The Appellate Court has also prohibited KRA from continuing to demand money from the company.
Krish Commodities Ltd had moved to the Appellate Court after the High Court dismissed its application seeking to have demands by KRA quashed.
The Kenya Revenue Authority (KRA) has suffered a setback after a decision to demand Sh26.2 million from a rice importer was dismissed.
The taxman had claimed uncollected duty from a firm, Krish Commodities Ltd, as a result of the application of a lower duty rate.
The Court of Appeal in Mombasa also prohibited KRA from continuing to demand money from the company in respect of importation of rice cleared by the taxman.
Krish Commodities Ltd had moved to the Appellate Court after the High Court dismissed its application seeking to have demands by KRA quashed. Judges Alnashir Visram, Wanjiru Karanja and Martha Koome said the High Court erred in its discretion.
“We set aside the judgment and substitute the same with an order allowing Krish Commodities Ltd application,” said the three judge appellate bench.
They also noted that identification of applicable rate of duty and assessment of what was payable was done by the Simba System previously used by KRA for customs processing.
“The appellant had no role in declaring or setting the rate to be applied, for KRA to turn around and pass the buck to the company by contending that it was aware of the right rate cannot hold any weight,” ruled the judges.
The court was told that the company had in 2008 and 2009 imported rice into the country and the consignments cleared.
Later in 2011, it received a letter from KRA demanding payment of short levied duty over the goods.
The court also heard that underpayment arose from the application of the wrong duty rate during the clearance and assessment of duty payable.
Through lawyer Sanjeev Khagram, the company argued among other issues that the High Court erred in failing to appreciate the circumstances under which Simba System assessed the duty payable over imported goods.
Mr Khagram further argued that having paid the duty assessed, it was unfair for KRA to try and impose the alleged short levied sugar four years’ later taking into consideration that the purported erroneous application of the wrong rate of duty was attributable to the taxman.
KRA, through lawyer Pius Nyaga, argued that it conducted a post clearance audit on the consignment of rice imported by the company.
Mr Nyaga said the results revealed that the wrong duty of 35 per cent had been used in computing the duty payable for the consignment.
He further argued that the Kenyan tax system is based on self-accounting and assessment since everyone is supposed to declare how much tax is due and KRA empowered to audit the declarations.
