The High Court has struck out a petition by a group of traders seeking to quash the decision of the Kenya Revenue Authority (KRA) to impose an excise duty on water refilling businesses, which are primarily located near residential estates.
The court decision is likely to have implications on the cost of bottled water as traders pass on the extra cost to consumers.
The vendors had asked the court to declare that KRA’s decision to classify water refilling as manufacturing, subject to excise duty, unlawful.
They claimed the taxman had expanded the definition of excisable goods and imposed a duty of Sh5.47 per bottle, which they said was higher than the cost of purchasing and reselling the water.
However, Justice Lawrence Mugambi ruled that the case should first have been filed at the Tax Appeals Tribunal before being escalated to the High Court.
This is because the dispute concerned the interpretation of the applicable provisions of the Excise Duty Act regarding the application of excise duty to water sold through ATMs.
The judge further noted that the petition involved a decision made by KRA on July 17, 2020, asserting that provisions of the Act extend to such water vendors, but the petitioners disputed the correctness of the said decision.
“This is thus a dispute arising from a decision by the commissioner on a matter under the provisions of any tax law, which I am persuaded is within the competence of the Tax Appeals Tribunal pursuant to the Tax Appeals Tribunal’s Act,” said the judge.
Stating that the petition breached the doctrine of exhaustion of remedies, the judge said: “It is camouflaged as a Constitution petition but the primary issue is a challenge on the decision of the commissioner on a tax dispute arising from the interpretation of the provisions of the Excise Duty Act, which is a matter that ought to be decided by the Tribunal in the first instance, and only find its way to the High Court by way of an appeal”.
The petition stemmed from a public notice issued by KRA on July 17, 2020, titled “Excise Duty on Water Duty on Water Refill” requiring persons engaged in the business of bottling (including through refilling) or packaging water to obtain an excise licence from the taxman and also charge and remit excise duty as required by the law.
Further, they were also required to affix excise stamps on each bottle refilled or packaged.
The petitioners stated that their business involved procuring or buying purified water from water purification companies and selling it to customers via a water ATM machine.
They explained that, to use the service, customers were usually required to bring their own water bottles or containers to be refilled at the water ATM, and were billed according to the number of litres of water sold.
The petitioners argued that their job did not involve the water purification process.
They explained that, instead, water purification companies use their water bowsers to transfer the purified water into their tanks, from which they sell the commodity via the water ATMs.
The petitioners maintained that they were not involved in the manufacturing or purification of the water, and thus did not fall under the description of manufacturers.
The court heard that KRA started enforcing the notice by sealing and locking the traders’ retail stores, and seizing their tanks and refilling machines until they procured an excise licence.
They argued that the tax was imposed arbitrarily by unlawfully expanding the definition of manufactured excisable goods beyond that set out in the Excise Duty Act.
They said the decision of the taxman was prejudicial to their economic rights and a punitive tax regime.
In response, KRA said the process undertaken by the petitioners was considered manufacturing and levying of excise duty under the Excise Duty Act enacted by the Parliament.
“Before any taxes can be levied, Parliament has to approve and the same has been approved,” said Susan Kairu, representing the KRA.
It was contended that Section 2 of the Excise Duty Act defined excisable goods as listed in the First Schedule, which included manufactured water that is bottled or packaged. She asserted that the petitioners’ water refilling businesses fell within this scope.
Regarding the petitioners’ claim that they only refilled water in customers’ bottles, KRA stated that the Excise Duty Act does not specify who should provide the packaging.
“The petitioners’ allegations of the duty being prejudicial is deemed to be illogical as excise duty is a consumption tax passed on to the customer, not the business owner. KRA’s actions were in line with the law and equally did not violate the petitioners’ rights,” said Ms Kairu.
