[2023] KETAT 171 (KLR)

Crescent-Tech Limited v Commissioner of Domestic Taxes (Appeal 699 of 2021) [2023] KETAT 171 (KLR) (Civ) (10 February 2023) (Judgment)

Neutral citation: [2023] KETAT 171 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 699 of 2021

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

February 10, 2023

Between

Crescent-Tech Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company incorporated under the Companies Act of the laws of Kenya. The Appellant’s principal activity is trading in computers and related accessories in the Republic of Kenya.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act and the Kenya Revenue Authority is a Government agency established under the Kenya Revenue Authority Act, Cap 469 Laws of Kenya for the collection of Revenue and the administration of tax laws within the Republic of Kenya.

3. The Respondent carried out an audit of the Appellant’s tax affairs for the period October 2014 to January 2018. This was after the Appellant had made VAT claims for that period. On 7th May 2019, the Respondent issued 14 notices rejecting the VAT input claims totaling Kshs. 9,311,027. 00

4. On 10th June 2020, the Appellant lodged a late manual objection to the assessments.

5. On 18th June 2021, the Appellant also lodged the objections on the iTax system after being advised to do so by the Respondent.

6. On 21st June 2021, the Respondent through an email asked the Appellant for various documents to validate the objection application.

7. On 22nd June 2021, the Appellant through a tax consultant wrote to the Respondent indicating that the requested documents would be made available on 25th June 2021.

8. On 25th June 2020, some of the documents requested by the Respondent were sent by the Tax Consultants of the Appellant and were duly received by the Respondent.

9. On 23rd August 2021, the Respondent sent an email to the Appellant specifically asking for two documents that had not been provided and gave a deadline of 30th August 2021 for those documents to be supplied.

10. On 30th August 2021, the two documents were delivered by the Tax Consultants of the Appellant and duly acknowledged by the Respondent.

11. On 24th September 2021, the Respondent made the Objection Decision confirming the assessments.

12. That objection decision is the genesis of this Appeal.

The Appeal 13. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal dated 28th October 2021 and filed on 3rd November 2021:-a.That the Respondent issued an Objection Decision against the Appellant outside the mandatory 60 day’s timelines and therefore the decision is null and void.b.That the Respondent erred in law and its Assessment does not conform to any provision of the VAT Act 2013, the Income Tax Act and Tax Procedures Act.c.That the Respondent issued fourteen notices of assessment of VAT for various months between October 2014 and February 2018, dated 7th May 2019 yet the same invoices had been approved for corporation tax by the Respondent in his objection decision letter dated 27th January 2020 and the Appellant was not aware that he had VAT assessments for the same.d.That the Respondent in the latest objection decision letter for VAT, the Respondent states that they have established that there was no supply of taxable goods for the very same purchases that they had already established that goods were indeed supplied.e.That the Respondent has adduced fraud under Section 93(2) of the Tax Procedures Act without any evidence or hearing to the Appellant Company.f.That the Appellant has made purchases of stock in trade and has duly supported this by adducing as evidence ALL its purchases with Tax invoices with all features of a tax invoice thus complying with the VAT Act 2013 and the Tax procedures Act.g.That the Appellant has provided proof of payments made to ALL suppliers.h.That the objection decision dated 24th September 2021 does not include a statement of findings on the material facts as required by Sections 51 of the Tax Procedures Act thereby leaving us at a loss as to the reasons and evidence relied upon by the Respondent in raising the assessment. That the Respondent erred in law and fact by claiming in its decision that "the Commissioner has established that there was no supply of taxable goods made by the suppliers highlighted in the table attached" yet Respondent does not give a Memorandum of Evidence showing how the Respondent established this fact and neither did he attach the table highlighting the suppliers. The Appellant stands by its assertion that the goods were supplied.i.That the Appellant has no control over the taxpayers he buys from (sellers) who do not declare the invades raised to the Appellant.j.That the Appellant does not agree to the additional assessment as the assessments are excessive and the Appellant indeed incurred a cost towards the purchase of the same.

Appellant’s Case 14. The Appellant’s case is premised on the Appellant’s Statement of Facts dated 28th October 2021 and filed on 3rd November 2021 together with the documents attached thereto and the Written submissions filed on 21st July, 2022.

15. The Respondent issued fourteen notices of assessment of VAT for various months between October 2014 and February 2018, dated 7th May 2019 amounting to Kshs 9,311,027. 70.

16. The same invoices had been approved for corporation tax by the Respondent in his objection decision letter dated 27th January 2020. The Appellant was not aware that it had VAT assessments for the same.

17. On 16th June 2021, the Appellant made an application to the Respondent for a tax compliance certificate but the same was declined by the Respondent's system which indicated that the Appellant had outstanding liabilities.

18. The Appellant through its Tax representative visited the Respondent's offices on 17th June 2021 and had a conversation with the Respondent. In their conversation, the Appellant’s Tax representative was informed that the system was declining because of fourteen assessments that had not been objected to online and it was not possible for the Appellant to be issued with the certificate until the online objection is made.

19. The Appellant through his Tax representative visited the Respondent's offices on 21" June 2021 seeking approval of the tax compliance certificate but he was informed that the late objection needed to be validated. The Respondent then sent an e• mail on the same day requesting the Appellant to avail various documents to validate the objection application.

20. The Appellant through his Tax agent made an online objection on 18th June 2021 for thirteen assessments as the assessment for the month of August 2017 was a negative amount and while objecting on the same assessment, the system gave an error description asking that valid assessment amount of allowed character between 0 to 99, be entered. The table below gives an analysis of the assessments raised and the acknowledgment receipt numbers for each objection.# Assessment DateAssessment No Manual obj dateiTax obj dateObjection No Amount1. 07/05/2018 KRA201805908500 11/06/2020 18/06/2021 KRA202112332737 786,347. 492. 07/05/2018 KRA201805909370 11/06/2020 18/06/2021 KRA202112332974 1,377,040. 873. 07/05/2018 KRA201805910564 11/06/2020 18/06/2021 KRA202112333211 1,561,105. 864. 07/05/2018 KRA201805911608 11/06/2020 18/06/2021 KRA202112333469 706,385. 935. 07/05/2018 KRA201805912533 11/06/2020 18/06/2021 KRA202112333768 532,351. 856. 07/05/2018 KRA201805913210 11/06/2020 18/06/2021 KRA202112333959 459,953. 917. 07/05/2018 KRA201805914348 11/06/2020 18/06/2021 KRA202112334956 398,901. 108. 07/05/2018 KRA201805915610 11/06/2020 18/06/2021 KRA202112335169 396,710. 489. 07/05/2018 KRA201805916182 11/06/2020 18/06/2021 KRA2021128335412 446,299. 1710. 07/05/2018 KRA201805917141 11/06/2020 18/06/2021 KRA202112337549 398,901. 0911. 07/05/2018 KRA201805918894 11/06/2020 18/06/2021 KRA202112335854 1,209,647. 4612. 07/05/2018 KRA201805920995 11/06/2020 N/A N/A -205,922. 6113. 07/05/2018 KRA201805921677 11/06/2020 18/06/2021 KRA202112336628 1,062,452. 6914. 07/05/2018 KRA201805922863 11/06/2020 18/06/2021 KRA202112338027 180,852. 41Total 9,311,027. 70

21. The Appellant through its Tax representative in a letter dated 22nd June 2021 wrote to the Respondent confirming that the requested documents will be availed on Friday 25th June 2021 and requested that the Respondent allows processing of the Tax Compliance Certificate. The letter was sent electronically via an email dated 22nd June 2021.

22. The Appellant through its Tax representative provided the requested documents on 25th June 2021. The forwarding letter was stamped “received” by the Respondent.

23. The Respondent further sent an e-mail on 23rd August requesting for additional information that had not been availed by the Appellant. The Appellant through its Tax representative provided the requested documents on 30th August 2021. The forwarding letter was also stamped “received” by the Respondent.

24. No communication was received from the Respondent thereafter until the Appellant received an objection decision letter dated 24th September 2021 via an e-mail dated 29th September 2021.

25. It is the Appellant’s contention that the amounts payable as per the assessment notices are excessive and the Appellant indeed incurred a cost towards the purchase of the same.

26. To that end, on 27th January 2020 the Respondent issued an objection decision for Corporation tax arising from the same purchases indicated on the objection decision as highlighted in the objection decision that the Respondent has established that goods were actually supplied.

