[2025] KETAT 220 (KLR)

Hotel Waterbuck Limited v Kenya Revenue Authority (Tax Appeal E842 of 2024) [2025] KETAT 220 (KLR) (2 May 2025) (Judgment)

Neutral citation: [2025] KETAT 220 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E842 of 2024

CA Muga, Chair, BK Terer, EN Njeru, E Ng'ang'a & SS Ololchike, Members

May 2, 2025

Between

Hotel Waterbuck Limited

Appellant

and

Kenya Revenue Authority

Respondent

Judgment

Background 1. The Appellant is a private limited liability company registered in under the Companies Act of the Laws of Kenya whose principal business is in the hotel industry.

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 raised VAT automated assessments for the periods December 2017, January, February, March, April and May 2018 dated 15th November 2019 amounting to Kshs 6,156,421. 70. The Appellant lodged its notice of objection on 20th October 2020.

4. The Respondent having considered the objection, issued its objection decision through a letter dated 18th December 2020 wherein the Respondent fully confirmed the assessments.

5. Being dissatisfied with the objection decision, the Appellant lodged notice of appeal dated and filed on 21st November 2023. This Tribunal granted the Appellant leave to file the appeal out of time vide a ruling delivered on 22nd March 2024.

The Appeal 6. The Appellant lodged memorandum of appeal dated 22nd November 2023 and filed on even dated raising the following grounds of appeal:a.That the learned assessing officer erred in law and fact by not considering the type of enterprise and use of asset.b.That the learned assessing officer erred in law and in fact by not considering information and explanation provided by the Appellant.c.That the learned assessing officer erred in law and in fact by failing to put into further consideration documents and explanations provided confirming actual documentation for the said period provided by the Appellant.d.The Appellant was desirous of pursuing its Appeal with the Tribunal by availing all the documents requested for further review by this Tribunal or the ADR department as may be directed.e.That the tax assessments by the Respondent are not only excessive and unreasonable but also fail to admit genuine input transactions as claimed by the Appellant.f.That the Appeal will not prejudice the Respondent in any way but will provide an opportunity to this Tribunal to decide the issues in dispute on merit and ensure dispensation of justice.

Appellant’s Case 7. In support of the appeal, the Appellant filed its Statement of Facts dated and 22nd November 2023 on even date and its written submissions dated 23rd December 2024 and on 2nd January 2025.

8. The Appellant confirmed that the Respondent issued VAT Automated Assessment for the period of December 2017, January-2018, February-2018, March 2018, April-2018 and May-2018 on 15th November, 2019 to which it objected on 20th October, 2020 leading to issuance of the objection decision dated 18th December 2020.

9. It stated that the Respondent issued a late objection rejection notice dated 27th October 2023 which the Appellant averred that it received through its electronic mail on the 15th November 2023. In the notice, the Respondent demanded taxes due amounting to Kshs 6,156,421. 70. It averred that the registered e-mail hotelwaterbuck@yahoo.com was not in use and that, the Appellant had limited access to correspondence.

10. The Appellant averred that on the 14th December 2018, it made a request the change of the electronic mail address to facilitate access to the account, which was not approved at the correct time and would have led to the delayed reaction from assessments order charged by the Respondent.

11. It averred that there was sufficient evidence that claimed VAT on assorted inputs are validly claimed and that the VAT Automated Assessment system failed to identify and appreciate the claims.

12. The Appellant averred that it followed due diligence in the tendering process where a local purchasing order was issued, delivery notes issued and subsequent payments made.

13. It averred that there is a clear and present danger that unless the prayer sought by the Appellant herein is granted, the Respondent will continue to interfere with the Applicant's business operations to the detriment, loss and damage to the Appellant which cannot be compensated.

14. The Appellant asserted that the Respondent will not be prejudiced in any way and that the Tribunal will have opportunity to decide the issues in dispute on merit and ensure dispensation of justice.

