[2023] KETAT 522 (KLR)

Blackwood Hodge Kenya Limited v Commissioner of Domestic Taxes (Tax Appeal 646 of 2022) [2023] KETAT 522 (KLR) (4 August 2023) (Judgment)

Neutral citation: [2023] KETAT 522 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 646 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, Jephthah Njagi & AK Kiprotich, Members

August 4, 2023

Between

Blackwood Hodge Kenya Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya and is engaged in installation and commissioning of generators.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and is charged with the responsibility of among others, assessment, collection, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Respondent conducted an audit for the period July 2018 to April 2020 and proceeded to issue a pre-assessment demand notice dated 26th July, 2021 of Kshs. 20,413,542. 00 which included principal tax, penalties and interest of Kshs. 15,634,647. 00, Kshs. 781,732. 00 and Kshs. 3,997,163. 00, respectively.

4. The Respondent proceeded to raise the assessment on iTax on 9th August 2021.

5. The Appellant conceded to principal amounts and signed a payment plan with the Respondent on 7th September 2021.

6. The Appellant paid the said amounts in full but later realized that the amount raised on the iTax system by the Respondent was higher than the amount earlier demanded by Kshs. 9,293,169. 00.

7. The Appellant analyzed the additional assessment and conceded to Kshs. 4,443,304. 00, which was paid in full while objecting to Kshs. 4,849,865. 14 on 22nd December, 2021.

8. On 31st March, 2022 the Respondent revised its assessment and partly confirmed the VAT assessment reducing the assessment to Kshs. 2,479,114. 14. 00 through its objection decision.

9. The Appellant being dissatisfied with the Commissioner‟s decision filed a Notice of Appeal on 28th April 2022.

The Appeal 10. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal dated and filed on 20th June 2022:-a.That the Respondent erred in law and in fact in their wrongful interpretation of Section 17 of the VAT Act 2013 and that the Appellant has discharged its duty in claiming input VAT against a taxable supply.b.That the Respondent erred in fact by stating that input VAT was improperly deducted and in fact, the Appellant provided all documents in relation the adjustments to the VAT return.c.That the Respondent fell in error in that the Appellant did not improperly deduct input VAT and claimed so as per to Section 17 of the VAT Act 2013. It is the view of the Appellant that the Respondent failed in its assessment to apply a purposive approach to statutory interpretation and there is a mandatory requirement to construe every piece of legislation in a manner that promotes the spirit, purpose and objects of the Kenyan tax laws.d.That the Respondent erred in law by disallowing amounts of input VAT not claimed by the Appellant thereby breaching their mandate to fairly impose tax on a taxpayer as the law must not be interpreted in a form and manner that is highly prejudicial towards a taxpayer and against public policy.

Appellant's Case 11. The Appellant‟s case is premised on the following documents:a.The Appellant‟s Statement of Facts dated and filed on 20th June, 2021 together with the documents attached thereto.b.The Appellant‟s written submissions dated 6th January, 2023 and filed on 10th January, 2023 together with the authorities attached thereto.

12. That in the normal course of its business, the Appellant would raise invoices to its walk-in customers and charge VAT as per Section 5(1) (b) of the VAT Act to these customers; as the Appellant is required to raise a fiscalised invoice at the time of supply. That these customers after purchasing the goods would later apply for a VAT exemption through the Ministry of Foreign Affairs as they are privileged persons or institutions. That the Appellant would thereafter be presented with a VAT exemption certificate. That in its VAT returns, the Appellant would consolidate these sales and declare these credits as purchases from the Respondent.

13. On supplies to privileged persons and institutions, the Appellant avers that Part B to the Second Schedule Paragraph 2 and Paragraph 4 states as follows:“The following taxable supplies shall be zero- rated when supplied by a registered person before the imposition of tax or imported before clearance through the customs by or on behalf of the following persons subject to the limitations specified in this Schedule:-Supply to Diplomat or First Arrivals Persons; and Supply to International and Regional Organizations”

14. That after the issuing of invoices inclusive of VAT, the Appellant received the VAT exemption letters and subsequently followed the law as detailed under Part B of the Second Schedule Paragraph 2 and 4 above.

