The High Court has upheld decision of the taxman to levy excise duty on imported bottles used to pack alcohol beverages.
The court said levying duty on the bottles does not amount to double taxation of the final beverage product.
"The term double taxation typically applies when the same tax is levied on the same income or transaction twice. For instance, excise duty is levied on two distinct excisable goods: the bottles (if they are excisable goods themselves upon import or manufacture) and the alcoholic beverages," said Justice Julius Ng'arng'ar.
The judge found that imported bottles or packaging materials for alcoholic beverages could not be defined as “raw material” for manufacturing to secure a tax relief. This is because they are not ingredients used in the manufacture of the beverages.
"It is my view that interpreting “raw material” to include packaging materials would be to expand the scope of Section 14(1) -of the Excise Duty Act - beyond its plain meaning and the apparent legislative intent, potentially creating a new category of relief not explicitly provided for," said the judge.
He made the findings in a Sh15.7 million tax dispute pitting London Distillers (K) Limited against the Commissioner of Domestic Taxes over payment of prepaid excise duty on purchase. The dispute started in July 2022 after a tax assessment and demand by the Commissioner.
The court sided with the taxman by stating that bottles could not be considered as “raw materials” in the manufacture of alcoholic beverages, hence the manufacturer was not entitled to claim excise duty relief from the national revenue authority.
The distiller filed an appeal at the Tax Tribunal arguing that the bottles were used as essential inputs for the manufacture of its products. The company sought a finding that excise duty paid on bottles used as inputs for the manufacture of its products qualify for claim under Section 14(1) of the Excise Duty Act.
The tribunal ruled in its favour by finding that the distiller was permitted to claim excise duty paid on its packaging materials as raw materials.
The Commissioner of Domestic Taxes was aggrieved by the ruling and moved to the High Court.
According to the Commissioner, no such ambiguity existed in the law on the distiller's use of packaging materials as a raw material in the manufacture of its alcoholic beverages.
The court declined the distiller's arguments that bottles were “essential inputs” for the manufacturing process, arguing that the tribunal erred in creating an ambiguity in the Excise Duty Act on the meaning of raw materials used in manufacturing of excisable goods.
According to the Commissioner, no such ambiguity existed in the law on the distiller's use of packaging materials as a raw material in the manufacture of its alcoholic beverages.
The court declined the distiller's arguments that bottles were “essential inputs” for the manufacturing process, facilitating various aspects like identification, portability, presentation, sales, marketing, distribution, and consumption.
They had contended that the Commissioner's definition of raw materials was too narrow and not in line with international manufacturing practices.
"Packaging materials, though essential for the commercialization and distribution of a product, typically serve as containers or protective coverings. They do not, in the ordinary sense, become an integral part of the composition of the product itself. Differently put, an alcoholic beverage is still an alcoholic beverage, regardless of the bottle it is in. The bottle does not contribute to the chemical or physical properties of the alcohol," said Justice Ng'arng'ar.
Referring to the Excise Duty Act, the judge explained that a raw material is a substance or component that is transformed into or incorporated as an ingredient of the final excisable product.
