KRA returns Sh5.6bn Coca Cola tax case to Supreme Court

The taxman has gone back to the Supreme Court seeking readmission of a Sh5.6 billion tax dispute with Coca Cola, which was dismissed in September on a technicality.

Kenya Revenue Authority (KRA) argues that the Supreme Court ought to clarify interpretation of tax laws for the benefit of both the taxman and the taxpayers.

KRA’s appeal was dismissed on September 22 when the matter came up for hearing, for failure to comply with Supreme Court rules. 

The case had been pending in court for two years.

KRA now says the top court should determine the important constitutional issue of tax computation, as it is of great public interest and implication. The court heard that the dispute remains unresolved after the case was struck out.

“The intended petition of appeal raises matters of grave taxation implication involving the interpretation of tax statutes in line with Article 210 of the Constitution of Kenya, touching on the mandate of Parliament to enact legislation on taxation,” KRA said in the appeal. 

The matter was mentioned before the deputy registrar of the Supreme Court, who forwarded the file to Chief Justice Martha Koome to set up a bench to hear KRA’s application. 

The taxman says the public stands to suffer if the case is not heard, since the Court of Appeal ruled that there was no ambiguity in the words used in section 127C of the Customs and Excise Act, “but the ambiguity was in silence”. 

“This finding that implies ambiguity in silence has thrown the interpretation of tax statutes into disarray,” KRA stated. 

In 2019, the soft drink maker won the battle after the appellate court ruled that levying tax on returnable containers every time they are refilled amounts to multiple taxation and is, therefore, unlawful.

“In our view, the exclusion of returnable containers from the ex-factory selling price as per the previous legislations must have appreciated the unique nature of the practice in the industry and the dealing in such containers,” Justices Wanjiru Karanja, Otieno Odek and Kantai ole Sankale said in 2019.

Mount Kenya Bottlers Ltd, Rift Valley Bottlers, Nairobi Bottlers and Kisii Bottlers moved to court in 2009 after KRA demanded Sh5.6 billion as arrears in respect of excise duty, VAT and interest.

KRA conducted tax audits on the bottling firms for the period between 2006 and 2008 and said the companies had failed to include the costs incurred during washing and sanitising of returned bottles.

The taxman said the audit revealed that the bottlers treated the returnable containers as capital assets and not inventory items. According to KRA, the bottles and crates were subject to excise tax and VAT.

Aggrieved by the assessment, the bottlers moved to court arguing that the returnable containers are solely used for packing and distributing liquid soda and remain their property and ought not to be subjected to tax as they are not the manufacturers of the said containers. 

The company further argued that the deposit paid by the distributors on purchase of liquid soda carried in the returnable containers was a guarantee or security to ensure that the distributors would return the bottles. Once the bottles and crates were returned, the bottlers said they refunded the deposit to the customers.

In arriving at the figure, KRA looked at the number of products sold by the bottlers from their monthly excise returns for the said period and used the number to establish the number of returnable containers used by the bottlers.

The taxman then multiplied the number by the deposits paid on the containers by the bottlers’ customers.

The High Court dismissed the case filed by the bottlers, forcing them to move to the Court of Appeal, which ruled in favour of Coca Cola. KRA then moved to the Supreme Court. 

[email protected]