[2024] KETAT 1299 (KLR)

Beru Trading Limited v Commissioner of Legal Services and Board Coordination (Tribunal Appeal 324 of 2023) [2024] KETAT 1299 (KLR) (6 September 2024) (Judgment)

Neutral citation: [2024] KETAT 1299 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal 324 of 2023

E.N Wafula, Chair, G Ogaga, RO Oluoch, AK Kiprotich & Cynthia B. Mayaka, Members

September 6, 2024

Between

Beru Trading Limited

Appellant

and

Commissioner of Legal Services and Board Coordination

Respondent

Judgment

Background 1. The Appellant is a private limited liability company set up to invest in the extractive sector, specifically, the importation of gemstones.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. For the performance of its function under Subsection (1), the Authority is mandated under Section 5(2) of the Act to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act to assess, collect, and account for all revenues under those laws.

3. The Respondent issued the Appellant with a notice of findings dated 6th July 2022 covering the period March 2018 to December 2021 stating that its review of the Appellant’s input Value Added Tax (VAT) claims and import data in the Simba system revealed that the Appellant over-claimed input tax, claimed VAT from fictitious inputs and double-claimed input tax.

4. The Respondent issued additional assessment notices on 16th August 2022 and 18th August 2022.

5. The Appellant objected to the said assessments on 4th October 2022.

6. On 1st December 2022, the Respondent issued its objection decision fully rejecting the Appellant’s objection and confirming the VAT assessments.

7. Dissatisfied with the Respondent’s objection decision, the Appellant filed its Notice of Appeal on 28th April 2023, having been granted leave by the Tribunal to file the Notice of Appeal out of time.

The Appeal 8. The Appeal is premised on the Memorandum of Appeal filed on 28th April 2023 which raised the following grounds: -a.That the Respondent failed to consider the true and correct records of the Appellantb.That the Respondent failed to consider that the incomes assessed on the Appellant resulted from unauthorised dealings and transactions committed by known individual taxpayers who should be brought to account.c.That the Respondent’s handling of the case infringes on the Appellant’s right to fair administrative action under Article 47 of the Constitution of Kenya.d.That the Respondent’s demand of Kshs. 83,659,664. 27 (in principal tax) is excessive, punitive and beyond the ability of the Appellant to pay, contrary to generally accepted cannons of taxation.

Appellant’s Case 9. The Appellant’s case is premised on the following documents filed before the Tribunal: -a.The Appellant’s Statement of Facts dated 9th August 2023 and filed on 14th August 2023 and the documents attached to it; andb.The Appellant’s written submissions dated and filed on 11th July 2024.

10. The Appellant stated that its founder and sole director, Mr. Mohamed M. M. Mishker (Mr. Mishker), was introduced to an individual known as Imam Mohamed Salahudeen, a local motor vehicle dealer.

11. That Mr. Mishker sought the assistance and guidance of Imam Mohamed Salahudeen in incorporating a private limited company in Kenya and obtaining its tax registration and bank account opening with Diamond Trust Bank (DTB) in Kenya with Mr. Mishker as the sole signatory.

12. The Appellant further stated that Mr. Mishker was also assisted to obtain immigration documents including a work permit. That during these interactions with Imam Mohamed Salahudeen, Mr. Mishker innocently disclosed his credentials/passwords to the Appellant’s online tax account and e-Citizen/BRS account.

13. The Appellant claimed that subsequent usage of the Appellant’s credentials remained under the control of Imam Mohamed Salahudeen to date without any authorised business instructions from Mr. Mishker.

14. The Appellant stated that the Respondent issued it with a notice of findings dated 6th July 2022 covering the period March 2018 to December 2021 demanding a total Value Added Tax (VAT) liability of Kshs 97,160,861. 00 comprising Kshs. 83,056,047. 00 in principal tax, relating to alleged overclaimed input tax and fictitiously claimed input tax. That the Respondent followed the notice of findings with assessment notices dated 16th and 18th August 2022 for VAT totaling Kshs. 87,721,519. 68 in principal tax for the period reviewed.

15. The Appellant filed its objection, entirely disagreeing with the assessed tax online on 4th October 2022 to which the Respondent issued and delivered its objection decision dated 1st December 2022 confirming the entire assessments dated 16th and 18th August 2022 indicating the tax liability as Kshs. 83,659,664. 27 in principal tax.