27. ln the latest objection decisions letter for VAT, the Respondent states that they have established that there was no supply of vatable goods for the very same purchases that they had already established that goods were indeed supplied. The Respondent also does not give a memorandum of evidence showing how the Respondent established this fact. The Appellant stands by its assertion that goods were supplied.

28. That an error of declaration of details with correct input claim is not allowable in law especially when the Appellant has all underlying support documents with explanations of errors. It must be noted that the Appellant did buy the underlying goods. The Appellant did pay for the goods and the Appellant did sell the goods and this was duly established by the Respondent.

29. The Appellant avers that it purchased goods for sale, duly paid for them and also preceded to sell the same and declare the output VAT and Corporation Tax thereon.

30. That the Respondent has not shared any evidence it has relied on to adduce the charge of tax and has proceeded to deem guilt and forcefully demand tax from the Appellant.

31. The Appellant draws the attention of the Tribunal to the following questions which the Respondent has not addressed at all in the assessment nor in their objection decision.a.Each invoice from ALL suppliers has all the requirements of tax invoice as required under the VAT Act 2013 and has ETRs attached thereon. Which evidence has the Respondent relied on to deem that no goods were delivered in the latest objection decision yet the same Respondent established that the goods were actually supplied in the objection decision dated 27th January 2020. b.A taxpayer’s Pin and Company profile now has full information relating to any taxpayer to include phone numbers, email addresses and physical address enabling the Respondent to trace the taxpayer. If a supplier is non- compliant, then why has the Respondent not taken up the same with the suppliers themselves.c.There is no provision in the VAT Act giving rise to a liability on a taxpayer by virtue of any failure of tax compliance by their suppliers, indeed a taxpayer has no power in law to ensure a supplier complies with provisions of any law in Kenya.d.Section 93(2) uses the word 'authorize' which means it must be a person that a taxpayer has authority over. The Respondent does not have any means to authorize any wrongdoing on the part of its suppliers, yet the Respondent does have the powers and means to catch up with any wrongdoing by any taxpayer.e.The Respondent needs to clarify both to the Tribunal and to the Appellant, the provisions of the VAT Act 2013 used to demand the taxes in their assessments.1. The Appellant stated that its Appeal raises the following issues:-a.Whether the Respondent conducted an investigation to substantiate its allegation of fraud, and if not, Whether the failure to conduct an investigation is contrary to tax laws and the Constitution of Kenyab.Whether a supply and a purchase of goods was made and whether the invoices and documents supplied to the Respondent satisfied the provisions of tax laws.c.Whether the Appellant bears the burden of proof from the decision, that the invoices are fictitious and that the Appellant is a party to a fraud known as ‘missing trader’.d.Whether the Respondent can legally demand VAT from a purchaser and if so, whether this will not be tantamount to double taxation.e.Whether the Respondent erred in law and in fact for failing to consider the documents supplied to it constituted a breach of natural justice and as such the decision was nullity.

a. Whether the Respondents conducted an investigation, and if not, whether the failure to conduct an investigation is contrary to tax laws and the Constitution of Kenya. 33. The Respondent in its objection decision states as follows:“Notwithstanding your assertion that you have maintained full records for the purchases disallowed, the commissioner has established that there was no supply of taxable goods made by the suppliers highlighted in the table attached. In this regard,the commissioner hereby confirms the assessment as issued.”

34. It is evident from the above that the basis of the assessment is the “profiling” of the Appellant as a beneficiary of a fraudulent scheme. That even though the Appellant had invoices, there were no supplies made and therefore, the invoices in the Appellant’s hands are fake and fictitious. In fact, it can plainly be stated that the Appellant was accused and judged, without its knowledge of the said fraudulent scheme.

35. The Appellant submits that no investigations were conducted and prior to reaching this conclusion, the Appellant was never involved in any investigation by the Respondent and further submit that the Respondent erred in Law and Fact in arriving at an additional assessment by neither conducting an audit nor investigating to establish whether goods were delivered, supplied, bought or sold and whether money was paid. On that basis, the Appellant humbly beseeches the Honourable Tribunal to find that the Appellant’s right to fair administrative action was violated and the decision is thus contrary to public policy.

36. That the Respondent in its Statement of Facts tries to avoid the issue as framed by the Respondent in the Objection decision by claiming that the Appellant supplied incomplete documents. Nothing can be further from the truth since the correspondence trail indicates otherwise.

37. That the Constitution, under Article 10, clearly outlines the National Values to be observed in Kenya, and it provides as follows:“The national values and principles of governance in this Article bind all State organs, State officers, public officers and all persons whenever any of thema.applies or interprets this Constitution;b.enacts, applies, or interprets any law; orc.Makes or implements public policy decisions.(2)The national values and principles of governance include-(b)Human dignity, equity, social justice, inclusiveness, equality, human rights, non-discrimination, and protection of the marginalised;”

38. That the Constitution further provides, under Article 47, as follows:“(1)every person has the right to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair.(2)If a right or fundamental freedom of a person has been or is likely to be adversely affected by administrative action, the person has the right to be given written reasons for the action.”

39. It is the Appellant’s submission that the very zenith of our laws, the Constitution of Kenya, embodies the need to encompass values and principles of governance that include inclusiveness, equity and equality and further propounds the need for fair administrative action and where there is a right or fundamental freedom infringed or is likely to be infringed a person has to be given written reasons for the infringement.

40. That the assessments by the Respondent were definitely founded on Section 31(4) of the TPA and the allegations raised against the Appellant are, without doubt, fraudulent in nature. The Appellant had a right to be given the evidence on how such a conclusion was arrived at and which the Respondent has failed to do in compliance with the rules of natural justice. Additionally, the consequent decision of the alleged ‘investigation, ought to have contained the reasons as already argued above. The significance of tabling evidence for such serious allegations was well captured in Evans Kidero v Speaker of Nairobi City County Assembly & another [2018] eKLR where the Honourable court stated as follows:-“30. Its trite law that he who alleges fraud must prove it. Allegations of fraud must strictly be proved. Great care needs to be taken in pleading allegations of fraud or dishonesty. In particular the pleader needs to be sure that there is sufficient evidence to justify the pleading. This was considered in some detail by Lewison J in Mullarkey -v- Broad.[17] In Central Bank of Kenya Ltd -Vs- Trust Bank Ltd & 4 Others[18] the Court of Appeal in considering the standard of proof required where fraud is alleged had thisto say-“The Appellant has made vague and very general allegations of fraud against the Respondent. Fraud and conspiracy to defraud are very serious allegations. The onus of prima facie proof was much heavier on the Appellant in this case than in an ordinaryCivil Case.”

31. The burden of proof lies on the applicant in establishing the fraud/dishonesty that he alleges. The parties opted to adopt their pleadings as opposed to oral evidence. In my view, whereas it is proper to proceed by way of written submissions and pleadings, where allegations of fraud or dishonesty are alleged, the higher standard of prove required under the law may not be realized. This is because such a high standard of prove may require oral evidence and cross-examination for both parties test the veracityof the allegations.

32. In Hornal vs Neuberger Products Ltd[19] it was held that in civil proceedings the standard of proof is that of the balance of probabilities, even where the allegation is one of fraud. However, as the court pointed out in the said case the standard is not inflexible; because the degree of probability required to prove an allegation may vary with the seriousness of the allegation. Lord Nicholls of Birkenhead explained this at greater length in Re H and Others (Minors)[20]’“The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegationthe less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. Deliberate physical injury is usually less likely than accidental physical injury. … Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation.”

41. What the Respondent has done is to sprinkle the Appellant’s allegations without evidence. The most unfortunate part is that the said allegations are unsworn and only finding their way in the objection decision and the Respondent’s Statement of Facts. The Appellant was never investigated, and neither was this laid out in the Objection decision. To say the least, the whole process leading to the assessment was a sham, a charade of first-class degree and procedurally flawed.

42. On the contrary, the Appellant did provide evidence that it did purchase goods from traders who conduct such business. Indeed, vide letters dated 22nd June, 2021, 25th June, 2021 and 30th August, 2021, respectively, by the Appellant’s agent m/s Nafisa Alibhai & company, the Appellant supplied the Respondent with all the documents demanded.

43. All these documents were ignored by the Respondent and were never considered before rendering the objection decision.

