The Court of Appeal has ordered the Kenya Revenue Authority (KRA) to decide on an objection by a Dubai-based firm, Geo Chem Middle East, against a Sh1 billion tax demand.

This came as the court dismissed Geo Chem’s latest challenge against the tax assessment and directed KRA to make a substantive decision on the company’s tax objection within 60 days.

KRA and Geo Chem Middle East have been locked in the tax dispute linked to a petroleum-products inspection and testing contract that was suspended in 2010.

KRA assessed the company for corporation tax and VAT in 2021 after an arbitration tribunal awarded it Sh1.9 billion for unpaid fees and lost income, although Geo Chem says it never received the award proceeds.

The dispute stems from a 2009 agreement under which the Kenya Bureau of Standards (Kebs) contracted Geo Chem to inspect and test imported petroleum products at Mombasa for quality and quantity.

Read: Rachier wins first round of legal fee dispute with Kebs

The contract was for three years, renewable for another three, and Geo Chem was to issue quality and quantity certificates used in determining taxes on petroleum imports.

Its fees were initially 0.6 per cent of the cost, insurance and freight value of imported products, with 0.2 per cent payable to Kebs as royalties.

KRA — Times Tower, the Kenya Revenue Authority's head office in Nairobi.

Photo credit: Dennis Onsongo | Nation Media Group

The arrangement lasted seven months before the government suspended it in March 2010. Because oil marketers had difficulty paying the inspection fees, KRA was brought in to collect the money and remit it to Kebs.

KRA subsequently reported that it held Sh344.4 million collected under the arrangement, while Geo Chem said it was entitled to about Sh296.9 million as its share. The company says it never received the money.

The contractual dispute moved to arbitration after Kebs confirmed termination. On July 29, 2016, the tribunal awarded Geo Chem $15.4 million (Sh2 1.9 billion), comprising $3.68 million for unpaid invoices, inclusive of interest and VAT, and $11.71 million for loss of income, inclusive of interest and VAT. The tribunal also awarded Kebs Sh87 million on its counterclaim for royalties.

The award passed through several courts with the High Court rejecting Kebs’s bid to set it aside in 2017, but the Court of Appeal overturned that decision in 2019.

Read: Sh10bn court cases expose Kebs to high risk of losses

The Supreme Court reversed the Court of Appeal move in December 2020, effectively restoring the High Court decision that recognised the award.

The Supreme Court said that Geo Chem established a petroleum inspection facility at the Port of Mombasa and had not received payments from marketers.

The tax dispute arose after KRA issued Geo Chem an assessment dated April 7, 2021, demanding a sum of Sh1 billion in corporation tax, VAT and interest.

Geo Chem objected on April 28, but KRA declared the objection invalid two days later, saying it lacked documents required under the Tax Procedures Act.

The Tax Appeals Tribunal later found the objection valid and ordered KRA to consider it. The High Court upheld that decision in June 2024, prompting Geo Chem’s appeal.

Geo Chem argued that the tax should be cancelled because it had not received the income, the assessment was based on an arbitral award, and the claim was outside the statutory five-year period.

It also argued that KRA had retained money due to the company and should first credit Sh256.4 million before demanding further tax.

The company said its objection should be treated as allowed because KRA had not made a substantive decision within 60 days.

The Court of Appeal rejected that argument. In the judgment dated July 31, 2026, the judges said the 60-day period applies to a substantive objection decision, not a dispute over whether the objection was validly lodged.

The judges held that where KRA’s validity decision is challenged and overturned, the 60-day period begins after the dispute is finally determined.

“The only reasonable conclusion,” the court said, was that the clock starts after the validity dispute is resolved.

The court said the law sets out two separate steps when a taxpayer challenges a KRA tax assessment.

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jwangui@ke.nationmedia.com