15. The Appellant wishes to state that the supplies by the Appellant to privileged persons and institutions under the Part B of the Second Schedule clearly states that these sales are zero rated as guided by the VAT Act.

16. That therefore, the Respondent disallowing the input VAT results in payment of tax already remitted for sales that are zero rated. That this is not only prejudicial and outside the mandate of the taxman, but further harshly penalizes the Appellant whereas the position can be presented corrected by amending the returns to reflect the zero rated sales. The Appellant wishes to bring to the attention of the Tribunal that if this position stands, it results in the Respondent having collected the tax twice.

17. That there was no tax loss to the Respondent and spirit of the law should be followed. The Appellant contends that there is a tax neutral position and that the Appellant did not wrongfully gain, moreover the Respondent did not unfairly lose out tax.

18. That the law must therefore not be interpreted in a form and manner that is highly prejudicial and against public policy. That the Respondent must be reasonable in analyzing the issues before raising an assessment. That in Associated Provincial Picture Houses Ltd vs. Wednesbury Corporation (1948] 1 KB 223 the court set out the standard of unreasonableness of public-body decisions, that if unreasonable, would make (the decision) liable to be quashed.

19. That as held in R v. Inland Revenue Commissioner, ex-parte Unilever plc [1996],“the Court is there to ensure that the power to make and alter policy is not abused by unfairly frustrating legitimate individual expectations .... This is contrary to the scope and powers of the revenue authority which to administer the collection of taxes and not to severely undermine the law in efforts to increase their revenues...”

20. That the Respondent has therefore failed to carry out its mandate in a way that is fair and unprejudiced against the Appellant. That as stated in Doody vs. the Home Secretary of State [1993] 1 All ER 151 where it was held that: “Where an Act of Parliament confers administrative power there is a presumption that it will be exercised in a manner which is fair.” The Appellant believes that it is the duty of the Respondent to act fairly in carrying out its mandate and it is paramount for it to be impartial in administering its role in collection of taxes.

21. That the Respondent has not lost any tax and any error of presentation in the VAT return can be rectified by amending the return as provided by the Tax Procedures Act.

22. In regard to the spirit of the law, the Respondent erred in failing to consider the spirit of the law. The law is intended to ensure that there is fairness in not just in reading the law as is, but also ensuring that the intention behind the law is considered when making its decision and imposing tax. That the Appellant is a compliant taxpayer and correctly raised invoices.

23. That to ensure there is equity in the law, it is important that the Tribunal take account of the fact that there is nowhere in the Constitution where it was intended that the taxman should collect tax where it is not due. That this was affirmed by Justice Korir in the case of Republic vs. Kenya Revenue Authority Exparte Bata Shoe Company (Kenya) Limited [2014) where he stated that;“the sole function of the court is to discover the intention of Parliament. In an approach that produces neither injustice or absurdity; an approach that promotes the purpose or object underlying the particular statute”

24. That the imposition of tax was therefore not intended for the purposes of enforcing collection of taxes arbitrarily. The true intention is intended for imposition as per the Constitution of Kenya is to ensure that tax is only collected where due.

Appellant's Prayers 25. The Appellant prays that the Tribunal:-a.Allows this Appeal;b.Annuls the Respondent's confirmed assessment based on the grounds above, as well as the information contained in the Statement of Facts attached; andc.Awards costs of this Appeal to the Appellant;

Respondent's Case 26. The Respondent‟s case is premised on the hereunder filed documents:-a.The Respondent‟s Statement of Facts dated and filed on 16th July 2021 together with the documents attached thereto.b.The Respondent‟s written submissions dated 6th July 2022 and filed on the same date together with the authorities attached thereto.

27. That the Appellant was able to explain and support the variances in purchase declarations between income tax returns and VAT returns for the period 2017 to 2020. That this, however, led to analysis of sales in VAT returns, which revealed that the Appellant was exempting both sales of generators to manufacturers and non-manufacturers.

28. The Respondent avers that the sale of generators to non-manufacturers attracts VAT.

29. That for August 2018, the total input claimed was Kshs. 58,162. 00. That the Appellant provided invoices, ETR and proof of payment for its transaction with Central Cargo services 'third party service provider'. That the supported invoices of VAT of Kshs. 2,560. 00 were allowed, whereas the input of Kshs. 55,602. 00 was disallowed noting that no invoices were provided and cost relating to the same were reimbursements to Central Cargo Services 'the service provider of the Appellant'. That there arises an issue of double claim should the input be allowed.

