant shall furnish to the Commissioner sufficient information that may be used to make the decision.
(3) The Commissioner shall, within thirty days of receipt of the sufficient information, issue an advance ruling or give reasons for the inability to issue an advance ruling on the application.
(4) The decision issued under subsection (3) shall be binding on the Commissioner and the applicant for a period not exceeding twelve months.”
21. The WCO Technical Guidelines on Customs Valuation, as cited by the Respondent, prescribe the essential elements of a valid valuation request. These include the particulars of the applicant, a description of the transaction, the nature of the relationship between the parties, and any specific information relevant to the valuation issue raised. I am satisfied that the Respondent’s application, which detailed its new business model, the involvement of related entities, and the rationale for anticipated pricing differences, fell squarely within the scope of these requirements.
22. Further, as correctly observed by the Respondent, the Appellant’s argument that the application did not amount to a valid “valuation request” under the East African Community Customs Management Act (EACCMA) is contradicted by its own conduct. The Appellant proceeded to issue an Advance Ruling in response to the very application it now disputes, as evidenced by its letter dated 15th May 2022.
23. In my view, this act of issuing a ruling on the merits of the application constitutes an acknowledgment of its validity. Even assuming arguendo that there were any formal deficiencies in the application (which I do not find), the Appellant’s responsive conduct effectively regularized and validated the request.
24. It is pertinent to highlight the provisions of Article 3 of the World Trade Organization (WTO) Agreement on Trade Facilitation, which establish the framework for advance rulings. Under this Article, WTO Members are obligated to issue advance rulings on matters relating to the tariff classification and origin of goods. Additionally, Members are encouraged to extend the scope of advance rulings to other areas, including customs valuation and conditions for relief or exemption from duties. Article 3 provides, in relevant part, as follows:
“ARTICLE 3: ADVANCE RULINGS
1. Each Member shall issue an advance ruling in a reasonable, time-bound manner to the applicant that has submitted a written request containing all necessary information. If a Member declines to issue an advance ruling, it shall promptly notify the applicant in writing, setting out the relevant facts and the basis for its decision.”
2. “An advance ruling issued by a Member shall be binding on that Member in respect of the applicant that sought it. The Member may provide that the advance ruling is binding on the applicant.”
25. Furthermore, Paragraph 9 of Article 3 of the WTO Agreement on Trade Facilitation, under the heading “Definitions and Scope,” defines an advance ruling as follows:-
“9. Definitions and scope:
(a) An advance ruling is a written decision provided by a Member to the applicant prior to the importation of a good covered by the application that sets forth the treatment that the Member shall provide to the good at the time of importation with regard to:
(i) the good's tariff classification; and
(ii) the origin of the good.(3)
(b) In addition to the advance rulings defined in subparagraph (a), Members are encouraged to provide advance rulings on:
(i) the appropriate method or criteria, and the application thereof, to be used for determining the customs value under a particular set of facts;"
26. In view of the foregoing, the Court finds no fault in the Tribunal’s conclusion that the Respondent had submitted a valid valuation request within the meaning of Section 248A(1)(c) of the East African Community Customs Management Act (EACCMA), and in conformity with the applicable World Customs Organization (WCO) Technical Guidelines.
Whether the Tribunal was right on the Transaction Value Method
27. On this, the Appellant argued that the Transaction Value Method is not applicable due to the related-party transaction and the perceived lack of impact on value due to the business model change.
28. The relevant portions of the Appellant’s letter of 15th May 2022 (which it sustained in the review decision of 14th July 2022), stated that: -
“…we have perused through your request and noted that the request made is for the application of valuation method and not a valuation request provided under the WTO trade facilitation agreement.
Furthermore, we note that a third party who is unrelated to the exporters in Egypt and South Africa has previously imported the goods in question. From your submissions CKL incorporated in Kenya provides sales support services in Kenya whilst the third party is responsible for importation and distribution on Mondelez range of products in Kenya. The distributor is also responsible for clearance of the goods and subsequent distribution and sales of goods.
