The Court of Appeal has declined to suspend a High Court decision, which ordered Jomo Kenyatta University of Agriculture and Technology (Jkuat) to foot a Sh296 million bill in unpaid value-added tax (VAT) and interests following the purchase of Nairobi’s ICEA building from an insurance firm about eight years ago.
A bench of Court of Appeal judges said the appeal by Jkuat was not arguable, and that further, ICEA Lion Life Assurance Company was in a position to refund the money, in case the appeal is successful.
“Consequently, the applicant having failed to establish that the appeal is arguable and that it will be rendered nugatory if the orders sought are not granted, the application dated 15th November 2024 brought under rule 5(2)(b) cannot succeed and is hereby dismissed,” said Justices Wanjiru Karanja, Kathurima M’inoti and Lydia Achode.
In the dispute, the university issued an unequivocal deed of indemnity, undertaking to indemnify ICEA should the Kenya Revenue Authority (KRA) demand the VAT that was due during the sale of the iconic building on Kenyatta Avenue.
The insurance firm sold the property to the university in 2015 for Sh1.85 billion.
The taxman demanded payment of VAT on the conveyance of the suit property from ICEA, and the underwriter paid Sh296 million.
The insurance firm then demanded a refund from Jkuat based on a deed of indemnity, arguing that there was an agreement that the university would shield it from taxes if the deal went through.
Evidence tabled in court showed that the university sought a waiver of the VAT, and through a letter dated September 4, 2017, the taxman confirmed that the transaction was eligible for zero-rating. Based on the confirmation, Jkuat declined to pay VAT, believing that the transaction was exempt.
In a judgment last year, High Court Judge Peter Mulwa said the university must honour the indemnity agreement and reimburse ICEA Lion the Sh296 million it paid to KRA.
The judge rejected Jkua’s argument that it should have been consulted on the VAT settlement.
Not satisfied with the decision, Jkuat moved to the Court of Appeal, arguing that it stands to suffer a substantial loss.
The university submitted that it was a public entity and that the settlement of the amount would come from public funds, which are allocated to it, to be used primarily to provide higher education.
Further, Jkuat argued that ICEA Lion had failed to show that it would be in a position to refund the money, should the appeal succeed.
The underwriter, on its part, said that at the time of purchasing the property, Jkuat was aware of the tax implications and that the money was due to KRA.
ICEA Lion added that it was one of the largest providers of insurance and financial services in East Africa, with well-established operations in Kenya, Uganda, and Tanzania.
Therefore, the allegations that it could not repay the decretal sum in the event the intended appeal succeeded were incorrect and misleading.
“The applicant did not provide evidence of imminent financial hardship on the part of ICEA, or that it would be unable to refund the money in the event the appeal succeeds so that the appeal would be rendered nugatory,” said the judges.