16. The Appellant being dissatisfied with the decision of the Respondent, filed an application for late appeal and the Tribunal granted the Appellant leave to file an appeal out of time in its orders issued on 14th April 2023.

17. The Appellant analysed its grounds of appeal as follows:

a. On failure to consider the true and correct records of the Appellant 18. The Appellant alleged that the VAT assessment raised by the Respondent was derived from records that are neither authored nor maintained by the true and legal directors and management of the Appellant. That the Appellant’s director (Mr. Mishker) never authorised and has remained unaware of any use of the Appellant’s online tax account.

19. The Appellant stated that it presented in its application for late appeal (Misc. Application E023 of 2023 and the Supporting affidavit sworn by Mr. Mishker) that it immediately commenced investigations on the suspected use of its registration documents (including online tax account) upon receiving the objection decision dated 1st December 2022.

20. That the Appellant’s investigations discovered that Imam Mohamed Salahudeen registered an email address for the Appellant which he used to access the Appellant’s online tax account to clear imported cars at Customs and conduct his car import and selling business without the knowledge or authority of the Appellant’s director.

21. The Appellant averred that the Respondent stated in its notice of findings dated 6th July 2022 that it relied on records declared in the Appellant’s online tax account (monthly VAT returns) and Customs SIMBA System to identify the variances used in raising the VAT assessments.

22. The Appellant stated in its objection notice that it was not aware of the transactions reflected in the online tax records (iTax and Customs) and presented in its bank statements to confirm the recognised and authorised business transactions that the Appellant has engaged in.

23. The Appellant averred that the Respondent disregarded the information in the bank statements on the basis that the bank statements did not contain any details linked to the transactions in dispute hence not reflecting the correct position.

24. The Appellant stated that the Respondent has to date not challenged whether the bank statements were genuine and has no evidence that discredits their correctness. The Appellant added that it is unreasonable to demand evidence of information and transactions which the Appellant is totally unaware of and did not formally participate in.

25. The Appellant contended that the presentation of its bank statements, which according to it, the Respondent wilfully and capriciously ignored as evidence, should not be viewed as failure of the Appellant to bear the burden of proof. The Appellant asserted that it bore the burden of proof in full as set out by this Tribunal in the case of Appeal No. 133 of 2020 Samich Construction Ltd vs Commissioner of Domestic Taxes.

26. The Appellant concluded that the Respondent’s objection decision should not stand in as far as the Appellant’s key evidence has been disregarded.

b. On unauthorized dealings and transactions using the Appellant’s online tax account to perpetrate fraud 27. The Appellant alleged that the investigations by Mr. Mishker unwrapped the use of the Appellant’s company registration and tax certificates in the car import and selling business of Imam Mohamed Salahudeen who allegedly forged signatures and other documents to open a bank account at the DIB Bank Kenya Limited where he undertook the unauthorized dealings and transactions that the Respondent now seeks to bring to tax.

28. The Appellant averred that Imam Mohamed Salahudeen continued with his fraudulent activities by even acquiring and registering an Electronic Tax Register (ETR) machine that he used to illegally and improperly conduct his unauthorised dealings in the name of the Appellant.

29. The Appellant claimed that in the year 2021 Mr. Mishker sought to regain the Appellant’s company and tax credentials from Imam Mohamed Salahudeen with a view to applying for a mining license as an importer of gemstones. The Appellant claimed that its director is yet to be handed over the credentials to date.

30. The Appellant further averred that the Respondent had been sending demand notices to the email address set up by Imam Mohamed Salahudeen and Mr. Mishker was never forwarded the same. That Mr. Mishker ultimately became aware of the demand letters when he was called by the Appellant’s known banker, DTB, and informed of an agency notice issued by the Respondent.

31. The Appellant stated that it had reported the unauthorised access, dealings and fraudulent activities to the Kenya Police at the Parklands Police Station on 21st March 2023. That the above matter is currently under investigation as a criminal case and that the evidence supporting the above occurrences has been adduced and forms the gist of the ongoing criminal case number MCCR/E390/2024 Republic vs Mohamed Abdulazizi and Salahudin Mohamed.

