[2024] KETAT 625 (KLR)

Gobin Limited v Commissioner of Domestic Taxes (Tax Appeal 184 of 2023) [2024] KETAT 625 (KLR) (Civ) (5 April 2024) (Judgment)

Neutral citation: [2024] KETAT 625 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tax Appeal 184 of 2023

CA Muga, Chair, BK Terer, D.K Ngala, SS Ololchike & GA Kashindi, Members

April 5, 2024

Between

Gobin Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited liability company based in Amagoro Kenya whose principal activity is hardware business.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of the laws of Kenya. Under Section 5(1) of the Act, the Respondent 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 performance of its functions under subsection (1), the Respondent is mandated to administer and enforce all provisions of the written laws as set out in Parts 1 & 1of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenue in accordance with those laws.

3. The Respondent issued an additional assessment on VAT returns for the months September 2018, December 2018 and January 2019 vide assessments dated 24th and 25th October, 2022. The Appellant filed an objection to these additional assessments on 28th October 2022.

4. The Respondent considered the Appellant’s objection and issued a decision on 23rd December, 2022 confirming the assessment of Kshs. 497,407. 36.

5. Dissatisfied with the Respondent’s decision, the Appellant lodged a Notice of Appeal dated 12th January 2023 and filed on 1st March 2023.

The Appeal 6. The Appellant lodged its Memorandum of Appeal dated 12th January 2023 and filed on 1st March 2023 raising the following grounds of appeal:(i)That the Respondent erred in law and in fact by failing to consider the taxpayer's documents and explanations before issuing the objection decision which confirmed an amount of Kshs. 497,407. 36 which was as a result of additional assessments.(ii)That the Respondent erred in law and in fact by rejecting the taxpayer's objections lodged on the basis that they were time barred.(iii)That all the invoices claimed fall within the law to claimed input tax as per Section 17(2) of the Value Added Tax Act No. 35 of 2013 (hereinafter ‘VAT Act’) which stipulates that:“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.”(iv)That the Respondent erred by disregarding the invoices provided which had been claimed in the return.(v)That it is common knowledge that a hardware cannot generate revenue without selling goods. That it would not be practical for the taxpayer to sell products that have not been purchased.(vi)That the input that was disallowed was genuinely incurred in the generation of the Company's income.(vii)That the Supporting documentary evidence for the input incurred was available and the Appellant is requesting to be accorded an opportunity to produce the same for verification by the Respondent.(viii)That the Respondent erred in law in declining the objection by giving vague reasons without considering the provisions of the law.

Appellant’s Case 7. In support of the Appeal, the Appellant filed Statement of Facts dated 12th January 2023 and filed on 1st March 2023 together with written submission dated 9th August 2023 and filed on 11th September 2023.

8. The Appellant averred after receipt of additional assessments on VAT, it objected to the same on 28th October 2022.

9. The Appellant stated that it paid a sum of Kshs 100,000. 00 on 30th November 2022, being payment for VAT self-assessment tax for the period September 2018.

10. The Appellant averred that it made a verbal agreement to pay Kshs 150,000. 00 by end of December 2022, but the objection decision on additional assessments was made before it could make the payment.

11. The Respondent issued objection decision fully rejecting the objections lodged on grounds that the Appellant was time barred.

12. The Appellant argued that the Respondent disregarded the invoices which had been claimed in the return. The Appellant also argued that proof of payment in form of bank slips were provided to support that the purchases were actually paid for and therefore qualify as input claimable under Section 17 of the VAT Act.

13. According to the Appellant, it is common knowledge that a hardware business cannot generate revenue without selling goods. That it would not be practical for the taxpayer to sale products that have not been purchased.

14. The Appellant stated that the supporting documentary evidence for the inputs incurred was available therefore, the Appellant requested for an opportunity to produce the same for verification by the Respondent.

15. Through the written submissions the Appellant submitted that the gravamen of this dispute is not whether the Appellant incurred any taxes but whether the Appellant qualifies for input VAT despite claiming for the same after 6 months.

16. The Appellant submitted that legality of invoices has not been challenged therefore the Appellant invites the Tribunal to determine whether it qualifies for input VAT.

17. The Appellant submitted that filing VAT return was not a condition for deduction of input VAT under Section 11 of the VAT Act that was similar to Section 17(2) of the VAT Act. In buffering this position, the Appellant relied on the case of Rabar Operation & Maintenance Limited v Commissioner of Domestic Taxes ML TA No. 7 of 2017 [2019] eKLR.

