Devki owner Narendra Raval’s firms used unsigned letter by National Treasury to demand Sh4billion in taxes be paid from public coffers

Industrialist Narendra Raval’s Devki Group is locked in a high-stakes legal battle with the Kenyan government over a Sh4billion ($30.8 million) tax demand, following the revocation of tax exemptions granted to its companies, Devki Steel Mills Limited and Cemtech Limited.

Also, in documents filed before the High Court, fresh details have emerged revealing how Raval’s companies used an unsigned letter by the National Treasury Cabinet Secretary to demand Sh4billion in tax payment from government coffers.

The Kenya Revenue Authority (KRA) told the court that Devki wanted Kenyan taxpayers to settle the taxes accrued from his private commercial business.

In its submissions filed before court, the taxman argues that the National Treasury CS’s alleged undertaking through an unsigned letter to use taxpayers’ money to offset the amount demanded is invalid as it does not bear a signature.

This is contained in a reply filed before the High Court in a case by Raval’s Devki Steel Mills Limited and Cemtech Limited,

“Due to the lack of necessary signature, the undertaking fails to meet the required standards of formality and legal integrity. The absence of this signature raises concerns regarding the authenticity and legitimacy of the undertaking… Without the Cabinet Secretary’s signature, the undertaking cannot be considered a proper and binding commitment,” KRA’s reply reads in part.

On August 22, 2023, KRA wrote to Devki demanding Sh1.3billion.

It also sought Sh2.4billion from Guru’s other company Cemtech Limited.

According to KRA, the tax demand was based on three audit findings conducted on Devki for the financial year 2020/2021, which allegedly revealed that drawings, designs and engineering charges had resulted in Sh8.1 million short of taxes.

At the same time, KRA claimed that there was a tariff miscalculation of ropes and packaging, which resulted in a shortfall of S1.2million and Sh1.38billion VAT payable for the machinery and plant imported for the implementation of the mega steel project in Kwale.

The authority wrote to Devki, informing it that it was liable to pay Sh1.604billion that the National Treasury had not paid.

Aggrieved, Devki wrote to the Principal Secretary, Ministry of Finance, National Treasury and Economic Planning, on September 10, 2024, appealing for intervention for the unsettled VAT obligation.

Devki asked the Treasury to settle the issue with KRA.

Following the letter, Treasury CS John Mbadi wrote back, declining to use taxpayers’ money to pay Sh4billion in taxes on two companies owned by Raval.

Mbadi, in his letter dated October 2, 2024, now before the High Court told Devki Steel Mills Limited and Cemtech Limited Group Commercial Director Lokesh Kumar that it would be illegal to pay the taxes for the two private companies from the government coffers.

Mbadi revoked the Jubilee government’s promise to Raval that his companies would be exempt from paying VAT on the machinery and clinker plant in West Pokot in 2015 and on the Devki machinery and plant in 2020.

“We have taken note of the matter and we wish to state that the letters that were written by the National Treasury and Economic Planning are not supported by any tax law or any other legislation.

The tax demand was issued by KRA after National Treasury Cabinet Secretary John Mbadi annulled exemptions granted during the previous Jubilee administration.

In an October 2, 2024, letter, Mbadi declared the waivers for machinery and plant imports used in Raval’s clinker and steel factories as unlawful, citing lack of legal backing.

The revocation followed an official decision to withdraw exemptions granted in 2015 and 2020.

Following Mbadi’s move, KRA issued a demand for Sh1.6 billion ($12.32 million) from Devki, including Sh1.3 billion ($10.01 million) in principal taxes, a penalty of Sh69million ($379,500), and Sh152 million ($834,000) in interest.

Cemtech Limited is facing a larger bill of Sh2.4billion ($18.48 million), which includes Sh2.1billion ($16.17 million) in principal taxes, Sh105million ($808,500) in penalties, and Sh199 million ($1.53 million) in interest.

According to KRA’s lawyer Ibrahim Said Mutua, the letter issued by the National Treasury came after the Finance Bill 2020 was enacted into law and the Tax Amendment Act kicked in.

Hence, Raval was required to pay tax for the plant and machinery.

He explained that before, plants and machinery were exempted from import value added tax (VAT).

At the same time, the KRA noted that government exemptions issued during the Covid-19 pandemic were time-bound.

On his part, Mutua submitted that the four-year time lapse could not be the basis for the steel and cement manufacturer’s failure to honor tax obligations.

