On 11th December 2006, Keroche Industries Limited which later changed its name to Keroche Breweries Ltd filed Judicial Review Application challenging the Kenya Revenue Authority (KRA) decision to classify Keroche’s Breweries Ltd fortified wine products under Harmonized System (H.S) Code Tariff heading 22.04 instead of under Code Tariff Heading 22.06 in respect of Excise Duty, Corporation and Withholding Income Tax and Value Added Tax (VAT) in respect of sales and trading activities covering the years of income 2002 to 2006.
The re-classification of Keroche’s Breweries Ltd products resulted in tax assessments on Income Tax, Excise Duty and Withholding Tax against Keroche, the assessment revealed a total sum of Ksh802,919,447.00
The reclassification also bordered on Value Added Tax, Interest and penalties thereof against Keroche Breweries Ltd, the assessment revealed a total sum of Ksh305,094,183.
On 6th July, 2007, the High Court delivered a judgment in favour of Keroche Breweries Ltd and quashed the assessment notices by KRA.
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KRA was aggrieved with the decision of the High Court and appealed to the Court of Appeal through Appeal Nairobi Civil Appeal No. 2 of 2008: Kenya Revenue Authority and Five Others versus Keroche Industries Limited.
The Appeal was on the grounds that the Court did not take into account the existence of a Tax Appeals Tribunal mechanism where the merits of the case could be canvassed, failed to recognise that it lacked jurisdiction to entertain the dispute before the exhaustion of that mechanism and delved into the merits of the matter when the issue before Court one of alleged procedural impropriety through a Judicial review process.
On 3rd February 2017, the Court of Appeal delivered its judgment in favour of KRA. In the said judgment, the Court of Appeal gave orders setting aside the High Court decision dated 6th July 2007and directed that KRA issues reasonable notices in regard to the tax assessments accompanied by supporting documents to Keroche Breweries Ltd.
Following the decision of the Court of Appeal on 3rd February 2017 KRA issued Keroche Breweries Ltd with assessments of Ksh467.7 million Excise Tax assessment for period 2002-2005, Ksh388.6 million Value Added Tax assessment for the period 2002-2005 and Ksh737.3 million Corporation Tax and Withholding Tax assessment for the period 2002 to 2005, totaling to Ksh1.19 billion.
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Keroche Breweries Ltd did not agree with the assessments issued by KRA and objected to the same on 2nd July 2017 as is provided for under the Tax Procedures Act.
KRA considered Keroche’s objection and issued an objection decision to Keroche on 3rd August 2017 confirming the assessment.
Keroche Breweries Ltd filed Appeals before the Tax Appeals Tribunal on the tax demands.
The Appeals were heard by the Tax Appeals Tribunal, which rendered its judgment on 9th March 2020. The tribunal upheld KRA’s tax demands except for the aspect of interest and penalty levied by KRA in the period when the dispute was before the High Court and Court of Appeal respectively.
The Tax Appeals Tribunal also released the judgment with regard to another set of three appeals, filed in 2015 and 2017 where the dispute related to the applicable excise rates to Keroche’s Vienna Ice Brand of Vodka from the year 2012. The three appeals had taxes demanded amounting to Ksh7,926,718,424.
The Tribunal in the appeals on Vienna Ice Brand of Vodka held that the Keroche Breweries Ltd was involved in the compounding of spirit which amounts to manufacture within the meaning of the Excise Duty Act, 2015 and Customs and Excise Act, CAP 472(repealed). This, therefore, meant that Vienna Ice was a distinct product for which Excise Duty and VAT were payable.
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In the intervening period, KRA and Keroche Breweries Ltd had entered into negotiations to resolve the Tax Cases amicably.
An agreement was reached on 14th August 2018 with regard to the Vienna Ice case. Keroche Breweries Ltd failed and refused to sign the agreement forcing the matter to proceed for a full hearing before the Tribunal.
Having received the judgments from the Tax Appeals Tribunal on 9thMarch 2020, KRA commenced enforcement action against Keroche Breweries Ltd on 11th March 2020. Keroche Breweries Ltd moved to High Court on 16th March 2020 challenging the enforcement action taken by KRA. The High Court gave Keroche Breweries Ltd a reprieve against the enforcement measures by KRA by granting it stay orders on condition that Keroche Breweries Ltd pays KRA security for tax of Ksh500 million pending the hearing and determination of the dispute.
Keroche Breweries Ltd appealed the decision of the High Court on the payment of security of Ksh500 million. On 25th June 2020, the Court of Appeal directed Keroche to pay Ksh100 million pending the hearing of the Appeal, which amount they paid.
Following the stay Orders at the Court of Appeal, KRA and Keroche Breweries Ltd agreed to engage in Alternative Dispute Resolution (ADR) with a view to resolving the matter out of court.
ADR seeks to enrich the entire dispute resolution process by providing flexibility and timely resolution of disputes without the limitations imposed by judicial and quasi-judicial processes as regards technical procedures, time taken and cost of litigation. ADR is a voluntary, participatory and facilitated discussion over a tax dispute between a taxpayer and the Commissioner.
The parties after amicably reviewing the issues in contention entered into two agreements: on 23rd July, 2021 (covering Excise Duty on normal beer, Corporation Tax, duplicate and prohibited VAT claims and Withholding Income Tax) and, on 21st December 2021 (covering Harmonised System Code and Excise Rate for Keroche special Alcoholic Drinks) to settle the matter in full.
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By the agreement of 23rdJuly, 2021, Keroche agreed to owe a total of Ksh272,211,842 comprising of Ksh134,447,847 in principal taxes and Ksh137, 763, 995 in interest and penalties and offered to pay the principal taxes of Ksh134,447,847 in nine monthly installments starting from 25th September 2021. The payment plan was not honoured.
By the agreement of 21st December, 2022, a tax of Ksh7, 546, 317, 309 was agreed to be owing and payable, comprising principal tax of Ksh4,498,561, 062, a penalty of Ksh66, 903, 401 and interest of Ksh2, 980, 852,846. Out of the principle tax of Ksh4,498,561,062, Keroche Breweries Ltd proposed to pay Ksh500 million in 24 equal instalments starting December 2021 and apply for abandonment of Ksh 3,998,561,062 from the National Treasury. It was also agreed that the taxes of Ksh3,998,561,062 will be settled by Keroche if the application for abandonment did not succeed.
In the two agreements, Keroche Breweries Ltd was to apply for remission of penalties and interests upon full settlement of the outstanding principal tax liability. The agreements were adopted as the judgments of the High Court on 12th February, 2022.
KRA says that Keroche Breweries Ltd has not honoured the payment of instalments as per the agreements.
On 20th January 2021, Keroche applied to the Cabinet Secretary National Treasury for abandonment of Ksh3,998,561,062 tax for the period 2002 -2015. This application is under consideration.
On the issue relating to Ksh351 million taxes due, this is principal tax which Keroche withheld for the period January 2021 to date and has not remitted the same to KRA.
KRA says that Keroche Breweries Ltd has been collecting Excise Duty Tax and VAT from its consumers through the sale of its products but has not been remitting the taxes to KRA.
By 14th December, 2021, this amount was standing at Ksh279,958,530when by a letter dated the 14th December, 2021 Keroche offered to pay the debt by instalments of Ksh20 million from January 2022 to October 2022 and thereafter Ksh30,000,000 for the Month of November, 2022 and Ksh49,958,530 for the month of December, 2022. Keroche only paid Ksh1o million and dishonoured the agreement.
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