Cassation Bench of the Federal Supreme Court Ruling on Valuation of Imported Goods
The Federal Courts Proclamation No. 1234/2020 provides that “Interpretation of law rendered by the Cassation Division of the Federal Supreme Court with not less than five judges shall be binding from the date the decision is rendered.”
Recently, the Cassation Bench of the Federal Supreme Court ruled in File No. 234982 that the additional requirements for rejecting transactional value of imported goods under Directive No. 158/2011 are in line with the Customs Proclamation No. 859/2014. This ruling has caused some controversy as it could be seen as contradicting the Customs Proclamation and the World Trade Organization (WTO) customs valuation treaty.
The Customs Proclamation No. 859/2014 is the legal framework that governs the customs valuation of imported goods in Ethiopia. Although Ethiopia is not yet a member of the WTO, the Proclamation is based on and heavily influenced by the WTO customs valuation treaty, which requires that the transactional value of imported goods should be the primary basis for customs valuation. The transactional value is the price paid or payable for the goods in a sale between unrelated parties.
Directive No. 158/2011 was issued by the Ministry of Revenues to provide additional guidelines for customs valuation of imported goods. The directive sets out criteria for rejecting the transactional value of imported goods, some of which are mere restatements of the conditions laid down in the Proclamation. These include conditions such as when the buyer and seller are related parties or when there are restrictions on the use or disposal of the goods.
The Directive, however, has introduced other conditions not envisaged under the Customs Proclamation by which the transactional value of goods would automatically become suspect and susceptible to rejection. This condition is the fact that the difference between the commercial invoice value of an imported good and the price of identical or similar goods in the Customs Price Database being more than 5% for traders and 10% for manufacturers. It is these conditions that have become a source of dispute between the Customs Authorities and importers.
It has been our understanding that such conditions cannot be used for automatic rejection of transactional value as the Directive itself calls for further investigation before rejection takes place. However, we were able to observe in various litigations involving this issue that officers of the Customs Commission believe otherwise.
The Cassation Bench ruling upheld these additional requirements set out in Directive No. 158/2011 for rejecting transactional value. This means that if the criteria set out in the Directive are met, the Customs Commission can reject the transactional value and use an alternative method for customs valuation.
Some have already argued that this ruling undermines the primary principle of customs valuation laid down in the Customs Proclamation, namely the transaction value. Furthermore, this ruling might be seen as validating the other problematic provisions of Directive No. 158/2011, which have been criticized for being overly restrictive and being impossible to prove. For example, the Directive requires that if the difference between the commercial invoice value of the imported goods and the value in the Customs database is above the 5% or 10% threshold, the commercial invoice will be acceptable only if:
- The importer can prove to the Customs Commission, in tangible evidence, that there is a recognized international price change; and
- Such evidence is accepted by the branch manager of the Customs branch or a delegated officer.
We believe that such evidentiary rules, placing the relevance and admissibility of evidence at the mercy of the very individuals involved in the valuation dispute, are more problematic and against the Customs Proclamation than the additional conditions introduced for suspecting the transactional value of goods.
While the Cassation Bench ruling has provided clarity on the legality of the additional requirements for rejecting transactional value under Directive No. 158/2011, it has also raised concerns about the compatibility of the whole valuation procedure, which is based on the Directive, with that of the Customs Proclamation. It remains to be seen how this ruling will have any impact on the decisions of importers to contest decisions of the Customs Commission on customs valuation.