Dadia and Sons Limited v Kenya Revenue Authority (Tribunal Case E193 of 2025) [2026] KETAT 216 (KLR) (12 June 2026) (Judgment)

 REPUBLIC OF KENYA IN THE TRIBUNAL OF KENYA AT NAIROBI COUNTY COURT NAME: TAX APPEALS TRIBUNAL CASE NUMBER: TATC/E193/2025 DADIA AND SONS LIMITED VS KENYA REVENUE AUTHORITY JUDGMENT # BACKGROUND 1. The Appellant is a private limited company duly registered in accordance with the provisions of the Companies Act whose principal business of installation, servicing, and repair of weighbridges and commercial scales. 2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws (hereinafter “the Act”). Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws. 3. The Respondent issued Additional VAT Assessments amounting to Kshs. 10,491,540.00 in principal tax, arising from disallowance of input VAT claimed on purchases purportedly made from Sori Agro Processing and Technologies Limited. 4. The Appellant lodged a **formal objection** against the additional assessments, challenging both the factual basis and legality of the Respondent’s decision on **16th December 2024 and on 10th January 2025** filed further submissions supporting its objection 1. The Respondent on **31st January 2025** issued an **Objection Decision**, fully rejecting the Appellant’s objection and confirming the additional VAT assessment of Kshs. 10,491,540.00. 1. Dissatisfied with the Respondent’s tax decision on 31 St January, 2025, the Appellant filed a Notice of appeal dated 27th February, 2025 and filed on 28th February, 2025 # THE APPEAL 1. The Appellant lodged its Memorandum of appeal dated 27th February, 2025 and filed on 28th February, 2025 against the commissioner’s decision on 31st January 2025 raising the following grounds of appeal that; 1. The Respondent unfairly demanded additional VAT based on unfounded allegations and reasons only known to them 2. The Respondent’s action and assertions as communicated in the referenced objection decision is ultra vires and have no legal standing 3. The Respondent failed to consider material fact that would render the VAT tax demand to be excessive and without merit 4. The Respondent erred in fact and in law by purporting to demand VAT where there is no tax deficiency 5. The Respondent’s unfair and unmerited tax demand is based on their failure to enforce compliance by other taxpayers. 6. The Respondent confirmed the notice of assessment without due regard to all records, explanation and information provided by the Appellant, thereby failing to appreciate all issues presented by the Appellant before confirming the assessments. 7. The tax demand is based on fictitious transactions fraudulently generated and no tax is validly due from the Appellant. # THE APPELLANT’S CASE 1. The Appellant case was premised on its statement of facts dated 27 th February, 2025 and filed on 28th February, 2025 and supplementary statement of facts dated and filed on 11th November 2025 together with submissions dated 24th September, 2025 and filed on even date as well as its Supplementary submissions dated 16th February, 2026 and filed on 17th February, 2026 adopted on 1st April 2026 by the Tribunal. 2. The Appellant stated that its business model entails charging fees for professional services relating to servicing and maintenance of weighbridges and scales. 3. The Appellant stated that its reputable clients include Pembe Flour Mills Limited, Keda (Kenya) Ceramics Company Limited, and Louis Dreyfus Company Kenya Limited, among others and that there are instances where clients request the Company to source and install scales on their behalf. 4. The Appellant stated that in such instances, billing to the client is done at cost, with no installation fees charged, the benefit being derived from future servicing and repair engagements and in such cases, clients make direct payments for the scales, and therefore, such transactions do not reflect in the Company’s bank accounts. 5. The Appellant stated that in August 2024, such an arrangement occurred where it supplied scales to clients and the scales were purchased from Sori Agro Processing and Technologies Limited 6. The Appellant stated that during engagement with the supplier, it was observed that the supplier had no VAT obligation but agreed to register for VAT and comply with regulatory requirements by KRA, that the supplier undertook the VAT registration process with KRA from August 2024, which was concluded on 1st September 2024 when VAT obligation was added to their iTax profile. 7. The Appellant stated that KRA issued it with a pre-assessment notice on undeclared VAT sales as claimed by its clients and that during engagement with the Account Manager at Sameer office, it explained its intention to account for VAT supplies upon receipt of ETIMS-compliant invoices from the supplier. 8. The Appellant stated that in September 2024, the supplier issued ETIMS- compliant tax invoices which were used to offset output VAT in accordance with Section 17(1), (2), and (3) of the VAT Act, 2013 and that upon accounting for the output VAT as required by KRA, it expected the review process to be concluded. 9. The Appellant stated that KRA nonetheless issued an additional VAT demand of Kshs. 10,491,540.00 by disallowing all purchases claimed from the supplier and it did not understand the basis of KRA’s action, as its claims complied with Section 17 of the VAT Act, and it therefore lodged an objection under Section 51 of the Tax Procedures Act, 2015. 