A Sh5.6 billion fight between the Kenya Revenue Authority (KRA) and Coca-Cola has escalated to the Supreme Court.
A bench of five judges said the matter, as to whether the soft drink company should pay taxes on costs incurred during washing and sanitising of returned bottles, involved the interpretation and application of the Constitution.
“In view of the reasons tendered, we find that this court has jurisdiction in respect of this appeal. Having so found, we have no option but to dismiss the preliminary objection,” the judges said.
KRA had moved to the top court after three judges of the Court of Appeal overturned a High Court decision, which allowed the taxman to levy tax on returnable containers.
But Coca-Cola’s local franchises--Mount Kenya Bottlers, Rift Valley Bottlers, Nairobi Bottlers and Kisii Bottlers--challenged the KRA move to the Supreme court.
They argued that the court lacks the powers to hear the case because the appeal does not involve the interpretation or application of the Constitution.
But the Supreme court said the dispute is rightly placed before them.
Last year, appellate court judges ruled that levying tax on returnable containers (bottles and crates) every time they are refilled would amount to multiple taxation and therefore unlawful.
The KRA and Coca-Cola have been fighting since 2009 after KRA accused the beverage maker of ignoring a review of taxation laws that required bottlers to pay excise duty on costs incurred during washing and sanitising of returned bottles.
In 2004, then Finance minister David Mwiraria changed the laws and subjected the cost incurred in cleaning up returnable bottles together with soda production expenses to excise tax, which is based on the total cost of production.
But the four franchises moved to court arguing that the bottles belong to them and the cost of washing the containers cannot be subjected to tax since they are never sold to distributors.
The Mwiraria law was changed in 2010 in favour of beverage manufacturers who use returnable bottles, but KRA said that Coca-Cola never paid the tax on the cost that comes with maintaining the bottles between 2006 and 2009.
KRA then demanded an outstanding aggregate sum of Sh5,620,730,161 on account of alleged arrears of excise duty, VAT and interests, after carrying out various tax audits on the bottling firms.