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Court throws out KRA's Sh5.6b tax demand from Coca-Cola

 

Coca-Cola had maintained that returnable containers used in packaging its drinks should not be subject to taxes. [File, Standard]

The Supreme Court has thrown out Kenya Revenue Authority’s (KRA) Sh5.6 billion case against international soft drinks manufacturer, Coca-Cola company.

The five-judge bench has at the same time released a Sh2.6 billion guarantee that had been sitting in Centum Investment Ltd books as a liability to Coca-Cola.

Centum Investment made Sh2.6 billion from the sale of its stake in Coca-Cola’s subsidiaries - Almasi Beverages and Nairobi Bottlers to Coca-Cola Sabco East Africa.

Centum held 53.9 per cent of the issued shares of Almasi Beverages and 27.6 per cent in Nairobi Bottlers.

Centum’s total value in the two firms stood at Sh16.8 billion as of March 31, 2019. Coca-Cola Sabco East Africa paid Centum Sh19.4 billion, meaning the investment firm made Sh2.6 billion return on investment.

Coca-Cola Sabco East Africa, which previously owned 72.4 per cent of the issued shares in Nairobi Bottlers, is now the sole shareholder of Nairobi Bottlers. Centum had set aside the money in the deal with Coca-Cola that it would shoulder part of the tax demand in the event that KRA won the case.

The Supreme Court bench comprising Chief Justice Martha Koome, her deputy Philomena Mwilu, Justices Mohamed Ibrahim, Njoki Ndung’u, and William Ouko threw out KRA’s application for failing to observe the court’s directions.

According to the judges, KRA’s application was not clear on its demands and had not attached essential parts of the petition filed in the High Court. They were of the view that it would be unfair to restart the case as it had been in the corridors of justice for 10 years.

“The dispute commenced in the High Court in October 2012, some 10 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,” the judges observed.

The case stems from a Sh 5.6 billion tax demand by KRA. It claimed that Coca-Cola had not paid its excise duty between 2006 and 2008 on returnable crates and empty soda bottles.

The soft drinks company had lost its case in the High Court after the lower court found that the taxman was within the law to demand the contested amount.

Coca-Cola contested the ruling at the Supreme Court.

According to KRA, its audit revealed the tax on the number of returnable containers used by Coca-Cola subsidiaries in Kenya – Mount Kenya Bottlers, Rift Valley Bottlers, Nairobi Bottlers, and Kisii Bottlers had not been paid.

KRA in total demanded Sh5.6 billion on account of alleged arrears of excise duty, and interests while maintaining returnable containers (bottles and crates) were subject to taxes.

Coca Cola in its case urged the court to quash KRA’s demand, arguing that the returnable containers are solely used for packing and distributing liquid soda and remain its property, hence they ought not to be subjected to tax as the firm is not the manufacturer of the said containers.

According to Coca-Cola, excise duty ought to include the wrapper of the excisable product.  It argued that a bottle was a “wrapper” that is returned after use.

The court heard that the deposit paid by the distributors on the purchase of liquid soda carried in the returnable containers was security to ensure that the distributors returned the containers.

And once the crates are returned, Coca-Cola refunds the deposit to the customers.

The firm argued that imposing an excise tax on the liquid and also on the crates and bottles, which are returnable is tantamount to subjecting it to multiple taxations over the same products.

“The respondents’ demanding taxes in respect of audits reflecting back to the period between 2006 and 2008 in the year 2009, is unjustifiable and grossly unfair as were not in a position to backtrack and pass on to our customers any of the taxes sought by the taxman,” Nairobi Bottlers Finance Manager Cyrus Chege Gitau told the court.