1. The Appellant stated that it provided all requisite supporting documents, including proper tax invoices, delivery notes, and written confirmation from the supplier and that KRA, in its objection decision dated 31 January 2025, rejected the objection on grounds that although the supplier declared the sales, it had not paid the VAT due. 2. The Appellant stated that this basis for disallowing validly incurred input VAT is unfounded, ultra vires, and unsupported by law or logic and that KRA is effectively abdicating its enforcement duty and shifting responsibility to the Appellant. 3. The Appellant stated that KRA further erroneously claimed that the supplier was a newly registered company in September 2024, thereby casting doubt on the transaction and that this assertion is incorrect, as records from KRA and the Registrar of Companies show that the supplier has existed since July 2023, with only VAT obligation added in September 2024. 4. The Appellant stated that the conditions for deduction of input tax are clearly set out under Section 17(1) and (2) of the VAT Act, including that the input VAT must be incurred wholly for business purposes, supported by a proper tax invoice, and declared by the supplier and that KRA’s initial pre-assessment required it to account for supplies made, which it complied with by declaring all supplies in the September 2024 return period. 5. The Appellant stated that the supplies in question are tangible items, namely weighing scales, whose existence can be verified, and since it neither manufactures nor imports such items, they must have been locally sourced and could not have sold and installed non-existent scales with no tax deficiency on its part, as input VAT was properly offset against declared output VAT and any VAT due was fully settled. 6. The Appellant stated that KRA should instead pursue the supplier for any unpaid taxes and should not exceed its statutory mandate by shifting enforcement responsibilities to taxpayers and that it has been informed that the supplier has been placed under KRA’s “special table” due to unpaid tax liabilities and is engaging KRA to resolve the matter and confirms that KRA’s demand against it is baseless and amounts to a fishing expedition intended to inconvenience its business when it bears responsibility, having failed to conduct due diligence before adding VAT obligation to the supplier’s PIN. 7. The Appellant stated that, in view of the foregoing, KRA’s VAT demand of Kshs. 10,491,540.00 is ultra vires and ought to be vacated. 8. In the Appellant’s Statement of Facts, the Appellant stated that its business model entails charging fees for professional services relating to the servicing and maintenance of weighbridges and scales. 9. The Appellant stated that on 11th December 2024, the Respondent issued it with an additional Value Added Tax (VAT) assessment of Kshs. 10,491,540.00, being principal tax, arising from alleged purchases from Sori Agro Processing and Technology Limited. 10. The Appellant stated that it objected to the assessment by way of a letter setting out its grounds of objection and expressing its willingness to cooperate with the Respondent in reviewing its records. 11. The Appellant stated that after filing the appeal, it undertook a thorough review of its accounting records, which revealed that no purchases had been made from Sori Agro Processing and Technology Limited. 12. The Appellant maintained that the transactions forming the basis of the additional VAT assessment did not occur and that its investigations established that there was no evidence of any payments having been made by the company to Sori Agro Processing and Technology Limited. 13. The Appellant further stated that there was no supporting documentation from Sori Agro Processing and Technology Limited describing the goods allegedly supplied or evidencing their delivery to the Appellant and that it was implausible that purchases valued at over Kshs. 65.5 million could have been transacted in cash within a one-week period between 23rd September 2024 and 30th September 2024. It asserted that it lacked the financial capacity to undertake transactions of such magnitude, as demonstrated by its annual reports, financial statements, VAT returns and bank statements. 14. The Appellant further stated that investigations revealed that certain sales previously acknowledged by its former accountant in correspondence with the Respondent, including a letter dated 16th December 2024, had been fraudulently declared without the authority of the company during September 2024. 15. The Appellant identified and tabulated the allegedly fictitious sales as follows with a declared value totaling to Kshs. 55,505,497 with VAT of Kshs.8,880,880 and that it only discovered the alleged fraudulent declarations following an audit investigation conducted by James Aggrey & Associates, Certified Public Accountants, whose report was dated 4th June 2025. 16. The Appellant asserted that the fictitious sales were generated fraudulently by its accountant and that the matter had since been reported to the police for investigations and possible prosecution and further contended that, in relation to the purported sales, there existed no quotations issued by the company. 