18. The Appellant submitted that the only conditions provided in law for a taxpayer to qualify for allowable of input VAT, which the Appellant complied with, under Section 17 of the VAT Act are threefold; first, that the input tax was incurred on a taxable supply made to or on importation made by a taxpayer at the end of the tax period. Second, that the input tax is deducted by a registered person on taxable supplies made by him and last, that the input tax is to be allowable for deduction within 6 months after the end of the tax period in which the supply or importation occurred.

19. The Appellant further submitted that the right of deduction of input tax is an integral part of the VAT scheme as a taxable person who makes transaction in respect of which VAT is deductible may deduct the VAT in respect of goods and services acquired by him provided that such goods and services have a direct and immediate link with the output transaction in respect of which VAT is deductible.

20. The Appellant submitted that the Respondent lacks power to disallow tax based on late filing. The Appellant further submitted that the only power donated to the Respondent as relates the issue in dispute under the VAT Act (to be precise Section 44), is to extend time for filing the return. Statute does not allocate/donate any power to the Respondent, either under Sections 17(1) and (2) or Section 44, to disallow input tax based on late filing of a return.

21. The Appellant relied on Highlands Mineral Water Limited v Commissioner of Domestic Taxes Tax Appeal No. E026 of 2020 to submit that the power donated to the Commissioner to condone late filing is only in relation to the penalty for late filing and not whether the taxpayer is entitled to credit for input tax against output tax.

Appellant’s Prayers 22. The Appellant prayed that this Tribunal be pleased to reverse the decision of the Commissioner Busia Tax Service dated 23rd December, 2022 and allow the instant Appeal with costs.

Respondent’s Case 23. In response to the Appeal, the Respondent lodged its Statement of Facts dated 1st March 2023 on even date. The Respondent also filed written submissions dated 22nd September, 2023 on even date.

24. The Respondent stated that the Appellant claimed VAT from different suppliers that is Mwireri Mbao Store, Tesia Supermarket, Mbig Limited, Zamzam Traders, New Muthokinju, Jaki Soda Store and Kassim Enterprises.

25. The Respondent averred that it informed the Appellant that some of the purchases found did not meet the requirements for deduction of input VAT and therefore disallowed and brought to charge vide an amended assessment issued on 25th October 2022.

26. The Respondent stated that it issued an amended assessment by disallowing the duplicated invoices. The Appellant objected to the assessment and argued that the additional assessment disallowed inputs VAT without prior notification.

27. In response to ground (i) of the appeal, the Respondent stated that the confirmed additional assessments were for Kshs 532,485. 76, Kshs 409. 60 and Kshs 64,512. 00 for the periods September 2018, December 2018 and January 2019, respectively. Further, the Respondent stated that the documents provided by the Appellant were invoices that the Appellant failed to claim for input VAT deduction at the time of filing the returns in question.

28. The Respondent relied on Section 17(2) of the VAT Act 2013 which provides that:“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), or(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.”

29. In response to grounds (iv), (v) and (vi) of Appeal, the Respondent averred that the Appellant claimed invoices in the original self-assessment returns, the law does not allow taxpayers to claim same invoices in two or more VAT returns.

30. The Respondent relied on Section 24 of the Tax Procedures Act No. 29 of 2015 (hereinafter ‘TPA’) to state that the Respondent is not bound by the returns filed by a taxpayer. The Respondent also stated that the Appellant was informed of the anomalies observed in its return through the letter dated 21st October 2021.

31. The Respondent asserted that due process of the law was followed and the assessments were confirmed after due consideration of the information and explanations provided by the Appellant. Finally, the Respondent relied on Section 56 (1) of the TPA to argue that the Appellant has failed to discharge burden of proof.

32. Apart from the Statement of Facts, the Respondent relied on its written submissions dated and filed on 22nd September 2023 wherein the Respondent relied on the case of Highland Mineral Water v Commissioner of Domestic Taxes where the High Court pronounced itself and stated as follows:“On the Other hand, section 17 does not provide a carte blanche for claiming input tax whenever the return if filed late. A tax payer can only claim input tax within specific and prescribed period after the end of the tax period in which the supply or importation occurred. Any claim outside the 6 months is time barred and cannot be allowed under the express terms of section 17 hence the fear that a tax payer will make a claim merely by paying the penalty is not borne out by the express statutory language.” 39. I therefore find and hold that section 17(1) and (2) of the VAT Act, permits the taxpayer to claim input tax at any time provided the claim falls within 6 months from period which the supply or importation occurred notwithstanding that the VAT Return is filed late. In other words, the fact of late filing does not preclude a taxpayer from claiming input VAT and that this claim ought to be allowed as long as Return is filed and claimed within six months from the date of supply or importation...”

