How tax dispute between KRA and Bidco started

By Wahome Thuku

Bidco Oil Refinery Ltd is one of the leading manufacturers and marketers of cooking oil, fats and soaps in Kenya. That puts it under scrutiny, especially by Kenya Revenue Authority (KRA).

Sometime in September 2009, KRA decided to assess Bidco’s imports duty bill and established that it was in arrears of Sh702 million. On September 16, 2009, KRA wrote to the company demanding the money.

Bidco rushed to court and applied for orders to have KRA prohibited from making the demand. Meanwhile, they also applied to KRA for review of the decision.

On September 25, 2009, the Commissioner General (CG) wrote to Bidco’s CEO Vimal Shah informing him he would set up a Team of Technical Experts (TTE) to look into the dispute. KRA informed them they could only lift the agency notice subject to Bidco paying half of the Sh703 million (Sh352 million) as security to KRA pending the findings of the team.

withdraw suit

The CG told Mr Shah that the findings of the TTE would be final and subject to no further appeal to his office. But if Bidco was dissatisfied, they could seek arbitration elsewhere.

On October 28, 2009, Bidco and KRA recorded consent in court. KRA was to unconditionally withdraw all the assessment and Bidco was to withdraw the suit. Commissioner General of KRA was to set up the Team of Technical Experts (TTE) within seven days to look into the dispute, determine the value of the goods and assessment of duty under the East African Community Customs Management Act (EACCMA).

Bidco would issue a bank guarantee of Sh351 million. It was at liberty to make legal representations to the team, which would then prepare a report within 15 days of appointment.

If the TTE established that Bidco owned KRA arrears in imports duty, then the taxman would be free to make a fresh demand and the company could challenge it.

The CG set up a TTE comprising of KRA staff and they produced a report. Based on that report, KRA wrote to Bidco on January 22, 2010, this time demanding Sh780.8 million.

On February 11, 2010, Bidco filed an application at the High Court challenging the fresh demand. The case went before Judge Weldon Korir.

The company asked the court to quash the TTE report and KRA demand letter.  They also asked for orders prohibiting KRA from demanding, enforcing, collecting or taking any step in connection to the report or the letter.

In affidavits sworn by Shah on January 10, 2010 and June 2, same year, the company argued that TTE had been constituted and concluded its work outside the mandatory time schedules set out in the consent order hence its report was unacceptable.

Through lawyer Ochieng Oduor, the company claimed TTE was made up of KRA employees hence was not an independent team of experts as envisaged by the consent order.

Bidco said TTE report considered other extraneous matters beyond its terms of reference hence contravening the consent order.

The team contravened EACCMA in arriving at the findings, they said.
“TTE failed to observe rules of natural justice since KRA cannot be a prosecutor, witness and judge in its own case,” lawyer Oduor submitted.

Senior Deputy Commissioner General Ruth Wachira swore affidavits on May 10, 2010 and February 15, 2011. She submitted that the team was set up within seven days and completed its work in 15 days as ordered. It was properly composed and executed its mandate professionally resulting in the new findings.
legal mandate

Ms Wachira said TTE members were professionals drawn from various KRA departments and had vast experience and expertise in customs, valuation and tax matters and they came up with an independent report. She said Bidco was all along aware that the TTE members would be drawn from it’s staff since the taxman’s legal mandate could not be transferred to a third party.

Ms Wachira, who was in charge of the Customs Service Department said Bidco’s lawyer Oduor had been informed that TTE made up of outsiders would not be accepted as that would mean KRA had abdicated its responsibilities. Mr Oduor had accepted that position and the name “independent” had been dropped from the consent order.

“The team addressed itself to its mandate and did not consider any extraneous issues,” Ms Wachira argued.
Shah denied claims that Bidco was aware of the TTE composition before receiving the report.

Looking at the documents in court, the judge agreed that the constitution of the TTE was left to CG. Under Section 229 of the EACCMA, the CG is empowered to make a decision on the application for review and the taxpayer (Bidco) has no role in the manner in which the application for review is handled.

The expertise of the TTE members had not been included in the consent order.
In his ruling, Judge Korir held that KRA could not be faulted for constituting the TTE in the manner it did.
KRA had produced two letters sent to Bidco’s CEO, one informing him TTE had been set up and they could make presentations and the second that the TTE report was ready.

Mr Shah claimed the letters were backdated to meet the timelines. But it was his word against the letters as there was no other evidence to support him.

“From the dates on the two letters, the only conclusion one can reach is that TTE was constituted within seven days and concluded its work within 15 days,” the judge said.

The judge analysed the parameters that consent order covered and Section 122 of the EACCMA on the valuation of imported goods and payment of import duty.

He concluded that TTE had not considered extraneous issues and had acted within its mandate.
The judge established that Bidco had been invited to make their presentations and had in fact written to the CG on November 16, 2009, making their submissions.

pay costs

Judge Korir held that TTE had properly executed its mandate and the only way Bidco could have challenged the decision was by way of an appeal to court.

He held that Bidco had not suffered any prejudice under the procedure used by KRA to handle the application for review.
The case was dismissed and Bidco ordered to pay costs of the suit. That means KRA bill increased from the initial Sh780 million to include costs of the suit. 

On April 27, KRA issued agency notices seeking to attach Bidco’s bank accounts and property for failure to pay the tax arrears, which had reached Sh1.3 billion.

Bidco moved to court to challenge the taxman. High Court Judge David Majanja on May 2, issued temporary orders restraining the taxman from taking action against Bidco.