17. The Appellant stated that there were no Local Purchase Orders supporting the alleged transactions and further stated that there were no delivery notes evidencing supply of the goods and that there were no job cards or any other records supporting the transactions. 18. The Appellant stated that there were no invoices or ETR receipts issued by the company to the alleged purchasers and that there was no proof of payment from the purported purchasers to the company. 19. The Appellant alleged that the foregoing circumstances demonstrated a deliberate scheme orchestrated by its accountant to generate fictitious input and output VAT to the detriment of the company. 20. The Appellant stated that it reported the alleged fraudulent activities to the police under OB No. 31 of 6th May 2025 (Inquiry No. 4 of 2025) and further, it terminated the services of the accountant, Mr. Samuel Ojijo, through a letter dated 2nd May 2025. 21. The Appellant maintained that it was the victim of a fraudulent scheme which gave rise to the VAT assessment of Kshs. 10,491,540.00 and that the tax liability was not lawfully incurred in the ordinary course of its business and its advocates communicated this position to the Respondent through a letter dated 12th June 2025. 22. The Appellant Submitted that, the genesis of the matter is that, on 24th September, 2024, the Respondent made a demand for unpaid VAT of Kshs. 8,931,710/= arising from undeclared sales totaling Kshs. 55,823,187/= for the month of August 2024. 23. The Appellant Submitted that, correspondences were subsequently exchanged between the Appellant and the Respondent and by its letter of 11th December, 2024, the Respondent issued the Appellant with an additional VAT assessment amount of Kshs. 10,491,540.00 (principal tax) after disallowing unsupported input VAT on purchases totaling Kshs. 65,572,124/= for the same month of August 2024 from Sori Agro Processing and Technology Limited. 24. The Appellant submitted that, subsequently, it objected to the assessment via a letter dated 16th December, 2024 and that the Respondent issued its objection decision on 31st January, 2025 declining the objection and demanding the additional VAT assessment of Kshs. 10,491,540.00. 1. The Appellant submitted that, in its Amended Memorandum of Appeal dated 11th November, 2025, it raised grounds including that the Respondent confirmed the assessment without due regard to all records, explanations and information provided, and that the tax demand is based on fictitious transactions fraudulently generated. 2. The Appellant submitted that, accordingly, it contends that the Respondent unfairly demanded VAT based on fictitious sales and purchases and prays that the appeal be allowed and the objection decision dated 31st January, 2025 be set aside. 3. The Appellant submitted that, there is one issue for determination, as to whether the additional VAT assessment by the Respondent is validly due. 4. The Appellant submitted that, *Section 30 of the Tax Appeals Tribunal Act* provides that the Appellant bears the burden of proving that an assessment is excessive or that the tax decision should not have been made. 5. The Appellant submitted that, as stated in its Statement of Facts dated 11th November, 2025, it did not sell any items to the alleged companies and there exist no supporting documents such as quotations, LPOs, delivery notes, or ETR invoices to support such alleged transactions. 6. The Appellant submitted that, nothing would have been easier than for the Respondent to avail such documents from the alleged purchasing companies if indeed such transactions occurred. 7. The Appellant submitted that, having provided supporting documents demonstrating that the sales were fictitious and fraudulently generated by its employee, the evidential burden shifted to the Respondent to prove that the reported sales were genuine. 8. The Appellant submitted that, it provided bank records and financial statements demonstrating that it lacked the financial capacity to transact in excess of Kshs. 55,000,000/= within a single month. 9. The Appellant submitted that, its audited financial statements for the period ending 31st December, 2023 confirm compliance with tax obligations and further support the claim of fraud, which was reported under OB No. 31 of 6th May, 2025. 10. The Appellant submitted that, although the Respondent claims to rely on best judgment, the Tribunal held that such discretion under *Section 31 of the Tax Procedures Act* is not absolute and that, the evidential burden therefore shifted to the Respondent to demonstrate the legality of the output VAT claim and to provide supporting documentation. 1. The Appellant submitted that, pursuant to *Section 51(4) of the Tax Procedures Act,* the Respondent had an obligation to request additional documentation necessary to determine the objection and that the Respondent’s failure to evaluate and engage with the Appellant’s evidence undermines fairness and transparency in tax administration. 2. The Appellant submitted that, the Respondent’s objection decision admitted it was limited to documents examined and reserved the right to review further information once competent evidence is produced, the burden shifts to the Commissioner. 3. The Appellant submitted that, the Tribunal has emphasized that taxpayers must maintain records under *Section 23 of the Tax Procedures Act and Sections 17 and 43 of the VAT Act,* and must adduce evidence before the Tribunal. 