Plastic Products Company Limited v Commissioner of Domestic Taxes (Tax Appeal E529 of 2024) [2025] KETAT 244 (KLR) (9 May 2025) (Judgment)
Neutral citation:
[2025] KETAT 244 (KLR)
Republic of Kenya
Tax Appeal E529 of 2024
CA Muga, Chair, BK Terer, EN Njeru, E Ng'ang'a & SS Ololchike, Members
May 9, 2025
Between
Plastic Products Company Limited
Appellant
and
Commissioner Of Domestic Taxes
Respondent
Judgment
Background
1.The Appellant is a limited liability company whose principal business is manufacture of plastic products.
2.The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws (hereinafter “the Act”). Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.
3.The Respondent issued an assessment dated 27th June 2022 that disallowed Section 42 Tax credits of Kshs 7,367,387.30 for the year ending July 2018 on the Income tax self-assessment return.
4.The Appellant lodged online objections to the assessment on the 25th March 2024. Consequently, the Respondent issued its objection decision dated 22nd April 2024 confirming the additional assessments.
5.The Appellant being dissatisfied with the objection decision, filed this appeal vide notice of appeal dated and filed on 20th May 2024.
The Appeal
6.The Appellant lodged Memorandum of Appeal dated and filed on 20th May 2024. The Appellant set out grounds of appeal as follows:a.The Respondent erred in law and fact by confirming an assessment of corporate tax amounting to Kshs 7,367,387.30 arising from credits claimed under the field Section 42; andb.The Respondent confirmed the Notice of objection without due regards to all records, explanations and information provided by the company on several occasions.
Appellant’s Case
7.The Appellant lodged its statement of facts dated 20th May 2024 and filed on even date and also filed written submissions dated 6th February 2024 on even date.
8.The Appellant stated that it received objection decision from Respondent dated 22nd April 2024 rejecting tax credits claimed in the year of Income 2018 amounting to Kshs 7,367,387.00.
9.The Appellant averred that on 25th March 2024 it objected to the objection decision on the grounds that at the time of filling the return there was no alternative available for the taxpayer to claim such excess credits neither did the authority allocate a Payment Registration Number (PRN) to enable the taxpayer utilize the excess credits from the prior years. The Appellant averred that it had paid all the requisite taxes and there was no tax lost by the revenue authority.
10.According to the Appellant, it met with the Respondents' representatives on various dates and that it provided explanations and documentation requested for. The Appellant asserted that the documents requested included withholding tax certificates and proof of excess credits carried forward from year of income 2017 to be utilized against year of income 2018.
11.The Appellant stated that it explained to the Respondent through supporting documents that there was no outstanding tax liability arising in the year of income 2018.
12.The Appellant submitted that the Respondent failed to take into consideration all records, explanations and information provided by the Appellant in arriving at their decision. It submitted that the excess credits that were carried forward from the year 2017 that were claimed by the Appellant in 2018 were valid.
13.That on 23rd April 2020 the Appellant provided to the Respondent a schedule of the manual withholding tax certificates and proof of the excess credits caried forward for review. Further, the letter dated 23rd April 2020 was received by the Respondent and bears an acknowledgement stamp.
14.It maintained that it was irrefutable that the manual withholding certificates were availed to the Respondent and that the parties also held various engagements with a bid to provide clarification on the matter.
15.It submitted that that in its statement of facts, it annexed ITS notice of objection dated 25th March 2024, which included copies of the manual withholding tax certificates supporting the withholding credits of Kshs. 7,367,387.30.
16.The Appellant cited Section 51(8) of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”) to submit that it mandates the Respondent to consider its objection before issuing its decision. It submitted that this included reviewing of all supporting documentation and information that had been provided for review.
17.It further submitted that it discharged its burden of proof in the mater having availed the manual withholding tax certificates to support the credits and it was upon the Respondent to rebut the evidence availed as was held in the case of Commissioner for Domestic Taxes v Trical and Hard Limited TAX Appeal No. E146 of 2020. The Appellant submitted that the Respondent did not challenge the authenticity, competence or relevance of the manual withholding tax certificates it availed.