32. The Appellant contended that the Respondent is sufficiently guided by the following provisions of Section 103A to Section 108 of the Tax Procedures Act which state as follows: -“103A.(1)A person who(a)knowingly and without lawful authority, by any means, gains access to or attempts to gain access to any computerized tax system;(b)having lawful access to any computerized tax system, knowingly uses or discloses information obtained from such system for a purpose that is not authorised; or(c)knowing that he is not authorized to do so, receives information obtained from any computerized tax system, and uses, discloses, publishes, or otherwise disseminates such information,commits an offence.(2)A person convicted of an offence under subsection (1) shall be liable –(a)in the case of a natural person, to imprisonment for a term not exceeding two years, or to a fine not exceeding four hundred thousand shillings, or to both; or(b)in the case of a body corporate, to a fine not exceeding one million shillings.104. (1)Subject to subsection (2) or (3), a person convicted of an offence under this Act shall be liable to a fine not exceeding one million shillings and to imprisonment for a term not exceeding three years, or to both.105. Where a person is convicted of an offence under a tax law and for which taxes were not paid the court may order the convicted person to make payment to the Commissioner of the whole or such part as remains unpaid either in addition to, or in substitution of any other penalty.106. (3)Despite any other written law, an offence under this Act may be tried in the court designated to try offences of corruption or economic crimes.107. (1)Despite any other written law, an authorised officer may appear in any court on behalf of the Commissioner in proceedings in which the Commissioner is a party and, subject to the direction of the Director of Public Prosecutions, that officer may prosecute a person accused of committing an under a tax law.(2)An authorised officer conducting a prosecution in accordance with subsection (1) shall have all the powers of a public prosecutor under the Office of the Director of Public Prosecutions Act, CAP. 6B).108. The amount of any tax or late payment interest due and payable under a tax law shall not be abated by the prosecution of a taxpayer for an offence under a tax law.”

33. The Appellant contended that the actions of lmam Mohamed Salahudeen are an offence under the above cited Sections of the Tax Procedures Act. That the Respondent is also well guided even on its prosecutorial powers and enforcement of taxes even after conviction. That, therefore, the Respondent ought to pursue Imam Mohamed Salahudeen in liaison with the Kenya Police instead of the Appellant.

c. On infringement on the Appellant’s right to fair administrative action under Article 47 of the Constitution of Kenya 34. The Appellant submitted that the actions of the Respondent on this matter also amount to unfairness and violation of the Appellant’s right to fair administrative action under Article 47 of the Constitution of Kenya.

35. The Appellant averred that the Respondent has not denied in its objection decision the fact that the Appellant presented bank statements that completely depicted what Mr. Mishker declared to be the known and authorized transactions of the Appellant. That, therefore, the Respondent ought to have administratively escalated the case to its investigations arm and pursued the suspected fraudster.

36. It was the Appellant’s assertion that the Respondent’s actions and case will be an infringement on the Appellant’s Constitutional right to fair administrative action under Article 47 of the Constitution of Kenya and Section 7 of the Fair Administrative Action Act.

37. The Appellant argued that it should not be allowed to suffer because of administrative failures of the Respondent who ought to have followed the clear procedures and guidelines under the Tax Procedures Act.

38. The Appellant urged the Tribunal to compel the Respondent to focus on unravelling the truth in the fraudulent transactions and unauthorised dealings under case number MCCR/E390/2024 – Republic vs Mohamed Abdulazizi and Salahudin Mohamed.

Appellant’s prayers 39. The Appellant prayed that the Tribunal: -a.Upholds the objection filed by the Appellant.b.Sets aside and annuls the objection decision by the Respondent.c.Makes such other orders that it may deem appropriate.

Respondent’s Case 40. The Respondent’s case is premised on the following documents:a.The Respondent’s Statement of Facts dated and filed on 14th September 2023 and the documents attached to it; andb.The Respondent’s written submissions dated 1st March 2024 and filed on 4th March 2024.

41. The Respondent stated that the dispute was initiated as a result of over claimed input VAT from fictitious purchases, majority being over claimed imports.

42. The Respondent issued additional assessment notices on 16th August 2022 and 18th August 2022, to which the Appellant objected on 4th October 2022 on the ground that the assessments did not reflect the true position of its ledger and business practices.

43. The Respondent asserted that the Appellant stated in its objection letter that it would provide the necessary documents in support of its grounds of objections, which the Appellant failed to do.