44. That Section 4(3) of the Tax Procedure Act provides as follows:“An authorized officer shall enforce and ensure due compliance with the provisionsof the tax law, and shall make all due inquiries in relation thereto”a.The highlight of Section 4(3) is that the Respondent through an officer should make due inquiries in order to ensure due compliance to the Tax laws. The section uses the word “shall” and therefore makes it mandatory for an officer envisaged therein to make to give explanation of any or all concerns of the purchases or supplies made.b.Whether the Appellant did buy the good from the supplier?c.Whether the purchaser was aware of the alleged fraudulent scheme by the seller?d.Whether the purchaser was a bonafide purchaser for value who purchased the goods out of good faith and without knowledge of any malifides or irregularities by the seller, as it is the case in this matter?

45. Inquiries and or investigations to enforce the law - It is our submission that failure to make all due inquiries rendered both the assessment and objection decision decisions illegal and unfair and contrary to the provisions of the law.

46. Since the Respondent has accused the Appellant of fraud, it was incumbent upon the Respondent to establish the same.

47. Indeed, the question that must be asked is whether the Respondent can claim that the Respondent did not receive the goods it purchased without visiting the Appellants place of business or the seller’s place of business. Can a man seated behind a computer determine whether goods were supplied or not? We submit that this is a practical impossibility.

48. The test to be applied under Section 4(3) has now been settled by the European Court of Justice in Axel Kittel v Belgian State (C-439/04) and Belgian State v Recolta Recycling SPRL (C-440/04) where the court at paragraph 60 and 61 stated as follows: -“Where a recipient of a supply of goods is a taxable person who did not and could not know that the transaction concerned was connected with a fraud committed by the seller, Article 17 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, as amended by Council Directive 95/7/EC of 10 April 1995, must be interpreted as meaning that it precludes a rule of national law under which the fact that the contract of sale is void — by reason of a civil law provision which renders that contract incurably void as contrary to public policy for unlawful basis of the contract attributable to the seller — causes that taxable person to lose the right to deduct the value added tax he has paid. It is irrelevant in this respect whether the fact that the contract is void is due to fraudulent evasion of value added tax or to other fraud.”

49. Guided by the above authorities, the Appellant submits, that even if there was any VAT fraudulent scheme by the suppliers, the Appellant was not aware and had no reasons to know and the Respondent is precluded from denying the Appellant the input tax deductions or charging and/or demanding VAT. Additionally, the Respondent is precluded from demanding Corporation tax on the account of disallowed purchases. Indeed, the Respondent has not adduced any evidence that will give a direct or indirect nexus between the Appellant and the alleged fraud.

50. The Appellant further submits that it is a legal requirement and a customary practice for the Respondent to make due inquiries and investigations before lodging an assessment which is commonly referred to as an “audit”, in order to appraise itself with the business and costs that relate to the business of the taxpayer. If no audit/investigation is conducted, then the Respondent being a creature of statute, a state organ, and an administrative body, is bound by the provisions of Articles 10 and 47 of the Constitution of Kenya. The Respondent has failed to conform to the principles enacted under the said Articles; of equity, inclusiveness, equality, and the right to fair administrative action.

51. In support of the above proposition, the Appellant relies on the case of Anne Wanjiku Kahwai & another v Kenya Revenue Authority & another [2019] eKLR, Mwongo J, stated as follows:“21. Indeed, Section 4(3) of the Tax Procedures Act provides that:“An authorized officer shall enforce and ensure due compliance with the provisions of the tax law, and shall make all due inquiries in relation thereto”22. In my understanding, such inquiries would reasonably include having in place mechanisms for identifying, confirming and checking that tax payers are properly self-assessing and paying the appropriate taxes. In order to do this and to comply with accounting requirements, it is not unreasonable, in my view, for the Respondents to engage in investigations. There are various provisions in the Act that require self-assessment or default assessment. Assessments by the Respondent cannot, in my view, be effectively done without some form or type of investigatoryengagement at different levels.23. Are the Petitioners entitled to be involved in such investigations" I understand “investigation” to mean an inquiry into a matter, or a systematic effort to find out the truth about something; an examination of facts or information to unearth the truth. I see no reason why a statutory entity – such as the 1st Respondent, whose core mandate and function it is to assess, collect and account for income tax and enforce tax statutes – cannot fairly freely conduct investigations on a continuum with or without participation of the party investigated.24. There is a limit to such action, however. The moment the investigator decides to utilize the investigative material or information in such a manner that a third party is likely to be affected by it, the investigator must bring such information to the notice of the third party. This is the essence of the constitutional requirement of fair administration. So that, in this case, the affected party was entitled to receive the appropriate and relevant critical information of the outcome from the investigation which formed the subject matter that would affect the Petitioners.”

52. The Appellant submits that no audit or investigation was conducted with a view of ascertaining whether a supply was made or purchases were made by the Appellant. Aside from that, the Respondent claims that the basis of disallowing the invoices is because ‘no supplies were made’ and which essentially means that the invoices declared were fictitious but no reason was forwarded by the Respondent as to why they were declared as such. The information that no supply was made or such decision, was not made available and did not involve the Appellant. The Appellant was not supplied with evidence nor the information relied upon by the Respondent as to why the invoices were said to be ‘fictitious’ in order to properly respond and were thus at a loss as to why the invoices were declared fake.

53. The Appellant further submits that the failure by the Respondent to conduct an investigation led to the rights of the Appellant being infringed and the decision made thereon is a nullity, ultra vires, and an illegality. Additionally, based on the principle set out in Axel Kittel v Belgian State (C-439/04) and Belgian State v Recolta Recycling SPRL (C-440/04), the Respondent is precluded from denying the Appellant the input tax deductions or charging and/or demanding VAT from the Appellant.

b. Whether a supply and a purchase of goods were made and whether the invoices satisfied the provisions of tax laws. 54. The Appellant submits that the Respondent erred in law and fact in determining that neither a supply nor a purchase of goods was made and thereby declining the Appellants input tax and that the invoices were fictitious. If a purchase was not done by the Appellant, on which basis did the Appellant supply goods to other persons and which the Respondent has not questioned? On which basis did the Respondent allow an objection on corporation tax vide its letter dated 27th January, 2020?

55. The Appellant urges that it was duly supplied with goods and which the Respondent has previously confirmed vide the letter dated 27th January, 2020. To demand corporation tax on an invoice but disallow input VAT on the same invoice is the height of hypocrisy. That the Respondent cannot have its cake and eat it.

56. The Appellant contends that in order to understand whether a supply or purchase was made under a tax law, Section 2 of the Value Added Tax Act provides as follows:“supply” means a supply of goods or services; “Supply of goods” means—a.A sale, exchange, or other transfer of the right to dispose of the goods as owner;orb.The provision of electrical or thermal energy, gas or water;“taxable supply” means a supply, other than an exempt supply, made in Kenya bya person in the course or furtherance of a business carried on by the person, including a supply made in connection with the commencement or termination of a business;”

57. The Appellant submits that, this Honorable Tribunal do take judicial notice that in a business transaction for sale and purchase, some documents that evidence a sale, exchangeor transaction are as follows:a.Delivery Noteb.Invoicesc.Stock Recordsd.Payment Slips or Bank Slipse.Sales Register.f.Purchases Register.

58. That Section 43 of the VAT Act requires a taxpayer to keep in custody these documents for the purposes of compliance checks by the Respondent by providing as follows:-“43. Keeping of records1. Every registered 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 number order;b.copies 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 chronologicallyeither 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.”

59. The Appellant submits that vide the letters dated 25th June, 2021 and 30th August, 2021, it made available for inspection all the necessary documents and further provided for the Respondent’s consideration the documents stated in the correspondence.

60. The Appellant further submits that the documents provided under Section 43 of the VAT Act are determinants of a sale and also tax liability of a person. Indeed, the Respondent claims in the Statement of Facts that there are some documents not supplied but does not specify them.

61. The Appellant relies on Section 59 of the Tax Procedure Act which provides as follows:-“59. Production of records1. For the purposes of obtaining full information in respect of the tax liability of any person or class of persons, or for any other purposes relating to a tax law, the Commissioner or an authorised officer may require any person, by notice in writing, to—a.produce for examination, at such time and place as may be specified in the notice, any documents (including in electronic format) that are in the person's custody or under the person's control relating to the tax liability of any person;”

62. That no such inquiries were made prior to issuance of the assessment. Indeed, it is obvious that the Respondent has been acting arbitrarily and keeps bringing up nonexistent issues and figures.

