Devki Steel Mills has sued the Treasury Cabinet Secretary and Kenya Revenue Authority seeking to have them restrained from claiming Sh1.6 billion as exempted value-added tax (VAT) on plant and machinery which it imported for set up of a steel factory.
The company which is associated with billionaire businessman Narendra Raval also seeks to bar the CS Treasury from reneging on its undertaking of June 29, 2020 to pay the Exempted VAT.
In its case filed at the High Court in Mombasa, Devki also seeks to bar the taxman from claiming from it the disputed tax.
It wants among other orders a permanent injunction restraining the CS Treasury 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 CS Treasury 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 the express provisions of Article 47 of the Constitution.
It argues that the decision by the defendants to withdraw their own decision allowing it tax exemption after four years is unlawful, null and void.
Devki says that the VAT exemption given by the CS Treasury was already utilised and goods released thus his decision to withdraw the undertaking is late and has been overtaken by effluxion of time.
“The decision to go against their representation and undertaking to the plaintiff violates the plaintiffs’ legitimate expectation that it was exempted from paying taxes,” part of the suit documents state.
“The plaintiff has tried everything within its means to settle this matter amicably but the defendants have refused, making the filing of this suit a necessity,” Devki argues.
Requesting VAT exemptions
The company says the amount is so huge that unless they are retrained, it will be completely removed out of business rendering the case nugatory.
According to the company, it wrote a letter on June 23, 2020 to the CS Treasury requesting VAT exemptions on plant and machinery.
Devki says the VAT exemption was necessitated by lack of cash flow during the economic disruption resulting from Covid-19 pandemic and that the steel factory was and still is a strategic investment that would spur economic growth.
“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 authorised VAT exemption of plant and machinery,” argues the company.
Devki 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 steel project factory.
The plaintiff says that upon approval of the exemption, KRA wrote to convey the message that the government had undertaken to pay VAT due on the plant and machinery and advised it to proceed to take delivery of the goods on a VAT-free basis.
“The plaintiff cleared all the plants and machinery 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 the taxman 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 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 Devki should immediately pay the tax exemption plus interest and penalties totalling to Sh1.6 billion.
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 the steel manufacturer 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.
