Supreme Court dismisses KRA’s Sh5bn tax dispute case against Coca Cola

KRA Commissioner General Mburu Githii.

KRA Commissioner General Mburu Githii. The taxman has lost a historical Sh5 billion tax dispute case against Coca-Cola after the Supreme Court declined a request to reopen the litigation.

Photo credit: File | Nation Media Group

The taxman has lost a historical Sh5 billion tax dispute case against Coca-Cola after the Supreme Court declined a request to reopen the litigation that started over 10 years ago.

The Kenya Revenue Authority (KRA) wanted the apex court to review a decision to dismiss the case, in which Commissioner General Mburu Githii was seeking a sum of Sh5.6 billion in form of taxes from the international soft drinks company.

But the Supreme Court disallowed the request and upheld its earlier decision dated September 22, 2021 on grounds that reopening the legal dispute, which started in 2012, is not only unconscionable but also insensitive and cruel.

“We note that the dispute commenced in the High Court in October 2012, ten years ago, then moved to the Court of Appeal, over nine years ago, in July 2013. To start the case all over again, for no fault of the respondents, is not only unconscionable but also insensitive and cruel,” said a five-judge bench presided over by Chief Justice Martha Koome.

The judges unanimously held that KRA has not only been “injudicious (in the dispute) but also brazen” in flouting the directions of the court’s deputy registrar.

Not taken matter seriously

The court also ruled that KRA had not taken the matter with the seriousness it deserved.

Other judges in the bench were Deputy Chief Justice Philomena Mwilu and justices Mohammed Ibrahim, Njoki Ndung'u and William Ouko.

“It is quite apparent to us, from the numerous infractions and omissions identified, that the appellants have not taken the processes of this court and their own appeal with the seriousness deserved, even after the applicants urged us to note that the matters in issue raise “matters of grave taxation implications”,” said the judges.

In urging for readmission of the tax dispute, KRA had argued that its appeal was dismissed on a technicality and that the Supreme Court ought to have addressed the real issue which was an interpretation of tax laws for KRA’s own benefit and that of the taxpayers.

The appeal was dismissed on September 22, 2021 when the case came up for hearing, for failure by KRA to comply with Supreme Court rules.

Fatally defective

The court had found that the case by the taxman was fatally defective and incurable for noncompliance with its guiding rules.

For instance, the case did not contain the reliefs or prayers that the KRA wanted to be granted by the apex court.

Also, its advocates failed to file essential documents, being the pleadings and documents relied upon during the hearing of the dispute at the High Court and at the Court of Appeal.

As a result, the record of appeal was incomplete and KRA’s advocates failed to file a supplementary record of appeal despite being granted an opportunity to do so by the deputy registrar.

KRA had stated that the apex court should have determined the important constitutional issue of tax computation, as it was of great public interest and implication. 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.

Tax on returnable containers

The legal dispute involved the question of whether the soft drinks company should pay taxes on costs incurred during washing and sanitising of returned bottles.

KRA was demanding tax arrears, penalties and interest for the period between 2006 and 2009 relating to excise tax on returnable containers.

The taxman had moved to the apex court after three judges of the Court of Appeal overturned a High Court decision dated October 26, 2012 which allowed KRA to levy tax on returnable containers.

It had sued Coca-Cola’s local franchises — Mount Kenya Bottlers, Rift Valley Bottlers, Nairobi Bottlers and Kisii Bottlers.

The appellate court judges on July 19, 2019 ruled that levying tax on returnable containers (bottles and crates) every time they are refilled would amount to multiple taxation and therefore unlawful.

At the Supreme Court, KRA wanted the judges to make pronouncements on the principles of taxation such as Article 201 of the Constitution on Principles of Public Finance. It says public finance system shall promote an equitable society, "and in particular the burden of taxation shall be shared fairly".