30. That for September 2018, the total input claimed was Kshs. 991,093. 00. That the Appellant provided invoices, ETR, Import documents and proof of payment in support of this ground of objection. That the supported invoices of VAT of Kshs. 900,351. 00 were allowed, whereas the input of Kshs. 90,742. 00 were disallowed noting that no invoices were provided and cost relating to the same were reimbursements to Central Cargo Services “the service provider of the Appellant”. That there arises an issue of double claim should the input be allowed.

31. That for August 2019, the Respondent observed that, initially the Appellant used to declare zero rated sales as standard sales and then would later claim the input VAT on the same sales upon receipt of exemption certificate from KRA. That on this month, the Appellant claimed input VAT amounting to Kshs. 735,293. 00 on zero-rated and exempt sales. That the treatment of the transactions in this aspect is incorrect besides it is contrary to Section 17 of VAT Act 2013. That the Appellant created a purchase equivalent to the zero-rated sales treated as standard rated and claimed input amount from this "created purchase‟.

32. That for October 2019, the Appellant claimed input VAT amounting to Kshs. 22,481. 00 on zero-rated sales. That the treatment of the transaction in this aspect is incorrect besides it is contrary to Section 17 of VAT Act 2013. That the Appellant created a purchase equivalent to the zero-rated sales treated as standard rated and claimed input amount from this „created purchase‟.

33. That for November 2019, the Respondent's analysis revealed that Appellant treated sales of generators to Nation Media as exempt sales and when the additional assessment was raised to rectify the misclassification to which the Appellant objected. The additional assessment amounted to Kshs. 452,320. 00. That the review of the invoice description relating to the above-mentioned sale confirmed that the said sale was a backup generator for Limuru Transmission and hence it could not have been classified as exempt sale since it is not used for the purpose of manufacturing.

34. That for December 2019, the Appellant claimed input VAT amounting to Kshs. 345,078. 00 on zero-rated sales. That the treatment of the transactions in this aspect is incorrect besides it is contrary to Section 17 of VAT Act. That theAppellant created a purchase equivalent to the zero-rated sales treated it as standard rated and claimed input amount from this „created purchase‟.

35. That for January 2020, the Respondent's analysis revealed that Appellant misclassified some general rated sales as exempt sales and when the assessment was raised on the same, it objected to the output VAT amounting to Kshs. 457,600. 38. That in addition, the Appellant claimed input VAT amounting to Kshs. 314,392. 62 on zero-rated sales. That the treatment of the transactions in this aspect is incorrect besides it is contrary to Section 17 of VAT Act. That the Appellant created a purchase equivalent to the zero-rated sales treated as standard rated and claimed input amount from this "created purchase‟.

36. That for February 2020, the Respondent review notes that when raising the additional assessment some sales which were captured under exempt status were reclassified under standard sales and VAT thereon paid but the credit notes that relates to the said sales were not taken into account during the period under review. That the Appellant objected to Kshs. 240,000. 00 on the basis that if the two credit notes had been considered during the raising of assessment, then no liability could have arisen on this ground. That the ground of objection in this case was accepted and the tax liability revised accordingly.

37. That for March 2020, the Respondent noted that when raising the additional assessments some sales which were captured under exempt status were reclassified under standard sales and VAT thereon paid but the credit note that relates to the said sales were not taken into account during the period under review.

38. That the Respondent refutes each and every allegation by the Appellant in the Memorandum of Appeal and Statement of Facts and further avers that the review of the Appellant's records and iTax returns for the Appellant, revealed various discrepancies.

39. That the Appellant created purchases equivalent to the zero-rated sales, treated them as standard rated and claimed input amount from this created purchases. That the act of the Appellant to claim input VAT on zero-rated sales and treatment of the transactions in this aspect is all incorrect besides it is contrary to Section 17 of VAT Act. That the Appellant also claimed input on third-party invoices. That this results to double claim by both the Appellant and third party.

