The alleged dispute between the Appellant and the Customs Services Department of the Kenya Revenue Authority arose out of a contract for import of edible oils and related products from Josovina Commodities PTE Singapore wherein customs alleged an undervaluation of duty payable on imports under the said contract.

That the Respondent sought to uplift the values on all of the Appellant's cargoes from 2004 to 2008 since the Appellant insured all its cargo at 110% of the transaction value that is Cost and Freight, CFR Value.

That by a letter dated 11th September 2009 the Respondent demanded payment within seven (7) days, as under valuation of duty, of the sum of Kshs 702,334.527.00

A consent order was signed as agreed upon by both parties, the Tribunal has determined that the said issues can be collapsed into two, namely;

a) Whether the statutory provisions governing customs valuation of imported goods was properly applied by the Respondent?

b) Whether the Respondent is entitled to demand the extra revenue of Kshs. 1, 377,505,229.

The Tribunal notes that the above issues are intertwined and will therefore proceed to analyze them simultaneously as hereunder.

In the instant case, the Appellant used the CFR (Cost and Freight) and adjusted it to include marine insurance premium to determine the customs value upon which import duty was applied on the imported oils.

Under the terms of contract between the seller and the Appellant, the seller took out a comprehensive insurance cover against all risks including losses related to excess and under deliveries of the contract quantities. The Full Outturn Guarantee (FOG) had a sum assured which was equivalent to 10% of the invoice price. Thus, excesses and losses were compensated according to the sum assured which was 10% of the invoice price.

The Appellant used the sum assured to account for losses and excess deliveries using credit and debit notes against which import duty for the excess and short landed quantities was calculated.

The Appellant also took a marine policy covering the transport of goods from Indonesia /Singapore port to its premises at Thika. The cost of this insurance was used to adjust the invoice value to calculate the customs value of its imported goods.

Noting that the values declared in the debit and credit notes was 10% more than the value declared by the Appellant, the Respondent rejected the transaction values declared by the Appellant and adopted the values declared on the debit/ credit notes.

This adjustment was made on the CFR. Further, the Respondent rejected the value of insurance declared by the Appellant and loaded 1.5% as set out in the Customs Service's Operational Guidelines. The import of this was an adjustment to tax payable of Kshs. 780,871,292.00 plus subsequent penalties and interest.

In essence, the Respondent adopted the sum assured as the Cost and Freight (CFR), loaded a factor of 1.5% and assumed that as the customs value for purposes of assessing import duty.

There was no dispute, and rightly so, that the legal regime for valuation of goods for purposes of customs is embedded in Section

122 and the Fourth Schedule of the EACCMA and the WTO Agreement on Customs Valuation.

The Tribunal determines that the adjustment done by the Respondent on the price actually paid was not done on the basis of objective and quantifiable data as prescribed in Rule 3 of the Fourth Schedule to the ECCMA which in the view of the Tribunal refers to the adjustments in Rule 2, that is freight charges, costs incidental to the goods at the port of loading and insurance premiums and not sum assured.

Furthermore, the Respondent was bound to apply Rule 2 of the Fourth Schedule to the ECCMA in accordance with Rule 3 instead of ignoring the Rule 2 and purport to applying Rule 3 as it did in complete disregard of the material provision of Rule 2.

As relates to the cost of insurance, it is not disputed that there were two policies related to the goods. One was the FOG comprehensive cover taken by the supplier as per the contract of sale. The other one was the marine insurance cover taken by the Appellant.

The Respondent submitted that the cost of insurance incurred by the supplier could not be determined because the supplier did not indicate the premiums paid to its insurer Societa Italiana Assicurazione Riassicurrazio. The marine insurance cover taken by the Appellant from its insurer Kenindia Assurance Company Ltd through the Universal Insurance Broker Ltd was supported by an insurance debit note. The Appellant used the cost of this local marine insurance cover in its computation of Customs Value.

The Tribunal determines that the adjustment done by the Respondent on the price actually paid was not done on the basis of objective and quantifiable data as rescribed in Rule 3 of the Fourth Schedule to the ECCMA which in the view of the Tribunal refers to the adjustments in Rule 2, that is freight charges, costs incidental to the goods at the port of loading and insurance premiums and not sum assured.

Furthermore, the Respondent was bound to apply Rule 2 of the Fourth Schedule to the ECCMA in accordance with Rule 3 instead of ignoring the Rule 2 and purport to applying Rule 3 as it did in complete disregard of the material provision of Rule 2.

As relates to the cost of insurance, it is not disputed that there were two policies related to the goods. One was the FOG comprehensive cover taken by the supplier as per the contract of sale. The other one was the marine insurance cover taken by the Appellant.

The Respondent submitted that the cost of insurance incurred by the supplier could not be determined because the supplier did not indicate the premiums paid to its insurer Societa Italiana Assicurazione Riassicurrazio. The marine insurance cover taken by the Appellant from its insurer Kenindia Assurance Company Ltd through the Universal Insurance Broker Ltd was supported by an insurance debit note. The Appellant used the cost of this local marine insurance cover in its computation of Customs Value.

The Respondent rejected this cost of insurance. It stated in its Statement of Facts that "one cannot insure property that does not belong to them and expect to gain from its loss or otherwise. A contract of insurance based on such premise is defective and of no legal consequence". The Respondent therefore assessed the cost of insurance at 1.5% of the CFR.

The Tribunal is of the View that the marine insurance cover taken by the Appellant had legal consequences and should have been considered in the adjustment of the price actually paid because it had an insurable interest in the goods.

Consequently, the Tribunal makes the following Orders:

a) The Respondent's Tax Assessment vide its letter dated 19th April 2012 for the sum of Kshs.l,377,505,229.00 is hereby annulled and set aside.