CKL intends to change its business model, take up the supply chain obligations previously taken up by third party and subsequently sell the imported products at an operating margin which is enough to foster the Company’s self-reliance, while still maintaining its marketing and promotional costs and obligations. This implies that there is no transaction between the related parties hence transaction value method does not apply upon the adoption of the new model.……
In addition it is noted that CKL is already incorporated in Kenya taking care of sales support services while the third party is responsible for importation and distribution of products. The mere change of business model does not impact on the value of the products since the same roles done in the country of importation are only changing hands from third party to CKL, hence the change of model is an internal business structure change/process change and has nothing to do with the value of the products considering it is the same(identical) product being traded.
The OECD, arms length principle is very clear on related pa or payable by the unrelated party transactions. In your case a third party is already importing the goods forming a clear basis for valuation, which is the price paid.
The 4th Schedule in the EACCMA 2004 clearly guides on the sequential application of valuation methods when the Transaction value method fails, like in this case.
In conclusion, preliminary analysis of your submission indicates that your request falls short of the rules governing the transaction value method. We therefore guide that you apply the transaction value of unrelated parties (as per the third party previous importations).
29. The Respondent, for its part, maintained that the Transaction Value Method is the primary and most appropriate method for determining the customs value of the subject goods. It argued that the set of facts presented in its application satisfied all the conditions required for the application of this method.
30. The substantive legal framework governing customs valuation is found under Section 122 of the East African Community Customs Management Act (EACCMA). Subsection (1) provides that imported goods liable to ad valorem duty shall be valued in accordance with the methods prescribed in the Fourth Schedule to the Act. It states as follows:
“122. Determination of value of imported goods liable to ad valorem import duty
(1) Where imported goods are liable to import duty ad valorem, then the value of such goods shall be determined in accordance with the Fourth Schedule and import duty shall be paid on that value.”
31. The six methods provided for customs valuation of imported goods under the Fourth Schedule to the EACCMA are as follows: -
i. Transaction Value Method
ii. Transaction Value Method of Identical Goods
iii. Transaction Value Method of Similar Goods
iv. Deductive Value Method
v. Computed Value Method
vi. Fallback Value Method
32. Paragraphs 1 and 2 of the Interpretative Notes to the Fourth Schedule establishes a mandatory sequential order for the application of the six customs valuation methods. It affirms that the Transaction Value Method, set out under Paragraph 2, is the primary method. The remaining methods—namely, the transaction value of identical goods, similar goods, deductive value, computed value, and fallback method—may only be applied in the prescribed order and only where the conditions of the preceding method are not met. The inter
“PART II
INTERPRETATIVE NOTES
Sequential Application of Valuation Methods
1. Paragraph 2, 3, 4, 5, 6, 7 and 8 define how the customs value of imported goods is to be determined under the provisions of this Schedule. The methods of valuation are set out in a sequential order of application. The primary methods for customs valuation is defined in Paragraph 2 and imported goods are to be valued in accordance with the provisions of this paragraph whenever the conditions prescribed therein are fulfilled.
2. Where the customs value cannot be determined under the provisions of paragraph 2, it is to be determined by proceeding sequentially through the succeeding paragraphs to the first such paragraph under which the customs value can be determined. Except as provided in Paragraph 5, it is only when the customs value cannot be determined under the provisions of a particular paragraph that the provisions of the next paragraph in the sequence can be used.”
33. This sequential structure underscores the legal requirement that customs authorities must exhaustively consider and eliminate each method in turn before proceeding to the next.
34. Transaction Value is defined under Paragraph 2(1) of the Fourth Schedule to the EACCMA as the "price actually paid or payable for the goods when sold for export to the Partner State." Notably, Paragraph 2(2) addresses the valuation of goods where the importer and exporter are related. It clarifies that the existence of a relationship between the parties is not, by itself, a ground for rejecting the declared transaction value, unless it can be shown that the relationship influenced the price. The paragraph provides as follows:
“2(a). In determining whether the transaction value is acceptable for the purposes of subparagraph (1), the fact that the buyer and the seller are related within the meaning of Paragraph (1) shall not in itself be a ground for regarding the transaction value as unacceptable. In such case the circumstances surrounding the sale shall be examined and transaction value shall be accepted provided that the relationship did not influence the price...”
