Cigarette manufacturer Mastermind Tobacco Kenya Limited has lost a legal battle to overturn a Sh500 million tax demand by the Kenya Revenue Authority.
A High Court judge ruled that the company had failed to meet the burden of proof that the cigarettes had left the country for their destination.
The taxes imposed on the troubled firm were on consignments allegedly exported to Burundi between 2013 and 2017, but the Commissioner of Domestic Taxes said investigations had shown that no such imports had reached Burundi.
The dispute followed an investigation in which the KRA concluded that the cigarettes did not leave the company's premises along Mombasa Road in Nairobi.
Upholding the Tax Appeals Tribunal's 2021 decision, Justice Alfred Mabeya said that although the manufacturer had produced a certificate of export, the burden shifted back to the company after the tax authority challenged the documentation of the imports.
“From the foregoing, it is clear that the appellant (Mastermind Tobacco) carries the burden of proof to show that the goods were indeed exported to a foreign country,” said Justice Mabeya.
The judge argued that while the certificate could provide initial support for the export claim, the discrepancies highlighted by the KRA and documentation from the Uganda Revenue Authority suggested further investigation to establish its validity.
Furthermore, the company did not refute the evidence provided by the Burundi Revenue Authority and the Uganda Revenue Authority regarding the alleged shipment.
The court was informed that the police conducted an operation in 2016, during which goods were seized from the company's premises.
The KRA was informed of the anomaly and launched investigations to establish whether the seized cigarette cartons were intended for export or dumped on the local market.
The taxman questioned the export of the goods based on the stamps on the export certificates and documentation from the Uganda Revenue Authority, which indicated that the cargo had arrived in Uganda.
In addition, the Burundi Revenue Authority provided evidence that no cigarette imports from the Kenyan manufacturer had entered Burundi.
The taxman then conducted an assessment of the consignment on March 28, 2018, and issued a tax demand of Sh500 million. Mastermind Tobacco raised an objection, which was rejected by the KRA.
After its appeal to the tribunal was also dismissed, the firm moved to the High Court for redress.
Mastermind challenged the tribunal's findings, arguing that the KRA had failed to understand its business in concluding that the goods were not exported.
Mastermind added that customers based in Burundi and Congo paid for the goods and sent their agents to collect the consignments from its premises.
Once payment was received from the customer, an invoice would be issued and a customs export entry would be processed. An export entry would then be uploaded and printed copies provided to the export staff and the resident officer of the KRA, who would then certify the physical export.
The company said the tribunal ignored or disregarded the overwhelming evidence that the goods in question were exported and ultimately left the Kenyan border.
Mastermind had urged the court to allow it to produce the Electronic Cargo Tracking System reports to show that its goods had reached the border for inspection and verification.
Mastermind, which is currently under receivership by I&M Bank for undisclosed debts, argued that the burden of proof had shifted to the KRA to prove that its shipment did not cross the Kenyan border in transit to Burundi.
The KRA argued that the tribunal had acted lawfully in reaching its decision because the tobacco company had failed to meet the burden of proof by providing compelling evidence in defending its case.
