https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/121

Dirie & Sons Company Ltd v Commissioner of Legal Services and Board Coordination (Appeal E1069 of 2025) [2026] KETAT 121 (KLR) (30 June 2026) (Judgment) Neutral citation: [2026] KETAT 121 (KLR) Republic of Kenya In the Tax Appeal Tribunal Appeal E1069 of 2025 RM Mutuma, Chair, JM Malla, T Vikiru & G Ogaga, Members June 30, 2026 Between Dirie & Sons Company Limited Appellant and Commissioner of Legal Services and Board Coordination Respondent Judgment Background 1.The Appellant is a private limited liability company. 2.The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. For the performance of its function under Subsection (1), the Authority is mandated under Section 5(2) of the Act to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act to assess, collect, and account for all revenues under those laws. 3.The Respondent issued the Appellant with Value Added Tax (VAT) additional assessments for the periods January 2023, June 2023, August 2023 and September 2023 on 7th May 2024, and for the period of March 2024 on 9th May 2024. 4.The Appellant filed late objections against the assessments on 3rd June 2025, which applications were accepted by the Respondent on 17th June 2025. 5.The Respondent issued an Objection decision on 5th August 2025 confirming the assessments. 6.The Appellant, being dissatisfied with the Respondent’s Objection decision, filed its Notice of Appeal dated 25th September 2025 on 26th September 2025 having been granted leave by the Tribunal to Appeal out of time. The Appeal 7.The Appeal is premised on the Memorandum of Appeal dated 25th September 2025 and filed on 26th September 2025 which raised the following grounds: -a.That the Respondent erred in law and in fact by issuing assessments and confirming assessments which are excessive without any explanation.b.That the Respondent erred in law and fact by issuing Value Added Tax (VAT) assessments contrary to Section 17 of the VAT Act.c.That the Respondent’s actions have amounted to gross violations of Article 47 of the Constitution of Kenya, which guarantees the Appellant a right to fair administrative action that is reasonable and procedurally fair. Appellant’s Case 8.The Appellant’s case is premised on the following documents filed before the Tribunal:a.Its Statement of Facts dated 25th September 2025 and filed on 26th September 2025; andb.The Appellant’s Written Submissions dated 4th May 2026 and filed on the same date. 9.The Appellant stated that the Respondent issued additional VAT assessments for the periods January 2023, June 2023, August 2023, September 2023 and March 2024 for Kshs 33,200,000. 10.The Appellant averred that it lodged its notice of objection through its letter dated 3rd June 2025 which was acknowledged by the Respondent on the even date. 11.That the Respondent issued its Objection decision on the 5th August 2025, which decision the Appellant appealed to the Tribunal. 12.The Appellant stated that the Respondent erred in issuing additional assessments which cannot be relied upon as the Appellant has never earned such a huge amount of income as the Appellant has been dormant for a period of time. 13.The Appellant asserted that the said assessments do not reflect its financial position and it will be oppressive and punitive if the Tribunal does not allow this appeal. 14.The Appellant averred that the Respondent denied it a chance to fair hearing and the Respondent's actions have amounted to gross violations of Article 47 of the Constitution of Kenya, which guarantees the Appellant a right to fair administrative action that is reasonable and procedurally fair. 15.The Appellant asserted that that it submitted the required documents to the Respondent for consideration, and as such, discharged its burden of proof as required by Section 56(1) of the Tax Procedures Act. Appellant’s Submissions 16.The Appellant considered that the issues for determination are as submitted under the following headings: Whether the Assessments were Excessive, Arbitrary and Without Basis 17.The Appellant submitted that the impugned assessments are excessive, arbitrary, and unsupported by any factual or legal basis. 18.The Appellant averred that the Respondent assessed VAT amounting to Kshs. 33,200,000 despite the Appellant being largely dormant during the material period. That the assessments do not reflect the Appellant’s actual economic activity and are therefore manifestly unreasonable. 19.That the Court of Appeal in Kenya Revenue Authority v Man Diesel & Turbo SE held that tax assessments must be grounded on evidence and rational analysis, and that arbitrary assessments not supported by facts are liable to be set aside. 