https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/259

 REPUBLIC OF KENYA IN THE TRIBUNAL OF KENYA AT NAIROBI COUNTY COURT NAME: TAX APPEALS TRIBUNAL CASE NUMBER: TATC/E610/2026 EASTON PETROLEUM LIMITED VS KENYA REVENUE AUTHORITY RULING 1. The Applicant moved the Tribunal vide a Notice of Motion Application dated 16th May 2026 under a certificate of urgency dated on even date seeking the following Orders; 1. Spent 2. That pending the hearing and determination of this Appeal, the Respondent be compelled to; 1. Immediately effect set-off of Ksh 12,856,678.00 against the Applicant’s available VAT credit of Ksh 19,709,644.89 pursuant to Section 103 of the Tax Procedures Act (TPA). 2. Immediately issue a Tax Compliance Certificate (TCC) to the Applicant upon effecting set-off. 3. Immediately withdraw and lift all agency notices issued to KCB bank and ABSA bank in respect of the Applicant. 3. That costs of this Application be in the cause. 2. The Application was supported by a Sworn Affidavit of Abdirahman Yakub Abdirahman, the Applicant’s Director, dated 16th May 2026 and filed 25th May 2026 citing the following grounds; 1. That the Applicant is duly incorporated under the Companies Act and engaged in business of trading in petroleum products which is cash intensive and requires upfront payments to suppliers as well as in meeting daily operational costs such as salaries, transport and depot charges. 2. That with an outstanding VAT liability of Ksh 12,856,678.00 and an available VAT credit of Ksh 19,709,644.89 as of 6th May 2026, the Applicant, pursuant to Section 103 of the TPA, lodged an application on 14th May 2026 requesting for set-off of the liability against the available VAT credits. 3. That the Respondent failed, neglected or refused to process the set-off, issue a TCC or withdraw the Agency Notices even after 14 days had lapsed. 4. That the frozen accounts had rendered the Applicant unable to pay salaries, settles obligations to fuel suppliers or meet the daily operations expenses resulting in severe business disruptions and imminent risk of collapse. 5. That the Applicant requires a TCC to continue trading and participating in tender which the Respondent is withholding despite the available credit. 6. That the Respondent will suffer no prejudice if interim relief in granted as the Applicant has sufficient credit to fully discharge the liability. 7. In opposing the Application, the Respondent filed its replying affidavit sworn by its officer Ms Sadia Salo dated 21st June 2026 and filed on 22nd June 2026 citing the following grounds; 8. That the Tribunal ought not to grant prayers sought in the Application. 9. That the Applicant admitted to outstanding VAT liability of Ksh 12,856,678.00 and available VAT credit of Ksh 19,709,644.89. 10. That the Respondent vide a letter date 20 th May 2026 advised the Applicant that the VAT credit was not a refundable amount that can be offset against tax liability. But, that Section 17 of the VAT Act prescribes the treatment of excess credit by requiring that refund application be made in line with Section 47 of the TPA noting that Section 17(5) of the VAT Act requires carrying forward of credit for deduction against subsequent period’s tax liability. In this case there was no approval for refund to be offset. 1. That the Applicant’s tax liability of Ksh 12,856,678.00 which they are seeking lifting of Agency Notices is an admitted tax that has crystallized and the same is ripe for enforcement. 2. That the Applicant has mixed issues as they want admitted taxes to be offset against VAT credit and bearing in mind the advice given on 20th May 2026, the Respondent should be allowed to enforce the taxes. The import of which is that the Agency Notices should not be lifted as they were lawfully issued in accordance with Section 42(1)(e) of the TPA as cumulative VAT credit is not a refundable amount that can be off-set against a tax liability. 3. That the Application is an after thought brought in bad faith meant to delay collection of taxes that are due and payable. 4. That it is in public interest that the Application is dismissed with costs to the Respondent. # Analysis and findings 1. The Tribunal notes that the Applicant herein is seeking the Tribunal’s indulgence to be allowed to set-off VAT tax liability against available VAT credit, the Respondent be compelled to issue a TCC and to lift all Agency Notices. 