63. The Appellant submits that the Respondent customarily and by law uses documents to determine the tax liability of a person and on what constitutes documents in law the Appellant refers to Section 2 of the Tax Procedures Act, 2015 which describes documents as follows:“document” includes—a.a book of account, record, paper, register, bank statement, receipt, invoice, voucher, contract or agreement, tax return, Customs declaration, or tax invoice; or…”

64. It is the Appellants submission that the very documents that the Respondent relies upon in determining the tax liability of a taxpayer were supplied to the Respondent. The Respondent thereafter when rendering its Objection Decision failed to consider the documents that were supplied to it and indeed, never made a reference to them at all.

65. The Respondent, by holding that no supplies were made is essentially stating that the invoices held by the Appellant are fake. Yet, there is not any report on record indicating that any document filed is fake. In any event, a document can only be declared as fake by a document examiner or its author.

66. To this end therefore, while placing a reliance on the non-objected documents it is evident that the Appellant was supplied with invoices by its suppliers, which were given because of a taxable supply, at which point it further made entries to its stock movement register and paid to the supplier the monies due on its invoice and for their full value.

67. The Appellant states that the documents supplied to the Respondent met the statutory threshold, have not been declared fictitious by their authors and indeed prove that there was legitimate transaction between the Appellant and its suppliers. Accordingly, the holding by the Respondent that there were no supplies is baseless.

c. Whether the Respondent erred in disallowing purchases and input VAT and Corporation tax. 68. That the totality of pleadings before the Tribunal, and especially the Respondent’s case, is the allegation that the Appellant participated in a fraudulent scheme (The Missing Trader) and therefore is not entitled to deduct input VAT. It is also on the basis of that assumption that the Respondent disallowed the Input deductions by the Appellant Demands VAT of Kshs. 9,311,027. 00. In essence therefore, the Appellant has been denied claiming Input VAT for purchases made, all for engaging in business. From the background and the argument above, it is obvious that the Appellant did transact with its suppliers in good faith and if at all there was any fraudulent scheme by the said suppliers, the Appellant had no knowledge of it.

69. Section 2 of the VAT describes input tax as follows:“input tax” means—a.tax paid or payable on the supply to a registered person of any goods or services to beused 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 byhim for the purposes of his business;”

70. That the Respondent in disallowing input tax was based on the reasoning that no supply was made, but as the Appellant has already demonstrated in the foregoing paragraphs, a purchase and a sale were indeed made by the Appellant and therefore the question the Tribunal should ask itself is at what point is a taxpayer allowed to make a deduction of input tax?

71. That the answer to the question is found in Section 17 of the VAT Act, PART VI. The said Section of the VAT Act provides as follows:“17. Credit for input tax against output tax1. Subject to the provisions of this section 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 provided 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.2. If, at the time when a deduction for input tax would otherwise be allowable under subsection (1), the person does not hold the documentation referred to in subsection (3), the deduction for 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.3. The documentation for the purposes of subsection (2) shall be—a.an original tax invoice issued for the supply or a certified copy;…”

72. That it is evident from the above quoted Section of the VAT Act that input tax is allowed on a taxable supply that has been made by a taxpayer and Section 17(2) of the Act provides that it will only be disallowedif documents provided in Section 17(3) of the Act are not provided. Indeed, the Respondent has not provided any plausible reason as to why the input tax should not be allowed despite it having in its possessionall the documentations from the Appellant.

73. Secondly, the Respondent does not dispute that the suppliers are taxable persons.Indeed, the suppliers have been registered by the Kenya Revenue Authority and issued with Personal Identification Numbers. The Appellant submits that it purchased goods from these registered persons. Indeed, the only obligation placed on the Appellant is not to ascertain whether or not the suppliers are engaged in fraudulent activities, but to ascertain that they are registered persons and that they had a registered ETR register. That this was the holding of this Honourable Tribunal in Shreeij Kenya Limited vs Commissioner for Domestic taxes TAT no. 58 and 186 of 2019. That this being the case, it automatically follows that upon purchase of the goods, the suppliers did remit output VAT to the Respondent. That what the Respondent is asking is unfair enrichment by demanding output VAT from the suppliers and further denying the Appellant a claim to input VAT. This is an unknown practice resulting from an unknown tax code.

74. That the Respondent is also seeking to allow and collect corporation tax from the Appellant as evidenced by the letter dated 27th January 2020 on the one hand while on the other seek to deny the Appellant a claim for input VAT. That this is outrageous.

75. It is the Appellant submission that the Appellant complied with Section 17(3) and provided the Respondent herein with the Tax invoices that they relied upon to declare their purchase and apply for their input tax. That the Respondent has not stated in its Statement of Facts that the invoices are not original or that it declines them because they are not in compliance with Section 17(3) of the VAT Act but alleges, without proof, that there was no supply.

76. The Appellant further submit that the Appellant supplied invoices that were fully in compliance with the law and the invoices were issued to the Appellant for a taxable supply made to it by its suppliers.

77. That it is trite law that input VAT is deductible if the above requirements have been met and within the prescribed period. The European Court of Justice in the consolidated case of Optigen Ltd (C- 354/03) and Fulcrum Electronics Ltd (C- 355/03) was faced with a similar issue. That Optigen and Fulcrum were innocent parties who were not involved in and had no knowledge of or reason to have knowledge of that fraud other than as ordinary buyers from a trader and ordinary sellers to a company in another Member State. The Court at paragraphs 51 through 54 held as follows:-“(51)It follows that transactions such as those at issue in the main proceedings, which are not themselves vitiated by VAT fraud, constitute supplies of goods or services effected by a taxable person acting as such and an economic activity within the meaning of Articles 2(1), 4 and 5(1) of the Sixth Directive, where they fulfil the objective criteria on which the definitions of those terms are based, regardless of the intention of a trader other than the taxable person concerned involved in the same chain of supply and/or the possible fraudulent nature of another transaction in the chain, prior or subsequent to the transaction carried out by that taxable person, of which that taxable person had no knowledge and no means of knowledge.(52)Nor can the right to deduct input VAT of a taxable person who carries out such transactions be affected by the fact that in the chain of supply of which those transactions form part another prior or subsequent transaction is vitiated by VAT fraud, without that taxable person knowing or having any means of knowing.

78. This holding was re-echoed by the same court in Joint Cases of Axel Kittel (C- 439/04) and État belge (C-440/04), where at paragraph 45 and 52, respectively, the court stated as follows:-“(45)…the right to deduct input VAT of a taxable person who carries out such transactions likewise cannot be affected by the fact that, in the chain of supply of which those transactions form part, another prior or subsequent transaction is vitiated by VAT fraud, without that taxable person knowing or having any means of knowing (Optigen, paragraph 52)(52)It follows that, where a recipient of a supply of goods is a taxable person who did not and could not know that the transaction concerned was connected with a fraud committed by the seller, Article 17 of the Sixth Directive must be interpreted as meaning that it precludes a rule of national law under which the fact that the contract of sale is void, by reason of a civil law provision which renders that contract incurably void as contrary to public policy for unlawful basis of the contract attributable to the seller, causes that taxable person to lose the right to deduct the VAT he has paid. It is irrelevant in this respect whether the fact that the contract is void is due to fraudulent evasion of VAT or to other fraud.”

79. That therefore, in the current case, it follows that the Respondent has no power to disallow the Input VAT deduction by the Appellant and/or demand the same. Such an act is illegal and without any legal justification. Indeed, Respondent has not portrayed how the Appellant obtained a tax benefit from the alleged scheme. The Appellant makes no benefit for making a full purchase of goods and for value and therefore it cannot be said to have been a beneficiary of a scheme.

80. Accordingly, The Appellant urges the honourable Tribunal, based on the facts before it and the authorities supplied, to find that the Respondent erred in law and fact for disallowing the Appellant’s purchases and further making demands in the amount of Kshs. 9,311,027.

d. Whether the Appellant bears the burden of proof that the Respondent was a beneficiary of a missing trader scheme. 81. It is the Appellant’s submission that the Respondent bears the burden of proving that the invoices in the Appellant’s hands were fictitious and that the Appellant had knowledge of and was a beneficiary of a missing trader fraud. Without discharging this burden and proving otherwise, there is no basis at all to term the invoices and the documents supplied ‘fake’ or ‘bogus’ or to disallow the purchases by the Appellant.

