[2024] KETAT 426 (KLR)

Equip Agencies Limited v Commissioner for Legal Services and Board Co-ordination & another (Tax Appeal 1341 of 2022) [2024] KETAT 426 (KLR) (22 March 2024) (Judgment)

Neutral citation: [2024] KETAT 426 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1341 of 2022

E.N Wafula, Chair, D.K Ngala, CA Muga, GA Kashindi, AM Diriye & SS Ololchike, Members

March 22, 2024

Between

Equip Agencies Limited

Appellant

and

Commissioner for Legal Services and Board Co-ordination

1st Respondent

Commissioner for Domestic Taxes

2nd Respondent

Judgment

Background 1. The Appellant is a limited liability company duly incorporated and registered in Kenya under the Companies Act. Its principal activity is sale and supply of goods.

2. The 1st and 2nd Respondents (hereinafter together referred to as ‘the Respondent’) are principal officers appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 laws of Kenya. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all revenue. Under Section 5(2) of the Act with respect to the performance of its function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts I and II 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 carried out a review of the Appellant’s VAT returns for the months of July to November, 2021 between 29th August, 2022 and 31st August, 2022 by carrying out an analysis of purchases claimed by purchasers and sales declared by suppliers. As a result of the said review, the Respondent raised assessments on the I-Tax platform for the said months as follows for principal tax amounting to Kshs. 84,463,805. 00:Assessment Number Date of Period assessment Amount (Ksh)

Assessment relates to

Value Added Tax

KRA202215456967 29. 08. 2022 01/07/2021- 28,111,766. 00

31/07/2021

KRA202215513758 29. 08. 2022 01/08/2021- 19,516,138. 00

31/08/2021

KRA202215456553 29. 08. 2022 01/11/2021- 18,426,908. 00

30/11/2021

KRA202215456639 29. 08. 2022 01/10/2021- 18,408,993. 00

31/10/2021

Principal Tax 84,463,805. 00

Penalties 4,223,190. 00

Interest 9,495,966. 00

Total 98,182,962. 00

4. The Appellant objected to the said assessments vide an objection letter dated 5th September, 2022, but on 30th September, 2022 the Respondent proceeded to confirm its assessment and made an objection decision. The taxes demanded amounted to Kshs. 98,182,962. 00 inclusive of penalties and interest.

5. Being dissatisfied with the Respondent’s objection decision, dated 30th September, 2022, the Appellant filed a Notice of Appeal dated 26th October, 2022 on the same date.

The Appeal 6. The Appellant’s grounds of Appeal as stated in its Memorandum of Appeal dated 8th November, 2022 and filed on 9th November, 2022 were as follows: -a.The Respondent’s decision was illegal for disallowing legitimate Value Added Tax (VAT) inputs that are allowable pursuant to Section 17(1), (2), & (3) of the Value Added Tax, No. 35 of 2013 (hereinafter ‘VAT Act’).b.The Respondent’s decision was erroneous in law and in fact in that it disallowed the Appellant’s input VAT without any reasonable basis and without considering that the same were made within six months as provided for by the law.c.The Respondent erred in law and in fact in holding that the Appellant had not provided sufficient supporting documents for the input VAT and/or in failing to consider the documents supplied by the Appellant in support of its objection dated 3rd September, 2022 and 5th September, 2022. d.The Respondent’s decision was illegal, null and void for breaching the clear provisions of the Tax Procedures Act No. 29 of 2015 (hereinafter ‘TPA’) and the VAT Act.e.The Respondent’s decision violated the Appellant’s legitimate expectation of proper and fair administration of tax law by the Respondent to the detriment of the Appellant.f.Without prejudice to the foregoing grounds, the Respondent failed to consider that the Appellant had VAT credits which could be carried forward and which the Respondent could have offset against the demand for VAT.g.The Respondent had continuously violated the Appellant’s right to fair administrative action in that: -i.The Respondents failed to notify the Appellant of the assessment for July to November, 2021; andii.The Respondents had subjected the Appellant to harassment and oppression by conducting two parallel processes over the same tax demands.

Appellant’s Case 7. The Appellant’s case was anchored on the Appellant’s Statement of Facts dated 8th November, 2022 and filed on 9th November, 2022.

