Pharmaceutical Manufacturing (k) Co Ltd & 3 others v The Commissioner General of The Kenya Revenue Authority & 2 others
The bottom line
#Kenya's Court of Appeal ruled that tax exemptions given 'for the time being' are not property rights, so KRA can lawfully withdraw them and demand arrears.
What this practically means
#Executive summary
#Key legal issues
#Whether import VAT exemptions enjoyed by the 1st appellant constituted property under Article 40
They did not. The 1st appellant was not exempted or zero-rated after 2000, and a time-limited tax dispensation is not a justiciable proprietary right
The court traced the law: raw materials for manufacture of medicaments were zero-rated only between 1995 and 2000; the Finance Act No. 6 of 2001 removed that zero-rating with effect from 15th June 2001. The benefit enjoyed was a tax incentive subject to the law and the constitutional power to legislate on taxation. Distinguishing Intersplav v Ukraine, the appellants here owed tax rather than being owed a refund.
Whether the demand for VAT arrears was lawful
It was, being grounded on section 68 of the VAT Act, 2013 (saving provisions) and section 135 of the East African Community Customs Management Act, 2004
Section 68(1) of the VAT Act, 2013 saves the repealed Act's provisions for assessment and collection of tax outstanding at repeal. Section 135 of the EACCMA permits demand within five years of a short levy, and the demand fell within that period. Any refunds erroneously made during the period were recoverable as made in error.
Whether estoppel or legitimate expectation precluded the State from demanding the arrears
Neither doctrine availed the appellants: there is no estoppel against a statute, and no clear, unambiguous promise was demonstrated
The exemption was expressed to apply 'for the time being'; no representation assured the appellants that VAT would never be adjusted. The legislative authority resides in Parliament, and so long as it is discharged in accordance with the Constitution its exercise cannot be challenged. The strictures for legitimate expectation were not met.
Whether the 2014 VAT amendment was an admission that the 2013 Act was unconstitutional
It was not; flexibility to respond to changing fiscal conditions is a characteristic of a tax system
The court held that tax systems respond to changes in the economy and government fiscal goals, including the equitable-sharing demands of Article 201. If the 2014 amendments were corrective, a refund provision would have been the simple remedy; none was included. The argument was 'short of truth and is fallacious'.
Whether default judgment should have been entered against the Attorney General
No. Under Rule 16 of the Mutunga Rules the court may hear and determine the petition in the respondent's absence, and determination is on merit
Article 22 enforcement proceedings are governed by the Mutunga Rules, which, unlike the Civil Procedure Rules, do not provide for default or interlocutory judgment. The prayers against the Attorney General were so intertwined with those against the other respondents that default judgment in isolation would be improper.
Legal principles established
#- A tax exemption or zero-rating granted 'for the time being' is a revocable tax incentive, not a constitutional right to property; its withdrawal by legislation is not arbitrary deprivation under Article 40
- No tax may be imposed, waived or varied except as provided by legislation; withdrawal of a tax incentive in accordance with the law is not a violation of the Constitution
- Estoppel cannot override express statutory procedures; there can be no estoppel against a statute
- A party relying on legitimate expectation must demonstrate an express, clear and unambiguous promise that was breached, and the expectation must be legitimate, reasonable and not contrary to the express provisions of the law
- Under the Mutunga Rules, constitutional petitions proceed to determination on the merits even where the Attorney General fails to reply; default judgment is not provided for
Court orders
#- 1.Dismissal of the appeal
- 2.Upholding the determination of the trial court
- 3.Costs of the appeal awarded to the respondents
- On appeal from
- High Court of Kenya
- Human Rights Division Petition No. 589 of 2013
- Jurisdiction invoked
- First appeal to the Court of Appeal from the High Court in a constitutional (Bill of Rights) petition
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Pharmaceutical Manufacturing (k) Co Ltd & 3 others v The Commissioner General of The Kenya Revenue Authority & 2 others", Case Analysis (2017). Civil Appeal No. 283 of 2014. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2017/683/eng@2017-03-10
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.