4. The Appellant submitted that, it conducted an audit culminating in a report dated 5th June, 2025 confirming that it never transacted with the alleged companies nor with Sori Agro Processing and Technologies Limited. 5. The Appellant submitted that, the matter was reported to police and a police abstract issued on 28th May, 2025, and the responsible employee’s services were terminated and that, the accountant acted without authority and ultra vires, as no authorization was granted to conduct such transactions. 6. The Appellant Submitted that, once the taxpayer produces relevant evidence, the presumption of correctness of the assessment disappears and this matter falls within *Section 31(4) of the Tax Procedures Act* relating to fraud, neglect or evasion, and timelines for amendment of assessments. 7. The Appellant submitted that, it is trite law that justice must not only be done but must manifestly and undoubtedly be seen to be done as it is not obliged to pay the additional assessment as it does not arise from any valid taxable transaction and no agreements or delivery notes existed ab initio. 8. The Appellant submitted that, it has demonstrated that no Vatable transactions occurred and that it was a victim of a fraudulent scheme by its employee and the Respondent’s additional assessment is without factual or legal basis. 9. The Appellant submitted that, while the Respondent claims reliance on Section 24(2) and Section 31 of the Tax Procedures Act, it failed to provide the information forming the basis of such “best judgment.” as this omission is critical given the Appellant’s consistent position that no sales occurred. 10. The Appellant submitted that, without any documentation countering the Appellant’s evidence, the only conclusion is that the assessments are unjustified and consequently, the Objection decision cannot stand as it is premised on unsupported assessments. 11. The Appellant submitted that, the Respondent’s additional tax assessment is demonstrably without basis and should be set aside, and the appeal ought to be allowed with costs. # The Appellants prayers 1. The Appellant Prayed that the Tribunal, 2. Allows this appeal. 3. Sets aside the Respondent’s objection decision dated 31st January 2025 # THE RESPONDENT’S CASE 1. In response to the appeal, the Respondent filed its Statement of facts dated and filed on 25th March, 2025 and Supplementary statements of facts dated 17th December 2025 filed 18th December 2025 with leave of the Tribunal on 11th December, 2025 together with Respondent submissions dated 10th March 2026 and filed on even date adopted on 1st April, 2026, the date of the hearing. 2. The Respondent stated that on 11 th September 2024 it issued a Pre- Assessment Notice to the Appellant regarding undeclared sales for the month of 08/2024, noting that the Appellant failed to declare sales with corresponding purchases claimed from its PIN amounting to Kshs. 55,823,187.00. 3. The Respondent stated that the Appellant declared the sales in the month of 09/2024 and introduced purchases from a newly registered supplier, Sori Agro Processing and Technologies Limited, who declared the sales but failed to account for applicable taxes, leading to disallowance of the input claimed due to insufficient supporting documentation. 4. The Respondent stated that it raised an additional assessment on 11/12/2024 amounting to Kshs. 10,491,540.00 and the Appellant objected to the assessments on 23/12/2024. 5. The Respondent stated that the Appellant contended that all records supporting purchases were provided and that the supplier declared the sales correctly and that on 31/01/2025, upon considering the objection, it rejected the objection wholly. 6. The Respondent stated that the Appellant, being aggrieved by the decision, lodged an appeal at the Tax Appeals Tribunal and the gist of the Appellant’s case is contained in the Memorandum of Appeal filed on 27/02/2025 where it refutes each and every allegation contained in the Memorandum of Appeal and Statement of Facts and responds as follows. 7. The Respondent stated that Section 31 of the Tax Procedures Act allows it to make an additional assessment based on information available using its best judgment and is mandated to issue an additional assessment where no return and/or an incorrect return is filed to ensure the correct tax is paid. 8. The Respondent stated that it disallowed the input claimed from the Appellant’s supplier, Sori Agro Processing and Technologies Limited, due to insufficient supporting documentation and that the assessments were properly raised and that the reasons for raising them were clearly set out. 9. The Respondent stated that the crux of its decision was that the Appellant failed to avail documentation in support of the objection and that the Appellant was required to avail documents in support of all its claims for examination, review and to fill gaps identified at assessment. 10. The Respondent stated that it made the following findings:(a) The Respondent stated that the Appellant claimed input VAT amounting to Kshs. 10,491,540.00 in the period 09/2024. 11. The Respondent stated that the Appellant’s supplier, Sori Agro Processing and Technologies Limited, is newly registered on iTax and has only filed once for the month under dispute. 12. The Respondent stated that the supplier declared the sales but failed to account for applicable taxes. 