44. On 1st December 2022, the Respondent issued its objection decision confirming the additional input VAT assessments, which the Appellant appealed against at the Tribunal.

45. The Respondent summarised its issues for determination in this case as follows:a.Whether assessments were justified in law.b.Whether the Appellant discharged the burden of proof by providing documentary evidence in support of its objection.

a. On whether the assessments were justified in law 46. The Respondent reiterated its position as stated in the objection decision communicated to the Appellant and averred that the decision to arrive at the assessments was justified and had basis in law as required under the Tax Procedures Act and the VAT Act.

47. The Respondent contended that it is not bound by the Appellant’s returns or self-assessment and it is empowered to vary the assessments using any available information in the Respondent’s possession.

48. The Respondent cited Section 24(2) of the Tax Procedures Act which states that: -“The Commissioner shall not be bound by a tax return or information provided by, or on behalf of a taxpayer and the Commissioner may assess a taxpayer's tax liability using any information available to the Commissioner.”

49. The Responder further referred Section 31 of the Tax Procedures Act which empowers it to make alterations or additions to original assessments from available information for a reporting period based on the Commissioner’s best judgement.

50. The Respondent averred that the input VAT claims in question were disallowed after it found out that the Appellant had over claimed and made fictitious and double input VAT and there were no documents supporting the importation nor data found in the Simba system in support of the claims made by the Appellant.

51. The Respondent submitted that the Appellant has failed to substantiate its claims that it was a victim of fraudulent acts. That it is trite law that he who alleges must prove according to Section 107(1) of the Evidence Act which provides that: -“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.”

52. That Section 109 of the Evidence Act stipulates that the burden of proof as to any particular fact lies on the person who wishes the court to believe in its existence.

53. The Respondent submitted that the Appellant has failed to discharge this burden in regards to this particular issue and this Appeal must fail. That as a result, the taxes demanded are due and payable and this Honourable Tribunal should so find.

b. On whether the Appellant discharged its burden of proof by providing documentary evidence in support of its objection 54. The Respondent submitted that Section 56(1) of the Tax Procedures Act places the burden on the taxpayer to prove that a tax decision is incorrect.

55. That Section 59(1) of the Tax Procedures Act empowers the Respondent to require production of such documents vide issuance of notice as deemed necessary in determination of a tax liability.

56. The Respondent further cited Section 30 of the Tax Appeals Tribunal Act on burden of proof, which provides that: -“In 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: or(b)in any other case, that the tax decision should not have been made or should have been made differently.”

57. The Respondent asserted that being guided by the above provisions of the law, the Appellant not only failed to provide documents as required by law, but also failed to discharge its burden of proving that the assessment as issued by the Respondent was incorrect/ought not to have been made/should have been made differently.

58. The Respondent stated that the Appellant objected to the assessment made by the Respondent. That the Respondent, as required under Section 59 of the Tax Procedures Act, requested for the documents for review and consideration, and the Appellant provided the objection letter and bank statements for review.

59. The Respondent averred that it considered the objection letter and bank statements against the customs imports data from the Respondent’s Customs Department, which revealed that the Appellant had overstated its imports in its self-assessment returns.

60. The Respondent cited Section 17(3) of the VAT Act which provides for the documentation that is required for deduction of input tax.

61. The Respondent stated that the documents provided by the Appellant did not support its grounds of objection. That the Appellant failed to provide tax invoices/import declarations documents and delivery notes as the case may be and the bank statement provided was not referenced to the transactions in dispute.

62. The Respondent further averred that that the Appellant in its grounds of objection stated that the over claimed invoices were due to the negligence of its company’s accountant who fraudulently sold invoices to other persons in the name of the Appellant, however, that no documentary evidence was provided in support of this ground of objection.

63. The Respondent reiterated that it raised the input VAT assessments by disallowing over claimed, fictitious and double inputs claimed by the Appellant as the Appellant failed to provide documentation to support the said entries.

64. The Respondent stated that the Appellant did not discharge its burden of proving that the Respondent’s input VAT assessments were erroneous since it did not adduce sufficient documentation in support of its objection and the Commissioner was right in confirming the input VAT assessments.