20.That similarly, in Republic v Commissioner of Domestic Taxes Ex Parte Barclays Bank of Kenya Limited, the Court emphasized that the Commissioner must justify assessments and cannot impose tax liabilities without proper evidentiary foundation. 21.That in the present case, the Respondent failed to provide any explanation or computation basis for the assessments, rendering them legally unsustainable. Whether the Respondent Violated Section 17 of the VAT Act 22.The Appellant submitted that Section 17 of the VAT Act allows a registered taxpayer to deduct input tax incurred in the course of making taxable supplies. It averred that the Respondent’s assessments effectively disallowed input tax without justification, contrary to the statutory framework. 23.It submitted that the High Court in Republic v Kenya Revenue Authority Ex Parte Vivo Energy Kenya Limited held that input tax is a statutory right and can only be disallowed where the Commissioner demonstrates non-compliance with the law. 24.That further, in Commissioner of Domestic Taxes v Total Kenya Limited, the Court affirmed that tax liability must be determined after accounting for all allowable deductions and credits, including input VAT. 25.That by failing to consider input tax and issuing gross assessments, the Respondent acted in direct contravention of Section 17, thereby inflating the Appellant’s tax liability unlawfully. Whether the Appellant Discharged its Burden of Proof 26.The Appellant submitted that under Section 56(1) of the Tax Procedures Act, the burden of proof lies on the taxpayer to demonstrate that an assessment is incorrect. 27.The Appellant maintained that it discharged this burden by providing relevant documentation and explanations to the Respondent, including evidence of dormancy and financial records. 28.That in Republic v Commissioner of Investigations and Enforcement Ex Parte African Merchant Assurance Company Ltd, the Court held that once a taxpayer provides prima facie evidence challenging an assessment, the evidential burden shifts to the Commissioner to justify the assessment. 29.That similarly, in Kenya Revenue Authority v Export Trading Company Limited, the Court emphasized that the Commissioner cannot ignore documentation submitted by a taxpayer and must engage with it in making a determination. 30.The Appellant averred that the Respondent in this case disregarded the Appellant’s documentation and failed to rebut the evidence presented, thereby failing to discharge its corresponding evidential burden. Whether there was a Violation of Article 47 of the Constitution 31.That Appellant submitted that Article 47 of the Constitution guarantees every person the right to administrative action that is lawful, reasonable, and procedurally fair. 32.The Appellant contended that the Respondent violated this right by: failing to provide reasons for the assessments; ignoring the Appellant’s documentation; issuing excessive and punitive tax demands; and failing to accord the Appellant a fair hearing. 33.The Court of Appeal in Suchan Investment Limited v Ministry of National Heritage & Culture held that administrative bodies must act fairly, reasonably, and in accordance with due process. 34.That additionally, in Republic v Kenya Revenue Authority Ex Parte Yaya Towers Limited, the Court held that KRA is bound by constitutional standards and must act transparently and fairly in tax matters. 35.It was the Appellant’s submission that the Respondent’s conduct in the present case falls short of these constitutional requirements and renders the decision invalid. Principle of Fairness and Substantive Justice in Tax Administration** 36.The Appellant submitted that tax administration must be guided by fairness, proportionality, and substantive justice. 37.That the Tribunal and superior courts have consistently held that tax disputes should be resolved on their merits and not through punitive or arbitrary assessments. 38.It contended that the present dispute is essentially a reconciliation issue, which the Appellant has indicated willingness to resolve through Alternative Dispute Resolution (ADR). That the Respondent’s rigid stance undermines the objectives of ADR as envisaged under the Tax Procedures Act. 39.The Appellant concluded that it has demonstrated that: the impugned assessments are excessive, arbitrary, and unsupported by evidence; the Respondent violated Section 17 of the VAT Act by disregarding input tax; the Appellant discharged its burden of proof under Section 56(1) of the Tax Procedures Act; and the Respondent violated Article 47 of the Constitution by acting unfairly and unreasonably. Appellant’s Prayers 40.The Appellant prayed that the Tribunal grants the following:a.That the Appeal be allowed and the Commissioner’s decision as contained in the Objection decision dated 5th August 2025 be set aside.b.That the Respondent’s actions to demand additional taxes be declared arbitrary, unreasonable, unfair, and contrary to the fair administration of justice and legitimate expectation of a taxpayer.c.That the Honorable Tribunal awards the costs of this Appeal and any other remedies that it deems just and reasonable to the Appellant. Respondent’s Case 41.The Respondent’s case is premised on the following documents filed before the Tribunal:a.The Respondent’s Statement of Facts dated 27th October 2025 and filed on 4th November 2025; andb.Its Written Submissions dated 15th April 2026 and filed on 4th May 2026. 