82. The Appellant is alive to the provisions of Section 56 of the Tax Procedure Act, 2015, which provides as follows:“56. (1)In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

83. Further, the Appellant is aware of Section 30 of the Tax Appeals Tribunal Act concurs with Section54 of the TPA and states as follows:“30. 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.”1. The two statutory provisions as quoted above place the burden on the taxpayer and/or Appellant to prove that a tax decision is incorrect or should not have been made or should have been made differently. If the Appeal relates to an assessment, that the assessment is excessive.2. The Appellant submits that the Appeal herein does not relate to an assessment being excessive but rather, on unsubstantiated allegation of fraud and which have given rise to unwarranted assessment.3. That in fact, the Appeal herein relates to an Objection Decision and a decision to declare the invoices fictious and consequently disallowing purchases from the said invoices and ultimately demanding taxes in the amount of Kshs. 9,311,027. 00. In essence, what is before the Tribunal is an allegation of fraud as against the Appellant by the Respondent.4. That while Section 56(1) places the onus of proof in tax objections on the taxpayer to prove that a tax decision is incorrect, the current case has its basis as fraud and the Respondent has the onus to prove that indeed there was fraud. The Respondent, in its objection decisions, did not provide any reasons why it considered there were no supplies made. Indeed, where one alleges fraud as is in this case, one has the onus to prove.5. Chapter III and Part III of our Evidence Act Cap. 80 laws of Kenya provide that a person may show proof of fact by way of documentary evidence. Where there is a contention as to whether a document is fake or not, whoever alleges is obligated to proof. The Appellant submits that a conclusion as to whether a document is ‘bogus’ or not, falls outside the purview of the Respondent and that as such a conclusion can only be done either by the purported author or by a document’s examiner.6. Indeed, Section 107 of the Evidence Act states as follows:-“(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 the existence of any fact it is said that the burden of proof lies on that person.”

90. The Appellant did provide every document it relied on. On the contrary, while disputing the authenticity of the said documents, the Respondent has not tabled any evidence in form of a document examiner’s report to proof that the said documents were fake or otherwise, and neither did it summon the author of the said documents, as it is within its power, to prove. The Respondent has also accused the Appellant of fraud without any evidence in its hands.

91. The Appellant urges that the Respondent made a decision that the invoices produced by the Appellant are fictitious and further that no supply was made and therefore the Appellant participated in a fraud is without any legal justification and does not meet the threshold for proving fraud. The Respondent failed and has failed to produce cogent evidence upon which it came up with the decision to reject the invoices or link the Appellant to fraud. Indeed, it is trite law that whoever alleges must proof as has been held in numerous judicial pronouncements. The Court of Appeal in Kinyanjui Kamau vs George Kamau [2015] eKLR observed as follows:-“It is trite law that any allegations of fraud must be pleaded and strictly proved. See Ndolo v Ndolo [2008] 1 KLR (G&F) 742 wherein the Court stated that:“...We start by saying that it was the respondent who was alleging that the will was a forgery and the burden to prove that allegation lay squarely on him. Sincethe respondent was making a serious charge of forgery or fraud, the standard of proof required of him was obviously higher than that required in ordinary civil cases, namely proof upon a balance of probabilities; but the burden of proof on the respondent was certainly not one beyond a reasonable doubt as in criminal cases...”In cases where fraud is alleged, it is not enough to simply infer fraud from the facts. In Vijay Morjaria v Nansingh Madhusingh Darbar & another [2000] eKLR (Civil Appeal No. 106 of 2000) Tunoi JA (as he then was) stated as follows: “It is well established that fraud must be specifically pleaded and that particulars of the fraud alleged must be stated on the face of the pleading. The acts alleged to be fraudulent must of course be set out, and then it should be stated that these acts were done fraudulently. It is also settled law that fraudulent conduct must be distinctly alleged and as distinctly proved, and it is not allowable to leave fraud to be inferred from the facts.” (Emphasis by the Appellant)”

92. That indeed, this Honourable Tribunal in Shreeji Kenya Limited (supra), relying on the Court of Appeal above, found that the Respondent indeed has the onus of proof in cases of allegations of fraud.

93. Based on the above, the Appellant submits that the Respondent bears the burden of proof which burden it has not discharged. Accordingly, the Appellant urges the Honourable Tribunal, having found that the Respondent has not discharged this onus, to proceed to set aside all of the Respondent’s assessmentand decisions which were based on the said allegations.

e. Whether the Respondent can legally demand VAT from a purchase and if so, whether this will not tantamount to double taxation. 94. The Appellant states that the VAT Act does not envisage a situation under which the Respondent can demand a VAT charge from a purchaser of goods or services. The facts constituting this matter show that the Respondent is in fact demanding VAT from a purchaser. The Appellant urges that is not permissible in law and relies on Section 5 of the VAT Act which provides as follows:“(1)A tax, to be known as value added tax, shall be charged in accordance with theprovisions of this Act on—a.a taxable supply made by a registered person in Kenya;b.the importation of taxable goods; andc.a supply of imported taxable services…”

95. That a supply has been defined under Section 2 of the VAT Act as follows:-“supply” means a supply of goods or services; “supply of goods” means—a.a sale, exchange, or other transfer of the right to dispose of the goods as owner; orb.the provision of electrical or thermal energy, gas or water;“supply of services” means anything done that is not a supply of goods or money,including—a.the performance of services for another person;b.the grant, assignment, or surrender of any right;c.the making available of any facility or advantage; ord.the toleration of any situation or the refraining from the doing of any act;

96. That from the facts of this matter, the Appellant purchased goods from various traders and from whom the Respondent ought to have demanded VAT from and if it has not, then it has failed in its statutory duty. It was the duty of the Supplier to recover VAT, on behalf of the Respondent, on account of the entire amount paid by the purchaser. The provisions above are very clear and unambiguous and need not be interpreted otherwise. This is the literal meaning of the word. The Appellant refers the Tribunal to the case of Sony Holdings Ltd v Registrar of Trade Marks & another [2015] eKLR where the court held as follows:-“As was noted long ago by Tindal CJ in the Sussex Peerage case [1844] 11CI & Fin 85 in explaining the literal rule of statutory interpretation, “……the only rule for the construction of Acts of Parliament is, that they should be construed according to the intent of the Parliament which passed the Act. If the words of the statue are in themselves precise and unambiguous, then no more can be necessary than to expound those words in their natural and ordinary sense. The words themselves alone do, insuch case best declare the intention of the lawgiver.”

97. That based on the above, the words of the Act are clear and unambiguous and the Appellant submits that, as per the Act, the Respondent can only demand VAT from the supplier and not the Appellant. To do otherwise will tantamount to double taxation. The Court in Real Deals Limited & 3 Others v Kenya National Highways Authority & Another & another [2015] eKLR while quoting the Black’s law dictionary, defined double taxation as follows:-“the taxing of the same item or piece of property twice to the same person, or taxing it as the property of another person and again as the property of another, but this does not include the imposition of different taxes concurrently on the same property or income (e.g federal and state income taxes), nor the taxation of the same property to different persons with different interests in it or when it represents different values in their hands……”

98. The Appellant submits that the circumstances of the current case are in all four with the above authority and the urges the Tribunal to find that there is no legal justification for the Respondent to charge VAT on both the supplier and the purchaser and the assessment by the Respondent.

f. Whether the Respondents erred in law and in fact for failing to consider the documents supplied to it in its Objection Decision, constituted a breach of natural justice and as such the decision wasa nullity. 99. It is the Appellant’s submission that the Respondent erred in law and in fact for failing to consider the documents supplied by the Appellant in making its objection decision. Indeed, the Respondent acknowledges that it received the documents. The letters dated 25th June, 2021 and 30th August, 2021, respectively, clearly show that documents were supplied.