65. The Respondent referred to Republic v Kenya Revenue Authority; Proto Energy (Exparte) Limited (Judicial Review Application E023 of 2021) [2022], where Hon. Justice Mativo JJA stated that: -“(48)The most significant justification for placing the burden of proof on the taxpayer is the practical consideration that the Commissioner cannot sustain the burden because he does not possess the needed evidence. Under the system of self-reporting tax liability, the taxpayer possesses the evidence relevant to the determination of tax liability. It is simply fair to place the burden of persuasion on the taxpayer, given that he knows the facts relating to his liability, because the commissioner must rely on circumstantial evidence, most of it coming from the taxpayer and the taxpayer's records. The taxpayer must present a minimum amount of information necessary to support his position.(49)A presumption of correctness arises from the Commissioner's determination/assessment. The presumption remains until the taxpayer produces competent and relevant evidence to support his/her position. When the taxpayer comes forward with such evidence, presumption vanishes and the case must be decided upon the evidence presented.”

66. The Respondent also referred to Hon. Justice Mabeya’s holding in Osho Drapers Limited V Commissioner of Domestic Taxes (Income Tax Appeal E147 of 2020) [2022] where it was held that: -“...This Court's view is that the appeal is based on the premise that the Tribunal erred in its interpretation of section 30 of the Tax Appeals Tribunal Act. That section provides: -"In 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; or b) In any other case, that the tax decision should not have been made or should have been made differently".This section, together with section 56 of the Tax Procedures Act impose the burden of proof on the taxpayer to prove that an assessment is excessive or a tax decision is incorrect. These provisions place the burden upon the taxpayer to submit all the necessary documentation to support his/its case...”

67. The Respondent placed reliance on the case of Commissioner of Domestic Services v Galaxy Tools Limited [2021] eKLR, where the High Court held that: -“Tax laws are unique as they are contrary to the usual legal position that he who alleges must prove......the tax laws reverse the well-known principle of evidence of "he who alleges must proof".In this regard, the tax authorities would assess what it considers the tax due from a taxpayer and the tax laws would burden the taxpayer to disprove that the assessment or tax demanded is wrong or incorrect. This is borne by the fact and that the assessment demand is ordinarily made way after the taxpayer has assessed himself and made a declaration of what according to him is the tax payable and has already paid such tax.The burden is therefore shifted to the taxpayer because, the tax authority has to rummage through the documents of the taxpayer years after the tax payer assessed himself and paid what he considered to be his tax liability.”

68. The Respondent submitted that based on the above decisions, the Appellant did not discharge the burden of proving that the additional VAT assessment was wrong or incorrect and it therefore proceeded to issue its objection decision, as per Section 51(8) of the Tax Procedures Act.

69. The Respondent urged this Honourable Tribunal to be persuaded by the above decisions and find that the Appellant in this case did not discharge its burden of proof under the tax statutes.

Respondent’s prayers 70. The Respondent prayed that the Tribunal:a.Dismisses the Appeal with costs.b.Confirms the additional input VAT assessments raised by the Respondent amounting to Kshs. 83,659,664. 27. c.Finds the principal taxes and interest due and payable as per the objection decision rendered by the Respondent.

Issue for Determination 71. The Tribunal has considered the facts of the matter and the submissions made by the parties, and considers the issue for determination as follows:Whether the Respondent was justified in issuing its objection decision dated 1st December 2022.

Analysis and Findings 72. The Respondent issued the Appellant with a notice of findings dated 6th July 2022 covering the period March 2018 to December 2021 stating that its review of the Appellant’s input VAT claims and import data in the Simba system revealed that the Appellant over-claimed input tax, claimed VAT from fictitious inputs and double-claimed input tax.

73. The Respondent subsequently issued additional assessment notices on 16th August 2022 and 18th August 2022 which the Appellant objected to entirely.

74. The Respondent stated that in response to its request to provide documents during review of the objection, the Appellant provided the objection letter and bank statements for review, which the Respondent considered against the customs imports data from the Respondent’s Customs Department, and concluded that the documents provided by the Appellant did not support its grounds of objection and did not support the said entries.

75. The Respondent averred that the Appellant did not discharge its burden of proving that the Respondent’s input VAT assessments were erroneous since it did not adduce sufficient documentation in support of its objection and the Commissioner was right in confirming the input VAT assessments.

76. The Respondent issued its objection decision dated 1st December 2022 confirming the additional assessments. The Appellant was dissatisfied with the objection decision and appealed against it at the Tribunal.

