Background of the Dispute
Equator Bottlers Limited is a licensed manufacturer of bottled water and other non-alcoholic beverages. In its production process, it purchases plastic preforms from Coca-Cola Beverages Kenya Limited, which it then blow-moulds into plastic bottles for its finished beverages. Between April and June 2025, the company offset the excise duty it had paid on these preforms against the excise duty payable on its finished beverages.
The Kenya Revenue Authority (KRA) disallowed the offset, taking the position that preforms are packaging materials rather than raw materials within the meaning of Section 14(1) of the Excise Duty Act. The Commissioner issued a Notice of Assessment dated 11 September 2025 demanding KSh18,445,951, comprising principal excise of KSh17,019,636, penalty of KSh850,982, and interest of KSh575,333. This was confirmed in the Objection Decision dated 22 December 2025.
The Tribunal’s Key Findings
Jurisdiction and Procedural Issues
As a preliminary matter, the Commissioner objected to the Tribunal’s jurisdiction, arguing that the Notice of Appeal was filed out of time. The Objection Decision was made on 22 December 2025, and the Commissioner contended that the Notice of Appeal should have been lodged within thirty calendar days, by 21 January 2026. The Notice of Appeal was instead filed on 2 February 2026.
The Tribunal rejected this argument, holding that the amendment introduced by Section 9 of the Tax Procedures (Amendment) Act, 2024, which excludes Saturdays, Sundays, and public holidays from the computation of time, applies to the Notice of Appeal. The Tribunal found that Section 77(2) of the Tax Procedures Act makes express reference to Section 52, which governs appeals to the Tribunal, and that the Notice of Appeal is the instrument by which an appeal is instituted. Excluding weekends and public holidays, the thirty-day period expired on 5 February 2026, meaning the Notice of Appeal filed on 2 February 2026 was lodged three days before the deadline.
The Substantive Question: Are Preforms Raw Materials?
The central dispute concerned the interpretation of Section 14(1) of the Excise Duty Act, which provides that excise duty paid on excisable goods “used as raw materials in the manufacture of other excisable goods” shall be offset against the excise duty payable on the finished goods.
The Tribunal noted that the Excise Duty Act does not define “raw materials.” Adopting the definition from Buyline Industries Limited v Commissioner of Domestic Taxes, the Tribunal held that a raw material is any basic substance found in its natural, modified, or semi-processed state, used as an input in a production process for subsequent modification or transformation into a finished good. The inquiry, the Tribunal emphasised, is functional: it looks to the role the item plays in the production chain, not to its outward resemblance to a finished article.
Measured against that definition, the Tribunal found that the preforms answer to the description of raw materials in every respect. They are procured in an intermediate, semi-processed state; they cannot serve their intended purpose in the form in which they are purchased; and they are subjected to an elaborate industrial process that transforms them into a distinct article. That process is, by the express words of the definition of “manufacture” in Section 2 of the Excise Duty Act, itself manufacture, being an intermediate or uncompleted process in the production of excisable goods.
The “Bottled Water” Argument
The Commissioner’s central contention was that the excisable good is the water, the bottle being a mere vessel, and that the term “bottled water” takes its meaning from its core noun. The Tribunal found that this contention cannot be sustained against the express words of the charging provision. The legislature did not charge excise duty on “water” simpliciter; it charged duty on “bottled or similarly packaged waters.” The packaging is woven into the statutory description of the excisable good itself.
The Tribunal also rejected the Commissioner’s reliance on the High Court decision in Commissioner of Domestic Taxes v London Distillers (K) Limited (Income Tax Appeal E097 of 2024) [2025] KEHC 11286 (KLR), in which the Court held that bottles used to package alcoholic beverages are not raw materials. The Tribunal distinguished that decision on two grounds. First, in London Distillers, the taxpayer acquired complete bottles requiring no further processing, whereas Equator Bottlers acquires preforms that must be heated, moulded, and expanded under pressure before they can serve any purpose. Second, and more fundamentally, the excisable good in London Distillers was an alcoholic beverage, defined in Section 2 of the Excise Duty Act without any reference to packaging. In contrast, water is not an excisable good at all until it is bottled or similarly packaged.
The Kenafric Decision and the Pending Appeal
The Tribunal also addressed the Commissioner’s refusal to apply its earlier decision in Kenafric Industries Limited v Commissioner of Domestic Taxes (Appeal E916 of 2023) [2024] KETAT 1147 (KLR), which had addressed the identical question of excise duty relief claimed on preforms. The Commissioner had declined to give effect to that decision because the matter was under appeal before the High Court.
The Tribunal held that the preferring of an appeal does not, of itself, operate as a stay of the decision appealed from. A judgment of a competent court or tribunal remains valid and binding, and must be given effect, until it is set aside or stayed by an order of a court of competent jurisdiction. The Tribunal noted that the High Court had since dismissed the Commissioner’s appeals in Commissioner of Legal Services & Board Coordination v Kenafric Beverages and Bottling Limited (Income Tax Appeal No. E302, E235 & E249 of 2024) on 19 December 2025, upholding the Tribunal’s decisions.
Significance of the Decision
This judgment provides clarity on the scope of the excise duty offset mechanism under Section 14(1) of the Excise Duty Act. It confirms that preforms used to manufacture plastic bottles for bottled water and non-alcoholic beverages qualify as raw materials for offset purposes, distinguishing the position from that applicable to alcoholic beverages.
The decision also establishes important procedural principles. It confirms that the time for filing a Notice of Appeal at the Tax Appeals Tribunal excludes Saturdays, Sundays, and public holidays, and that a pending appeal does not suspend the binding effect of a Tribunal decision unless a stay has been granted.
The Tribunal’s ruling that the moulding of preforms is an “intermediate process” in the production of the excisable good gives effect to the full scope of the definition of “manufacture” in Section 2 of the Excise Duty Act, which expressly includes any intermediate or uncompleted process in the production of excisable goods. As the Tribunal observed, to require that an intermediate process itself produce the excisable good would deprive that limb of the definition of all content.
The Appeal was allowed, the Objection Decision set aside, and each party was ordered to bear its own costs. The judgment reinforces the principle that a taxpayer seeking to benefit from a statutory relief must bring itself squarely within its terms—which, on these facts, Equator Bottlers did.
