Alcohol manufacturer Keroche Breweries has got another relief in the long legal battle with the taxman over a multi-million-shilling tax arrears demand.
The decade-old case pitting the Kenya Revenue Authority (KRA) and the brewer over Sh1.1 billion was ruled in favour of Keroche, sending KRA back to the drawing board.
A three-bench Court of Appeal sitting upheld that KRA abused its powers by sending a tax demand of the three tax heads and penalties amounting to Sh1.1 billion through a letter dated November 29, 2006.
The ruling, the third in the 10-year battle in favour of the brewer, gives a fresh lease of life to the 20-year-old Keroche.
“An order certiorari is hereby issued to remove in the High Court and quash the decision of the appellants’ contained in the letter dated November 29, 2006, to issue assessments on income tax, excise duty and withholding tax for the total sum of Sh802,919,447,” read the judgment by Justices Paul Kihara, Martha Koome and Festus Azangalala.
The letter was dismissed as unreasonable because it had come without an accompanying schedule of details of the said assessment and without proper notices.
The revenue authority had appealed an earlier decision by the High Court on July 6, 2007, where Justice Joseph Nyamu had prohibited the taxman from demanding the taxes, citing “abuse of powers”.
Value Added Tax
The taxman, who was also demanding an additional Value Added Tax of Sh305 million, was basing the tax bill on an assessment carried out in 2006, where some Keroche products had allegedly not been given the right classification, hence being subject to lower taxation.
In the demand letter, KRA had reclassified Keroche’s wine under tariff heading 22.6, which attracts a higher duty from 40 per cent to 60 per cent. Backdating the taxes to between 2002 and 2005 increased the tax bill for the manufacturer, prompting the legal duel.
Keroche argued that KRA’s demand was malicious, coming many years after the brewer was licensed, with tax compliance verified over time.
“The respondent claimed that since 1997, it had annually renewed its licence with KRA to manufacture fortified wines which were classified under tariff heading 22.04 for a period of eight years. During the said time, it duly paid the excise duty calculated on its products under the aforesaid heading and filed its annual returns as required, without KRA raising any issue,”
“The tax bill mainly related to most of the brewer’s products already in the market. Backdating the tax bill, yet Keroche had not factored in this development, would mean that it was required to submit taxes it had not collected,” the court ruled.
The taxman will have to accompany any fresh demands with proper documents and notice, said the judgment.
“The orders shall remain in force until the appellants have issued reasonable notices accompanied by supporting documents,” the judges decided.