8. The Appellant stated that the Respondent carried out a review of its VAT returns for the month of July to November 2021 and raised an assessment of KShs. 84,463,805. 00 to which the Appellant objected on 5th September 2022.

9. That the Respondent rejected the objection vide its letter of 30th September 2022 and proceeded to demand taxes amounting to KShs. 98,182,962. 00 inclusive of penalties and interest whereupon the Appellant lodged a Notice of Appeal against the decision.

10. That the Appellant contended that the Respondent’s decision was illegal, unconscionable, oppressive and therefore null and void for the following reasons:a.The Respondent failed to give the Appellant a fair hearing.b.The Respondent unlawfully disallowed valid input VAT claims without giving any reasons and or adequate reasons for disallowing the same.c.Without prejudice to the foregoing, the Respondent’s failed to consider that the Appellant had VAT credits which could not be carried forward.d.The Respondent breached the law in arriving at the assessment in question as well as the objection decision dated 30th September 2022.

11. The Appellant averred that it had adequate documentation in support of its input for the months of November as required under Section 17(3) of the VAT Act and that from the documents availed, the Appellant had fully complied with the requirements set out in the said Act and, in the circumstances, the Appellant was entitled to claim input VAT amounting to KShs. 84,463,805. 00 that was wrongly disallowed by the Respondent.

Appellant’s Prayers 12. In view of the foregoing, the Appellant prayed that the Tribunal would: -a.Allow the Appeal in its entirety.b.Set aside the Respondent’s decision dated 30th September, 2022 and the subsequent tax demand for Kshs. 84,463,805. 00. c.Award costs of the Appeal to it.

Respondent’s Case 13. In its Statement of Facts, dated and filed on 5th December, 2022, the Respondent opposed the instant Appeal and averred as hereunder.

14. That it carried out a return review and during the process, it performed an analysis of purchases claimed by purchasers and sales declared by suppliers were ran on the KRA i-Tax system for the period July, August, October and November, 2021.

15. That during the said review, it discovered that there were inconsistencies between the returns filed by the Appellant’s suppliers and invoices claimed by the Appellant for the month of July, August, October and November, 2021. Further to the review, the Appellant was informed on the inconsistency of the VAT3 to amend its returns however, the Appellant failed to resolve the said inconsistencies within the stipulated time frame.

16. As a result and based on the existing inconsistencies, the Respondent raised additional assessments on 29th and 31st August, 2022, for VAT for the months of July, August, October and November, 2021 totaling to Kshs. 98,182,962. 00 including interest and penalties.

17. The Appellant lodged an objection on 3rd and 5th September, 2022 on i-Tax and vide a letter, dated 5th September, 2022. Both the application and letter were acknowledged by the Respondent which then issued a demand for documents in line with the objection lodged through an electronic mail in which it requested delivery notes, purchase invoices, supplier statements and bank statements.

18. The Appellant provided purchase invoices and Electronic Tax Register (ETR) receipts however, other requested records such as the purchases ledger were not provided. The documents provided were not sufficient proof of the underlying transaction, for instance no additional documents were provided to support the credit terms with various suppliers.

19. The Appellant claimed that the goods were acquired on credit terms and therefore there was no proof of payment to support the purchase. It was noted that some of the invoices were indicated as cash sales. In addition, the Appellant did not provide delivery notes claiming that they were not in existence as they would stamp invoices whenever goods were delivered.

20. Since the Appellant provided an insufficient record of documents provided the VAT was therefore estimated, as this was the only reasonable basis for assessing the VAT and thereafter the objection decision was issued.

21. In response to ground (a)to (c) of the grounds of Appeal above, and paragraph 1-7 of the Statement of Facts, the Respondent averred that the assessments were correctly issued and conformed to the VAT Act. The Appellant did not provide any evidence that would have altered the assessment. The TPA places the onus of proof in tax objections on the Appellant who in this case failed to avail evidence that would support a contrary assessment or that would have guided the Respondent at arriving to a different objection decision. The section 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.”

