Judgment summary
The Appellant, Maisha Mabati Mills Limited, a manufacturer of alu-zinc and colourful roofing sheets, appealed against a Review Decision dated 19th January 2026 by which the Respondent upheld a VAT demand arising from a post-clearance audit covering 2020 to 2023 (paras 1 to 6).
The demand followed a Treasury undertaking to settle VAT on imported plant and machinery for the Appellant's Lukenya expansion project, which the Respondent had operationalised through a written exemption approval dated 28th December 2020 and an exemption code revalidated three times between 2022 and 2023 (paras 10, 49).
The Tribunal considered whether the demand, issued five years after the exemption letter, was lawful in light of the doctrine of legitimate expectation, and whether the case was governed by the earlier Cale Infrastructure Construction Co. Ltd decision. It distinguished Cale on the facts and allowed the appeal, setting aside the Review Decision (paras 48 to 50, 96 to 99).
Background
The Appellant is a limited liability company incorporated under the Companies Act, No. 17 of 2025, engaged in manufacturing alu-zinc and colourful roofing sheets (para 1). The Respondent is the principal officer appointed under Section 13 of the Kenya Revenue Authority Act (para 2).
The dispute arose from a post-clearance audit for 2020 to 2023, resulting in a tax demand letter dated 16th December 2025 (para 3). The Appellant objected by letter dated 17th December 2025 (para 4). The Respondent issued a Review Decision dated 19th January 2026 upholding the demand (para 5). The Appellant lodged its Notice of Appeal dated 23rd February 2026 (para 6).
The Appellant had applied for an exemption by letter referenced AMMML/Treasury/00140/03112020 dated 5th November 2020 (para 10a). The National Treasury, by letter DFN 415/402/039 dated 17th December 2020, acknowledged that the project had commenced when VAT was not chargeable and undertook to settle the VAT, copying the Commissioner of Customs and Border Control (para 10b). The Commissioner for Customs and Border Control then issued a formal written approval referenced HQ/DUTY/15/DFN/12/17 dated 28th December 2020, titled 'VAT Exemption on Importation of Plant and Machinery for Expansion of a New Plant in Lukenya, Machakos County' (para 10c). This was operationalised through VAT Exemption Code No. 2005 D0050 DF40203912006E, issued on 28th December 2020 (para 10e), and revalidated on 19th May 2022, 18th November 2022, and 5th May 2023 (para 10f).
Core dispute
The Appellant argued that the Respondent could not resile from a binding tripartite arrangement involving the Appellant, the National Treasury and the Respondent, and was estopped from reversing an exemption it had issued and revalidated three times (paras 12 to 15). It contended that the 28th December 2020 letter was an unconditional, unambiguous grant of exemption, not merely administrative facilitation (paras 16 to 18), that it had claimed no input VAT so there was no revenue loss or unjust enrichment (paras 24 to 25), and that the Respondent had acted inconsistently with its own practice under Section 37F of the Tax Procedures Act by abandoning comparable arrears for other taxpayers while pursuing the Appellant (paras 21 to 23).
The Appellant relied on the doctrine of legitimate expectation, asserting that the exemption letter, the exemption code and the three revalidations met the required elements of a clear representation, made by a competent authority, reasonably relied upon, to the Appellant's detriment (para 19). It sought to distinguish Cale Infrastructure Construction Co. Ltd v Commissioner of Customs & Border Control & Another on the basis that Cale concerned a time-limited construction exemption that self-discharged, did not involve an exemption letter or code, and did not raise or decide legitimate expectation (para 25).
The Respondent maintained that tax liabilities arise strictly from statute and cannot be varied by administrative undertakings, relying on Section 130 of the EACCMA, 2004, which places the obligation to account for VAT on the importer (paras 31 to 33). It argued that the Treasury's undertaking was not a statutory exemption, that the 28th December 2020 letter was facilitative and administrative only, and that exemptions must be expressly provided for by statute under Part I of the First Schedule to the VAT Act, 2013 (paras 34 to 38). It further argued that legitimate expectation could not arise contrary to the statutory incidence of tax under Section 253 of the EACCMA (paras 40 to 43), and relied on the Cale decision as directly applicable authority (para 33).