35. In determining whether the transaction value is acceptable, Paragraph 2(2) enjoins KRA to take into account any demonstrated differences in commercial levels, quantity levels, the elements enumerated in Paragraph 9 and costs incurred by the seller in sales in which the seller and the buyer are not related that are not incurred by the seller in sales in which the seller and the buyer are related."
36. From the foregoing, it is clear that a transaction value may still be acceptable for customs valuation purposes even where the buyer and seller are related, provided that the relationship did not influence the price. The key test, as set out in Paragraph 2(2) of the Fourth Schedule, is whether the declared price “closely approximates” the transaction value in sales of identical or similar goods between unrelated parties under comparable conditions.
37. In applying this test, necessary adjustments must be made for the elements specified in Paragraph 9—including commissions, packing costs, assists, royalties, and transport-related expenses—as well as for any costs incurred by the seller in sales to unrelated parties that are not incurred in related-party transactions. [emphasis added].
38. In the present case, the Respondent, in its application for an Advance Ruling, explicitly articulated the reasons for the anticipated price difference between its new business model and the previous importations made by Hasbah. In its letter dated 12th April 2022, the Respondent outlined the following key factors accounting for the pricing differential:
i. That, unlike Hasbah, CKL (the Respondent) provides added sales support services without compensation from the foreign entities.
ii. That CKL makes royalty payments for the use of intellectual property, which Hasbah did not.
iii. That the direct relationship between CKL and the manufacturing entities ensures the inclusion of the full margin upon sale.
39. Contrary to the Appellant’s assertions, this Court finds that the reasons advanced by the Respondent reflect commercial realities and provide a valid basis for the pricing differential observed under the new business model, as compared to the previous model involving Hasbah, an unrelated third party.
40. Given the change in the supply chain structure, it is commercially reasonable that the prices at which the Respondent’s related-party exporters sell the “Mondelez products” to Hasbah, a third party, would differ from the prices at which similar products are sold to CKL, a related party. The mere existence of a pricing difference does not, without more, demonstrate that the relationship influenced the price.
41. It is instructive to note that Paragraph 2(2) of the Fourth Schedule to the EACCMA expressly permits adjustments in determining the transaction value to account for factors such as “costs incurred by the seller. Specifically, it allows for the consideration of “costs incurred by the seller in sales in which the seller and the buyer are not related that are not incurred by the seller in sales in which the seller and the buyer are related.”
42. This provision recognizes that customs values of goods imported from related parties may legitimately differ from the customs values of the same goods imported from the same sellers by third parties.
43. The Act requires that the Transaction Value Method be applied first, and recourse is only to be had to the next and subsequent valuation methods if the Transaction Value Method is found to be inapplicable.
44. In the present case, I note that the Appellant outrightly dismissed the Transaction value method and resorted to the second method (Transaction Value of Identical Goods), merely because the parties were related, without first undertaking the analysis required under Paragraph 2(2) of the Fourth Schedule to determine the applicability/suitability of the method. This approach by the Appellant obviously violated the sequential applicability of the methods as provided under the explanatory notes to the Fourth Schedule.
45. Before I conclude, it is important to clarify that despite this Court having found that the prices at which CKL is to import the subject goods are generally likely to be lower than those at which Hasbash is importing the same goods (factoring in the additional costs loaded by the sellers on the sales to Hasbah), a definitive determination of the actual customs values at import can only be made once all the requisite data for such adjustments, as contemplated under paragraph 2(2), is made available. This level of inquiry and determination was beyond the scope of the present appeal.
46. In view of the foregoing, this Court finds no fault in the reasoning or conclusion reached by the Honourable Tribunal. The Appeal is found to be without merit and is accordingly dismissed with costs to the Respondent.
47. The Judgment of the Tax Appeals Tribunal in Tax Appeal No. 908 of 2022 delivered on 20th December 2023 is hereby upheld.
48. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT THIS
31ST DAY OF JULY 2025
ADO MOSES
JUDGE
In the Presence of:
Moses C/A
Ms. Almadi…. ………………for the Appellant
Ms. Muna…. ……………..for the Respondent