22. In further response to ground (a) to (c) of the Memorandum of Appeal the Respondent asserted that the Appellant lodged the objections on 3rd and 5th September, 2022 vide a letter, the same was received and acknowledged however the same was treated as invalidly lodged as it did not have grounds of objection. The Respondent submitted that the TPA empowers it to notify a party where an objection as lodged is invalid and the Appellant was notified and requested to provide documents. However, the Appellant failed to provide documents as requested. The Section provides as follows: -“51. objection to tax decision2. A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.3. A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—a.the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments; andb.in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute.”

23. In further response to grounds (a) to (c) of the Memorandum of Appeal, the Respondent insisted that it issued and confirmed the assessments in line with the provisions of various tax laws including the TPA and the VAT Act. The Appellant had been requested to provide documents to support input tax claimed in its VAT returns but it failed to do so. A demand notice was subsequently issued on 5th May 2022 giving the Appellant 7 days to amend its returns which it failed to do. The Respondent stated that the Appellant failed to support the input tax claimed and therefore additional taxes were raised.

24. In further response to grounds (a) to (c) of the Memorandum of Appeal, the Respondent insisted that the Appellant filed all necessary returns and paid what it had assessed itself to be payable. The Respondent averred that the Appellant was uncooperative in the provision of relevant records and failed to respond to request of documents hence no relevant documents or records were provided to support the objection by the Appellant. As a result, the assessments were made based on the only available information and on the best judgment by the Respondent. The TPA empowers the Respondent to request production of such documents vide issuance of notice as deemed necessary in the determination of tax liability. The Section provides:“59(1)For the purposes of obtaining full information in respect of the income of a person or class of persons, the Commissioner may, by notice in writing, require, in the case of the income of a person, that person or any other person, and in the case of a class of persons, any person—(a)to produce for examination by the Commissioner at the time and place specified in the notice, any accounts, books of account, and other documents which the Commissioner may consider necessary; and the Commissioner may inspect such accounts, books of accounts or other documents and may take copies of any entries therein.”

25. In response to ground (d) and (f) of the Memorandum of Appeal and grounds 9-14 of Appellant’s Statement of Facts, the Respondent averred that an in-depth examination of the records established that there were inconsistencies in the returns filed by the suppliers and the invoices claimed by the Appellant and this indicated a variance as per the VAT and Income tax returns filed. Further to that, the Appellant provided no explanations requested on the variance hence the same was disallowed and additional assessments carried out.

26. In further response to grounds (d) and (f) of the Memorandum of Appeal, the Respondent averred that the Appellant was selected for a returns review following a variance from the analysis of its returns in VAT Tax, which were compared. The Respondent disallowed the direct purchase amount in the Appellant’s Income tax return and instead relied on the invoice value as used in the determination of VAT payable as the true direct purchase cost. The Respondent insisted that the objection decision provided a precise and clear breakdown of the workings used to arrive at the assessments.

27. In additional response to ground (d) and (f) of the Memorandum of Appeal the Respondent averred that it confirmed that the invoices had been claimed within six months from the date of the invoice. The disallowed invoices had been claimed in the month following the month the invoices were issued and thus were within the 6 months period. This, however was not the basis of disallowing the said invoices. The TPA empowers the Respondent to make alterations or additions to original assessments from available information for a reporting period based on the Respondent’s best judgment. The Section provides as follows: -“31. Amendment of assessments1. 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—(a)in the case of a deficit carried forward under the Income Tax Act (Cap. 470), the taxpayer is assessed in respect of the correct amount of the deficit carried forward for the reporting period;(b)in the case of an excess amount of input tax under the Value Added Tax Act, 2013 (No. 35 of 2013), the taxpayer is assessed in respect of the correct amount of the excess input tax carried forward for the reporting period; or(c)in any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates.”

28. In response to grounds (e) and (g) of the Memorandum of Appeal and paragraph 8 of the Appellant’s Statement of Facts, the Respondent averred that the Appellant failed to provide the documents requested in support of its objection hence the input VAT was disallowed. The Respondent insisted that the VAT Act empowers the Respondent to disallow such input VAT where the necessary documents are not provided. Sections 17 and 5 of the VAT Act, respectively, provide as follows:“17. Credit for input tax against output tax1. 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 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 Income 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.”“5. Charge to tax1. A tax, to be known as value added tax, shall be charged in accordance with the provisions of this Act on—(a)a taxable supply made by a registered person in Kenya;(b)the importation of taxable goods; and(c)a supply of imported taxable services.”