“Tax obligations arise from legislation, not representations or undertakings. As such, no representation or undertaking by the defendants can exempt the appellant from complying with the law unless expressly provided for,” Mutua told the court.

The clearing of goods tax free based on the National Treasury and Economic Planning letters on undertaking to pay taxes on behalf of the tax payers were suspended by Kenya Revenue Authority and that the tax payers that had cleared their goods based on such letters were being contacted to pay the payable taxes.”

“Considering there is no legal provision that supported the undertaking, the letters Ref: DFN 415/402/039 dated December 17, 2020 and Ref: DFN 415/402/039 dated June 29, 2020 from the National Treasury to Cemtech Limited and Devki Steel Mills Ltd respectively is hereby withdrawn,” Mbadi said.

Following Mbadi’s letter, KRA demanded Sh1.6 billion from Devki, with Sh1.3 billion in principal taxes and five penalty estimated to be Sh69 million.

KRA tabulated gross duty to be Sh1.4billion and Sh152million interest for late payment.
It also sought Sh2.4billion from Cemtech. KRA said that Cemtech owed it Sh2.1billion in principal taxes, Sh105million of which was to be paid as a five per cent penalty.

In addition, it said that gross duty was Sh2.2 billion, and late payment interest was Sh199 million.

“Since the National Treasury has not honored the undertaking, you are required to settle the outstanding liability. Please take note that the primary responsibility for tax payment lies with the taxpayer as per Section 133 East African Community Customs Management Act 2004,” KRA stated.

Following the KRA’s demand, Devki and Cemtech filed separate cases seeking to force Mbadi to pay the taxes.

In the cases filed before Justice Florence Wangari, the two companies claimed that the National Treasury had clearly committed to the exemption.

According to their lawyer, Griffins Timbe, the clinker plant and steel factory are critical for the country’s economic growth.

Timbe claimed that the amount demanded was so huge that Cemtech and Devki would close the shop if it’s recovered.

He argued that there was no justification for KRA top come calling four years after exemption.
Devki and Cemtech sued the Treasury CS, KRA and Attorney General.

The court heard that the two companies had already used the exempted items and released goods to the market.

He accused the government of discrimination, claiming that many others had also been exempted from paying taxes.

“As evidenced from the many correspondences referred to herein, the plaintiff has tried everything within its means to settle this matter amicably, but the defendants have refused making filing of this application necessary,” he said.

When President William Ruto and his predecessor Uhuru Kenyatta were re-elected for the second term, they promised to implement the big four agenda: affordable housing, universal healthcare, industrialisation, and food security.

Raval’s companies claimed that the then government amended the first schedule of the Value Added Tax allowing VAT exemptions on plant and machinery used to manufacture goods.

Jonathan Mbau, Cemtech’s import coordinator, swore an affidavit in support of the case.

He claimed that just as Raval started building the clinker plant in 2018, the government waived taxes on machinery and plants bought outside Kenya in the 2019 Finance Act.

However, it re-introduced 14 percent VAT on imported machines from April 25, 2020.

However, he claimed, Covid-19 swept the country.

Mbau explained that Cemtech wrote to the Treasury seeking exemptions to mitigate the effects of Covid.

“The letter was also to the effect the VAT exemption was necessitated by lack of cash flow due to the economic recess resulting from the covid-19 pandemic and that the clinker Plant was, and still is, a strategic investment that would spur economic growth,” claimed Mbau.

He alleged that KRA had written to the firm informing it that the government had undertaken to pay VAT on the plant and machinery.

Mbau said importation and clearing were done in lots between December 28, 2020 and December 2022.

The manager said that it was unfair for the Treasury to revoke the exemption.

“In a complete twist of events and in total breach of its own approval for exemption and written undertaking, the first defendant has, by a letter dated October 2, 2024, purportedly withdrawn its undertaking dated December 17, 2020 on grounds that there were no legal provisions supporting the undertaking and that the Plaintiff should pay the tax being demanded by the second defendant,” he said.

On the other hand, Devki’s import manager, Wambua Mwetundu, alleged that KRA demanded the amount in 2023 but remained quiet until this year.

She said that Mbadi’s decision went against Devki’s legitimate expectation that it was exempted from paying the taxes.

“As evidenced from the many correspondences referred to herein, the plaintiff has tried everything within its means to settle this matter amicably, but the defendants have refused making the filing of this application necessary. I am advised, and so submit, that the actions of the defendants are, as will be demonstrated hereinbelow, unlawful, unjust and unfair and in breach of the Defendants’ own undertakings in writing,” she said.