The Kenya Revenue Authority wants the dismissal of a case by Devki Steel Mills seeking to have it and the National Treasury Cabinet Secretary restrained from claiming Sh1.6 billion as Exempted VAT on the plant and machineries it had imported for the establishment of a mega steel factory.
The KRA says that before the Finance Bill, 2020, came into effect, the Plant Machinery of chapters 84&85 of the VAT tax were exempted from the import tax.
It says the alleged undertaking lacks the signature of the responsible CS, a critical element of its validity. “The absence of the signature raises concerns about the authenticity and legitimacy of the undertaking, given the substantial tax liabilities involved; it is essential that all procedural requirements, including proper authorisation, are fully met,” it says.
This is to ensure its credibility; without the CS signature, the understanding cannot be considered a proper binding commitment, the authority adds.
But Devki, which is associated with billionaire businessman Narendra Raval, seeks to bar the Treasury CS from reneging on the undertaking of June 29 2020 to pay the Exempted VAT.
In its case at the High Court in Mombasa, Devki also seeks to bar the taxman from claiming the Exempted VAT. It wants, among other orders, a permanent injunction restraining the Treasury CS and KRA from claiming or demanding Sh1.6 billion, penalties and interests as stated in the taxman’s letter dated September 6.
Devki says the decision by the Treasury CS and KRA to demand VAT four years after exemption when it is statutorily barred from claiming input VAT is unlawful, unfair, unreasonable, unjust and goes against Article 47 of the Constitution.
The company adds that the move by the defendants to withdraw their earlier decision allowing it tax exemption is unlawful, null and void. Devki says the VAT exemption given by the CS was already utilised and goods released, hence the decision to withdraw the exemption is late and overtaken by effluxion of time. “The decision by the defendants to go against their representation and undertaking to the plaintiff violates the plaintiff’s legitimate expectation that it was exempted from paying taxes,” court documents state.
Devki further argues that the decision to specifically target it is discriminatory and unlawful. “The plaintiff has tried everything within its means to settle this matter amicably, but the defendants have refused.”
It says the amount sought is so huge and the case is nugatory. It says it wrote a letter on June 23, 2020, requesting exemptions.
“The request for application went through the CS Treasury’s approval process and by a letter, the CS wrote to KRA informing it that he has authorized VAT exemption of plant and machineries,” argues the company.
The company says that the CS Treasury in the letter expressly undertook to pay the VAT on the plant and machinery imported for the implementation of the mega steel project factory.
Devki Steel Mills Ltd says that upon approval of the exemption, KRA wrote to it informing that the government has undertaken to pay VAT due on the plant and machinery and advised it to proceed to release the goods on VAT free basis.
“The plaintiff cleared all the plants and machineries imported, commenced the steel factory which now processes steel locally and has employed close to 10,000 people,” part of the suit documents state.
The company says that it has been operating the factory peacefully until August 22 last year when it received a demand letter from KRA to the effect that it (KRA) had conducted an audit and established that Sh1.3 billion VAT which it had been exempted was yet to be remitted by the CS.
Devki Steel Mills Ltd says that it wrote a letter to KRA objecting to the claim and further advised it that the tax exemption if owing is as per the undertaking payable by the CS Treasury.
It says that KRA went silent only to reappear after a year through a letter dated September 6 informing it that the CS has not honoured its undertaking and that it (company) should immediately pay the tax exemption plus interest and penalties totaling to Sh1.6 billion.
Devki Steel Mills Ltd say that it wrote to the Treasury CS requesting for intervention to resolve the issues.
However, it says that in a complete twist of events and in breach of its own approval for exemption and written undertaking, the CS by a letter dated October 2 purportedly withdrew its undertaking on the grounds that there were no legal provisions supporting the undertaking and that it (company) should pay the tax being demanded by KRA.
The company is also seeking a mandatory injunction compelling the CS Treasury to forthwith settle the Sh1.6 billion with the KRA.
It is also seeking a declaration that the undertakings issued by the CS Treasury and a letter by KRA created a legitimate expectation on its part that VAT was exempted and the defendants are stopped from going against their undertakings.