29. In further response to ground (e) and (g) of the Memorandum of Appeal the Respondent averred that a review of the Appellant’s record was carried out due to inconsistencies in the returns of the VAT 3. The credit balance carried forward in the self-assessment returns had already been carried forward for utilization in future at the time the Respondent raised the additional assessments. The Respondent insisted that not all income earned by the Appellant was declared and hence the variances were brought to charge. The TPA empowers the Respondent to carry out assessment based on the information available. Section 24 and 29 of the TPA provide as follows:-“24(1)A person required to submit a tax return under a tax law shall submit the return in the approved form and in the manner prescribed by the Commissioner.(2)The Commissioner shall not be bound by a tax return or information provided by, or on behalf of, a taxpayer and the Commissioner may assess a taxpayer's tax liability using any information available to the Commissioner.”“29(1)Where a taxpayer has failed to submit a tax return for a reporting period in accordance with the provisions of a tax law, the Commissioner may, based on such information as may be available and to the best of his or her judgement, make an assessment (referred to as a "default assessment").”

30. In further response to grounds (e) and (g)of the Memorandum of Appeal, the Respondent asserted that examination of the Appellant’s records established that the Appellant earned income from business in the period under audit. However, these incomes were not declared for tax purposes for the year earned. The Respondent asserted that the Appellant carried on business in contravention of the TPA which requires such documents be maintained for purposes of taxation. The relevant Sections of the TPA provide as follows: -“42. Tax invoice1. Subject to subsection (2), a registered person who makes a taxable supply shall, at the time of the supply furnish the purchaser with the tax invoice containing the prescribed details for the supply.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.93. Failure to maintain documents.1. A person commits an offence if the person fails to keep, retain or maintain a document that may be required to be kept, retained or maintained in accordance with a tax law without reasonable excuse during a reporting period.”

31. The Respondent denied that the Appellant had paid all its tax dues and reiterated that because of its under-declaration the Appellant owed a debt of Kshs. 98,182,962. 00.

32. The Respondent averred that the Appellant was undeserving of the prayers sought due to the forestated reasons.

Respondent’s Prayers 33. The Respondent prayed that the Tribunal consider and find that:a.The Respondent’s objection decision be upheld.b.The outstanding tax arrears of Kshs. 98,182,962. 00 are due and payable by the Appellant.c.The confirmed assessments dated 29th and 31st August, 2022 were proper in law.d.That the appeal herein be dismissed with costs to the Respondent.

Parties’ Written Submissions 34. The instant Appeal was canvassed by way of written submissions The Appellant’s submissions dated 27th June 2023 and were filed on 29th June 2023 together with a list of authorities.

35. The Appellant referred to the provisions of Section 74(1) of the TPA and submitted that the Appellant was served with the objection notice on the iTax portal but not via email or post thus the said notice was invalid as the Appellant was not able to respond to the issue at hand. It further submitted that failure to issue the objection notice in the manner provided for by the law not only amounts to an abuse of office but it also goes against the provisions of Article 47 of the Constitution of Kenya, 2010 [hereinafter ‘the Constitution’] and the Fair Administrative Action Act No. 4 of 2015 [hereinafter ‘FAA’] which provides that every person has the right to administrative action that is procedurally fair.

36. The Appellant submitted that it furnished the Respondent with the requested documents for input VAT. In addition, the Respondent raised assessments for the period of income July, August, October & November, 2021 amounting to Kshs. 98,182,962. 00 inclusive of interest and penalty without providing the basis of how the said tax was arrived at. The Appellant cited the provisions of Sections 107, 109 and 112 of the Evidence Act, CAP 80 of Kenya’s Laws [hereinafter ‘Evidence Act’] and further stated that the Respondent ought to have computed and tabulated the tax and given an explanation on how it got to its decision in view of the additional assessment.

37. The Appellant relied on the case of Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] eKLR where the Court explained how the burden of proof would shift from the Appellant to the Respondent and contended that the Appellant played its role by furnishing the Respondent with the requisite documents but the Respondent proceeded to issue an additional assessment without giving a basis on how it arrived at its assessment. Further, the Appellant lodged a notice of objection explaining its input VAT in detail but the said objection was dismissed without any justifiable reasons.

