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End of 11 Year Tax Dispute: Bottlers Big Win at the Supreme Court

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Last Thursday 10th February, the Supreme Court finally brought to an end the tax dispute that has been raging between various Coca Cola Bottlers and the Kenya Revenue Authority. The battle began in 2011 and has been going through the court process over the last 11 years.

TripleOKLaw, LLP led by Managing Partner, Mr. John Ohaga, SC represented the Bottlers.

Kenya Revenue Authority had conducted an audit on the account of various Bottlers (‘the Bottlers’) for the period 2006 and 2009 and issued tax assessments on alleged excise duty and Value Added Tax (VAT) due from the Bottlers on account of returnable containers and plastic crates. At the time, the taxman demanded Kshs. 5,620,730,161.00. Aggrieved by this assessment, in 2011, the Bottlers moved to the constitutional court and challenged the constitutionality and legality of the tax assessment issued by KRA. It was the Bottlers case that section 127C of the Customs and Excise Act, Chapter 472 of the Laws of Kenya (‘the Act’) did not include the costs of returnable containers in the computation of the value of goods for purposes of levying excise duty following the amendment of section 127C of the Act introduced by section 13 of the Finance Act, 2004. In October 2012 the Constitutional Court in Nairobi delivered a Judgment and held that the Parliament had intended, by amending section 127C (3) (b) of the Act, to do away with the earlier exemption of the costs of returnable containers in computing the ex-factory selling price for purposes of excise duty and therefore the costs of returnable containers could be included in ascertaining the ex-factory selling price.

Aggrieved by the decision of the High Court, the Bottlers moved to the Court of Appeal challenging the decision and in July 2019, the Court of Appeal found that there was no express provision in the Act to suggest or stipulate that the cost of returnable containers would be included in the cost of the ex-factory selling price. The Court of Appeal, therefore, overturned the decision of the High Court. In allowing the Appeal, the Court held that the levying of tax on the returnable containers every time they are refilled would amount to multiple taxation which would be unconscionable and unlawful.

Dissatisfied with the decision of the Court of Appeal, the KRA moved to the Supreme Court and requested the Supreme Court to pronounce itself on the principles of taxation embodied in Articles 201(b) and 210 (1) & (2) of the Constitution of Kenya, 2010. In its ruling delivered on 26th November 2021, the Supreme Court struck out KRA’s petition as the Petition did not include reliefs sought from the court contrary to Rule 9(1)(d) of the Supreme Court Rules that specifically required a petition to contain the relief and any directions sought from the court. The Supreme Court further struck out KRA’s petition as the record of appeal was incomplete as some of the pleadings and other documents were missing.

The KRA yet again filed an application seeking leave to file a fresh Notice of Appeal or in the alternative that the time to file an appeal out of time be extended. In a ruling delivered on 10th January 2022, the Supreme Court while dismissing KRA’s application, noted that the Supreme Court Rules unlike the Court of Appeal Rules did not contain provisions for the restoration of a dismissed appeal where Memorandum of Appeal is not lodged within the prescribed time or for non-appearance by the Appellant on the date of the hearing; or where the appeal has been struck out on the ground that no appeal lies or that some essential step in the proceedings has not been taken or taken within the prescribed time. As extension of time is an equitable remedy, the Supreme Court held that KRA was undeserving of the court’s exercise of discretion.

This marked the end of the long journey which thankfully ended in favour of the Bottlers.

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