KRA loses Sh1.3bn tax claim on Bidco Oil

Times Tower in Nairobi, the Kenya Revenue Authority headquarters. FILE PHOTO | DENNIS ONSONGO | NMG

Kenya Revenue Authority (KRA) has lost a protracted Sh1.38 billion tax case against Bidco Oil Refineries, offering a major reprieve to the consumer goods manufacturer.

High Court judge JWW Mong’are in a decision issued last week said the KRA erred in making the demand in which it claimed Bidco undervalued the crude palm oil, crude soya bean oil and crude kernel oil it imported.

“I find that the statutory provisions governing customs valuation of imported goods were not properly applied by the appellant (KRA) in calculating the additional taxes and as a result, the appellant demand of the extra revenue amounting to Sh1.38 billion, from the respondent (Bidco) is not warranted,” said the judge.

“In conclusion, I find and hold that appeal before me has no merit and is hereby dismissed with costs awarded to the respondent (Bidco).”

The KRA had on April 19, 2012, sent a demand letter to Bidco for the payment of the amount, which included accrued interest and penalties.

The protracted battle began in 2010 when the KRA demanded Sh702 million from Bidco and issued agency notices to five banks the consumer goods manufacturer held accounts with and four supermarkets that stocked its products.

However, Bidco challenged the claim eight days later before the now-defunct Customs and Excise Appeals Tribunal.

The tribunal on December 18, 2020, threw out KRA’s claim but the taxman appealed against this ruling.

The taxman, in a May 2021 appeal, argued the tribunal erred in law and fact in dismissing its claim. But Bidco countered, asking for the appeal to be dismissed with costs.

The court last week agreed with the tribunal’s finding that the sum assured is not equivalent to the cost, insurance and freight and should not be deemed to be the customs value.

“The customs value of the respondent’s goods should have been made using the price actually paid for the goods and not the price insured as the goods had been over-insured by 10 percent as agreed between the seller and the buyer as per industry practice,” said the judge.

The judge further said the KRA did not demonstrate to the court the valuation method it used in the adjustment of the customs value it used in issuing the demand.

The KRA’s claim that Bidco did not have an insurable interest in the goods it was importing and could, therefore, not claim the insurance it paid for the same was also thrown out.

The judge said Bidco had an insurable interest in the imported goods once it made payment for them.

“Further it is a known position in the export business that the ownership of goods is supposed to change at the port of importation. I find, therefore, that there was no valid reason put forward by the appellant,” said the judge.

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