38. In light of the foregoing, the Appellant relied on the provisions of Section 27 of the Civil Procedure Act, CAP 21 of Kenya’s Laws [ CPA] and the case of Haraf Traders Limited v Narok County Government [2022] eKLR and submitted that costs of this Appeal should be awarded to the Appellant upon setting aside of the objection decision dated 30th September, 2022.

39. In its written submissions dated 7th June 2023 which were filed on even date, the Respondent submitted that the assessments were correctly issued and they conform to the ITA. The Respondent referred to Section 56(1) of the TPA and asserted that the said provision places the onus of proof in tax objections on the Appellant who in this case failed to avail evidence that would support a contrary assessment or guide the Respondent to a different objection decision. The Respondent relied on the provisions of Section 51(3) of the TPA and further submitted that the Appellant was duly notified via electronic mail to provide additional documents but no evidence was provided to address issues raised thus the tax assessment was confirmed vide an objection decision dated 30th September, 2022.

40. The Respondent submitted that all the Appellant’s submissions in interviews, review meetings, site inspections, document verification, meetings and documentation provided were considered before the objection decision was issued. It relied on the provisions of Section 59(1) of the TPA and stated that the Appellant had under declared income earned by not disclosing all the income earned, was uncooperative in the provision of the relevant records and failed to respond to request of documents, thus no relevant documents or records were provided to support the objection.

41. The Respondent relied on Sections 29(1) and 31 of the TPA to submit that the law empowers it to make alterations or additions to the taxpayers’ original assessments from available information for a reporting period based on best judgement.

42. The Respondent cited the provisions of Sections 54A & 55(2) of ITA and Section 23(1) (b) of the TPA and further stated that it is the responsibility of any person carrying on business to maintain records of all transactions. The Respondent contended that the alleged expense costs made in cash could not be traced to any payments from the bank statements thus leading to the conclusion that the Appellant had over claimed expenses so that it can reduce the tax payable thus committing an offence according to Sections 94, 95 & 97 of the TPA Act.

43. The Respondent further submitted that the Appellant’s records established that the Appellant earned income from importation and sale of bags and suitcases for the period under audit. However, these incomes were not declared for tax purposes for the year earned. The Respondent further submitted that the Appellant failed to provide signed financial statements and books of accounts to support its case.

44. It was submitted by the Respondent that the Appellant supplied insufficient documents and the Respondent has embraced the self-assessment regime through trust and facilitation and only verifies information when in doubt of the declarations made. Further, pursuant to the provisions of Sections 15 and 16 of the ITA the Respondent deals with each taxpayer’s matter independently and based on available information.

45. In support of its submissions, the Respondent relied on the cases of Monaco Engineering Limited v Commissioner Domestic Taxes TAT Appeal No. 67/2017, Osho Drappers Ltd v Commissioner of Domestic Taxes, TAT No. 159 of 2018, Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR and Ritz Enterprises Limited v Commissioner of Investigations & Enforcement TAT No. 227 of 2018 to demonstrate that the burden of proof lay on the Appellant and that in order to succeed, the Appellant had to produce evidence and documents to show the Commissioner’s decision was wrong or that the assessments were excessive. It then asserted that the Respondent did not err in invalidating the Appellant’s objection as the Appellant failed to discharge its burden of proof.

Issues for Determination 46. The Tribunal having carefully considered the parties’ pleadings, documentation and submissions notes that a singular issue calls for its determination as follows;Whether the Respondent’s objection decision dated 30th September, 2022 was justified.

Analysis and Findings 47. The dispute between the parties herein concerns Section 17(1) of the VAT Act which provides that: -“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.”

48. The Tribunal found that the facts of this case were that the Respondent carried out a review of the Appellant’s VAT returns for the months of July to November, 2021 by carrying out an analysis of purchases claimed by purchasers and sales declared by suppliers. As a result, the Respondent raised an assessment for the said months amounting to Kshs. 84,463,805. 00. The Appellant objected to the said assessment vide an objection dated 5th September, 2022. The Respondent then confirmed the assessment and issued an objection decision on 30th September, 2022. The Respondent then proceeded to demand principal taxes, penalties and interest amounting to Kshs. 98,182,962. 00.