13. The Respondent stated that the Appellant provided invoices but failed to provide proof of payment, stating that payments were made in cash. 14. The Respondent stated that due to failure by the Appellant to avail documents, it was unable to consider all claims raised in the objection and that Section 17 of the VAT Act provides for disallowance of input VAT where original documentation is not produced and that the Appellant failed to provide proof of payment for the supplies. 15. The Respondent stated that Section 51 of the Tax Procedures Act mandates the Appellant to provide grounds of objection and support the objection with relevant documents and stated that the burden of proof that an assessment is excessive and/or erroneous lies with the Appellant. 16. The Respondent stated that the Appellant had sufficient time to avail documentation and no fault has been established against it by the Appellant. 17. The Respondent in its supplementary statements of facts stated that pursuant to the Appellant’s own declaration, it is not in dispute that the Appellant transacted with Sori Agro Processing and Technologies Limited. 18. The Respondent in its supplementary statements of facts stated that the additional assessments were based on information derived from the Appellant’s own self-declared returns, and that during the objection stage, the Appellant provided invoices confirming transactions with the said supplier while asserting that payments were made in cash. 19. The Respondent in its supplementary statements of facts stated that the Appellant raised new issues in the amended documents which were not raised at the objection stage, contrary to Section 56(3) of the Tax Procedures Act. 20. The Respondent in its supplementary statements of facts stated that at the objection stage, the Appellant indicated that all supporting purchase records were provided, that suppliers declared sales correctly, and that payments were made in cash without proof of payment. 21. The Respondent in its supplementary statements of facts stated that in the amended documents, the Appellant introduced a new claim alleging a fraudulent scheme by its accountant to generate fictitious input and output VAT and denying any transactions with the suppliers. 22. The Respondent in its supplementary statements of facts stated that the Appellant is bound by the explanations given at the objection stage and cannot approbate and reprobate by simultaneously affirming supplier transactions and later denying them. 23. The Respondent in its supplementary statements of facts stated that Section 17 of the VAT Act provides that the right to claim input tax is dependent upon fulfillment of the statutory requirements of a valid transaction. 24. The Respondent in its supplementary statements of facts stated that input tax can only be claimed where it is incurred on actual purchases of taxable goods, and that mere documentation is insufficient without proof of an underlying transaction. 25. The Respondent in its supplementary statements of facts stated that it considered all documents and explanations provided by the Appellant and in its supplementary statements of facts stated that the alleged cash transactions were not supported by bank statements showing the source of funds or accounting ledgers evidencing double entry postings, and thus the Appellant failed to corroborate the transactions. 1. The Respondent in its supplementary statements of facts stated that the cash transactions were substantial and lacked an audit trail, leading to the conclusion that applicable taxes were not paid, and consequently input tax could not be allowed without corresponding output tax. 2. The Respondent in its supplementary statements of facts stated that the Appellant failed to adduce evidence to support allegations of fraud, and no court has determined any fraud on the part of the accountant, though the Appellant retains the right to pursue recovery if liability is established. 3. The Respondent in its supplementary statements of facts stated that it acted fairly and in accordance with the law during both the assessment and objection stages. 4. The Respondent Submitted that, the Tribunal granted the Appellant leave to file an Amended Memorandum of Appeal vide a Ruling delivered on 7th November, 2025 and subsequently filed a Supplementary Statement of Facts in response to the Amended Appeal. 5. The Respondent Submitted that, it noted that the Appellant failed to declare sales with corresponding purchases claimed from its PIN amounting to Kshs. 55,823,187.00 and consequently issued a Pre-Assessment Notice on 11th September, 2024 regarding undeclared sales for August 2024. 6. The Respondent submitted that, the Appellant declared the sales in September 2024 and introduced purchases from Sori Agro Processing and Technologies Limited, a newly registered supplier who declared sales but failed to account for applicable taxes, leading to disallowance of input VAT due to insufficient supporting documentation. 7. The Respondent submitted that, it raised an additional assessment on 11th December, 2024 amounting to Kshs. 10,491,540.00 and that the Appellant objected to the assessments on 23rd December, 2024. 8. The Respondent submitted that, the Appellant contended that all supporting purchase records were provided and that the supplier declared the sales correctly and that it rejected the objection wholly on 31st January, 2025 after review. 