77. The Appellant averred the following in its Appeal against the impugned objection decision: -a.That the Respondent failed to consider the true and correct records of the Appellant.b.That the Respondent failed to consider that the incomes assessed on the Appellant resulted from unauthorised dealings and transactions committed by known individual taxpayers who should be brought to account.c.That the Respondent’s handling of the case infringes on the Appellant’s right to fair administrative action under Article 47 of the Constitution of Kenya.d.That the Respondent’s demand of Kshs. 83,659,664. 27 (in principal tax) is excessive, punitive and beyond the ability of the Appellant to pay, contrary to generally accepted cannons of taxation.

78. The Tribunal finds that the key issue in the present case is the question of documentation to substantiate that the Appellant accurately accounted for the deducted input tax in dispute.

79. Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal (TAT) Act place the burden of disproving the Commissioner upon the taxpayer. To satisfy this burden, a taxpayer ought to submit all the relevant evidentiary material in its possession.

80. The Tribunal refers to the case of Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR) where the Court held at paragraph 26 that: -“From the above, it is clear that the evidential burden of proof rests with the taxpayer to disprove the Commissioner and that once competent and relevant evidence is produced, then this burden now shifts to the Commissioner. I have emphasized and underlined ‘competence’ and ‘relevance’ because it is only evidence that meets these two tests that demolishes presumption of correctness and swings the burden to the Commissioner. This means that even if one avails evidence but then it is found that the same is incompetent or irrelevant, then the burden continues to remain with the tax payer.”

81. In the absence of relevant documentation to facilitate the assessment of a tax liability, the Respondent is empowered under Sections 24 and 31(1) of the Tax Procedures Act (TPA) to use any information available to it and its best judgement in assessing a taxpayer’s liability.

82. The Tribunal notes that, while the Appellant contended that it presented its bank statements during review of its objection, which according to the Appellant, the Respondent wilfully and capriciously ignored as evidence, the Respondent affirmed that it considered the said bank statements in arriving at its objection decision. The Tribunal, however, notes that the Appellant did not provide the said bank statements to the Tribunal for review in support of its case.

83. The Tribunal takes note that the only evidence that the Appellant attached in support of its Appeal was a copy of its report of the alleged fraud in the Parklands Police Station Occurrence Book (OB) which was an enclosure in its Miscellaneous Application No. E023 of 2023, also attached in the Appeal, an application that was subsequently dismissed by the Tribunal in the Ruling delivered on 3rd May 2024.

84. The Tribunal, therefore, considered only the facts of the case, the applicable laws and the documents that the Appellant furnished in the Appeal to establish if the documents were sufficient to persuade a reasonable person that the Respondent’s assessment of the Appellant’s tax liability was erroneous.

85. Section 43 of the VAT Act envisions that a person carrying on a business must keep certain records and documents and avail the same to the Commissioner for inspection. The provision states that: -“(1)A person shall, for the purposes of this Act, keep in the course of his business, a full and true written record, whether in electronic form or otherwise, in English or Kiswahili of every transaction he makes and the record shall be kept in Kenya for a period of five years from the date of the last entry made therein.(2)The records to be kept under subsection (1) shall include—(a)copies of all tax invoices and simplified tax invoices issued in serial copies number order;(b)of all credit and debit notes issued, in chronological order;(c)purchase invoices, copies of customs entries, receipts for the payment of customs duty or tax, and credit and debit notes received, to be filed chronologically either by date of receipt or under each supplier’s name;(d)details of the amounts of tax charged on each supply made or received and in relation to all services to which section 10 applies, sufficient written evidence to identify the supplier and the recipient, and to show the nature and quantity of services supplied, the time of supply, the place of supply, the consideration for the supply, and the extent to which the supply has been used by the recipient for a particular purpose;(e)tax account showing the totals of the output tax and the input tax in each period and a net total of the tax payable or the excess tax carried forward, as the case may be, at the end of each period;(f)copies of stock records kept periodically as the Commissioner may determine;(g)details of each supply of goods and services from the business premises, unless such details are available at the time of supply on invoices issued at, or before, that time; and(h)such other accounts or records as may be specified, in writing, by the Commissioner.(3)Every person required under subsection (1) to keep records shall, at all reasonable times, avail the records to an authorised officer for inspection and shall give the officer every facility necessary to inspect the records.”

