Taxman gets temporary reprieve as judges fear floodgate of refund claims

The Court of Appeal in Nairobi has temporarily stopped the immediate payment of a Sh21 million tax refund to Animix Limited. 

The dispute,  pitting the Commissioner of Customs and Border Control against the private importer, has evolved into a high-stakes test of how public revenue is managed when legal interpretations remain unsettled. 

Animix imported goods that the Tax Appeals Tribunal—on July 12, 2023—determined as falling under a specific tariff code designated as VAT exempt. 

While this classification was a victory for the company, High Court Justice Charles Kariuki on July 4, 2025, not only affirmed the exemption but ordered the commissioner to pay a VAT refund of Sh21,024,116 within 60 days. 

But the taxman disagreed with its lawyer Pius Nyaga arguing that under the VAT Act, exempt supplies cannot attract refunds.

He argued that as “the Tribunal and the High Court found that the Animix’s goods were classifiable under HS Code 2309.90.10 and were VAT exempt, it was legally contradictory and erroneous for the Court to then order a refund under section 17 of the VAT Act”.

To pay out millions based on a "contra statute" decision [directly opposes a mandatory requirement or a specific prohibition set out in a written law] would create a dangerous precedent.

Additionally, the commissioner’s legal team argued that if the judgment stood, it would open the "floodgates" for countless other taxpayers to demand similar refunds, potentially draining the public purse before a higher court could even rule on the law’s true intent.

Franklin Cheluget, for Animix Limited, said his client was a solvent, ongoing business being unfairly deprived of the "fruits of a lawful judgment". 

He argued that the appeal was a delay tactic and that the public interest actually lies in the finality of litigation and the government’s adherence to the rule of law. 

The judges found the commissioner’s requestlegitimate, noting that while most money disputes between private citizens don’t require a stay of execution, cases involving the "public fisc" and complex tax legislation are different.

Recognising that once public funds are disbursed they are notoriously difficult to recoup, the judges on January 16, granted a stay of execution, stopping the Sh21 million payment for now.

However, this was not an open-ended victory for the taxman. The court ordered the appeal to be heard on a priority basis, with strict 30-day deadlines for filing records. If the Commissioner fails to move quickly, the stay will be automatically lifted, forcing the payment.