9. The Respondent submitted that, the Appellant, being dissatisfied, lodged an Appeal before the Tribunal and Submitted that, the issues for determination include whether the assessments and the objection decision are justified and that the assessment arose because the Appellant claimed input VAT from a supplier who failed to account for applicable taxes, and the input VAT was disallowed for being unsupported. 1. The Respondent submitted that, for input VAT to be claimable, the taxpayer must satisfy the requirements of **Section 17 of the VAT Act** including registration, taxable use, non-exclusion, timeliness, and proper documentation. 2. The Respondent submitted that, documentation required to claim input VAT must detail transactions between the taxpayer and suppliers as provided under **Section 17 of the VAT Act** and that the Tribunal has previously held that additional documents such as bank records, delivery notes, and payment records may establish a prima facie case of purchase. 1. The Respondent submitted that, under **Section 24(2) of the Tax Procedures Act, 2015**, it is not bound by a taxpayer’s returns and may assess liability based on available information. 2. The Respondent submitted that, **Section 31 of the Tax Procedures Act** empowers it to amend assessments using best judgment to ensure correct tax liability and that it relied on best judgment and available information in compliance with **Section 31 of the Tax Procedures Act** when raising additional VAT assessments. 1. The Respondent submitted that, the Appellant’s objection was based on claims that all supporting records were provided and that the supplier declared sales correctly. 2. The Respondent submitted that, upon review it found that the Appellant claimed input VAT of Kshs. 10,491,540 in September 2024, relied on a newly registered supplier who failed to account for taxes, and failed to provide proof of payment, alleging cash transactions and that compliance with **Section 17 of the** **VAT Act** is mandatory for claiming input tax. 1. The Respondent submitted that, **Section 17(1-3) of the VAT Act** requires possession of valid documentation such as invoices, customs entries, receipts, credit notes, and debit notes to support input VAT claims. 1. The Respondent submitted that, **Section 43 of the VAT Act** obligates taxpayers to maintain full and accurate records for at least 5 years, including invoices, tax accounts, and transaction details. 1. The Respondent submitted that, the supplier’s failure to account for applicable taxes renders the input VAT claim invalid and the Appellant failed to provide proof of payment and relied on unsupported claims of cash transactions and that pursuant to **Section 30 of the Tax Appeals Tribunal Act** and **Section** **56 of the Tax Procedures Act,** the burden of proof lies with the taxpayer. 1. The Respondent submitted that, any evidence not meeting the strict requirements of **Section 17 of the VAT Act** is insufficient however jurisprudence affirms that the burden of proof lies with the taxpayer, especially for facts within its knowledge. 1. The Respondent submitted that, any evidence not compliant with **Section 17 of the VAT Act** is improper and should not be considered and documents produced by the Appellant were neither competent nor relevant, and the burden of proof remains unmet. 1. The Respondent submitted that, actions of the Appellant’s employee handling tax matters are binding on the Appellant and **Section 51(3) of the Tax Procedures Act** requires objections to be supported by all relevant documents. 2. The Respondent submitted that, the burden of proving an assessment excessive or erroneous lie with the Appellant and **Section 23 of the Tax Procedures Act** requires taxpayers to maintain records for inspection and that **Section 59(1) of the Tax Procedures Act** mandates production of records upon request. 1. The Respondent submitted that, the Tribunal in **Intime Stone Age Limited v Commissioner of Domestic Taxes (Appeal** *714* **of 2022) [2024] KETAT 44 (KLR)** emphasized the need for specific and relevant documentation. 2. The Respondent submitted that, the Appellant’s documents were insufficient in form and substance to support the objection as it was entitled to reject the objection due to non-compliance with **Section 17 of the VAT Act.** 1. The Respondent in its supplementary statements of facts stated that it prays for dismissal of the Appeal as set out in its Statement of Facts filed on 25/03/2025. To which the Respondent prayed that; 1. The Appellant’s Appeal be dismissed with costs, 2. The Assessment raised by the Respondent amounting to Kshs. 10,491,540.00 be confirmed and the principal taxes and interest be found due and payable as per the decision rendered by the Respondent. # Respondent’s Prayers 1. The Respondent prayed that; 2. Appellant’s Appeal be dismissed with cost 3. Assessment raised by the Respondent amounting to Ksh. 10,491,540 be confirmed and principal taxes and interest be found due and payable. # ISSUE FOR DETERMINATION 1. From the pleadings, submissions, and the Tribunal’s analysis, the single **issue for determination** is: Whether the Respondent’s additional VAT assessment was justified. # ANALYSIS AND FINDINGS 1. Having identified the issues for determination, the Tribunal proceeds to analyse the same as hereunder; Whether the Respondent’s additional VAT assessment was justified 1. The Tribunal notes that the dispute between the Appellant and the Respondent arose following the Respondent’s issuance of a pre-assessment notice on 11th September 2024 in respect of alleged undeclared sales for the month of August 2024. This was followed by a demand for unpaid VAT issued on 24th September 2024 amounting to Kshs. 8,931,710.00, premised on the same alleged undeclared sales. 