Listen to This Article Enhance your reading experience by listening to this article.

The High Court has rejected a Sh207.91 million tax claim by the Kenya Revenue Authority (KRA) against Tuffsteel Limited, a company that manufactures and exports steel products, in a dispute dated back to 2020. Justice Nixon Sifuna dismissed KRA’s appeal case which sought to have the respondent pay Sh207,918,715 over its alleged failure to declare 256 out of its 1,175 export entries.

The taxman alleged that Tuffsteel had not entered 256 of its exports to Democratic Republic of Congo (DRC) in consignments cleared by Sky and Sea Cargo Limited. It said this was revealed after investigations on Tuffsteel’s export transactions arising from its routine exercise to monitor export as high-risk revenue due to huge value added tax (VAT) input claims which involved interrogating the Simba System data outside single customs territory.

The export entries allegedly failed to have Uganda Revenue Authority entries and as a result was demanded to pay tax amounting to Sh207,918,715.

Disputing the demand, the respondent objected and requested for a review of the demand under Section 229 of East African Community Customs Management Act (EACCMA) of 2004 as revised.

Certificates of export

In response, KRA issued a final confirmation of assessment confirming the said VAT at Sh207,918,715 as earlier demanded.

The company, aggrieved by KRA’s said decision, filed an appeal to the Tax Appeals Tribunal. In its judgement delivered on October 22, 2021, the Tribunal ruled in favour of the company. In its judgement, the tribunal allowed the appeal and set aside the subject objection decision dated July 8, 2020 that had confirmed the tax assessment and demand amounting to 207,918,715. It also ordered that each party bears its costs of the Appeal.

The tribunal reasoned that the tax Authority, having been furnished with the certificates of exportation, it was not possible to maintain the certificates were authentic and at the same time claim that the goods were not exported.

The tribunal held the view that the Tuffsteel Limited had established the time when the goods were exported. Aggrieved with the tribunal’s judgement, KRA appealed seeking to have the company ordered to pay the allegedly evaded tax, arguing that the tribunal failed to appreciate the customs process at the border post that any goods leaving the country must be entered in the ASYCUDA system (Ugandan System).

“The tribunal erred in law and in fact in failing to appreciate the role of Section 10 of EACCMA on exchange of information. The tribunal also erred in law and in fact that in not appreciating that it was not enough that the respondent had certificates of export the same have to be corroborated by a corresponding entry in the neighbouring country. This does not exist and it only means that the goods were not entered in Uganda, thus they didn’t leave Kenya,” KRA argued in sections of its grounds listed in the memorandum of association dated December 17, 2021.

But in his judgement, justice Sifuna argued that KRA’s act of capriciously and arbitrarily disowning an export certificate it itself validly, regularly and formally issued to the respondent tax payer and then demanding additional payment of taxes on mere allegations and suspicions, lacks a solid legal basis and should not be entertained in a civiliaed economy such as Kenya’s.

He said that KRA had not come clear on what prompted an investigation or enquiry in the exports and export certificates.

The decision to investigate, justice Sifuna opined, could be exploited by some unscrupulous operatives within the tax authority to target certain persons and entities and urged tax courts and tribunals to ensure actors within the tax authority do not employ fishy schemes.

“Upon considering the grounds of this appeal, the respondent’s response to it as well as the rival submissions of both parties, the relevant legal provisions and applicable legal principles as a foregoing I find this appeal to be lacking in merits.

It therefore fails and I accordingly hereby dismiss it with costs, and uphold the judgement the Tax Appeals Tribunal delivered on October 2021 in Nairobi Tax Appeal No 330 of 2020,” ruled justice Sifuna in a judgement delivered on March 15, 2024.