42.The Respondent stated that it established that the Appellant had made supplies to the County Government of Garissa and raised invoices in the months of January 2023, June 2023, August 2023, September 2023 and March 2024. 43.The Respondent averred that the Appellant failed to declare supplies made to the County Government of Garissa and issued the Appellant with assessments dated 7th May 2024 and 9th May 2024, in the sum of Kshs. 33,200,000, comprising principal tax. 44.That the Appellant lodged an application to file a late notice of objection to the said assessment on 3rd June 2025 which was considered and accepted on 17th June 2025. 45.The Respondent stated that the Appellant, at the objection stage, was requested to provide documents listed below via email on 17th June 2025 and again on 28th July 2025 but the Appellant failed to provide the documents requested:a)Sales ledger and sales invoices;b)Bank statements;c)Purchases ledger and invoices;d)Proof of payment for the purchases;e)Suppliers confirmation;f)Tender documents; andg)Any other relevant documentation. 46.The Respondent issued an Objection decision dated 5th August 2025 confirming the assessments, which decision the Appellant appealed to the Tribunal. Respondent’s Submissions 47.It was the Respondent’s view that the main issue for determination by the Tribunal is: Whether the Respondent was justified in confirming the earlier assessments. 48.The Respondent submitted that the Appellant’s failure to provide the requested documentation meant that the Appellant failed to comply with Section 51 (3) and 59 of the Tax Procedures Act. That the Respondent therefore upheld the earlier raised assessments vide an Objection decision dated 5th August 2025. 49.The Respondent asserted that its findings took into consideration the Appellant’s grounds of objection and faulted the Appellant for failure to provide the requested documentation for the Respondent to verify the Appellant’s assertions. 50.That it is also important to note that the Appellant has only provided its notice of objection with no documents in support of its objection while filing this appeal before the Tribunal. 51.The Respondent relied on the recent decision of this Tribunal in Kirin Pipes Limited v Commissioner Intelligence Strategic Operations Investigations and Enforcement (Tribunal Appeal E1116 of 2024) [2025] KETAT 259 (KLR) (22 August 2025) (Judgment) wherein the Tribunal also held that the Taxpayer had also failed to discharge its burden of proof that the Respondent’s Objection decision was incorrect. 52.That the Appellant in its Appeal has failed to prove that the Respondent’s tax decision confirming the additional assessments is incorrect contrary to Section 56(1) of the Tax Procedures Act. 53.The Respondent further submitted that the Appellant has failed to discharge its evidential burden of proof under Section 107 (1) of the Evidence Act in demonstrating that the assessment by the Respondent was in any reasonable manner incorrect or excessive. 54.The Respondent relied on the Tribunal’s decision in Frikah Investments Limited v Commissioner of Domestic Taxes (Tax Appeal 127 of 2023) [2024] KETAT 757 (KLR) (Commercial and Tax) (17 May 2024) (Judgment) where the Tribunal held that the Appellant had failed to discharge its burden of proof regarding the issue of whether it had supplied the documents that it had been requested to supply under Section 56 (1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act. 55.The Respondent states that although the law recognizes the self-assessment regime, the Respondent is empowered by Section 31 of the Tax Procedures Act to amend such assessment if it has available information. 56.The Respondent submitted that it exercised his best judgement appropriately in the circumstances thereby arriving at the tax assessment it did. That in the case of Nairobi TAT No. 25 of 2016 Family Signature Limited Vs. The Commissioner of Investigations & Enforcement, one of the issues for determination was “whether the Respondent was justified in employing an alternative and indirect method of assessing the Appellant’s estimated tax liability.” That the Tribunal held that when the Respondent is prompted to resort to an alternative method of determining the income and in assessing the tax liability of a taxpayer, it has the onerous responsibility to act reasonably by exercising best judgement informed by pragmatic and reasonable considerations that do not in any manner result in a ridiculously high-income margin. 