40. The Respondent notes that the issue for determination in this is Appeal relates to the interpretation of the provisions of the Section 17 of VAT Act, 2013 and the application of the law to the undisputed facts of the case. That the issue of documentation does not arise. That hence it is matter of law, whether the Appellant “created a purchase” equivalent to the zero-rated sales, treated it as standard rated and claimed input contrary to Section 17 of VAT Act 2013. That claiming of input tax as per Section 17 of the VAT act is premised on production of a tax invoice. That the Appellant did not provide the requisite documents to warrant claiming of input tax on the “created purchase”.

41. That the act of the Appellant to claim input VAT on zero-rated sales and treatment of the transactions in this aspect is all incorrect besides it is contrary to Section 17 of VAT Act. That the Appellant also claimed input on third-party invoices. That this could have resulted to double claim by both the Appellant and third party.

42. The Respondent submits that input VAT cannot be deducted without corroborated proof of purchases. It is in this spirit that the VAT Act 2013 requires a taxpayer to maintain documents under Section 43 in more detailed terms than even the Income Tax Act:"(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-acopies of all tax invoices and simplified tax invoices issued in serial number order;bcopies 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; andh.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”

43. That in the light of the provision above the Appellant was under duty to keep full and true records of every transaction. That the Appellant cannot therefore fault the Respondent for failing to allow the input VAT when it is the Appellant who failed to support its claims using the requisite documents.

44. That Section 17 (2) of the VAT Act 2013 provides that any taxpayer who seeks to make input VAT deductions must do so within six months after the end of the tax period in which a taxpayer incurred such input VAT, that is within six months after the end of the tax period in which the taxpayer purchases or imports the goods. The entire provision is faithfully reproduced in these terms:“If at the time when a deduction/or input tax would otherwise be allowable under subsection (1)-a.the person does not hold the documentation referred to in subsection (3), orb.the registered supplier has not declared the sales invoice in a return the deduction/or input tax shall not be allowed until the first tax period in which the person holds such documentation:Provided that the input tax shall be allowable for a deduction within six months after the end of the tax period in which the supply or importation occurred.”

45. That the relevant periods are 2018 to 2020, the input VAT incurred in any of these periods cannot be claimed in 2022, as six (6) months have well and truly elapsed. That the time is computed from the date the input VAT is incurred as was stated in Highlands Mineral Water Limited vs. Commissioner of Domestic Taxes [2021] eKLR.

46. The Respondent submits that the fact that there has been an additional assessment does not displace the clear words of this provision. That this was unequivocally stated by the Honourable Learned Judge D.S Majanja in Gracan Construction Limited vs. Kenya Revenue Authority HCCOMMITA/ET62/2021.

47. That this forum has a commendable precedent of refusing to adjudicate on the issue of input VAT claims where the taxpayer failed to claim for the input VAT within the provided time, and waits until the Respondent raises an assessment thereafter asking the Respondent to set off the input VAT against such assessments. That in Paleah Stores Limited vs. Commissioner of Investigation and Enforcement TAT No. Eoo9 of 2021, at Paragraphs 85 and 87 this Honourable Tribunal stated that:-“...The Appellant, in its submission, did not contest that it made its input VAT claim after the statutory periods. On the extension of time in respect of input VAT deductibility, the Tribunal's hands are tied and is therefore unable to vary the same...The Appellant cannot ask the Respondent to extend the time to claim input VAT as the Respondent cannot be compelled to perform a duty that it has no powers to do as is clearly envisaged in legislation.”

48. That asking the Respondent to deduct input VAT at this moment and offset the same against the taxes assessed on the undeclared turnovers is asking the Respondent to extend time for making the input VAT claims. That this is beyond the power the Respondent is endowed with, that this is beyond the power this high Tribunal is endowed with. It is the Respondent's submissions that the Appellant should not task the esteemed Tribunal with an impossible task.

49. That for an objection to be considered as valid, a taxpayer ought to lodge a notice of objection within thirty (30) days of receipt of an assessment as provided for in Section 51 of the Tax Procedures Act.

50. That in addition, for the notice of objection to be valid, the taxpayer has to precisely state the grounds of objection, has to pay all the taxes not in dispute and provide all the relevant documents in support of the objection as provided for in Section 51 (3) of the Tax Procedures Act.

