Skip to content
AI-generated case briefs sourced from Kenya Law · Not legal advice
Caselaw
AI-generated case brief
Case Brief · caselaw.co.ke
Court of AppealPartially AllowedCivil Appeal (Memorandum of Appeal dated 17th February, 2013)· [2018] KECA 585 (KLR)

Commissioner of Income Tax v Pan African Paper Mills (EA) Ltd (Civil Appeal 29 of 2005) [2018] KECA 585 (KLR)

Court of Appeal of Kenya
25 May 2018
WKW. KaranjaFSF. SichaleJMJ. Mohammed
4,687 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~19 min to read original · ~4 min brief

The bottom line

#

Kenya's Court of Appeal ruled that a tax refund law only applies to future investments, so Pan African Paper Mills lost its Kshs. 267 million refund claim.

What this practically means

#

Executive summary

#
The Court of Appeal (W. Karanja, F. Sichale and J. Mohammed, JJAA) allowed the Commissioner of Income Tax's appeal against a High Court decision (Ransley J., 1st October 2003) which had upheld Pan African Paper Mills' claim for a refund of import duty of Kshs. 267,608,271 paid on capital goods imported for its Webuye plant expansion in 1995-1996. The dispute turned on Section 48 of the Finance Act, 2000, which amended Section 39A(1)(viii) of the Income Tax Act to render unoffset import duty refundable, with effect from 1st January, 2001. Applying Section 23(3) of the Interpretation and General Provisions Act, the presumption against retrospectivity, and authorities including Municipality of Mombasa v Nyali, Yew Bon Tew and Samuel Kamau Macharia, the Court held that the amendment was a prospective tax incentive to attract new investment, not applicable to imports made before 1st January, 2001. The Court further held that, even if retrospective, the respondent would not have qualified because it was in a loss position for the income years 1996 to 2001 and imports predating the Minister's approval of 1st August, 1996 did not qualify. On the second ground, the Court held the High Court erred in awarding interest on its own motion where interest had never been pleaded, citing Odd Jobs v Mubia. The appeal was allowed, the High Court orders set aside and the respondent's appeal before the High Court dismissed, with each party bearing its own costs. The Court apologised for the delay in delivery occasioned by the bench's transfer to new duty stations.

Key legal issues

#
01

Retrospectivity of Section 48 of the Finance Act, 2000

Holding

Section 48 of the Finance Act, 2000 did not apply retrospectively; it was a tax incentive to attract future investment and only applied to capital goods imported on or after 1st January, 2001.

Reasoning

The court applied Section 23(3) of the Interpretation and General Provisions Act and the presumption against retrospectivity from Halsbury's Laws, Municipality of Mombasa v Nyali, Yew Bon Tew and Samuel Kamau Macharia. Section 1(f) of the Finance Act fixed commencement at 1st January, 2001. Absent express words or necessary implication of retrospectivity, the amendment created a new refund incentive for future investments rather than conferring a benefit on pre-existing imports.

p. 8
02

Entitlement to refund even if the amendment were retrospective

Holding

Even on a retrospective construction, the respondent would not have qualified for the refund because it was in a loss position for the years 1996 to 2001 and could not offset the import duty against tax payable, save possibly for the 1996 year of income; imports prior to the Minister's approval of 1st August, 1996 did not qualify.

Reasoning

The refund mechanism only refunded duty to the extent it would have been set off had the investor not claimed investment deduction, i.e. where the investor would have been in a profit position. The respondent's returns showed losses between 1996 and 2001 not occasioned by investment deduction claims (except 1996), and capital goods imported before the Minister's prior approval of 1st August, 1996 did not qualify for set-off under Section 39A(1).

p. 8
03

Award of interest on an unpleaded claim

Holding

The High Court erred in awarding interest on its own motion when the respondent had not sought interest in its pleadings; the discretion was not exercised fairly and judicially.

Reasoning

Relying on Odd Jobs v Mubia, the court held that a court may base a decision on an unpleaded issue only where the issue was left to the court for decision with the parties leading evidence and addressing it. Here interest was never pleaded, never made an issue, and parties had no opportunity to submit on it, so the grant of interest failed the standard of judicious exercise of discretion under Lee G Muthoga v Habib Zurich Finance (K) Ltd.

Legal principles established

#
  • A statutory amendment operates prospectively unless a contrary intention appears; where the legislature intends a fiscal benefit to apply only to future investments, courts will not construe it retrospectively so as to create refunds for past imports.
  • Issues for determination flow from the pleadings and courts can only grant prayers that have been sought; interest cannot be awarded suo motu where it was never claimed and parties had no opportunity to submit on it.

Court orders

#
  1. 1.Appeal allowed
  2. 2.Orders of the High Court dated 1st October, 2003 allowing the respondent's appeal set aside
  3. 3.Substitution of an order dismissing the appeal before the High Court
  4. 4.Each party to bear its own costs

Authorities

#

Legislation

  • Finance Act, 2000 (Act No. 9 of 2000)Sections 1(f), 48
  • Income Tax ActSection 39A (including proviso (viii))
  • Customs and Excise ActSection 117
  • Interpretation and General Provisions Act (Chapter 2, Laws of Kenya)Section 23(3)
  • Civil Procedure ActSection 26
  • Court of Appeal RulesRule 100

Cases cited (10)

  • Municipalty of Mombasa vs Nyali Limited
    [1963] EA 374
  • Republic vs Kenya Revenue Authority & Another Ex-parte Kenya Nut Company Limited
    [2014] eKLR
  • Republic vs Kenya Revenue Authority & Another Ex-parte Fontana Limited
    [2014] eKLR
  • Selle -v- Associated Motor Boat Co.
    [1968] EA 123
  • Jabane v Olenja
    [1986] KLR 661, 664
  • Samuel Kamau Macharia and Another v Kenya Commercial Bank Ltd and 2 Others
    SCK Application No. 2 of 2011 [2012] eKLR
  • Amalgamated Society of Engineers vs. Adelaide Steamship
    (1920) 28 CLR 129 at 161-2
  • Yew Bon Tew v Kenderaan Bas Mara
    [1982] 3 All ER 833
  • Odd Jobs v Mubia
    (1970) EA 476
  • Lee G Muthoga v Habib Zurich Finance (K) Ltd & Another
    Civil Appeal No 50 of 2010
On appeal from
High Court of Kenya
Not stated
Jurisdiction invoked
First appeal to the Court of Appeal under the Court of Appeal Rules (Rule 100 invoked for disposal by written submissions)

Key timeline

#

Practical implications

#

Frequently asked questions

#

Later judgments citing this (8)

#

Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

#

Cite this brief

Caselaw, "Commissioner of Income Tax v Pan African Paper Mills (EA) Ltd (Civil Appeal 29 of 2005) [2018] KECA 585 (KLR)", Case Analysis (2018). Civil Appeal (Memorandum of Appeal dated 17th February, 2013). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2018/585/eng@2018-05-25

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