100. The Respondent’s action constituted an infringement of the Appellant’s right to fair administrative action as provided under Article 47 of the Constitution of Kenya and which in effect is contrary to public policy. Public policy was defined in the case of Christ For All Nations vs Appollo Insurance as rightly cited in Superior Homes (K) Limited v Joyce Cherotich Sang [2014] eKLR where the court stated as follows:“I am persuaded by the logic of the Supreme Court of India and I take the view that although public policy is a most broad concept incapable of precise definition, or that, as a the common law judges of yonder years used to say, it is an unruly horse and when once you get astride of it you never know where it will carry you, an award to be set aside under Section 35(2)(b)(ii) of the Arbitration Act as being inconsistent with the public policy of Kenya if it was shown that it was either; (a) inconsistent with the Constitution or other laws of Kenya, whether written or unwritten; or (b) inimical to the national interest of Kenya; or (c) contrary to justice or morality.”(emphasis by the Appellant)

101. The Appellant submits that this alleged Objection decision insults the letter and spirit of the Constitution and is therefore contrary to public policy and should face the ordinary consequence for similar decisions, being set aside in its entirety.

102. It is the Appellant’s further submission that the failure to take into consideration the said documents constituted a further breach of the right to be heard and led to a miscarriage of justice.

103. The Appellant states that an Objection Decision that is made without considering the documents supplied to the Respondent by the Appellant cannot stand, and its only remedy is to be set aside.

104. The Appellant further states that no Kenyan should be compelled to contribute to the national purse more than the law requires them too. Additionally, the Respondent, as the tax collector, should not be allowed to operate outside the purviews of the law and whenever they do, this Honourable Tribunal is empowered to intervene. That this is the reason why the Appellant is before the Tribunal. The assessment as made by the Respondent violates all principles of accounting and audit and is contrary to the tax laws, and public policy, it is arbitrary and unreasonable, and should thus be set aside. Additionally, it is evident that the Respondent did not conduct any investigation as required by law, nor did it conduct an audit to establish and ascertain the truthfulness of whether there was a sale or not.

105. That the Respondent has not discharged its burden of proof against the Appellant on its allegations that no supplies were made to the Appellant. That indeed, it has been held in numerous judicial pronouncements and which the Tribunal is urged to hold, that he who alleges fraud must prove. That this Honourable Tribunal must not sanction the Respondent’s arbitrary conduct of disallowing the Appellant’s purchases and proceeding to demand VAT and corporation taxes. That such a conduct has no justification in law.

Appellant’s Prayers 106. The Appellant makes the following prayers:-a.Allow the Appealb.Set aside the fourteen assessments together with the objection decision dated 24th September 2021. c.Order the Respondent to pay for the costs.

Respondent’s Case 107. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal:-i.The Respondent’s Statement of Facts dated 3rd day of December 2021 and filed on the same date.ii.The Respondent’s written submissions dated 9th day of September 2022 and filed on 16th September 2022.

108. The Respondent states that it investigated the Appellant to confirm whether the input VAT claimed by the Appellant was actually merited.

109. That the Appellant claimed input VAT on various months in the period between October 2014 and January 2018. The Respondent upon conducting an audit into the tax affairs of the Appellant rejected the input VAT claims and raised a VAT assessment of Kshs 9,311,027. 00.

110. That on 18th June 2021, the Appellant lodged an application to a late objection through the iTax system, stating that its director was unwell barring it from filing an objection on time. The Respondent requested the Appellant to provide relevant documents in-support of its objection.

111. That on 22nd of June 2021, the Appellant requested for more time to present all documents in support of the objection. The Appellant provided the last document on 30th August 2021.

112. The Respondent rejected the input VAT claims due to the fact that they were not supported by documentation as requested by the Respondent. The same was communicated to the Appellant vide an objection decision dated 24th September 2021.

113. It is the Respondent’s submissions that the following are the issues in contention in this matter:i.Whether the Respondent’s objection decision was time barred therefore nullii.Whether the Respondent was justified in raising additional assessmentiii.Whether the Respondent’s actions were fraudulentiv.Whether the Respondent’s objection decision failed to align with the provisions of the law.

i. Whether the Respondent’s objection decision was time barred therefore null 114. That the Appellant argues that the Respondent rendered an Objection Decision outside the mandatory 60 days’ timelines and therefore the decision is null and void.

115. In response to the Appellant’s claims, the Respondent submits that the Objection decision referred to by the Appellant was in line with the requirements of Section 51 of the Tax Procedures Act and was issued within the statutory timelines. Based on this, the Respondent contends that the Objection decision is neither null nor void.

116. The Respondent makes reference to Section 51 of the Tax Procedures Act before its amendment by the Finance Act no 22 of 2022. The Respondent respectfully argues that the objection decision in question was issued on 24th September 2021 where the law relied upon was the Tax Procedures Act before the amendment that was assented to on 21st June 2022.

117. The Respondent submits that the reliance onthe law as amended on a decision made before the amendment would be retrospective. It is the Respondent’s humble argument that the Tax Procedures Act cannot act retrospectively. In order to buttress this argument, the Respondent makes reference to the case of Samwel Kamau Macharia & another vs. Kenya Commercial Bank Ltd & Another where the learned judges of the Supreme court on the question of retrospectivity of the law reiterated the general rule in the following words:“(61)As for non-criminal legislation, the general rule is that all statutes other than those which are merely declaratory or which relate only to matters of procedure or evidence are prima facie prospective, and retrospective effect is not to be given to them unless, by express words or necessary implication, it appears that this was the intention of the legislature.”

118. The Respondent further argues if allowed to act retrospectively, the same would have adverse effects on the matter at hand. With this in mind, the Respondent humbly refers to Section 51(11) of the Tax Procedures Act as was before the Financial Amendment Act of 2022. Section 51(11) stated that:(11)The Commissioner shall make the objection decision within sixty days from the date of receipt of-a.The notice of objection; orb.any further information the Commissioner might require from the taxpayer, failure to which the objection shall be deemed to be allowed.

119. That this Section of the law essentially bases the threshold for validity of objection decisions on a time restriction of within 60 days of either receiving the objection or receiving a last documentation from the taxpayer.

120. It is the Respondent’s submission that he kept within these timelines by issuing the decision within 60 days of receiving the last of documentation from the taxpayer. The Respondent submits that the Appellant provided the last document on 30th August 2021 and a decision was issued on the 24th of September 2021. The Respondent humbly submits that the decision was issued in 23 days of receiving the last of the taxpayer’s documents and was therefore within the 60-day timeline.

ii. Whether the Respondent was justified in raising additional assessment 121. That it is the Appellant’s argument that the Respondent’s assessment was not proper, and neither was it anchored in the law. The Appellant has not featured the manner by which the assessment by the Respondent was contrary to the law, be that as it may, the Respondent is ready to defend the validity of the assessments.

122. The Respondent refers to Section 31(1) of the Tax Procedures Act which empowers the Respondent to amend or alter the original assessment. The specified Section provides that:“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, to the original assessment of a taxpayer for a reporting period to ensure that—”

123. The Respondent submits that in this matter, they raised additional assessment based on information available to them during the audit of the Appellant’s tax affairs. He submits that based on whatever information he had at hand; he was able to determine that the Appellant owed a tax liability to the Authority. It is the Respondent’s submission that the actions of the Commissioner in this regard were well within the law. The Respondent has merely discharged his duty.

124. Having discharged its mandate, the Respondent submits that the onus is upon the Appellant to prove that the Respondent had erred in raising the additional assessment. To this end, the Respondent refers to Section 56(1) of the Tax Procedures which states that:“(1)In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

125. To buttress this position, the Respondent refers to the case of Boleyn International Ltd Vs Commissioner of Investigations and Enforcement, Nairobi TAT Appeal No. 55 of 2018 where the Tribunal held that:“We find that the Appellant at all times bore the burden of proving that the Respondent’s decisions and investigations were wrong. The Tribunal is guided by the provisions of Section 56(1) of the TPA, 2015…”

126. The Respondent states that the Tribunal is guided to the realization that the Appellant is yet to file any supporting documentation as proof that the Respondent erred in raising additional assessment.

i. Whether the Respondent’s actions were fraudulent 127. It’s is the Appellant’s claim that the Respondent has acted fraudulently. The Appellant states that the alleged fraud is apparent where the Respondent now demands VAT on amount previously accepted as expenses for a corporate income tax assessment. The Appellant is of the opinion that because the Respondent had once previously allowed certain expenses in corporate income tax, he should not then demand VAT currently.