15. In its written submissions, the Appellant submitted that it has necessary documentation as provided for by Section 17 of the Value Added Tax Act, CAP 476 of the Laws of Kenya (hereinafter “VAT Act”) to warrant the qualification of all of the Appellant’s claims. It submitted that it annexed documents including receipts from LPO, Invoice and Payments (Including proof of payment in the bank statements).

16. The Appellant submitted that the VAT legislation as was written at the time of the Appellant's filing and declaration did not impose any obligation on the buyer of goods/services to ensure VAT charged to him/her by the seller is declared and remitted to the Respondent. It submitted that the law required that any VAT claimed as input tax should be incurred for the purpose of making supply and the claimant should be in possession of prescribed documentation to evidence entitlement to the claim. It also submitted that the VAT Automated Assessment (VAA) system imposes this as an additional obligation which was not supported in law for the buyers of goods/services as per the amended Act by then.

17. Further the Appellant submitted that in a public notice of 21st of November 2019 published in the highlighted the first time of implementation of VAA to 3rd September 2019.

18. It also submitted that the VAT Automated Assessment orders of 15th November 2020 disqualified the Appellant’s to inputs amounting to Kshs 6,156,421. 70 and that the VAA orders affected the period of December 2017; January 2018; February 2018; March 2018; April 2018 and May 2018. Therefore, it submitted that the Respondent’s actions were contrary to Section 17(1) of the VAT Act.

19. On whether the Respondent erred in its decision to disallow the claim for Input VAT, the Appellant relied on the provisions of section 11 of the Finance Act 2020 to submit that the VAA action went contrary to the law by applying the law retrospectively, which action is null and void.

20. It cited the case of Saj Ceramics Limited v Commissioner of Domestic Taxes TAT No. 465 of 2021 wherein the Tribunal held as follows:‘‘Appellant had furnished tax invoices in the prescribed format as prima fade evidence of purchase and went further to furnish banking slips.’’The Appellant submitted that it provided these documents.

21. It also relied on the case of Tononoka Rolling Mills Limited v Commissioner of Domestic Taxes TAT 1388 of 2022 to support the position that where documents are rejected, reasons should be given.

22. Consequently, the Appellant urged the Tribunal to allow its Appeal.

Respondent’s Case 23. In response to the appeal, the Respondent filed its Statement of Facts dated 30th April 2024 on even date. The Respondent also relied on its written submissions dated 1st August 2024 and filed on 4th November 2024.

24. In response to the grounds of appeal, the Respondent relied on Section 17 (2), (3) (a) of the VAT Act which outlaws deduction of input tax without possession of documentation which includes an original invoice or a certified copy. The Respondent averred that the Appellant did not provide sufficient records for some disallowed transactions during the review process.

25. The Respondent relied on section 59 of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”) which empowers the Respondent to seek any information relating to the ascertaining of the correct tax liability of an Appellant.

26. The Respondent asserted that where a taxpayer makes an objection to the assessments issued by the Commissioner, the taxpayer is obligated to provide all the relevant documentation it relies on in making the objection but the Appellant failed to provide relevant documentary evidence as requested in support of the objection which according to the Respondent, was contrary to section 51(3) of TPA.

27. The Respondent thus stated that the Appellant failed in discharging its burden of proof contrary to Section 56 of the TPA. The Respondent maintained that the Appellant failed to provide the required documentation leading to the Respondent issuing the objection decision.

28. In the written submissions, the Respondent submitted that it was justified in issuing the additional assessment and disallowing the VAT input claimed. It submitted that the Appellant filed tax returns and claimed input VAT from different suppliers.

29. It submitted that the Appellant had to prove that it is entitled to an input VAT claimed, and must either produce the documents referred to in the section 17 (3) of the VAT Act which are related to the transaction in issue or the suppliers must have declared the sales invoice for the input claimed in their return. It submitted that the Appellant failed to provide proper documentation as requested by the Respondent and therefore the Appellant failed adduce documents to support the claim for input VAT therefore it confirmed the assessments.

