Insight on Transaction Value as the Basis of Customs Valuation, as Decided by the Court of Appeal

Background

In October 2023, the Court of Appeal heard a significant case involving Game Discount World Tanzania Limited, a subsidiary of Masstores Proprietary Limited (registered in South Africa). The company, which trades in both locally made and imported goods, found itself in a legal dispute with the Commissioner General of the Tanzania Revenue Authority (TRA).

The case arose following a post-clearance tax audit conducted by the TRA covering the years 2012, 2013, and 2014. The audit aimed to assess the company’s compliance with tax regulations. Following the audit, the TRA issued a demand notice for the payment of short-levied duties amounting to TZS 3,890,948,214.

Game Discount World Tanzania Limited (the appellant) disputed the amount, which was subsequently reviewed and reduced to TZS 2,886,323,526. The appellant paid TZS 119,450,861, leaving an outstanding balance of TZS 2,766,872,665. This liability comprised TZS 1,589,305,288 in warehousing costs and TZS 1,218,440,123 in additional duties on import VAT for foreign transport costs. The TRA alleged that this balance resulted from under-declared warehousing costs and foreign transport expenses.

Court Hearing

The appellant initially challenged the TRA’s assessment before both the Tax Revenue Appeal Board (TRAB) and the Tax Revenue Appeal Tribunal (TRAT) but lost in both instances. The decisions favored the TRA, centering on the undervaluation of imported goods, the inclusion of head office cost recoveries and warehousing costs, and the undeclared foreign transport costs.

The company presented five grounds of appeal to the Court of Appeal, arguing that both the board and tribunal had misinterpreted paragraph 9(2)(b) of the Fourth Schedule to the East African Community Customs Management Act (EACCMA). The company contended that the board and tribunal had wrongly classified head office costs as part of warehousing costs, which, according to the appellant, should not have been declared as part of the customs value of the stock.

The primary issue at hand was the interpretation of the EACCMA, 2004, particularly concerning the valuation of goods imported into Tanzania. The company claimed that the tribunal failed to apply the appropriate valuation method for determining the tax payable on imported goods.

However, the TRA maintained that the tribunal did not misinterpret paragraph 9(2)(b) of the EACCMA. The TRA argued that all costs related to loading, unloading, and handling associated with the transport of imported goods should indeed be included in the value of the stock for customs purposes.

Court Decision

After carefully reviewing the submissions from both parties, the Court of Appeal determined that the costs associated with warehouse services had been charged and assigned to the Head Office but were not declared for duty and tax purposes during the importation of goods. The TRA was justified in imposing taxes on these costs.

The court further noted that the company’s trial balance for the years in question showed that the amounts incurred for warehousing costs and cost recovery had been shifted to the Head Office cost recovery account, leaving the former account at zero. A similar transfer occurred with warehousing costs, also moved to the Head Office cost recovery account.

Additionally, the company attempted to argue that the transport costs for imported goods recorded in the trial balance were for goods imported in a previous period and sold during the review years. However, the company did not provide any evidence to support this claim. Moreover, the company failed to declare the closing balance of stock for the respective years, specify what was added to the stock, and clarify which parts of the previous stock were sold during the years under review.

Based on the evidence presented, the court concluded that the arguments raised by the company lacked merit. Consequently, the appeal was dismissed with costs, upholding the TRA’s assessment.