49. The Tribunal notes that the law is that the burden of proving that a tax decision is incorrect lies with the Appellant, pursuant to the provisions of Section 56(1) of the TPA. In determining the dispute between the parties herein it is noteworthy that the main issue of contention is whether there was proof of a taxable supply for which the Appellant could base its claim for input tax refunds. The fact that the Kenyan tax system is based on self-assessment, does not prevent the Respondent from ascertaining whether the tax remitted by the Appellant is correct by assessing the it at a later date.

50. The Tribunal finds, that as correctly submitted by the Respondent, Section 43 of the VAT Act and Section 59 of the TPA are couched in peremptory terms making it mandatory for the Appellant to keep transaction documents which should always be in its safe for a period of 5 years so as to enable proper and seamless assessment by the taxman at the time of assessment. In this case, the Appellant averred that the Respondent’s objection decision was illegal for disallowing legitimate Value Added Tax inputs that are allowable pursuant to Section 17 (1), (2) and (3) of the VAT Act. That the Respondent also failed to consider that it had credits which could be carried forward and which the Respondent could have offset against the demand for VAT.

51. The Tribunal finds that in light of the foregoing, it is inescapable that the Appellant had the burden of proving the aforementioned allegations. From the pleadings before the Tribunal it was evident that in support of its input tax claim, the Appellant provided purchase invoices and respective ETR receipts and stated that instead of delivery notes, the purchase invoices were stamped to acknowledge receipt of goods delivered and further that, goods are acquired on credit terms. Section 17 of the VAT Act provides that: -“1)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 acquired to make taxable supplies.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), andb.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.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; andd.a credit note in the case of input tax deducted under section 16(2);d.a debit note in the case of input tax deducted under section 16(5); ord.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…”

52. The Tribunal also finds that the Appellant only provided purchase invoices and respective ETR receipts and stated that goods were acquired on credit terms hence there was no proof of payment to support the purchases. In addition, the Appellant failed to validate its VAT credit position by providing additional documents in support of its claim for input tax as provided for under Section 43 of the VAT Act and Section 59 of the TPA.

53. In order to claim input VAT, the Appellant should have produced evidence of the supply of the taxable goods. Purchase invoices and the corresponding ETR receipts are not enough to discharge the burden of proof placed upon the Appellant. Further, there was no evidence of payment to support the purchases of goods in cash.

54. In Commissioner of Taxes v Galaxy Tools Ltd [2021] eKLR, the Court held that: -“With greatest respect, the Tribunal got it wrong. What the Respondent had done by producing the invoices, the delivery notes and payment schedules was only prima facie evidence of purchase. On producing the said documents, the evidentiary burden of proof shifted to the appellant. The appellant in answer not only queried the said documents but informed the Tribunal that; he had carried investigations on the alleged suppliers and concluded that they never existed, that there was no supply of any goods at all. That the documents produced did not contain critical details to support any reasonable commercial transaction. All this was laid before the Tribunal.”

55. From the foregoing, the evidentiary burden of proof shifted back to the Appellant to show that there was a taxable supply of goods and the purchase invoices and corresponding ETR receipts were legitimate by production of other transactional documentation such as requisition orders, delivery orders or notes and copies of stock records.

56. The Tribunal observes that the Appellant failed to provide the documents and information required by the Respondent to demonstrate legitimate transaction. Accordingly, the Appellant failed to discharge the burden placed on it.

57. The Tribunal finds that the Respondent did not err in fact and in law in raising additional assessments on 29th and 31st August, 2022 for VAT for the months of July, August, October & November, 2021 totaling to Kshs. 98,182,962. 00 and confirming the assessments.

58. From the foregoing, the Tribunal is persuaded that the Respondent’s objection decision dated 30th September, 2022 was justified.

Final Decision 59. The upshot of the above is that the Appeal is without merit and fails. Consequently, the Tribunal makes the following Orders: -a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 30th September, 2022 be and is hereby upheld.c.Each party to bear its own costs.

60. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 22ND DAY OF MARCH, 2024ERIC NYONGESA WAFULA - CHAIRMANDELILAH K. NGALA - MEMBERCHRISTINE A. MUGA - MEMBERGEORGE KASHINDI - MEMBERMOHAMED A. DIRIYE - MEMBERSPENCER S. OLOLCHIKE - MEMBER