Electronics dealer Hotpoint Appliances Limited has been rescued from paying a Sh24 million import duty and value-added tax (VAT) after the High Court of Kenya overturned a ruling by the Tax Appeals Tribunal.
The judgment by Justice Abigail Mshila was on an appeal launched by the company against the Tax Appeals Tribunal ruling that it was liable to pay taxes for goods that belonged to the Defense Department (DOD).
In her Judgement, Justice Mshila stated that the Tax Appeal Tribunal made an error in finding that the goods were for the personal use of the members of the armed forces yet it failed to define what was meant by personal use or official use.
“The Judgment of the Tribunal dated 25th June 2021 arising from the assessment of the Respondent’s Objection Decision dated 17th July 2021 and the assessment in connection thereto dated 21st May 2020 in respect of Import Duty and Value Added Tax in the sum of Kshs.24,675,098 is hereby set aside,” said the Court.
In an appeal case that was filed against The Commissioner of Customs and Border Control, Hotpoint Appliances told the court that the owner of the goods was DOD right from issuing the purchase orders until when the import duty was due.
It said that the DOD was the rightful owner of the goods through the C16 form and by the endorsement of its agent, Defence Forces Canteen Organizations (DEFCO), which had accepted all liability and taxes due.
On the other hand, the Commissioner of Customs and Border Control told the court that Hotpoint Appliances imported and supplied certain goods to DEFCO on the assumption that the goods were exempt from taxation.
It added that as much as the importation was lodged using the PIN number of DOD the items that were imported were consumer goods that were for personal use by the members of the Kenya Defence Forces and therefore, not exempt from taxation.
The first schedule of the VAT Act of 2013 provides that all goods that are supplied for official use by the Kenya Defence Forces and the National Police Service are exempt from VAT.
The court said that the phrase for ‘official use’ as used in the East African Community Customs Management Act and the VAT Act was unclear and ambiguous.