51. That Section 51(3) of the Tax Procedures Act, 2015 provides that:“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if-the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments;ln relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute.All the relevant documents relating to the objection have been submitted.”

52. That the above quoted Section 51 (3) of the Tax Procedures Act 2015 expressly enumerates the validity threshold for a notice of objection as being; statement of the grounds of objection, requisite amendments to correct the decision, reasons for amendments sought, payment of undisputed taxes and provisions of all relevant supporting documents. Notably this Section employs a conjunctive term 'and' thus making it incumbent upon a taxpayer to check each box under Section 51 (3) (a) to (c) of the Act accordingly, to successfully lodge a valid notice of objection.

53. That the Appellant's assertion that it had provided all the necessary invoices, ETR and proof of payment to support its case is false. That this is because the Appellant failed to provide all the necessary purchase invoices for the month of August and September 2018.

54. The Respondent also submits that upon objection of the assessments, the Appellant failed to provide any supporting documentation to support the objection leading to the confirmation of the assessments.

55. That in TAT No. 55 of 2019, Boleyn International Limited versus Commissioner of Domestic Taxes, the court quoted the case of Digital Box Limited versus Commissioner of Investigations and Enforcement (2020), where it was held that:-“...on 8th March 2018, the Appellant lodged an objection with the Respondent. However, the said objection did not reiterate the grounds of objection, the corrections required to be made and the reasons for the amendments. Neither did the Appellant provide the relevant documents in support of its alleged objection. Therefore, there was no conceivable way the Respondent would have considered the Appellant's objection as the same did not place itself within the parameters of Section 51 (3) of the Tax Procedures Act.”

56. That further in TAT No. 70 of 2017, Afya X-ray Centre Limited vs. Commissioner of Domestic Taxes it was held that:“From then foregoing chain of events, it is our understanding that the Appellant failed in its duty in providing these documents, in order that a comprehensive audit of its affairs be done. Accordingly, the Respondent can hardly be faulted for raising the assessment in accordance with the availed documents. Moreover, the Appellant had an opportunity to counter the Respondent's finding after the preliminary finding and after the confirmation of the assessment. Both are instances, where the Appellant could have produced its books of accounts to counter the Respondent's assessment after all the Appellant by law bears the burden of proof.”

57. That the encapsulation of the assertions that have been made by the Respondent is that the Appellant has failed to discharge the burden of proving that the taxes assessed are excessive. It is commonplace that the burden of proof is on a taxpayer to show that tax assessments are excessive. This is provided under Section 56 (1) of the Tax Procedures Act:“General provisions relating to objections and appeals(1)In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

58. That as can be discerned from the heading of this Section, the proceedings referred to are objections and appeals emanating therefrom. That the Appellant had a burden to support its objection to the reasonable satisfaction of the Respondent by providing the requisite documents.

59. The Respondent asserts that due to the Appellant's failure to provide supporting documents, the Respondent relied on available information that it had as well as the Commissioner's best judgement in making the assessment order and confirming the assessment. The said mandate is bestowed upon the Respondent by Section 31 (1) of the Tax Procedures Act. The said Section provides as follows:“(1)Subject to this section, the Commissioner may amend an assessment (referred to in this section as the "original assessment") by making alterations or additions, from the available information and to the best of the Commissioner's judgement.”

60. That the Appellant is asking the Tribunal to decide in its favour based on the fact that the Respondent's assessments are wrong, inaccurate and excessive from a reasonable person's point of view. That the Respondent, in its candour, admits that the assessments might be wrong and inaccurate and even excessive. The Respondent, however states that the only party that can help it know with certainty on what the true position is, is the Appellant. Yet, when the Appellant is called upon to help the Respondent accurately determine the tax liability, the Appellant is unable to without good reason.

61. That there is clear proof in the Respondent's Statement of Facts that the Appellant failed to provide the necessary documents to support its objection.

62. That this Honourable Tribunal has in a number of cases maintained the position that, where the Appellant fails to provide the requisite documents, then the Commissioner is by all means justified in confirming the assessments earlier issued to the Appellant.