86. Section 23(1) of the Tax Procedures Act also provides that a taxpayer is required to keep records as follows: -“A person shall—(a)maintain any document required under a tax law, in either of the official languages;(b)maintain any document required under a tax law so as to enable the person's tax liability to be readily ascertained; and(c)subject to subsection (3), retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law.”

87. In consideration of the Appellant’s prayer to the Tribunal to compel the Respondent to focus on unravelling the truth in the alleged fraudulent transactions and unauthorised dealings allegedly under case number MCCR/E390/2024 – Republic vs Mohamed Abdulazizi and Salahudin Mohamed, the Tribunal finds that it only has jurisdiction to determine the appeal against the Respondent’s decision before it on its merits, and that it does not have jurisdiction to order the Respondent to pursue criminal proceedings allegedly ongoing in another court.

88. The Tribunal is, firstly, of the considered view that the Appellant in arguing that it was not aware of the transactions reflected in the online tax records (iTax and Customs) and averring that the Respondent disregarded the information in the bank statements on the basis that the bank statements did not contain any details linked to the transactions in dispute, that the Appellant in essence, acquiesced to the correctness of the Respondent’s decision to disallow the input VAT.

89. In disputing the Respondent’s objection decision to disallow excess input VAT, the Appellant was required to prove that it satisfied the parameters set in Section 17 of the VAT Act for the Respondent to allow the deduction of input VAT. Section 17(3) of the VAT Act provides as follows: -“(3)The documentation for the purposes of subsection (2) shall be –(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;(d)a credit note in the case of input tax deducted under section 16(2);(e)a debit note in the case of input tax deducted under section 16(5); or…”

90. As the Appellant disowned the input VAT transactions disallowed by the Respondent, in general, and by not furnishing the Tribunal with the documentation listed in Section 17(3) of the VAT Act, the Appellant did not demonstrate that the Respondent’s assessment was wrong.

91. The Tribunal’s examination of the evidence presented by the Appellant revealed that the Appellant failed to adduce critical source documents required of it under Section 43 of the VAT Act and Section 23 of the Tax Procedures Act, including sales invoices, a VAT account, general ledgers, and other relevant records to support its averments that the declarations in its VAT returns and the Respondent’s conclusions arising from the analysis of the same were incorrect for the periods of May 2018 to December 2021.

92. The Tribunal also observes that Appellant made no effort to establish its accurate tax position when the Appellant failed to adduce any evidence to demonstrate its correct tax position that it claimed to vary from the declarations in its tax returns allegedly fraudulently declared by a third-party without its knowledge or authority.

93. The Tribunal finds that despite the law under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act expressly placing a burden on the Appellant as a taxpayer to prove its case, the Appellant opted to make mere averments of its tax position and filed evidence that was not impactful in persuading the Tribunal to arrive at a determination different from that in the Respondent’s objection decision.

94. The Tribunal relies on the holding by Madan J in his judgment where the Judge held in CMC Aviation Ltd V Cruisair Ltd (1) [1978] KLR 103 that: -“Pleadings contain the averments of the parties concerned. Until they are proved or disproved, or there is an admission of them or any of them, by the parties, they are not evidence and no decision could be founded upon them. Proof is the foundation of evidence. Evidence denotes the means by which an alleged matter of fact, the truth of which is submitted for investigation. Until their truth has been established or otherwise, they remain un-proven. Averments in no way satisfy, for example, the definition of “evidence” as anything that makes clear or obvious; ground for knowledge, indication or testimony; that which makes truth evident, or renders evident to the mind that it is truth.”

95. Accordingly, the Tribunal finds that the Appellant did not discharge its burden of proof to demonstrate that the Respondent’s additional assessment of VAT was incorrect or excessive. Consequently, the Tribunal finds that the Respondent was justified in issuing the objection decision dated 1st December 2022.

Final Decision 96. The upshot of the above analysis is that the Tribunal finds that the Appeal fails and accordingly proceeds to make the following Orders:-a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 1st December 2022 be and is hereby upheld.c.Each party to bear its own costs.

97. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 6TH DAY OF SEPTEMBER, 2024. ERIC NYONGESA WAFULA - CHAIRMANGLORIA A. OGAGA - MEMBERDR. RODNEY O. OLUOCH - MEMBERABRAHAM K. KIPROTICH - MEMBERCYNTHIA B. MAYAKA - MEMBER