128. The Respondent respectfully submits that the Appellant is greatly misguided.Allegations of fraud are not mere allegations that could be tossed around at will. It is trite law that one alleging fraud should be able to prove the same rather than hope the same could be inferred from facts of the case. In the words of Judge Tunoi in the matter Vijay Morjaria -V- Nansingh Madhusingh Darbar & Another [2000] eKLR:“It is well established that fraud must be specifically pleaded and that particulars of the fraud alleged must be stated on the face of the pleading. The acts alleged to be fraudulent must, of course, be set out, and then it should be stated that these acts were done fraudulently. It is also settled law that fraudulent conduct must be distinctly alleged and distinctly proved, and it is not allowable to leave fraud to be inferred from facts.”

129. It is therefore the Respondent’s submission that the Appellant has failed to show any fraud committed by the Respondent. That this is because the Respondent has not committed any fraud.

130. It is the Respondent’s submission that objection decision for 27th January 2020 allowing expenses for corporate income tax was not in any way connected or related to the VAT claimed from the Appellant in this current matter.

131. The Respondent refers to Section 17 of the VAT Act and Section 15 of the Income Tax Act to draw a distinction between expenditure allowed under income tax and the nature of Value Added Tax. While Section 15 of the Income Tax Act provides for the type of deductions allowed when calculating Income Tax owed by a taxpayer, Section 17 caters for a different Tax head, that is Value Added Tax. Honorable Tribunal, these two cannot be confused and merely allowing expenses for corporate tax on one end would not mean automatically deducing that VAT was payable. This is because, the expenses allowed does not necessarily have to mean that the purchased goods or services are vatable.

132. Honorable Tribunal, the Respondent respectfully submits that Section 17 of the VAT Act states that for one to be qualified for VAT input credit, the goods transacted were used to make taxable supplies. The Section in question provides that:“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 in a return for the period, subject to the exceptions provided 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 acquiredto make taxable supplies.”

133. That owing to this provision, it is then a condition that the taxpayer is to show that the goods acquired were to make taxable supplies. The Respondent submits that the Appellant had failed to prove that taxable supplies were acquired and was therefore not qualified for credit input.

134. The Respondent makes reference to subsequent Sections 17(2) and 17(3) of the VAT Actwhere the law states that it is necessary for the taxpayer to have relevant documentation to prove that credit input tax should be deducted. Section 17(3)of the Act goes on ahead to state the Documentation required for the same. The Respondent submits that the Appellant in this matter failed submit relevant documentation. It is on this basis that the Respondent therefore concluded that the Appellant had not made taxable supplies.

135. The actions of the Respondent were in no way fraudulent or based on malice when demanding VAT from the Appellant. It is the Respondent’s submission that the Appellant has erred grievously in alleging fraud.

iii. Whether the Respondent’s objection decision went contrary to the provision of the law. 136. That the Appellant argues that the Respondent’s Objection Decision does not align with the requirements of Section 51 of the Tax Procedures Act because it does not include a statement of findings on the material facts leaving the Appellant at a loss to the reason their objection was rejected.

137. The Respondent refutes this claim wholly and states that it is baseless. It is the Respondent’s submission that the Objection decision speaks for itself and is in line with the law.

138. The Respondent acknowledges that he is obliged by law to issue an assessment decision that is in line with the provisions of Section 51 of the Tax Procedures Act. He acknowledges that Section 51(10) of the TPA states that:“An objection decision shall include a statement of findings on the material facts and the reasons for the decision.”

139. The Respondent submits that being alive to the law and his obligations in so far as objection decision are concerned, he has aligned the objection decision with the requirements of the law. To this end, he makes reference to the second paragraph of the Objection Decision which contains both the statement of findings and the reason for the objection.

Respondent’s Prayers 140. The Respondent makes the following prayers to the Tribunal:-a.Dismiss the Appealb.Uphold the Respondent’s objection decision of 24th September 2021. c.Award the Respondent the costs of the Appeal.

Issues For Determination. 141. The Tribunal having carefully studied the pleadings and documentation filed by both parties is of the respectful view that that the issues that call for its determination are follows:-a.Whether the Respondent’s objection decision was made within the statutory timelines.b.Whether the Respondent supplied all documents required by the Respondent.c.Whether the objection decision made by the Respondent on 24th September 2021 was proper in law.

Analysis And Findings. a. Whether the Respondent’s objection decision was made within the statutory timelines. 142. The Appellant argues that the Respondent rendered an Objection Decision outside the mandatory 60 days’ timelines and therefore the decision is null and void.

143. Section 51(11) of the Tax Procedures Act states as follows with regards to timelines for issuance of an objection decision:“The Commissioner shall make the objection decision within sixty days from the date of receipt of-a.The notice of objection; orb.any further information the Commissioner might require from the taxpayer,failure to which the objection shall be deemed to be allowed.” (Emphasis Added)

144. The aforesaid Section of the law essentially bases the threshold for validity of objection decisions on a time restriction of within 60 days of either receiving the objection or receiving a last documentation from the taxpayer.

145. From the forwarding letter by the Appellant, the Tribunal has established that the last batch of documents was delivered to the Respondent on 30th August 2021 at 4. 35 PM.

146. The Respondent made the objection decision on 24th September 2021 which is twenty-three days after receipt of the last documents from the Appellant.

147. The Tribunal therefore finds that the objection decision was made within the statutory timelines of sixty days.

b. Whether the Appellant suppled all the required documents to the Respondent. 148. The Appellant maintains that it made purchase of stock in trade and has duly supported this by adducing as evidence all its purchases with tax Invoices with full features of a tax invoice thus complying with the provisions of the VAT Act 2013 and the Tax Procedures Act 2015.

149. In paragraph 10 of the Statement of Facts, the Respondent states that they rejected the input VAT claims due to the fact that they were not supported by documentation as requested by the Respondent. In paragraph 24 of the same document, the Respondent further states that its investigations revealed that the documents relied upon by the Appellant were not valid.

150. Section 43 of the VAT Act requires a taxpayer to keep records for the purposes of compliance checks by the Respondent. The Section states as follows:-3. “Every 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.4. The records to be kept under subsection (1) shall include—a.copies of all tax invoices and simplified tax invoices issued in serial number order;b.copies 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 chronologicallyeither 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.”5. Every person required under subsection (1) to keep records shall at all reasonable times, avail the records to an authorized officer for inspection and shall give the officer every facility necessary to inspect the records.”

151. The Appellant submits that vide the letters dated 25th June, 2021 and 30th August, 2021, it made available for inspection all the necessary documents and further provided for the Respondent’s consideration the documents stated in the correspondence.

152. Section 59 of the Tax Procedure Act states the following in relation to production of records:-2. “For the purposes of obtaining full information in respect of the tax liability of any person or class of persons, or for any other purposes relating to a tax law, the Commissioner or an authorised officer may require any person, by notice in writing, to—a.produce for examination, at such time and place as may be specified in the notice, any documents (including in electronic format) that are in the person's custody or under the person's control relating to the tax liability of any person;”

153. The Appellant submits that it complied with Section 17(3) and provided the Respondent with the tax invoices that it relied upon to declare its purchase and apply for its input tax. The Respondent has not stated that the invoices are not original or that it declined to accept them because they are not in compliance with Section 17(3) of the VAT Act but alleges, without proof, that there was no supply.

154. The Appellant further submitted that it supplied invoices that were fully in compliance with the law and the invoices were issued to the Appellant for a taxable supply made to it by its suppliers.

155. From the documents supplied by the parties, a meeting was held between the Respondent and the Tax Consultants of the Appellant on 21st June 2021. At that meeting, the documents to be submitted to the Respondent were agreed upon and the Respondent sent an email confirming the same.

156. On 25th June 2021, some of the documents agreed upon were submitted to the Respondent and acknowledged on the same date by stamping “received” on the forwarding letter.

157. On 23rd August 2021, the Respondent sent an email demanding that the two documents that had not been provided be submitted by 30th August 2021.

158. On 30th August 2021, the Appellant through their Tax Consultants submitted the two last documents to the Respondent and these were also acknowledged on the same date by stamping “received” on the forwarding letter.

159. The Tribunal finds that the Appellant discharged its burden by providing the documents that were agreed upon with Respondent and requested for in writing. The Respondent did not at any time indicate that the documents provided were inadequate or ask for any other additional documents.

c. Whether the objection decision made by the Respondent on 24th September 2021 was proper in law. 160. The objection decision made by the Respondent on 24th September 2021 reads as follows:-“Notwithstanding your assertion that you have maintained full records for the purchases disallowed, the commissioner has established that there was no supply of taxable goods made by the suppliers highlighted in the table attached. In this regard,the commissioner hereby confirms the assessment as issued.”