63. That in Ngurumani Traders Limited vs. Commissioner of Investigations and Enforcement, TAT No.125 of 2017, the Honourable Tribunal held at Paragraph 40 of its Judgement that:“From the foregoing, the Appellant's failure to lodge a proper objection meant that the Respondent was at liberty to confirm the assessment. Measured against the provisions of Section 51 (3) of the Act, the Appellant's conduct and manner of lodging the objection fell considerably short of the permissible statutory requirements under Section 51 (3) of the Tax Procedures Act, 2015. It would be fundamentally non-justifiable for this Tribunal to entertain this preliminary objection, taking into account the Appellant's flagrant non-compliance with the law on raising objections.”

64. That this was further reinforced in Digital Box Limited vs. Commissioner of Investigations and Enforcement (2020) where the Tribunal held that:“The question of burden of proof in taxation matters is provided for under the Tax Procedures Act as well as the Tax Appeals Tribunal Act. Section 56 (1) of the Tax Procedures Act states that:“In any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect."Section 30 of the Tax Appeals Tribunal Act similarly 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.In this case, the Appellant is the one seized of the desire to prove that the Respondent used extraneous information in arriving at its assessment. Thus, according to the provisions of the Evidence Act, the Tax Procedures Act and the Tax Appeals Tribunal Act, the burden of proof falls upon the Appellant ...The Tribunal is of the view that the Appellant did not discharge its burden of proof in showing that the Respondent used extraneous considerations and documents other than those prescribed by law. The averments, made by the Appellant did not amount to evidence.”

65. That in light of the foregoing the Appellant has not discharged its burden of proof by providing the documents to reconcile the following:a.Variances between salaries and wages declared in Income Tax returns and those declared in the monthly PAYE returns for the period 2018 to 2020b.Variances between purchase declared in VAT3 returns and those declared in Income Tax Returns for the same periodc.Variances between Income Tax returns turnover and sales declared in the VAT3 returns for the period 2018 to 2020.

66. The Respondent submits that it has demonstrated before this Tribunal what was considered in arriving at the assessment and subsequently the objection decision which are within the law. That moreover, the Respondent has explained in detail reasons why and its findings and prays that the Tribunal upholds the objection decision.

67. That it is upon this backdrop that the Respondent submits that its assessment was hinged on the letter of the law. It was upon the Appellant to provide evidence to support its assertions against the assessment at the objection stage. A fact which it admittedly did not consider.

Respondent's Prayers 68. The Respondent urges this Tribunal:a.To affirm and declare the Confirmed Assessment Notices issued by the Respondent on the 31st March 2022 demanding Kshs. 2,479,114. 14 as tax due to be legal. The taxes demanded by the Respondent from the Appellant were properly assessed in conformity with the law and the same are due and payable.b.To dismiss the Appeal for lack of merit with costs to the Respondent.

Issues for determination 69. The Tribunal has carefully studied the pleadings and documentation filed by both parties and is of the respectful view that the issue falling for its determination is as follows:-a.Whether the assessment was justified.

Analysis and Findings 70. The Tribunal having established the issue for its determination, proceeded to analyse the same as hereunder.

71. This dispute arose from the disallowance of input tax credits claimed by the Appellant by the Respondent.

72. The Appellant claimed that in the normal course of its business, it would raise invoices to its walk-in customers and charge VAT as per Section 5 (1) (b) of the VAT Act to these customers; as the Appellant is required to raise a fiscalised invoice at the time of supply. Further, that these customers after purchasing the goods would later apply for a VAT exemption through the Ministry of Foreign Affairs as they are privileged persons or institutions. That the Appellant would thereafter be presented with a VAT exemption certificate. That in its VAT returns, the Appellant would consolidate these sales and declare these credits as purchases from the Respondent.

73. The Appellant further submitted that after the issuing of invoices inclusive of VAT, the Appellant received the VAT exemption letters and subsequently followed the law as detailed under Part B of the Second Schedule Paragraph 2 and 4 of the VAT Act.

74. The Appellant also stated that the supplies by the Appellant to privileged persons and institutions under Part B of the Second Schedule clearly states that these sales are zero rated as guided by the VAT Act. That therefore, the Respondent disallowing the input VAT results in payment of tax already remitted for sales that are zero rated is not only prejudicial and outside the mandate of the taxman, but further harshly penalizes the Appellant whereas the position can be presented corrected by ammending the returns to reflect the zero-rated sales.