18.The Appellant also submitted that the Respondent erred in law and fact by confirming the assessment amounting to Kshs 7,367,387 on the basis that they were claimed under Section 42 of the Income Tax Act, CAP 470 of the Laws of Kenya (hereinafter “ITA”).
19.It submitted that the decision of the Respondent to disallow the Appellants withholding tax certificates on the basis that they were claimed under section 42 in line of the income tax returns was unreasonable and carried out in bad faith. The Appellant submitted that it had no other alternative to claim such excess credits and neither did the Respondent allocate the Appellant a PRN to enable it to utilise such credits from the prior years.
20.It submitted that the Respondent being the owner of the i-Tax system, ought to have provided the Taxpayers with alternative methods for claiming the credits. It therefore, maintained that in the absence of an alternative the Taxpayer was constrained to claim the credits under Section 42. The Appellant cited the case of Price Waterhouse Coopers Limited v Commissioner for Legal Services and Board Co-ordination (2023) eKLR where it was held as follows:
21.The Appellant also cited the case of Epco Builders Limited v Commissioner for Domestic Taxes TAT Appeal No. E355 of 2023 to support its case. The Appellant prayed that the Tribunal would find in its favour and set aside the Respondent’s decision dated 22nd April 2024.
The Respondent’s Case
22.In response to the appeal, the Respondent lodged its Statement of Facts dated 19th June 2024 and filed on 20th June 2024 and its written submissions dated and filed on 20th January 2025.
23.In response to grounds of appeal it stated that Section 42 of the ITA provides relief against double taxation in the event of any foreign liabilities. It asserted that the only tax credits that can be claimed thereunder must be in relation to special arrangements.
24.The Respondent took a firm position that refunds unrelated to special arrangements are to be claimed under Section 47 of the TPA which stipulates when a taxpayer has overpaid a tax under a law. The Respondent added that a taxpayer may apply to the Commissioner, in the approved form for a refund of the overpaid tax within one year of the date on which the tax was paid.
25.It asserted that the credits claimed under Section 42 (credits under special arrangements) by the Appellant constituted of tax overpayments brought forward from previous periods. It asserted that the Appellant's lodgement of the tax refund through Section 42 was incorrect and misguided as the claim is not what is envisaged.
26.In response to the Appellant’s assertion that "at the time of filing return no alternative was available...", the Respondent stated that there is an administrative process laid down at Section 47 of the TPA. Therefore, the Respondent maintained that the Appellant did not exhaust the remedies provided under law for tax overpayments brought forward from previous periods.
27.The Respondent submitted that it is bound by provisions of the law as tax statutes are interpreted strictly. It cited the case of in Republic v Kenya Revenue Authority Exparte Bata Shoe Company (Kenya) Limited [2014] eKLR to support the position that tax laws are to be interpreted strictly.
28.It submitted that the Appellant instead of relying on section 42 of the ITA, it ought to have relied on the provisions of Section 47 of the TPA. The Respondent also relied on the case of Josephat Ndirangu versus Henkel Chemicals (EA) Ltd to support its case.
29.The Respondent prayed that the Appeal be dismissed with costs.
Issues For Determination
30.The Tribunal having carefully considered parties’ pleadings, documentation and submissions is of the respectful view that a single calls for its determination:Whether the Respondent erred in disallowing Kshs 7,367,387.00 on the basis that they were claimed under Section 42 of the ITA
Analysis And Findings
31.The Tribunal having determined the issue falling for its determination proceeds to analyse the same as hereunder:
Whether the Respondent erred in disallowing Kshs 7,367,387 on the basis that they were claimed under Section 42 of the ITA
32.The dispute arose out of the Respondent’s decision to disallow the Appellant’s withholding tax certificates on the basis that they were claimed under Section 42 of the ITA in line of the income tax returns. The Appellant found this to be unreasonable and carried out in bad faith. The Appellant stated it had no other alternative to claim such excess credits and neither did the Respondent allocate the Appellant a PRN to enable it to utilise such credits from the prior years. On the other hand, the Respondent submitted that the Appellant claimed excess credits under Section 42 of the ITA yet the said section provides for relief against double taxation in the event of any foreign liabilities. The Respondent also maintained that the Appellant ought to have claimed the credits under Section 47 of the TPA.
