https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1292

Savla v Commissioner of Domestic Taxes (Civil Appeal E100 of 2022) [2026] KECA 1292 (KLR) (10 July 2026) (Judgment) Neutral citation: [2026] KECA 1292 (KLR) Republic of Kenya In the Court of Appeal at Nairobi Civil Appeal E100 of 2022 SG Kairu, GV Odunga & L Ndolo, JJA July 10, 2026 Between Amritlal Kachira Savla Appellant and Commissioner of Domestic Taxes Respondent (Appeal from the Judgment of the High Court at Milimani (Tuiyott, J.) delivered on 4th February 2022 in HC Commercial Tax Appeal No. E139 of 2020) Judgment 1.The dispute giving rise to this appeal was triggered by a tax assessment by the respondent, against the appellant. Pursuant to the assessment, the respondent asked the appellant to pay the sum of Kshs. 5,704,658 in additional Valued Added Tax (VAT) for the period between September 2014 and December 2017. 2.In arriving at the assessment, the respondent indicted the appellant for fraudulent tax evasion by use of what is commonly known as ‘the missing trader fraud’ where a supplier uses invoices for goods or services not actually procured, to claim input tax. 3.By his letter dated 14th May 2018, the appellant objected to the tax assessment and in response, the respondent, via emails dated 11th June 2018 and 27th June 2018, asked the appellant to provide certain documents. The additional documents were not provided and the respondent issued an objection decision on 19th July 2018, confirming the tax assessment. 4.The appellant’s appeal to the Tax Appeals Tribunal was allowed and the assessment vacated, prompting the respondent to move to the High Court, where the decision of the tribunal was set aside and the tax assessment confirmed. Being disgruntled by the High Court decision, the appellant has come to this Court on a second appeal. In his memorandum of appeal dated 4th March 2022, he faults the learned Judge of the High Court on the following grounds:a.That the learned Judge erred in law in finding that the documentation under section 17 of the VAT Act, as provided by the appellant to the respondent was not sufficient proof of actual delivery of goods and/or services;b.That the learned Judge erred in law in finding that the appellant had failed to discharge the burden of proof placed on him by statute;c.That the learned Judge erred in law in finding that the respondent’s failure to provide the investigation report was inconsequential;d.That the learned Judge erred in law in failing to consider the appellant’s evidence and submissions;e.That the learned Judge erred in law in upholding the respondent’s decision dated 10th July 2018. 5.The tax dispute forming the subject matter of this appeal arose from expressed suspicion by the respondent, that the appellant had evaded tax by falsifying purchase of goods and services as a basis to lay a claim on input tax. Section 2 of the VAT Act defines input tax as:a.tax paid or payable on the supply to a registered person of any goods or services to be used by him for the purpose of his business; andb.tax paid by a registered person on the importation of goods or services to be used by him for the purposes of his business. 6.For a taxpayer to lay a valid claim on input tax, they must provide proof of supply of goods or services to be used in the business of the taxpayer. This assumes that the taxpayer has paid VAT on purchase of the subject supplies. To this end, section 17(1) of the VAT Act provides as follows:17.Credit for input tax against output tax1.Subject to the provisions of this Act and the regulations, input tax on a taxable supply to, or importation made by, a registered person, may, at the end of the tax period in which the supply or importation occurred, be deducted by the registered person, subject to the exceptions under this section, from the tax payable by the person on supplies by him in that tax period, but only to the extent that the supply or importation was acquired to make taxable supplies. 7.From the foregoing provision, a taxpayer claiming input tax must have made an actual purchase of supplies specifically for the business for which they claim input tax. In the impugned judgment of the High Court, the learned Judge stated that:“The purchase must neither be notional, artificial or a fathom it must be real. As well, the purchase must be for supplies to a business or activity being the actual business or activity for which the input tax is claimed”. 8.According to section 17(3) of the VAT Act, a taxpayer claiming input tax, is required to avail the following documentation:a.an original tax invoice issued for the supply or a certified copy;b.a customs entry duly certified by the proper officer and a receipt for the payment of tax;c.a customs receipt and a certificate signed by the proper officer stating the amount of tax paid, in the case of goods purchased from a customs auction; andd.a credit note in the case of input tax deducted under section 16(2); ore.a debit note in the case of input tax deducted under section 16(5). 9.The appellant’s case is that he submitted complete documentation in support of his claim on input tax, and the tribunal agreed with him. The first appellate court however held a different view, asserting that possession of documentation was not a bar to inquiry as to an actual supply. On this account, the learned Judge stated that:“The documents must relate to an actual supply that conforms with the provisions of sections 2 and 17(1) of the VAT Act. If for clarity, at the pain of repetition, the supply has to be for the purpose of the business and to a registered person.” 