57.That in TAT NO. 28 OF 2018- Joycott General Contractors Limited –VS- Kenya Revenue Authority, the Tribunal in dismissing the appeal held that: -“We find that the Appellant seems to forget that it bears the burden of proof, in law, to demonstrate to this Tribunal that the Respondent’s assessment was wrong. Especially with regards to the under declarations and variance in respect of VAT and income sales. On the contrary, the Appellant has not bothered to substantially traverse the assessment raised. All it has done is to make sweeping and expansive accusations without substantial support.” 58.The Respondent asserted that the Appellant was granted an opportunity to object to the assessment in line with due process, and that all actions were taken in accordance with the provisions of the Tax Procedures Act, 2015, VAT Act and related regulations. 59.The Respondent maintained that the tax assessment issued was properly founded in fact and law, and that the objection decision was fair, reasonable, and made in accordance with statutory provisions. 60.The Respondent concluded that the Appellant having underdeclared its tax obligations, and having fatally failed to demonstrate the additional assessments to be erroneous, leading to additional assessment being confirmed, then the said assessments in relation to the issues still in dispute remain valid in law, ought to be upheld and the Appeal dismissed with costs. Respondent’s Prayers 61.The Respondent prayed that the Tribunal:a.Dismisses the appeal in its entirety;b.Upholds the tax assessment as confirmed by the Objection decision; andc.Orders the Appellant to pay the costs of the appeal. Issue for Determination 62.The Tribunal has considered the pleadings and the submissions made by the Parties, and considers the issue for determination as follows: Whether the Respondent was justified in confirming the VAT additional assessments. Analysis and Findings 63.Having identified the issue for determination, the Tribunal proceeds to analyse the same as hereunder. 64.The Respondent assessed and subsequently confirmed additional VAT assessments for January 2023, June 2023, August 2023, September 2023 and March 2024 in the sum of Kshs. 33,200,000. As set out in its Statement of Facts and Objection decision, the assessments arose from supplies the Appellant made to the County Government of Garissa, evidenced by withholding tax certificates issued in respect of those supplies, which the Appellant had not declared in its VAT returns. The Respondent confirmed the assessments on the ground that the Appellant did not furnish the records required to support its Objection. 65.The Appellant disputed the assessments on three limbs: that they are excessive because the Appellant had been dormant for a period of time; that they were issued contrary to Section 17 of the VAT Act by disregarding input tax; and that they were arbitrary, issued without explanation, and in violation of the Appellant’s right to fair administrative action under Article 47 of the Constitution. The Tribunal addresses each contention in turn. 66.The Tribunal clarifies that the Appeal before it is against an Objection decision that confirmed tax assessments. The burden therefore lay on the Appellant to demonstrate that the Respondent’s assessments were excessive or incorrect, in accordance with Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act which provide as follows: -Section 56(1) of the Tax Procedures Act“56.(1)In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”Section 30 of the Tax Appeals Tribunal Act:“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; or(b)in any other case, that the tax decision should not have been made or should have been made differently.” 67.The Tribunal is further guided by Section 17(2) of the VAT Act regarding deduction of input VAT, which provides as follows: -“ 17.(2)If, at the time when a deduction for input tax would otherwise be allowable under subsection (1)—(a)the person does not hold the documentation referred to in subsection (3), and(b)the registered supplier has not declared the sales invoice in a return,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.” 