2. The Applicants case is premised on the contention that notwithstanding of exitances of an admitted VAT liability of Ksh. 12,856,678.00 it had equally an available VAT credit amounting to Ksh. 19, 709,644.89 against which the liability out to have been off-set. The Tribunal notes that the Applicant formally applied for the off-set on the 14th May 2026 pursuant to Section 47 of the Tax procedure Act (TPA). The Respondent however declined the request on the basis that the available VAT credit constituted excessive input tax under Section 17 (5) of the VAT Act which in its view could have been carried forward to subsequent tax period and did not amount to refundable Tax capable of being off-set against the Tax liability. 3. Tribunal notes that Section 47(1)(a) of TPA provides as follows in regards to offset or refund of overpaid tax; *“Where a taxpayer has overpaid a tax under any tax law, the taxpayer may apply to the Commissioner in the prescribed form—* *i. to offset the overpaid tax against the taxpayer’s outstanding tax debts and future tax liabilities including instalment taxes and input value added tax…”* 1. Section 47 of the TPA vests the Commissioner with the statutory power to apply available tax credit towards and existing tax liability where the circumstances justify such an off-set. While the Respondent relies on Section 17 (5) of the VAT Act which provides that excess input tax should be ordinarily be carried forward to the succeeding tax period, the Tribunal does not construe that provision as prohibiting the Commissioner from considering an application for off-set under Section 47 of the TPA where a tax payer has formally invoked the statutory process. 2. The Tribunal observes that the Respondent did not dispute the Applicant’s available VAT credit, equally it did not demonstrate that the Applicant’s application for off-set was defective, premature or otherwise incapable of consideration under the law. Instead, the Respondent proceeded to initiate enforcement measures while the Applicant’s request for off-set remained unresolved. 3. In the Tribunal’s considered view, where the Taxpayer has disclosed available tax credit that is sufficient to extinguish an admitted tax liability and has formally sort its application through statutory mechanisms provided under the TPA, the Commissioner is under obligation to fairly and reasonably determine the request before resorting to enforcement measures. The Respondent’s reliance on Section 17 (5) of the VAT act without demonstrating why the Applicant’s request could not be properly considered under Section 47 of the TPA is insufficient to justify the refusal. 1. Similarly, Section 47(1)(b) provides as follows; *“for a refund of the overpaid tax—* 1. *in the case of income tax, within five years from the date on which the tax was overpaid; or* 2. *in the case of any other tax, within twelve months from the date on which the tax was overpaid.”* 3. Equally, Section 17(5) of the VAT Act provides that; *“Where the amount of input tax that may be deducted by a registered person under subsection (1) in respect of a tax period exceeds the amount of output tax due for the period, the amount of the excess shall be carried forward as input tax deductible in the next tax period…”* 1. The Tribunal having found that the Applicant has established a prima facie basis for the relief sought, the Respondent had no reason to deny the Applicant deduction of its VAT liability against the available VAT credit. The Tribunal therefore finds no reason for the Respondent to resort to enforcement mechanism while it had within its reach available VAT credit nor did it substantiate why denying the Applicant a Tax Compliance Certificate was justified. 1. The Tribunal finds that the Application herein is merited. # DISPOSITION 1. The Tribunal in the circumstances is persuaded to exercise its discretion in favour of the Applicant and accordingly makes the following Orders: - 1. The Application be and is hereby allowed. 2. The Respondent be and is hereby ordered to set-off by applying the Applicants available VAT credit against the admitted VAT liability. 3. Upon giving effect to the foregoing set-off, the Respondent to grant the Applicant a Tax Compliance Certificate (TCC) within statutory timelines from the date of this Ruling. 4. The Agency Notices be and are hereby unconditionally lifted pending hearing and determination of the substantive Appeal. 5. No orders as to costs. 2. It is so Ordered # DATED AND DELIVERED AT NAIROBI ON THIS 27TH DAY OF JULY, 2026 SIGNED BY/FOR: **★ TH E JUDICIAR Y O F KENY A ★** **HON. EUNICE NJERI NGANGA HON. BONIFACE KIBIY TERER** **HON. SANKALE SPENCER OLOLCHIKE HON. BILLY GRAHAM OKUMU MIJUNGU** Tax Appeals Tribunal Tribunal Date: 2026-07-27 12:12:43