The Tax Appeal Tribunal has rejected claims by the Kenya Revenue Authority (KRA) that consumer goods manufacturer Bidco Africa undervalued a consignment of crude sunflower oil, thus compromising tax payment.
However, the tribunal upheld KRA tax demands against Bidco on white refined sugar imported outside the duty remission window of October 8, 2019, to October 7, 2020, as well as VAT on exports lacking proper certificates.
The tribunal ruled that duty remission is strictly tied to the date of entry, meaning goods cleared after October 7, 2020, were ineligible for concessions.
The case stemmed from a post-clearance audit by the Commissioner of Customs and Border Control, which accused Bidco of undervaluation, improper duty remission, and VAT discrepancies.
Initially, customs demanded Sh337.7 million in October 2024, but after review, this was reduced to Sh33.7 million, prompting Bidco's appeal at the tribunal.
Bidco argued that the commissioner failed to substantiate the undervaluation claim and should have applied the transactional value method under Section 122(1) of the East African Community Customs Management Act before considering alternative valuation methods.
On the other hand, the commissioner countered that undervaluation was identified by comparing Bidco’s foreign supplier ledger entries with customs declarations.
The tribunal ruled that Customs failed to justify its valuation adjustment for crude sunflower oil, noting that Bidco provided supporting documents while customs relied on an unsourced worksheet.
"Without proper identification of the custom value variances, the respondent failed to justify its actions," the tribunal stated, dismissing the sunflower oil assessment as legally unsustainable due to unsubstantiated computations.
The tribunal emphasised that taxpayers must initially establish their case, after which revenue authorities must rebut with evidence. In this instance, Customs failed to corroborate variances or explain departing from the transactional value method.
It added that demands based on “unsubstantiated computations” could not stand.
"The respondent therefore failed to controvert the position that the appellant had not undervalued crude sunflower oil," the tribunal ruled, effectively nullifying the largest portion of the audit. However, the tribunal sided with Customs on two counts. First, it upheld duties on white refined sugar imported after the remission window closed.
Bidco had approval under a gazetted scheme allowing 1,800 tonnes for industrial use within the specified period. But one consignment arrived on October 26, 2020—three weeks late—due to pandemic-related delays.
Bidco argued it had no control over shipping delays, but the tribunal maintained that eligibility hinges on entry date, not shipment timing.
"Importers bear logistical risks and must manage timelines," it ruled, denying Bidco’s exception plea.
“The time of entry of the goods determines the rate of duty applicable,” it said, noting that Bidco could have sought an extension but did not. Customs was therefore “justified in demanding” duty on that shipment.
Second, the tribunal upheld VAT assessments on exports lacking certificates. Bidco treated certain consignments as zero-rated, but Customs disputed this due to missing export certificates.
While Bidco provided invoices, bills of lading, and other documents, the tribunal ruled these insufficient, stressing that statutory proof requirements are mandatory.
"Failure to submit export certificates constitutes non-compliance," it stated, rejecting Bidco’s argument that Customs' system limitations hindered compliance.
The company had argued that it did not have access or visibility to the KRA’s Integrated Customs Management System (iCMS) or SIMBA systems, hence it was unable to note if the systems did not generate an export certificate for particular consignments.
The iCMS is a crucial platform for submitting export or import documents.
But the tribunal said that was not enough because the obligation to prove zero-rating lies squarely on the exporter. The tribunal acknowledged Customs' pre-appeal adjustments, including correcting a 2020 VAT rate and removing duplicate charges.
It upheld the commissioner's argument that failure to secure and submit export certificates amounts to non-compliance with both VAT and customs laws, irrespective of the exporter's internal challenges or reliance on the commissioner’s officers. It ruled that the supplementary documents adduced by Bidco did not replace official export evidence.
The tribunal said that where the statute prescribes the form of proof, “such form must be followed.” Certificates of export are the essential evidence, and the customs authority’s role is facilitative, not custodial.
Ultimately, it partially allowed Bidco’s appeal—quashing the sunflower oil assessment but upholding duties on late sugar imports and VAT on uncertified exports.