10.In reaching this position, the learned Judge relied on section 107 of the Evidence Act which assigns the burden of proof as follows:107.(1)Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist. 2.When a person is bound to prove existence of any fact it is said that the burden of proof lies on that person.107.The burden of proof in a suit or proceedings lies on that person who would fail if no evidence at all were given on either side. 11.As determined by the learned Judge of the High Court, in tax disputes, the law places the burden of proof on the taxpayer to submit the documents necessary in support of their case. In this regard, section 30 of the Tax Appeals Tribunal Act provides as follows:30.Burden of proofIn a proceeding before the Tribunal, the appellant has the burden of proving-a.Where an appeal relates to an assessment, that the assessment is excessive; orb.in any other case, that the tax decision should have been made differently. 12.In similar fashion, section 56(1) of the Tax Procedures Act on general provisions relating to objections and appeals provides as follows:(1)In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect. 13.In the impugned judgment of the High Court, the learned Judge relied on the decision in Nicholson vs. Morris (H.M Inspector of Taxes) (1) (1973-1978) 51 TC 95 cited by the respondent, where it was held that the taxpayer bears the burden of demonstrating that a tax assessment is wrong, and that to expect the tax authority to dig for such information would be unreasonable. 14.This is a second appeal and as provided under section 56(2) of the Tax Procedures Act, appeals to both the High Court and the Court of Appeal are restricted to questions of law only. As to what constitutes a question of law, we are aware that in certain cases, facts may give rise to questions of law. As held by this Court in Mercy Kirito Mutegi vs. Beatrice Nkatha Nyaga & 2 Others [2013] eKLR an erroneous conclusion based on primary factual evidence is a point of law. A similar finding was made in Bashir Haji Abdullahi vs. Adam Mohammed Nooru & 3 Others [2014] eKLR. 15.In his objection to the tax assessment by the respondent, the appellant provided copies of invoices and delivery notes as well as copies of purchase ledger extracts showing payment to various suppliers. 16.The respondent was however not satisfied with the documentation provided by the appellant, and he sought further information regarding identification of the suppliers, being:a.The physical location of the suppliers;b.Name and designation of the contact persons of the suppliers;c.The viable and active contact details for the suppliers for instance the telephone and postal address;d.Detailed general ledger for the years 2014, 2015, 2016 and 2017;e.Cheque counterfoils, in addition to copies of bank statements highlighting the transfer of funds;f.Evidence of goods receipts, uptakes into stock records, movement of the said goods through the company until they exited the business. 17.The taxpayer did not provide the further information required by the taxman and did not bother to explain any difficulty in procuring this information. All the taxpayer said is that the demand by the taxman was unreasonable. Looking at the spectrum of the information required, we are unable to agree with the taxpayer, that he was subjected to an unreasonable demand. As determined by the learned Judge of the High Court, this was information that was not only relevant in the determination of the tax dispute but was also expected to be within the appellant’s reach. At the very least, any difficulty in availing it ought to have been explained. 18.We note that both the Tax Appeals Tribunal and the High Court found that it was not enough for a taxpayer to hold the documents listed under section 17 of the VAT Act, meaning that the appellant could not be said to have discharged his burden of proof, without answering to the respondent’s inquiry for further information. 19.The respondent claimed to have unearthed a tax evasion scheme where traders were engaged in production and sale of invoices. The respondent further alleged that evaluation of the documents provided by the appellant did not demonstrate sufficient proof that the goods forming the subject of the claim on input tax were actually received by the appellant. The respondent advanced the narrative that the money paid by the appellant to the suppliers found its way back to the appellant, hence the notion of ‘the missing trader’. 20.This was a serious allegation that the appellant was required to dispel before the burden on the respondent to demolish the evidence adduced by the taxpayer could crystallise. It follows therefore that the appellant’s averment that the respondent ought to have supplied him with details of the investigations giving rise to the suspected fraud was without basis. We say so because the respondent’s turn to assail the appellant’s claim had not materialised as the appellant had not discharged his burden of proof. 21.Like the learned Judge of the High Court, we have come to the conclusion that the demand by the respondent for further information was neither unreasonable nor an onerous burden on the appellant. The appellant, having failed to provide the information or in the alternative, explain why he could not provide it, did not discharge his burden of proof. 22.In the end, this appeal fails and is dismissed with costs to the respondent. DATED AND DELIVERED AT NAIROBI THIS 10TH DAY OF JULY, 2026.S. GATEMBU KAIRU, FCIArb, CArb.JUDGE OF APPEAL..................................G.V. ODUNGAJUDGE OF APPEAL..................................L.M. NDOLOJUDGE OF APPEALI certify that this is a true copy of the original.DEPUTY REGISTRAR