Court findings
The Tribunal found that the facts were largely agreed: the National Treasury had undertaken to pay VAT on the Appellant's imports, and that undertaking was never honoured (para 47). It identified the central question as whether the appeal fell within the Cale precedent or instead gave rise to a legitimate expectation (para 47).
Comparing the two cases, the Tribunal found key differences: in Cale no exemption letter or exemption code was ever issued to the taxpayer and the Revenue Authority consistently maintained that tax was payable, whereas here the Respondent itself issued an express exemption letter dated 28th December 2020 and an exemption code that it revalidated on three occasions (paras 48 to 50). The Tribunal held that these differences meant Cale did not apply in toto as binding precedent on this appeal (para 50).
Applying the principles of legitimate expectation from Halsbury's Laws of England and Kenya Revenue Authority v Export Trading Company Ltd [2022] KESC 31 (KLR), the Tribunal found that the Respondent had failed to collect VAT it was empowered to collect under Section 5 of the VAT Act, and could not later resile from its own exemption letter (paras 51 to 63). It found the five-year delay between the exemption letter and the demand unreasonable and unconscionable, drawing on the Supreme Court's treatment of a four-year delay in the Export Trading case as 'incomprehensible and unreasonable' (paras 64 to 68).
The Tribunal held that the three revalidation notices confirmed that the original exemption was not issued in error and reaffirmed the Appellant's legitimate expectation that no further VAT claim would arise (paras 69 to 73). Relying on Transmara Sugar Company Ltd v Commissioner of Domestic Taxes [2025] KEHC 15504 (KLR), it held that a decision communicated on a public institution's letterhead binds that institution (paras 74 to 75), and cited Kenya Revenue Authority & 2 others v Darasa Investments Limited [2018] eKLR on the requirement that a public authority not resile from a representation relied upon to a party's detriment (paras 79 to 81).
On legality, applying the criteria from the Export Trading case and Communications Commission of Kenya & 5 others v Royal Media Services Limited & 5 others, the Tribunal found an express, clear and unambiguous promise had been made, that the expectation was reasonable, and that the representation was one which the National Treasury and the Respondent were competent to make under Section 77 of the Public Finance Management Act and Section 146 of the VAT Act (paras 83 to 95). It referred to London Distillers [K] Limited v Commissioner of Domestic Taxes (Civil Appeal E770 of 2022) [2026] KECA 1529 (KLR) on the respective roles of the Cabinet Secretary and the Commissioner in approving such exemptions (para 93).
The Tribunal expressly upheld Cale as good law for the proposition that a third-party undertaking alone cannot exempt a taxpayer from tax liability, but distinguished it on the basis that here the Commissioner itself had chosen not to collect tax it was entitled to collect and had issued a written exemption under its own letterhead (paras 96 to 98).
Outcome
The Tribunal found the appeal meritorious and allowed it. The Respondent's Review Decision (Objection Decision) dated 19th January 2026 was set aside. Each party was ordered to bear its own costs (paras 99 to 100).
Major issues / areas of contention
- Whether the Respondent lawfully demanded VAT on importations that had been expressly exempted and repeatedly revalidated by the Respondent itself (para 11a).
- Whether enforcement of the demand was inconsistent with the Respondent's prior administrative practice of abandoning comparable VAT arrears under Section 37F of the Tax Procedures Act (para 11b).
- Whether the VAT demand was sustainable in the absence of any input VAT claim or demonstrated revenue loss (para 11c).
- Whether the facts of this appeal were distinguishable from the earlier Cale Infrastructure Construction Co. Ltd decision (paras 25, 48 to 50).
- Whether the doctrine of legitimate expectation could arise from a Commissioner-issued exemption letter and subsequent revalidation notices, and whether such an expectation was lawful given statutory provisions on tax exemptions (paras 51 to 98).