A dispute which spilled into the courtroom between a trader and the Kenya Revenue Authority over a Sh2.5 billion tax on imported sugar sheds some light on how well-connected people rake in millions of shillings through government imposed tax exemptions.
The dispute also provides a case study on how an importer can lose millions because of miscalculations such as importing a commodity after the exemption window has closed.
In the dispute, Darasa Investment Ltd had sued KRA at the High Court, arguing that the taxman had declined to release 40,000 metric tonnes of sugar until payment of duty is made even though the firm was entitled to tax exemption through a Gazette Notice.
NO INCONSISTENCIES
The High Court had ruled in favour of the company, saying the sugar was entitled to be cleared duty free.
However, KRA appealed Justice Eric Ogola’s decision and the Court of Appeal overturned the ruling.
Appellate Judges Alnashir Visram, Wanjiru Karanja and Martha Koome unanimously ruled that the appeal by KRA, which was represented by lawyer Ken Ogeto (who has since been appointed Solicitor General), had merit and set aside Justice Ogola’s orders. The judges also ruled that there was no evidence that KRA discriminated against Darasa since there was nothing to show that documents by other importers had inconsistencies.
BAD WEATHER
The bone of contention at the High Court and the appellate bench was whether the sugar was loaded during the specified period and whether it was entitled to tax exemption.
Darasa argued that the 40,000 metric tonnes of sugar it imported was loaded into a vessel, Anangel Sun, on July 15, 2017, destined for the Port of Mombasa on or about August 28, 2017.
The court was further told that due to bad weather coupled with the inability of the vessel to dock in Mombasa due to its size, it did not arrive as expected.
The company then wrote to the Agriculture Cabinet Secretary seeking extension of the import exemption under the Gazette Notice 4536.
“It appears the respondent was not alone, about other 13 companies who had opted to take advantage of the exemption had also not managed to get their sugar consignments into the country within the exemption period for different reasons,” the Court of Appeal noted.
TRANS-SHIPPED
The CS wrote to his National Treasury counterpart recommending extension of the exemption period, a request which was granted.
However, only consignments which had been shipped before the expiry date in Gazette Notice 4536 would benefit from the extension. After the amendment of the Gazette Notice, the company’s sugar was trans-shipped from Dubai to Mombasa aboard MV Iron Lady.
According to what was stated in court, the consignment arrived in Mombasa between October 28 and 30 last year, but KRA declined to clear the sugar duty free.
KRA argued that the consignment did not meet the conditions of the Gazette Notices because of inconsistences in the date of loading, place of inspection, certificate of origin and change of ownership.
GAZETTE NOTICE
In a letter to Darasa, KRA Commissioner in charge of Customs and Border Control, Julius Musyoki, declined to exempt the sugar from duty as provided in the Gazette Notices and demanded Sh2.5 billion before it could be released.
The Court of Appeal was told that the High Court disregarded inconsistencies in documents presented by Darasa, such as a pre-export verification certificate showing that the sugar was produced in August and September 2017.
“Thus there was a serious inconsistency as the respondent (Darasa Investment Ltd) stated the sugar was loaded on July 15, 2017,” the court heard.
UNREASONABLE
Darasa argued that following the amendments of the initial Gazette Notice, all the importer was required to do was to establish that the sugar was loaded into a vessel destined to a port in Kenya between May 11 and August 31, last year.
Through lawyers Fred Ngatia and Dennis Mosota, the company further argued that KRA was wrong to deny it clearance on grounds that the documents presented had inconsistences.
They said KRA was unreasonable in engaging on irrelevant considerations when the only issue was whether the sugar was loaded within the prescribed period.
In making its ruling, the Court of Appeal said the High Court erred in holding that KRA’s decision seeking to have the company pay tax on the sugar was procedurally deficient.