The tax appeal tribunal has set aside a Sh3 billion tax demand from London distillers, a company associated with businessman Mohan Galot.
The dispute arose from investigations conducted by KRA into the company’s tax affairs for the 2015-2019 period, which focused on the areas of banking, excise stamps and bottles.
The Eric Wafula led tribunal set aside the demand issued on June 9 saying the commissioner of investigation and enforcement did not justify its corporation tax, excise duty and VAT assessment on London Distillers.
The tribunal said KRA, without any good reason, ignored London Distillers documentation demonstrating misclassification of purchased labels as bottles and went ahead to include the same as bottles in its assessment without adjustment.
The tribunal said KRA ignored the company’s explanation on misclassification of new bottles as old bottles and instead went ahead to include the same as old bottles in its assessment without adjustment.
“It is indeed difficult to imagine how the quantity of alcohol amounting to 7,350,759 litres, which KRA alleged the company had illegally produced, would be sold in the market or exported without being noticed. That it is simply impossible,” they said.
The tribunal said a witness from KRA acknowledged that such quantities would not easily be in the market without being noticed.
It also said if the commissioner had acted in good faith, it would only be logical to visit the factory before the assessment and the objection decision on the demand of the Sh3 billion.
They said the commissioner visited the factory two and a half months after its March 18 assessment last year.
In the appeal to challenge the demand, London distillers contended that the commissioner made a mistake by subjecting them to tax “non-tax transactions.”
Some of these included fixed deposit transactions and other non-sales transactions like sale of assets, cancelled cheques for suppliers and unpaid debtors’ cheques.
London distillers had clarified that after factoring in the non-sales items, net sales figures were fairly balanced with the banking figures, with only small margins of accounting error that should be of no material accounting concern.
The commissioner argued that they undertook an investigation on London Distillers transactions because their bank account showed a 66 per cent increase in deposits between January 2018 and August 2018 compared to the same period the previous year.
