Kenya Revenue Authority (KRA) has gone back to the Supreme Court seeking a fresh hearing of a Sh5.6 billion tax dispute with Coca-Cola over the law that requires the soft drink maker to pay excise duty on costs incurred during washing and sanitising of returned bottles.
Four local Coca-Cola franchises have been engaged in a court fight for more than a decade with the KRA, arguing that the bottles belong to them and the cost of washing and sanitising returned containers cannot be subjected to tax since they are never sold to distributors.
The taxman argued that the bottlers treated the returnable containers as capital assets, not inventory items and were, therefore, subject to excise tax and value-added tax (VAT).
The case was dismissed in September on a technicality but the KRA says the apex court should determine the case as a matter of public interest because a ruling in favour of the soft drink maker would deny the taxman billions of shillings.
“The intended petition of appeal raises matters of grave taxation implication involving the interpretation of tax statutes in line with Article 210 of the Constitution of Kenya, touching on the mandate of Parliament to enact legislation on taxation,” the KRA said in the appeal.
The appeal was dismissed on September 22 when the matter came up for hearing, for failure to comply with Supreme Court rules. The case had been pending in court for two years.
The taxman says the public at large stands to suffer if the case is not heard since the Court of Appeal ruled that there was no ambiguity in the words used in section 127C of the Customs and Excise Act, “but the ambiguity was in silence”.
“This finding that implies ambiguity in silence has thrown the interpretation of tax statutes into disarray,” KRA stated.
In 2019, the soft drink maker won the battle after the appellate court ruled that levying tax on returnable containers every time they are refilled, amounts to multiple taxations and is unlawful.
Mount Kenya Bottlers, Rift Valley Bottlers, Nairobi Bottlers and Kisii Bottlers moved to court in 2009.
“In our view, the exclusion of returnable containers from the ex-factory selling price as per the previous legislations must have appreciated the unique nature of the practice in the industry and the dealing in such containers,” Justices Wanjiru Karanja, Otieno Odek and Kantai ole Sankale said in 2019.
Mount Kenya Bottlers, Rift Valley Bottlers, Nairobi Bottlers and Kisii Bottlers moved to court in 2009 after the KRA demanded an outstanding aggregate sum of Sh5.6 billion on arrears of excise duty, VAT and interest.
KRA conducted tax audits on the bottling firms for the period between 2006 and 2008 and said the companies had failed to include the costs incurred during washing and sanitising of returned bottles.
Aggrieved by the assessment, the bottlers moved to court arguing that the returnable containers are solely used for packing and distributing liquid soda and remain its property hence, they ought not to be subjected to tax.
The company further argued that the deposit paid by the distributors on the purchase of the liquid soda carried in the returnable containers was a guarantee or security to ensure that the distributors returned the bottles. Once the bottles and crates were returned, the bottlers said they refunded the deposit to the customers.
In arriving at the Sh5.6 billion, KRA looked at the number of products sold by the bottlers from their monthly excise returns for the said period and applied the same to constructively establish the number of returnable containers used by the bottlers.
Thereafter, the taxman multiplied the same by the deposits paid on the said containers by the bottlers’ customers.
The High Court had dismissed Coca-Cola’s case forcing the bottlers to move to the court of appeal, which ruled in their favour. KRA then moved to the Supreme Court.
The matter was mentioned before the Deputy Registrar of the Supreme Court, who forwarded the file to Chief Justice Martha Koome to set up a bench to hear KRA’s application.