The High Court has ordered the taxman to refund an animal feeds manufacturer Sh21 million in the form of Value Added Tax (VAT) from the sale of imported zero-rated goods.
Justice Charles Kariuki said a decision of the Kenya Revenue Authority (KRA) to reclassify the goods sold by Animix Limited from zero-rated to general-rated was unlawful.
The judge ruled that the company was entitled to a VAT refund of Sh21 million. He said the KRA's reassessment, which had found the firm liable for payment of Sh143 million VAT, was not supported by law or evidence.
He dismissed an appeal filed by the taxman against the decision of the tax appeals tribunal, which had ruled in favour of the taxpayer.
"The company produced comprehensive documentary evidence to support its refund claim, including: zero-rated sales invoices, export entry declarations, payment confirmations, and buyer acknowledgments. The Commissioner of Customs and Border Control's unilateral reassessment and denial of refund, without sufficient justification, also offended the principles of fair administrative action under Article 47 of the Constitution and the Fair Administrative Action Act, 2015," said the judge upholding the tribunal's findings.
The legal dispute originated from the commissioner's objection decision dated January 5, 2023, in which KRA upheld the audit findings, confirming the VAT assessment and further imposed penalties and interest.
The commissioner had found the tax payable by the company was Sh143 million. The sales subject of the dispute was for the period between August 2018 and July 2020.
Aggrieved by the commissioner's decision, the company went to the tribunal which ruled that the KRA official erred in reclassifying the company's imported products from VAT-exempt to general-rated. It stated that such reclassification was unjustified.
The tribunal further held that the commissioner erred in declining the company's VAT refund claim.
It found that the imported goods fell squarely within the scope of a taxation code, which covers “preparations of a kind used in animal nutrition.”
The manufacturer stated that its products including animal feed additives, binders, and animal nutrition supplements were correctly classified under a category that was VAT-exempt.
The court heard that this classification had been consistently used for over ten years and previously accepted by the Commissioner without challenge. It argued that the reclassification lacked evidentiary support and failed to discharge the burden of proof.
"The tribunal’s findings were based on factual evidence, including import documents, technical specifications, and expert analysis, and should not be overturned without clear error," it urged the court.
The commissioner had contended that the tribunal incorrectly classified the company's imports as animal feed premixes or additives exempt from VAT, without properly considering that the imported items consisted of various components that should have been assessed individually.
Another argument was that the Commissioner presented import documents showing that most of the company's imports did not fall under VAT-exempt codes listed in the First Schedule to the VAT Act, 2013.
The Commissioner said the tribunal disregarded this evidence and that the tribunal failed to enforce the principles which place the burden of proof on the taxpayer. The Commissioner maintained the company did not adequately support its objection to the VAT assessment.
