A court has ordered Jomo Kenyatta University of Agriculture and Technology (JKUAT) to reimburse ICEA Lion Life Assurance Sh296 million paid as tax after the purchase of a building on Kenyatta Avenue in Nairobi.

ICEA sued the university after the Kenya Revenue Authority (KRA) demanded value-added tax (VAT) in the Sh1.8 billion deal. The insurer told the court that there was an agreement that JKUAT would shield it from taxes if the deal went through.

Justice Peter Mulwa said the university had committed to paying back the tax that would accrue from the purchase. The judge said JKUAT could not ignore its obligations under the commitment.

“Judgment be and is hereby entered for the plaintiff against the defendant directing the defendant to honour the terms of the Deed of Indemnity dated August 1, 2019 and filed in the court on August 5, 2019 and to forthwith pay to the plaintiff Sh296 million being VAT paid to KRA under the terms of the settlement agreement dated September 30, 2019,” ruled Justice Mulwa.

ICEA initially owned the property, which is known as the ICEA building but sold it to JKUAT for Sh1.8 billion.

The agreement stipulated that the purchaser was to pay VAT on the transaction, along with the stamp duty and registration fees.

 It emerged that JKUAT had asked the Treasury Cabinet Secretary for VAT waiver but its request went unanswered until the dispute arose.

 In the meantime, KRA indicated on September 4, 2017, that the deal qualified for zero-rate VAT.

Nevertheless, JKUAT was required to seek confirmation that KRA would not knock on ICEA doors to demand taxes from the sale.

In its case, ICEA said that the university never bothered to get the crucial confirmation letter, as KRA demanded a total of Sh417 million on October 1, 2019.

The insurer lamented that the amount had continued to accumulate interest as the higher learning institution went silent.

To stop the penalties, ICEA said that it brokered an agreement with KRA to pay Sh296 million, which was the principal VAT. The insurer paid the tax demanded in five instalments.

JKUAT, on its end, argued that the case filed by the insurance company was fatally defective saying its task was to seek assurance from KRA that it would not demand tax. The university submitted that it did not receive any communication from KRA revoking its commitment and it was not involved in the conversation between ICEA and KRA nor was it a party to the deal to settle the tax.

According to the university, the tax agreement arose from a tax case before the Tax Appeal Tribunal, to which it was not a party and it was unfair for KRA and ICEA to take an action that was adverse to its interest.

The university further argued that it was illegal for the authority to go after the insurance firm despite committing that there was nothing to pay and accused ICEA of malice. JKUAT argued that the seller paid the tax without its knowledge and asserted that the case was an abuse of court process.

On its part, KRA argued that it correctly tabulated the tax owed to the government and both the insurer and university knew that VAT was to be paid.

According to KRA, there was a misrepresentation of facts, which made it believe that the transaction was not to be taxed as it was informed that the two were transferring a business only to realise later it was a commercial deal on which VAT was to be paid.