Pharmaceutical Manufacturing (K) Co Ltd & 3 others v Commissioner General of Kenya Revenue Authority & 2 others [2017] KECA 729 (KLR)

Court of Appeal

3 March 2017

AMAsike Makhandia

W. Ouko KMK. M'Inoti

481 words in judgment

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The bottom line

Kenya's Court of Appeal confirmed that pharmaceutical manufacturers must pay import VAT on raw and packaging materials; their constitutional challenge failed completely.

What this practically means

Executive summary

The Court of Appeal at Nairobi (Makhandia, Ouko and M'Inoti, JJ.A) dismissed Civil Appeal No. 283 of 2014 by Pharmaceutical Manufacturing (K) Co Ltd and three of its officers against the Commissioner General of the Kenya Revenue Authority, the Attorney General and the Commissioner of Customs Services. The dispute arose from a demand by the Commissioner of Customs Services for unpaid import VAT on the appellant company's pharmaceutical imports, initially Kshs.121,660,538 and later corrected to Kshs.43,579,769 for the period January 2008 to November 2013. The appellants had petitioned the High Court (Lenaola, J) claiming that the 1st and 2nd Schedules to Sections 2 and 7(2) of the VAT Act, 2013 contravened Article 201 on public finance, that Section 7(2) imposing import VAT on raw and packaging materials for manufacturing medicine was null and void, and that the Act violated their rights under Article 27(1), the protection from arbitrary deprivation of property, and the right to health. The respondents maintained that the company did not enjoy any tax exemption or zero-rating for the period in question, following a post-clearance audit. The High Court dismissed the petition in its judgment and decree dated 26th August 2014. On appeal, the Court of Appeal found no merit in the appeal and dismissed it with costs under Rule 32(5) of the Court of Appeal Rules, thereby affirming the High Court decision. The document as supplied records the dismissal but notes that detailed reasons would follow on 10th March 2017. No separate opinions, dissents, or cited authorities appear in this version.

Key legal issues

Constitutionality of Sections 2 and 7(2) of the VAT Act, 2013 and its Schedules

Holding

The appeal against the High Court's dismissal of the constitutional challenge fails; the provisions were held not to offend the Constitution

Reasoning

The appellants challenged the VAT Act, 2013 as violating Article 201 on public finance, Article 27(1) on equal protection and non-discrimination, Article 40 on arbitrary deprivation of property, and the right to health. The respondents contended the 1st appellant was never entitled to exemptions or zero-rating on its pharmaceutical imports for the demand period. The court, having considered the appeal and submissions, found no merit in it and dismissed it with costs, affirming the judgment and decree of the High Court (Lenaola, J.) dated 26th August 2014.

p. 2

Legal principles established

Section 7(2) of the VAT Act, 2013 and its 1st and 2nd Schedules do not contravene Article 201 of the Constitution or the appellants' rights under Articles 27(1) and 40, and do not violate the right to health; a manufacturer of medicine is properly liable to import VAT on raw and packaging materials

Court orders

1.Appeal dismissed
2.Appellants to pay costs of the appeal, ordered under Rule 32(5) of the Court of Appeal Rules

Authorities

Legislation

Value Added Tax ActSections 2 and 7(2); 1st and 2nd Schedules
Constitution of Kenya, 2010Articles 201 and 27(1)
Court of Appeal RulesRule 32(5)

On appeal from: High Court of Kenya (Human Rights Division); Petition No. 589 of 2013
Jurisdiction invoked: Appeal from the High Court to the Court of Appeal under the Court of Appeal Rules (Rule 32(5) invoked in the dismissal)

Key timeline

Practical implications

Frequently asked questions

Cite this brief

Caselaw, "Pharmaceutical Manufacturing (K) Co Ltd & 3 others v Commissioner General of Kenya Revenue Authority & 2 others [2017] KECA 729 (KLR)", Case Analysis (2017). Civil Appeal No. 283 of 2014. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2017/729/eng@2017-03-03

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.