2. The Tribunal further notes that the Respondent thereafter commenced a compliance intervention by issuing a notice of intention to audit on 16th October 2024 covering the Appellant’s tax affairs. Following its audit review, the Respondent issued a notice of findings and intention to raise additional assessments on 4th December 2024 for the period 2019 to 2023. 3. The Tribunal observes that on 11th December 2024, the Respondent issued additional VAT assessments amounting to Kshs. 10,491,540.00 arising from the disallowance of input VAT claimed by the Appellant in respect of purchases from Sori Agro Processing and Technologies Limited. The Appellant, being aggrieved, lodged its objection on 16th December 2024 challenging the factual and legal basis of the assessments. 4. The Tribunal notes that upon consideration of the objection, the Respondent issued an Objection Decision on 31st January 2025 confirming the assessments in their entirety. 5. The Tribunal notes that the Respondent’s additional VAT assessment is unjustified as it is premised on the disallowance of input VAT notwithstanding that the Appellant demonstrated substantial compliance with the statutory requirements for claiming input tax under Section 17 of the VAT Act, including possession of tax invoices and declaration of output VAT. 6. Further, upon perusal of the Appellant’s bundle of documents, the Tribunal cited compelling and uncontroverted evidence that the impugned transactions involving Sori Agro Processing and Technologies Limited were not genuine commercial transactions undertaken by the Appellant, but rather arose from a fraudulent scheme perpetrated by the Appellant’s former accountant. 1. The Tribunal places significant weight on the internal disciplinary action taken by the Appellant, including the dismissal of the said accountant for, inter alia, fraudulent issuance of ETR receipts to unknown entities, unlawful claiming of input VAT amounting to Kshs. 10,491,540.00 from Sori Agro Processing and Technologies Limited without authority, and deliberate concealment of Respondent’s correspondence. 2. This is further corroborated by the Appellant’s report to the police, the auditor’s independent report confirming fictitious sales and purchases, and the affidavit evidence of the Appellant’s director. 3. Additionally, the Tribunal finds persuasive the Appellant’s unchallenged evidence that there were no purchase orders, delivery notes, or proof of payment supporting the alleged transactions with Sori Agro Processing and Technologies Limited. 4. The assertion that purchases exceeding Kshs. 65 million were transacted in cash within a span of one week is not only implausible but is also directly contradicted by the Appellant’s bank statements and audited financial records, which demonstrate that the Appellant lacked the financial capacity to undertake transactions of such magnitude. 5. The Tribunal further notes that the Respondent failed to rebut this evidence or to provide independent verification of the alleged supplies, including confirmation from the purported supplier or evidence of actual delivery of goods. Instead, the Respondent relied on inconsistencies arising from fraudulent entries introduced by the Appellant’s former employee, thereby improperly attributing liability to the Appellant. 6. In the circumstances, the Tribunal is satisfied that the additional VAT assessment was not grounded on actual taxable supplies but on fictitious transactions, and that the Respondent’s decision to disallow input VAT and raise the assessment was therefore erroneous in both fact and law. Accordingly, the assessment cannot stand. 7. Section 17(1), (2), and (3) of the VAT Act, 2013 permits a registered taxpayer to deduct input tax incurred on taxable supplies where such tax is supported by a valid tax invoice and the supply is used for purposes of making taxable supplies. 8. In the case ***Commissioner of Domestic Taxes v Trical and Hard*** ***Limited [2022] KEHC 9927 (KLR),*** the Court held that once a taxpayer produces valid documentation supporting input VAT claims, the Commissioner cannot arbitrarily disallow such claims without contrary evidence. 1. The Respondent’s reliance on the supplier’s failure to remit VAT as a basis for disallowing input VAT is legally untenable and amounts to shifting the tax enforcement burden from the supplier to the Appellant. 2. The VAT Act does not condition the deductibility of input VAT on actual remittance of tax by the supplier; the statutory test under Section 17 is limited to whether the taxpayer incurred the input tax and holds proper documentation. 3. The Respondent’s assertion that the input VAT was unsupported is contradicted by the Appellant’s provision of tax invoices, delivery notes, and supplier confirmations, which establish the existence of the transactions. 