161. The Appellant submitted that no investigations were conducted and that prior to reaching this conclusion the Appellant was never involved in any investigation by the Respondent and further that the Respondent erred in law and fact in arriving at an additional assessment by neither conducting an audit nor investigating to establish whether goods were delivered, supplied, bought or sold and whether money was paid. The Appellant submits that its right to fair administrative action was to that extent violated.

162. The Appellant submitted that the significance of tabling evidence for such serious allegations was well captured in Evans Kidero v Speaker of Nairobi City County Assembly & another [2018] eKLR where the Honourable court stated as follows:-“30. Its trite law that he who alleges fraud must prove it. Allegations of fraud must strictly be proved. Great care needs to be taken in pleading allegations of fraud or dishonesty. In particular the pleader needs to be sure that there is sufficient evidence to justify the pleading. This was considered in some detail by Lewison J in Mullarkey -v- Broad.[17] In Central Bank of Kenya Ltd -Vs- Trust Bank Ltd & 4 Others[18] the Court of Appeal in considering the standard of proof required where fraud is alleged had thisto say-“The Appellant has made vague and very general allegations of fraud against the Respondent. Fraud and conspiracy to defraud are very serious allegations. The onus of prima facie proof was much heavier on the Appellant in this case than in an ordinaryCivil Case.”33. The burden of proof lies on the applicant in establishing the fraud/dishonesty that he alleges. The parties opted to adopt their pleadings as opposed to oral evidence. In my view, whereas it is proper to proceed by way of written submissions and pleadings, where allegations of fraud or dishonesty are alleged, the higher standard of prove required under the law may not be realized. This is because such a high standard of prove may require oral evidence and cross-examination for both parties test the veracityof the allegations.

163. The Appellant further submitted that the most unfortunate part is that the said allegations are unsworn and only finding their way in the objection decision and the Respondent’s Statement of Facts. The Appellant was never investigated and neither was this laid out before the objection decision was made.

164. On the contrary, the Appellant submitted that they provided evidence that they purchased goods from traders who conduct such business. Indeed, vide letters dated 22nd June, 2021, 25th June, 2021and 30th August, 2021, respectively, by the Appellant’s agent m/s Nafisa Alibhai & company, the Appellant submitted that it supplied the Respondent with all the documents demanded.

165. In response to the Appellant’s claim that the Respondent’s Objection Decision does not align with the requirements of Section 51 of the Tax Procedures Act because it does not include a statement of findings on the material facts leaving the Appellant at a loss as to the reason its objection was rejected, the Respondent refuted this claim wholly and stated that it was baseless. The Respondent submitted that the Objection decision speaks for itself and is in line with the law.

166. The Respondent further acknowledged that he is obliged by law to issue an assessment decision that is in line with the provisions of Section 51 of the Tax Procedures Act. He acknowledges that Section 51(10) of the TPA states that:“An objection decision shall include a statement of findings on the material facts and the reasons for the decision.”

167. The Respondent submits that being alive to the law and his obligations in so far as objection decision are concerned, he has aligned the objection decision with the requirements of the law. To this end, he makes reference to the second paragraph of the Objection Decision which he states contains both the statement of findings and the reason for the objection.

168. The Tribunal noted that in Paragraph 4 of the of the Statement of Facts, the Respondent states that, “the Respondent investigated the Appellant to confirm whether the input VAT claimed by the Appellant was actually merited.” In Paragraph 24 of the Statement of Facts, the Respondent also states that“investigations revealed that the documents relied upon by the Appellant were not valid.”

169. The Courts have pronounced themselves on results of investigations that affect the person being investigated. In the case of Anne Wanjiku Kahwai & another v Kenya Revenue Authority & another [2019] eKLR, Mwongo J, stated as follows:“23. Are the Petitioners entitled to be involved in such investigations I understand “investigation” to mean an inquiry into a matter, or a systematic effort to find out the truth about something; an examination of facts or information to unearth the truth. I see no reason why a statutory entity – such as the 1st Respondent, whose core mandate and function it is to assess, collect and account for income tax and enforce tax statutes – cannot fairly freely conduct investigations on a continuum with or without participation of the party investigated.24. There is a limit to such action, however. The moment the investigator decides to utilize the investigative material or information in such a manner that a third party is likely to be affected by it, the investigator must bring such information to the notice of the third party. This is the essence of the constitutional requirement of fair administration. So that, in this case, the affected party was entitled to receive the appropriate and relevant critical information of the outcome from the investigation which formed the subject matter that would affect the Petitioners.”(Emphasis Added)

170. Although in the Statement of Facts the Respondent states that, the Respondent investigated the Appellant to confirm whether the input VAT claimed by the Appellant was actually merited, the results of the investigations were neither made available to the Appellant nor to the Tribunal.

171. By stating that there was no supply of taxable goods by the suppliers highlighted in the table attached, the Tribunal finds that the Respondent inferred fraud on the part of the Appellant. That table was not attached to the objection decision and was not made available to the Tribunal. The Tribunal has pronounced itself on the issue of fraud and in TAT No 88 of 2021 Glenrose Ltd V Commissioner of Investigations & Enforcement stated as follows:-“the Tribunal finds that the burden of proof, which essentially in law rests upon the Appellant, shifted to the Respondent at the point where issues of fraud were raised. In this regard, the Tribunal relies on the Halsbury’s Laws of England, 4th Edition, Volume 17, Paragraphs 13 and 14, which provide as follows: -“(13) The legal burden is the burden of proof which, remains constant throughout a trial, it is a burden on establishing the facts and contentions which will support a party’s case. If at the conclusion of the trial he has failed to establish that to the appropriate standard he will lose.(14)The legal burden of proof normally rests with the party desiring the court to take action: thus, a claimant must satisfy the court or tribunal that the conditions which entitle him to an award have been satisfied. In respect of a particular allegation, the burden lies upon the party for whom substantiation of that particular allegation is an essential element of this case. There may therefore be separate burdens in a case with separate issues.”

172. The Tribunal also relies on the Court of Appeal in Kinyanjui Kamau vs George Kamau (2015) eKLR where the Court observed as follows:-“It is trite law that any allegations of fraud must be pleaded and strictly proved. See Ndolo v Ndolo [2008] 1 KLR (G&F) 742 wherein the Court stated that:“...We start by saying that it was the respondent who was alleging that the will was a forgery and the burden to prove that allegation lay squarely on him. Since the respondent was making a serious charge of forgery or fraud, the standard of proof required of him was obviously higher than that required in ordinary civil cases, namely proof upon a balance of probabilities; but the burden of proof on the respondent was certainly not one beyond a reasonable doubt as in criminal cases...”In cases where fraud is alleged, it is not enough to simply infer fraud from the facts. In Vijay Morjaria v Nansingh Madhusingh Darbar & another [2000] eKLR (Civil Appeal No. 106 of 2000) Tunoi JA (as he then was) stated as follows: “It is well established that fraud must be specifically pleaded and that particulars of the fraud alleged must be stated on the face of the pleading. The acts alleged to be fraudulent must of course be set out, and then it should be stated that these acts were done fraudulently. It is also settled law that fraudulent conduct must be distinctly alleged and as distinctly proved, and it is not allowable to leave fraud to be inferred from the facts.” (Emphasis ours)”

173. Since the Respondent did not provide the results of the investigations or indicate to the Appellant on how it was “established that there was no supply of taxable goods made by the suppliers,” the Tribunal finds that the objection decision made by the Respondent on 24th September 2021 did not comply with Section 51(10) of the Tax Procedures Act.

Final Decision 174. The upshot of the foregoing is that the Appeal succeeds. Consequently, the Tribunal makes the following Orders: -a.The Appeal be and is hereby allowed.b.The Respondent’s objection decision dated 24th September 2021 be and is hereby set aside.c.Each party to bear its own costs.

175. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 10{{^TH DAY OF FEBRUARY, 2023. ERIC N. WAFULA CHAIRMANCYNTHIA B. MAYAKA GRACE MUKUHAMEMBER MEMBERJEPHTHAH NJAGI ABRAHAM K. KIPROTICH MEMBER MEMBER