68.Section 17(3) provides the documentation required for deduction of input tax: -“(3)The documentation for the purposes of subsection (2) shall be—(a)an original tax invoice issued for the supply or a certified copy;(b)a customs entry duly certified by the proper officer and a receipt for the payment of tax;(c)a customs receipt and a certificate signed by the proper officer stating the amount of tax paid, in the case of goods purchased from a customs auction; and(d)a credit note in the case of input tax deducted under section 16(2);(e)a debit note in the case of input tax deducted under section 16(5); or(f)in the case of a participant in the Open Tender System for the importation of petroleum products that have been cleared through a non-bonded facility, the custom entry showing the name and PIN of the winner of the tender and the name of the other oil marketing company participating in the tender:Provided that the input tax that may have been incurred by an oil marketing company participating in the Open Tender System before the coming into force of this provision shall be claimed within twelve months after this provision comes into force.” 69.Section 43 of the VAT Act requires a person in the course of his business to keep a full and true written record of every transaction he makes, and details the records to be kept. The person shall avail the records to the Commissioner for inspection. 70.For context for the records analysis that follows, the Tribunal sets out the chronology of the objection review process:a.The Appellant filed its objection application late on 3rd June 2025 in a letter dated on 27th May 2025 in relation to VAT assessments issued by the Respondent on 7th May 2024 and 9th May 2024.b.The Respondent emailed the Appellant on 17th June 2025 accepting the Appellant’s late objection and requesting documents to validate the objection on or before 24th June 2025. The email stated in part:“-----Yassir Ridha/DTD/KRA wrote: -----To: info@johnsaccountants.co.ke, moha_rashid@hotmail.com, abdirie@gmail.comFrom: Yassir Ridha/DTD/KRADate: 06/17/2025 05:11PMCc: Davies Kariuki/LEGAL/KRA@KRA, James Nyambu/CTDR/KRA@KRASubject: Acceptance Of Late Objection Application And Substantive Matter – Dirie & Sons Company Limited (P051442440S)Greetings,I refer to your application to file a late notice of objection dated 03.06.2025 in response to VAT additional assessments raised on iTax on 09.05.2024 for the periods January 2023, June 2023, August 2023, September 2023 and March 2024 with the disputed principal tax being Kshs.32,200,000.…You are now required to provide the relevant supporting documents for the periods under review to validate the objection on or before 24.06.2025.The documents should include the following: 1.Sales ledger and sales invoices 2.Bank statements 3.Purchases ledger and invoices 4.Proof of payment for the purchases 5.Suppliers confirmation 6.Tender documents 7.Any other relevant document to support your grounds of objection. We look forward to your positive response.Kind regards,Yassir Ridha Ali”c.The Respondent emailed the Appellant 28th July 2025 reminding the Appellant to submit the requested information. The email read:“-----Yassir Ridha/DTD/KRA wrote: -----To: info@johnsaccountants.co.ke, moha_rashid@hotmail.com, abdirie@gmail.comFrom: Yassir Ridha/DTD/KRADate: 07/28/2025 08:20AMCc: Davies Kariuki/LEGAL/KRA@KRA, James Nyambu/CTDR/KRA@KRASubject: Re: Acceptance Of Late Objection Application And Substantive Matter - Dirie & Sons Company Limited (P051442440S)Good morning,The subject matter above and our correspondence below refers.We note with concern that you are yet to submit any document to support your grounds of objection.Please note that you have up to close of business on Tuesday 29th July, 2025 to submit the requested documents.In the absence of the requested information by the stated time, we shall proceed to make the objection decision based on the information available to us.Your prompt response will be highly appreciated.In case of any clarification, please do not hesitate to contact us.Kind regards,Yassir Ridha Ali”d.The Respondent emailed the Appellant on 7th August 2025 with the Objection decision dated 5th August 2025.1.The Tribunal begins with Appellant’s third limb, that the assessments were arbitrary and issued in violation of its right to fair administrative action, the Respondent having failed to give reasons for its assessment. To the extent the Appellant’s argument is that the assessments were excessive, arbitrary or without basis, those are matters going to the correctness of the tax decision and squarely within the Tribunal’s remit.2.From the documents on the record, the Tribunal notes that the basis of the assessment was explained by the Respondent: the Appellant made supplies to the County Government of Garissa which it did not declare in its VAT returns, as evidenced by the withholding tax certificate the Respondent produced, and