Troubled cigarette manufacturer Mastermind Tobacco (K) Limited, which is currently under administration by I&M Bank over an undisclosed debt, has suffered a major setback in its ongoing financial woes.
This is after the High Court declined to overturn the Kenya Revenue Authority (KRA) ‘s Sh517.75 million tax claim on a consignment of cigarettes for export suspected to have been dumped in Kenya instead of being exported as initially declared.
The tax demand imposed on the troubled firm stems from a consignment of cigarettes the company claimed to have exported to Burundi between 2013 and 2017, but which were suspected to have been diverted to and sold in the local Kenyan market instead.
In a Judgement delivered by High Court Judge Alfred Mabeya, the court upheld KRA’s position, stating that the company had failed to meet the burden of proof necessary to demonstrate that the cigarettes had actually left the country for their intended destination.
“The appellant’s failure to prove that the cigarettes were exported to the intended destinations, in light of the evidence from the Burundi and Uganda Revenue Authorities, means that the burden of proof was not discharged. Consequently, the Court finds no merit in the appellant’s appeal,” Justice Mabeya ruled.
The judge, however, upheld the Tax Appeals Tribunal’s decision, which had initially given KRA the green light to collect Sh 517,755,155 in taxes on cigarettes that were sold in Kenya.”
As a result, the Sh517 million tax demand remains in force, adding another layer of financial strain to the already struggling tobacco manufacturer.
The tax dispute arose after KRA launched an investigation into a consignment of cigarettes that had been impounded by the National Police Service in 2016.
According to KRA, the goods, which were reportedly bound for export, were found in Kenya despite the claims that they had been destined for Burundi. The cigarettes were part of a larger batch of goods suspected to have been dumped in the local market instead of being exported, as required by law.
KRA made an assessment on the consignment and, on March 3, 2018, issued a tax demand of Sh 517.7 million. The company raised an objection, and on May 22, 2018, an objection decision was rendered. Dissatisfied with the decision, the appellant appealed to the Tax Appeals Tribunal.
In its judgment of April 23, 2021, the Tribunal dismissed the appeal and upheld the objection decision, confirming the tax demand of Sh 517,7 million.
Aggrieved by the ruling, Mastermind Tobacco lodged an appeal before the Milimani Commercial and Tax Division of the High Court through a Memorandum of Appeal dated May 3, 2021.
The appeal was based on 17 grounds, including the argument that the Tribunal erred by disregarding the certificates of export provided by the company, thereby concluding that the goods were not exported.
The company had submitted that the tribunal failed to consider the evidence of export despite the veracity of the certificates of export not being challenged by the KRA.
These certificates were generated by KRA and were meant to confirm that the consignment had crossed the border and reached its intended destination. However, the taxman remained unconvinced by these documents, arguing that the certificates lacked validity due to discrepancies in the stamps and records associated with the export process.
The company contended that the cigarettes were duly exported as per its business model, which involved selling goods to appointed agents who then took responsibility for transporting the goods to their respective destinations.
According to the company, once payment was received from international buyers in Burundi and Congo, export documentation was processed, and the goods were sealed and tracked for export.
However, KRA’s stance was that despite the submission of certificates of export, the burden of proof was on Mastermind Tobacco to show that the goods actually left Kenya.
The tax authority also cited information from the Uganda and Burundi Revenue Authorities, which indicated that no cigarettes from Mastermind Tobacco had reached their intended destination during the relevant period.
In light of this evidence, KRA argued that the goods had never left the country and were therefore subject to local tax obligations.
Judge Mabeya, in his decision, supported KRA’s position. The Judge acknowledged that while the export certificates issued by KRA were prima facie evidence of export, discrepancies in the supporting documentation, such as the lack of proper stamps and the absence of corroborating evidence from the destination countries, undermined Mastermind Tobacco’s claim.
The court ruled that Mastermind Tobacco had not met the legal threshold to prove that the cigarettes had indeed been exported to Burundi as claimed.
In dismissing the appeal, Judge Mabeya noted that the burden of proof in tax matters rests squarely on the taxpayer, and Mastermind Tobacco had failed to discharge this burden.
” The appeal is dismissed with costs, and the decision of the Tax Appeals Tribunal, delivered on April 23, 2021, is upheld,” Justice Mabeya ruled.
The court concluded that, based on the evidence presented, the goods had not left Kenya and the tax demand of Sh517,755,155 was valid.
 's Sh517.75 million tax claim on a consignment of cigarettes for export suspected to have been dumped in Kenya instead of being exported as initially declared. ){kind=link}