By Zachary Ochuodho
An appeals court has allowed Kenya Revenue Authority (KRA) to collect tax amounting to Sh9.12 billion from Keroche Breweries Ltd – the amount accrued since 2015 on some products manufactured and marketed by the breweries.
This follows a win by the KRA in the six appeals filed by Keroche before the Tax Appeals Tribunal in 2015 and 2017 respectively.
In three of the appeals, the contention was the manufacturing process of Vienna Ice Brand of Vodka.
According to Keroche Breweries, Vienna Ice brand of Vodka was not a distinct product from Crescent Vodka since it was produced by diluting Crescent Vodka, whose process did not amount to manufacturing. Denatured Spirits Act.
However, KRA on its part, relied on the Compounding of Denatured Spirits Act Cap 123 arguing that the process undertaken by Keroche Breweries was compounding within the meaning of the Act.
In a judgment delivered on March 9, the Tax Appeals Tribunal said that Keroche Breweries Ltd was involved in the compounding of spirit.
“Compounding of spirit amounts to manufacture within the meaning in Excise Duty Act, 2015 and Customs and Excise Act, CAP 472 (repealed) as such Vienna Ice was a distinct product for which Excise Duty was payable,” read the ruling.
In the other three appeals, the contention was with regard to the classification of pineapple-based wines.
The brewer argued that what they produced was fortified wines which should be classified under HS Code 22.04 which attracted lower excise duty rate of 40 percent.
Their position was that the classification was specific for any fortified wine.
KRA’s position was that HS code 22.04 was reserved for wines based on grapes and the Keroche’s fortified wine was purely fermented pineapple and as such it should be classified under HS Code 22.06 which is for any other fermented beverage.
HS code 22.06 attracted a higher excise duty rate of 60 percent.
The Tribunal ruled in favour of KRA on the wines’ classification as guided by the World Customs Organisation on the Harmonised Commodity Description and Coding System (HS code).
Manufacturing process KRA Commissioner for legal services and board coordination Paul Matuku said compounding of spirits also amounted to manufacture of a new product within the definition of Customs and Excise Act, Cap 472 – which has since now been repealed.
Matuku explained that in the other three appeals, the bone of contention was about the classification of pineapple- based wines.
However, the Tribunal faulted KRA for levying interest and late payment penalties for the period the disputes were being litigated at the High Court and the Court of Appeal which had directed that the matters be heard at the Tax Appeals Tribunal.
In August last year, Director of Public Prosecutions Noordin Haji ordered the arrest of Keroche Breweries Ltd proprietors Tabitha Karanja and Joseph Karanja over allegations of Sh14 billion tax fraud.
Haji said KRA Commissioner General Githii Mburu submitted an inquiry file to his office on August 18 and an audit that established that Keroche had evaded tax totalling Sh14.5 billion.
The inquiry relates to the alleged failure to pay tax on various products manufactured and sold by the company from January 2015 to June 2019.
Tabitha accused the taxman of selective and unfair targeting, arguing that she has always followed the law and was shocked to be accused of tax evasion when the matters were still under a tax tribunal.