that the Appellant issued to Garissa County in respect of those supplies. The Appellant’s own pleadings, which argue that the Respondent inflated the assessment by failing to allow input tax, confirm that it understood the basis of the assessment. The Tribunal accordingly finds that the assessments were neither unexplained nor arbitrary; their correctness fell to be tested against the records, to which the Tribunal returns below.3.As to the second limb, that the assessments were issued contrary to Section 17 of the VAT Act by disregarding input tax, the contention is misconceived on these facts. The assessments arose from undeclared output VAT on the supplies to Garissa County, not from any disallowance of input tax. In any event, Section 17(2) and (3) of the VAT Act permit a deduction for input tax only where the taxpayer holds the prescribed documentation, including original tax invoices, and the supplier has declared the corresponding sales. The Appellant produced none of that documentation, whether to the Respondent or to the Tribunal, therefore, no entitlement to an input tax deduction was ever established. This limb therefore fails.4.That leaves the first limb, that the assessments are excessive because the Appellant was dormant, which can only be resolved on the records. The Tribunal has perused all the documents which the Appellant presented in this Appeal, which were as follows:a.Late Objection application acknowledgment receipt dated 28th July 2025.b.The Objection decision dated 5th August 2025.5.The documents listed above are confined to the Appellant’s Objection acknowledgment and the Respondent’s Objection decision. None of them is a substantive transactional record. Even before this Tribunal, the Appellant did not produce any of the documents the Respondent had requested on 17th June 2025 and again on 28th July 2025, nor any of the documents a taxpayer is required to maintain under Sections 17 and 43 of the VAT Act and Section 23 of the Tax Procedures Act, and by which the undeclared sales to Garissa County underlying the assessments could have been explained and by which the Appellant’s alleged dormancy in the assessment period demonstrated.6.This finding disposes of the Appellant’s contention that it discharged its burden of proof, and shifted an evidential burden to the Respondent, by submitting documents and evidence of dormancy at the objection stage. The Appellant placed no proof before the Tribunal that it furnished the Respondent with any such documents; on the contrary, the Respondent’s two requests for production of documents of 17th June 2025 and 28th July 2025 went unanswered. No evidential burden could shift to the Respondent in the absence of the prima facie material the Appellant claims to have provided.7.The absence of these records is fatal to the Appellant’s case. Its grounds of appeal amount to assertions that the assessments are excessive and erroneous, unsupported by any evidence capable of disproving them. Mere averment of a substantive tax position, however elaborate, does not discharge the statutory burden of proof placed upon the Appellant.8.The Tribunal is guided by the case of CMC Aviation Ltd v Cruisair Ltd (1) [1978] KLR 103 where Madan J. held that: -“Pleadings contain the averments of the parties concerned. Until they are proved or disproved, or there is an admission of them or any of them, by the parties, they are not evidence and no decision could be founded upon them. Proof is the foundation of evidence. Evidence denotes the means by which an alleged matter of fact, the truth of which is submitted for investigation. Until their truth has been established or otherwise, they remain un-proven. Averments in no way satisfy, for example, the definition of “evidence” as anything that makes clear or obvious; ground for knowledge, indication or testimony; that which makes truth evident, or renders evident to the mind that it is truth.” 79.The Appellant failed to discharge the burden placed on her by Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act. 80.Drawing from the above, the Tribunal finds that the Respondent was justified in confirming the Income tax and VAT additional assessments. Final Decision 81.The upshot of the above analysis is that the Tribunal finds that the Appeal is unmeritorious. The Tribunal accordingly proceeds to issue the following Orders:a.The Appeal be and is hereby dismissed.b.The Objection decision dated 5th August 2025 be and is hereby upheld.c.Each party to bear its own costs. 82.It is so ordered. DATED AND DELIVERED AT NAIROBI THIS 30TH DAY OF JUNE 2026.……………………………..….ROBERT M. MUTUMACHAIRMAN……………………………… ……..….……..……………..JIMMY M. MALLAMEMBER……………………………..….DR. TIMOTHY B. VIKIRUMEMBER……………………………..….GLORIA A. OGAGAMEMBER