33. The Respondent also submitted that no explanation was provided for the double claimed invoices.

34. The Respondent relied on Section 30 of the Tax Appeals Tribunal Act No. 40 of 2013 (hereinafter ‘TAT’) to argue that the Appellant had failed to discharge burden of proof. The Respondent referred the Tribunal to the case of Sera Steel Limited (Formerly Palak International Limited) v Commissioner Of Domestic Taxes TAT 42 of 2021 wherein the Tribunal held as follows:“The burden of proving that Commissioner erred in disallowing a deduction of a portion of the taxpayer’s input tax lay with the taxpayer. The taxpayer has not placed before the Tribunal sufficient evidence to discharge the presumption of correctness which is attached to the Commissioner’s assessment. The effect of such non-persuasion in this case is that the Appeal lacks merit and is hereby dismissed.”

Respondent’s Prayers 35. The Respondent prayed that this Tribunal do uphold the objection decision dated 23rd December 2022 and dismiss the Appeal with costs.

Issues For Determination 36. The Tribunal having considered the pleadings, documents and submissions of the parties puts forth the following single issue for determination:

Whether the Appellant’s claim for input VAT is statutorily time barred Analysis And Findings 37. The Tribunal wishes to analyse the issue as herein-under;

38. The Tribunal notes the Appellant’s claim that the Respondent erred in law and in fact by rejecting its objections lodged on the basis that they were time barred. The Appellant also stated that all the invoices claimed fall within the law to claimed input tax as per Section 17(2) of the VAT Act.

39. Section 17(2) of the VAT Act provides as follows:-“If at the time when a deduction for input tax would otherwise be allowable under subsection (1), the person does not hold the documentation referred to in subsection (3), the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation. Provided that the input tax shall be allowable for a deduction within six months after the end of the tax period in which the supply or importation occurred’” (Emphasis added).

40. The Tribunal also notes the Appellant’s submission that: ‘the gravamen of this dispute is not whether the Appellant incurred any taxes but whether the Appellant qualifies for input VAT despite claiming for the same after 6 months.’ This says it all.

41. In Highlands Mineral Water Limited v Commissioner of Domestic Taxes [2021] eKLR, the Court had the following to say at paragraphs para 38 38, para_39 39, and para_40 40. “38. The Tribunal expressed the view that accepting the Appellant’s position would create a dangerous precedent where taxpayers would no longer see the need to adhere to timelines specified under the VAT Act for submitting returns since they could always pay penalties and claim back input tax after late filings and that would render meaningless Sections 17(2) and 44(1) of the VAT Act. This argument does not find any support in the language and scheme of the VAT Act. At the material time, Section 44 penalised the late filing of VAT returns by imposing a penalty. On the other hand, Section 17 does not provide a carte blanche for claiming input tax whenever the return if filed late. A tax payer can only claim input tax within specific and prescribed period after the end of the tax period in which the supply or importation occurred. Any claim outside the 6 months is time barred and cannot be allowed under the express terms of Section 17 hence the fear that a taxpayer will make a claim merely by paying the penalty is not borne out by the express statutory language.39. I therefore find and hold that Section 17(1) and (2) of the VAT Act, permits the taxpayer to claim input tax at any time provided the claim falls within 6 months from period which the supply or importation occurred notwithstanding that the VAT Return is filed late.40. However, I do not find any fault in the Commissioner disallowing input VAT claims relating to purchases made outside the 6-month window period from the date of supply provided in section 17(2) of the VAT Act.”

42. The Tribunal finds that the Appellant has not claimed that it filed returns late. That is not the case. The Respondent in its objection decision rejected the Appellant’s objection because the invoices were time barred pursuant to the provisions of Section 17(2) of the VAT Act.

43. The Tribunal is of the view that the Appellant ought to have spent most of its time demonstrating that the invoices were filed within 6 months yet it did not. Accordingly, the Appellant failed to discharge its burden of proof under Section 56(1) of the TPA.

44. In view of the fact that the Appellant has itself admitted that it claimed input tax beyond 6 months, the Tribunal finds and holds that the Appellant claim for input tax is statutorily time barred.

Final Decision 45. The upshot to the foregoing is that the Appeal lacks merit and consequently, the Tribunal makes the following Orders: -(a)The Appeal be and is hereby dismissed.(b)The Respondent’s objection decision dated 23rd December 2022 be and is hereby upheld.(c)Each party to bear its own costs.

46. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 5TH DAY OF APRIL, 2024CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERDELILAH K. NGALA - MEMBERSPENCER S. OLOLCHIKE - MEMBERGEORGE KASHINDI - MEMBER