33.Section 42 (1) of the ITA provides as follows:‘‘42.Computation of credits under special arrangements(1)This section shall have effect where, under a special arrangement, foreign tax payable in respect of income derived by a person resident in Kenya is to be allowed as a credit against tax chargeable in respect of that income.’’
34.The view of the Tribunal is that pursuant to the provisions of Section 2 of the ITA, the term “special arrangement” means an arrangement for relief from double taxation having effect under Section 41 of the ITA or an agreement for exchange of tax information under Section 41A of the ITA. It then follows that for the Appellant to rely on the provisions of Section 42 of the ITA, it ought to have proved that it had income for which foreign taxes would have been paid and it failed to do so. In the contrary, the Appellant asserted that it claimed the credits under Section 42 of the ITA due to lack of an alternative means to claim them under the i-Tax system.
35.Whereas the Appellant claimed that the Respondent did not provide an alternative mode for claiming the credits, the Respondent submitted that the Appellant could have utilised the mechanism under Section 47 of the TPA. Section 47 (1) of the TPA provides as follows:‘‘47.Offset or refund of overpaid tax(1)Where a taxpayer has overpaid a tax under any tax law, the taxpayer may apply to the Commissioner, in the prescribed form—(a)to offset the overpaid tax against the taxpayer's outstanding tax debts and future tax liabilities; or(b)for a refund of the overpaid tax within five years, or six months in the case of value added tax, after the date on which the tax was overpaid.’’
36.In view of the foregoing, the view of the Tribunal is that the Appellant misapprehended the meaning and import of Section 47 of the TPA. In addition, the Appellant did not demonstrate why it did not pursue the claim under Section 47 of the TPA.
37.The Tribunal noted that it has previously allowed an appeal where a taxpayer had claimed tax credits under Section 42 of the ITA on the basis that the Respondent did not provide alternative means of claiming manual withholding certificates. In the case of East African Sea Foods Limited v Commissioner of Domestic Taxes (Appeal 61 of 2022) [2023] KETAT 326 (KLR) (2 June 2023) (Judgment) where this Tribunal while allowing an appeal where an Appellant had claimed credits under Section 42 of ITA instead of Section 47 of the TPA held as follows at paragraphs 73, 74 and 75 of the judgement:‘‘73.The appellant made its application for the offsetting of its tax liabilities against its tax credits under section 42 ITA while the respondent contends that Section 47 TPA is clear on the right procedure to be followed. The parties are in agreement that the right procedure is as per section 47 TPA but the appellant qualifies why it used section 42 of ITA instead.74.The tribunal on perusing the two sections in issue is in agreement with the commissioner that the right procedure to be followed in applying for credits is under the provisions of section 47 of the TPA and section 42 of the ITA is only applicable to special agreements dealing with foreign liabilities and only tax credits applications falling under that can therein be claimed.75.The above observation notwithstanding the tribunal takes into consideration the submissions of the appellant that the technicalities in place at the time of its application for tax credits could not allow it to lodge its claim under section 47 of the TPA and this averment is not disputed by the respondent. The validity of the tax credits has also not been questioned by the respondent.’’
38.The Fact that that the Tribunal allowed the Appeal in the case of East African Sea Foods Limited v Commissioner of Domestic Taxes (supra) does not automatically qualify subsequent Appeals to be allowed automatically. Whereas the appellant in East African Sea Foods Limited (supra) demonstrated why it could not claim credits under Section 47 of the TPA, the Tribunal has noted that the Appellant herein misguided itself on the provisions of Section 47 of the TPA.
39.In the instant case, the Appellant ought to have then applied itself within the provisions of Section 47 of the TPA as opposed to the provisions of Section 42 of the ITA as to permit the Appellant to offset the overpaid taxes in accordance with the provisions of Section 47 of the TPA.
40.Consequently, the Tribunal finds that Respondent did not err in disallowing Kshs 7,367,387.30 on the basis that they were claimed under section 42 of the ITA.
Final Decision
41.The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is unmerited and makes the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 22nd April 2024 be and is hereby upheld.c.Each party to bear its own cost.
42.It is so Ordered.
DATED AND DELIVERED AT NAIROBI ON THIS 9TH DAY OF MAY, 2025.CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A - MEMBEROLOLCHIKE S. SPENCER - MEMBER