30. It relied on the provisions of Section 31 of the TPA to submit that the said law allows the Commissioner to issue additional assessments from the available information and to the best of the Commissioner's judgement. In this regard, the Respondent relied on the cases of Oliver Merrick Fowler & another v Kenya Revenue Authority [2022] eKLR, and Tenhos Sacco Society Limited v Commissioner of Domestic Taxes TAT No. 413 of 2019 [2022] to support the position that the Commissioner must consider the information available and make a proper decision. It therefore submitted that it applied its best judgment in assessing the correct tax by disallowing the unsupported VAT inputs claimed.

31. The Respondent invoked the provisions of section 56 (1) of the TPA and section 30 of the Tax Appeals Tribunal Act, CAP 469A (hereinafter “TATA”) to submit that the taxpayer has to demonstrate that the Respondent’s decision is incorrect or that the Respondent ought to have arrived at a different finding but the Appellant failed.

32. It relied on the cases of Ushindi Limited v Commissioner of Investigation and Enforcement Kenya Revenue Authority [2020] eKLR; Digital Box Limited versus Commissioner of Investigations and Enforcement [2020]; Republic v KRA: Proto Energy Limited (2022) eKLR; Alfred Kioko Muteti v Timothy Miheso and Another (2015) eKLR; and Ngurumani Traders Ltd v Commissioner of Investigation and enforcement (2019) eKLR to support the position that the taxpayer has a burden to prove that the Respondent’s decision is incorrect but the Appellant failed to do so.

33. The Respondent maintained that the Appellant failed to keep records therefore it was unable to produce them to discharge the burden of proof.

34. Based on the foregoing, the Respondent urged the Tribunal to find that the present Appeal has no merit and therefore the same should be dismissed with costs. Further, the Respondent prayed that the Tribunal be pleased to uphold the Respondent's objection decision dated 18th December 2020 as proper and in conformity with the provisions of the Law.

Issues for Determination 35. The Tribunal having carefully considered parties’ pleadings documentation and submissions, is of the respectful view that the issue that calls for its determination is as hereunder:Whether the Respondent’s objection decision dated 18th December 2020 was justified.

Analysis and Findings 36. The Tribunal will proceed to analyse the issue hereinunder:

Whether the Respondent’s objection decision dated 18th December 2020 was justified. 37. The Respondent issued assessments for the period December 2017, January, February, March, April and May 2018 dated 15th November 2019 amounting to Kshs 6,156,421. 70. The Appellant lodged a late notice of objection on 20th October 2020 the Respondent then issued a letter dated 18th December 2020 invalidating the Appellant’s objection on two grounds:“First, that the Appellant did not provide documents in support of the objection which was contrary to section 29 and section 51(3)(c) of the TPA; andSecond, the Appellant did not give a valid reason for objecting out of time contrary to section 29 and 51(2) of the TPA.”

38. At the material time in 2020, Section 51(2) of the TPA provided as follows:‘‘(2) 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.’’

39. Section 51 (3)c of the TPA provides as follows:“(3)A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—(c) all the relevant documents relating to the objection have been submitted”

40. From the foregoing facts and the provisions of the law, the Tribunal notes that the Appellant lodged an application for its late objection whose receipt the Respondent confirmed on 20th October 2020.

41. The Tribunal also notes that the said Application cited absence from Kenya as the reason for the lateness. The acknowledgment receipts were the only documents relating to the late objection application filed in the Appellant’s bundle of documents. There were no other documents in support of its Director’s absence from Kenya adduced as evidence by the Appellant.

42. The Tribunal is of the view that the Appellant is obligated to provide all the relevant documentation it relies on in making the objection but the Appellant failed to provide relevant documentary evidence as requested in support of the objection which is contrary to Section 51(3) of TPA.

43. It then follows that the Tribunal finds that the Respondent’s objection decision dated 18th December 2020 was justified.

Final Decision 44. The upshot of the foregoing is that the Tribunal finds and holds that the Appeal lacks merit and makes the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s decision dated 18th December 2020 be and is hereby upheld.c.Each party to bear its own cost.

45. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 2ND DAY OF MAY, 2025. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A - MEMBEROLOLCHIKE S. SPENCER - MEMBER