75. The Respondent submitted, on its part, that the Appellant created purchases equivalent to the zero-rated sales, treated them as standard rated and claimed input amount from this created purchases. That the act of the Appellant to claim input VAT on zero-rated sales and treatment of the transactions in this aspect is all incorrect besides it is contrary to Section 17 of VAT Act. That the Appellant also claimed input on third-party invoices. That this results to double claim by both the Appellant and third party.

76. The Respondent further averred that the Appellant did not provide documentation and information to support its claims in relation to zero rated sales pertaining to privileged persons.

77. The Tribunal having reviewed the parties‟ submissions in detail established that other than the computational schedules provided by the Appellant, no further documentary attachments were provided with the Appellant‟s pleadings to support these computations. Specifically, the Appellant did not submit exemption documentation to back its claims that it made supplies to privileged persons and/ or institutions.

78. The Tribunal states that provision of documents as evidence is well stated under Section 30 of the Tax Appeals Tribunal Act which provides as thus:-“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; orb.In any other case, that the tax decision should not have been made or should have been made differently.”

79. The Tribunal further relies on Section 56 (1) of the Tax Procedures Act which states as follows in relation to general provisions relating to objections and appeals:“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

80. Section 30 of the Tax Appeals Tribunal Act (TATA) places the burden of proof on the taxpayer to submit all the necessary documentation to support its case. This position was held by the court in Alfred Kioko Muteti vs. Timothy Miheso & Another [2015] eKLR where it was held that a party can only discharge its burden upon adducing evidence. Merely making pleadings is not enough. The court stated that:“Thus, the burden of proof lies on the party who would fail if no evidence at all were given by either party…. Pleadings are not evidence, and it is not enough to plead particulars of negligence and make no attempt in one‟s testimony in court to demonstrate by way of evidence how the accident occurred and how the 1st defendant was to blame for the said accident. It is trite law that he who alleges must prove and that burden does not shift to the adverse party even if the case proceeds by way of formal proof and or undefended.”

81. Further, in Metcash Trading Limited vs. Commissioner for the South African Revenue Service and Another case CCT 3/2000, Justice Kriegler held that:“But the burden of proving the Commissioner wrong then rests on the vendor under section 37. Because VAT is inherently a system of self- assessment based on a vendor‟s own records, it is obvious that the incidence of this onus can have a decisive effect on the outcome of an objection or appeal. Unlike income tax, where assessments can elicit genuine differences of opinion about accounting practice, legal interpretations or the like, in the case of a VAT assessment there must invariably have been an adverse credibility finding by the Commissioner; and by like token such a finding would usually have entailed a rejection of the truth of the vendor‟s records, returns and averments relating thereto. Consequently, the discharge of the onus is a most formidable hurdle facing a VAT vendor who is aggrieved by an assessment: unless the Commissioner‟s precipitating credibility finding can be shown to be wrong, the consequential assessment must stand.”

82. Additionally, the Tribunal found it appropriate to rely on the provisions of Section 107 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.”

83. It is trite law that the burden to prove that a tax assessment is erroneous lies on the Appellant and that the Appellant therefore should have adduced documentary evidence to support its averments in the instant case.

84. Further, Section 17 (3) of the VAT Act, 2013 provides as follows regarding documentation that should be produced to support a claim for input tax:“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); ore.a debit note in the case of input tax deducted under section 16(5).”

85. The Appellant, in the instant case, provided various schedules for zero rated sales but did not attach any documentation, as provided for under Section 17 (3) of the VAT Act, to support these schedules. Further, the Appellant did not supply the exemption certificates that would support its exempt sales to privileged persons and/ or institutions.

86. As a result, it is the Tribunal‟s considered view that the assessment by the Respondent was justified.

Final decision 87. The upshot of the foregoing is that the Appeal is not merited and therefore fails. Consequently, the Tribunal makes the following orders: -a.The Appeal be and is hereby dismissed.b.The Respondent‟s Objection decision dated 31st March, 2022 be and is hereby upheld.c.Each party to bear its own costs.

88. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 4TH DAY OF AUGUST, 2023ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERGRACE MUKUHA - MEMBERJEPHTHAH NJAGI - MEMBERABRAHAM K. KIPROTICH - MEMBER