The Court of Appeal has thrown out Uganda Revenue Authority's (URA) application in which it sought to maintain the suspension of transaction value of method of customs valuation on imported used motor vehicles.
In 2010, the tax body issued a notice in which it suspended the primary method of valuation used on imported used motor vehicles, and consequently ordered application of fall-back valuation method.
However, the fall-back method, had for long been contested by car importers who argued that the new method came with exorbitant taxes determined by URA, unlike the primary method where taxes were levied basing on the purchase value of the imported cars.
Seeking redress, Testimony Motors Ltd, a company that imports used vehicles into Uganda, and on behalf of used vehicles importers, in 2010 dragged the commissioner Customs URA to court over suspension of transaction value method.
According to court documents, it all started on July 13, 2010 when Testimony Motors imported into Uganda a used motor vehicle from Japan and entered the same for customs purposes vide entry number C68958 with the declared transaction value of $5,200 in respect of which it expected to pay tax of $3,588 under the transaction value method.
However, Testimony's declared value was rejected by URA officials and the company appraised using alternative methods of valuation and made to pay customs duty computed on the value of $11,200 in taxes, more than doubling what the company had calculated to pay.
The plaintiffs represented by counsel Fred Muwema told court that upon inquiry, the company had been informed by URA officials that the operation of the transaction value method in respect of used motor vehicles had been suspended by the Commissioner of Customs, URA on April 19, 2010.
In the application, the plaintiff contested the respondent's purported suspension of the transaction value method, saying it was unlawful since it contradicted the East African Community Customs Management Act (EACCA) 2004.
However, in defence, the respondent argued that the directive to suspend the application of the transaction value method of custom valuation had been prompted by challenges URA faced in collecting import duties from importation of used motor vehicles such as false documents (like invoices and receipts) presented by importers.
After hearing from both parties, the High Court Commercial division judge, Christopher Madrama, in August 2013, stopped the suspension of transaction value method on grounds that the commissioner Customs had acted outside his jurisdiction.
Madrama ruled that the actions to suspend the transaction value method contravened the provisions of section 122 of EACCMA 2004, and ordered the respondent to pay Shs20m in damages to Testimony.
"The commissioner had no powers to exclude the primary valuation method and therefore, the directives of the commissioner were unlawful and of no legal effect, to the extent he directed the exclusion of the primary method of valuation used on motor vehicles imported," he said in his ruling.
However, unsatisfied with the court's decision, URA, through its legal department ran to the Court of Appeal to challenge the earlier ruling.
In its application, URA contested the decision, saying the court had erred in its judgment.
Court of appeal rules
In a March 23, 2023 ruling, the Court of Appeal jury led by Justice Catherine Bamugemereire ruled in favour of Testimony and quashed URA's application.
The court held that the fall-back value method can only be applied by the appellant after the other first five methods as provided in the EACCMA have failed to be applied.
"I therefore conclude that the appellant/commissioner Customs had no powers under section 122 (1) of the EACCMA and the 4th Schedule to exclude the transaction value method thus the acts of the appellant's officials of excluding the transaction value method and using the fall back method were unlawful," the ruling read.
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The court further held that for the appellant to apply the fall-back value method as it did in case to the respondent, the appellant had to show that it had failed to apply the other five (5) methods of valuation to the transaction provided for under the EACCMA, and consequently, declared that the directive to suspend the transaction value method of customs was illegal.
"The court held that there was no justification for the appellant to use the fall-back method yet the EACCMA is specific on the procedure in case the transaction value method is not used. The Court therefore declared illegal the Applicant's Notice of 19th April 2010 which suspended the application of the transaction value of method customs valuation to used motor vehicles and hence setting aside the valuation of the Respondent's imported motor vehicle by the Appellant."