4. Section 43 of the VAT Act and Section 23 of the Tax Procedures Act require taxpayers to maintain records, which the Appellant complied with by producing documentary evidence. 5. In the case of ***Browndot Enterprise Limited v Commissioner of Domestic Taxes (Tax Appeal E052 of 2025) [2025] KETAT 253 (KLR),*** the Tribunal held that where a taxpayer provides primary documentation such as invoices and delivery notes, the burden shifts to the Commissioner to disprove the transactions. 6. The Respondent’s reliance on “best judgment” under Section 31 of the Tax Procedures Act was improperly exercised as it failed to consider the Appellant’s explanations and supporting evidence. 7. Section 31 of the Tax Procedures Act allows the Commissioner to make assessments using best judgment, but such discretion must be exercised reasonably and based on available evidence. 8. In the case of ***Strutex Builders Limited v Commissioner Legal Services & Board Coordination [2025] KETAT 422 (KLR),*** the Tribunal held that best judgment assessments must be grounded in evidence and cannot be arbitrary. 9. The Respondent’s conclusion that the transactions were invalid due to lack of proof of payment (cash transactions) is insufficient to invalidate otherwise legitimate supplies. 10. Section 17 of the VAT Act does not expressly require proof of payment as a mandatory condition where valid tax invoices and evidence of supply exist. 11. In the case of ***Abyssinia Iron and Steel Limited v Commissioner of Domestic Taxes (TAT Appeal No. 435 of 2022),*** the Tribunal held that once a prima facie case is established through documentation, the evidential burden shifts to the Respondent. 12. The Appellant discharged its burden of proof by providing documentary evidence including tax invoices, delivery notes, financial records, and explanations demonstrating that the VAT was properly accounted for. 13. Section 30 of the Tax Appeals Tribunal Act and Section 56(1) of the Tax Procedures Act place the burden on the taxpayer to prove that an assessment is excessive or incorrect. 14. In ***Commissioner of Domestic Taxes v Trical and Hard Limited (Income Tax Appeal E146 of 2020),*** the Court held that the burden shifts to the Commissioner once the taxpayer adduces credible evidence. 15. The Appellant established a prima facie case that the transactions were either genuine and compliant or, alternatively, that any irregularities arose from fraud by an employee, thus rebutting the presumption of correctness of the assessment. 16. Section 31(4) of the Tax Procedures Act recognizes fraud as a relevant factor in tax assessments, while general principles of evidence allow rebuttal of presumptions through credible explanation. 17. The Respondent failed to discharge its corresponding burden after the Appellant provided evidence, as it did not produce independent verification such as third-party confirmations from alleged customers. 18. Section 51(4) of the Tax Procedures Act obligates the Commissioner to consider all materials and may require additional documents to determine an objection fairly. 19. In the case of ***Republic v Commissioner of Domestic Taxes Ex parte Barclays Bank of Kenya Ltd [2012] eKLR,*** the Court emphasized fairness and reasonableness in tax decision-making. 20. The Respondent’s position is internally inconsistent, having initially relied on existence of transactions (to demand VAT) and later questioning their validity when input VAT is claimed. The principle against approbation and reprobation applies in tax law to prevent inconsistent positions that prejudice the taxpayer. 21. In the case of ***Commissioner of Domestic Taxes v Altech Stream (EA) Limited [2021] eKLR,*** the Court underscored the need for consistency and rationality in tax assessments. 22. The Appellant’s evidence, including financial incapacity to transact at the alleged scale and audit findings of fraud, sufficiently demonstrates that the assessment is excessive and erroneous. The Tribunal notes that Section 30 of the Tax Appeals Tribunal Act requires proof on a balance of probabilities, which can be discharged through financial records and credible explanations. 23. In the case of ***Mulherin v Commissioner of Taxation [2013] FCAFC 115,*** the Court held that a taxpayer must provide positive evidence showing an assessment is excessive, which may include financial and factual inconsistencies. 24. Accordingly, it is the Tribunal’s considered view that the Appellant has demonstrated both legally and evidentially that the assessment lacks statutory foundation and factual basis, while the Respondent failed to justify its decision within the confines of the law to justify the assessments. Consequently, the Tribunal finds and holds that the Respondent’s additional VAT assessments were not justified. # FINAL DECISION 1. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is merited and makes the following Orders: 2. The Appeal be and is hereby Allowed. 3. The Respondent’s Objection Decision on 31st January, 2025 be and is hereby set aside. 4. Each party to bear its own cost. 5. It is so Ordered. # DATED AND DELIVERED AT NAIROBI ON THIS 12TH DAY OF JUNE 2026. SIGNED BY/FOR: **★ TH E JUDICIAR Y O F KENY A ★** **HON. ROBERT MUGAMBI MUTUMA (CHAIRPERSON) HON. EUNICE NJERI NGANGA HON. BONIFACE KIBIY TERER HON. BILLY GRAHAM OKUMU MIJUNGU** Tax Appeals Tribunal Tribunal Date: 2026-06-12 13:46:03