The Commercial & Tax Division Court reiterates that funds collected as tax when there is no law providing for such collection should be refunded since such a collection is unlawful and continuous holding on those funds violates the right to property.
Commercial & Tax Division HCCOMMPET No. E005 of 2022: Red Dot Distribution EPZ LTD v Kenya Revenue Authority & Another
Ong’anya Ombo Advocates LLP represented the Petitioner before the Commercial & Tax Division Court, whereby the Petitioner was interested in a determination concerning funds collected by the Kenya Revenue Authority (KRA) as various types of taxes (Value Added Tax and Drawback Duty) from it as an Export Processing Zone (EPZ) licensed company yet there was no provision requiring KRA to collect such funds as tax. KRA had declined to refund the funds from the Client for more than a decade.
The Court, in rendering its judgment, considered whether declining to provide the Petitioner constructive feedback on its claim for refunds was against fair administrative processes, which resulted in limitation to access to justice and breaching the Petitioner’s right to property (money). As a result, the Honourable Court determined that the Respondents did violate the Petitioner’s rights under Article 40 (as read with Article 260), 47, 48, 50, and 210 of the Constitution of Kenya as read together with s 106, 107 & 170 (2) of the East African Community Customs Management Act.
The Honourable Court proceeded to declare that (a) any collection or demand under that category was/is illegal, (b) demand for such taxes on goods under that category was contrary to the Customs and Excise Act and the Export Processing Zones Act, (c) demand for such taxes on goods under that category was contrary to Value Added Tax Act and the Export Processing Zones Act, and (d) rejection of the claim on refunds unlawful, arbitrary and a violation of the Petitioner’s rights to property guaranteed under Article 40 and a violation of Article 210 of the constitution.
The Honourable Court further ordered that the Respondents refund the Petitioner KES. 12,337,310.00, being the money being withheld by KRA, and the cost of the Petition.
How relevant is this decision?
The outcome of this decision helps corporate entities under EPZ that had deposited funds to Kenya Revenue Authority (KRA) as a tax instead of a security guarantee pursuant to s 106, 107 & 170 (2) of the East African Community Customs Management Act and KRA has declined to refund the funds. Furthermore, the decision is equally essential to any taxpayer that has funds withheld by KRA yet there is no law providing such rights to withhold such funds (money is property, and such an action is a violation of Constitutional Rights).