[2024] KETAT 487 (KLR)

Hotpoint Appliances Limited v Commissioner of Domestic Taxes (Tax Appeal 1526 of 2022) [2024] KETAT 487 (KLR) (19 April 2024) (Judgment)

Neutral citation: [2024] KETAT 487 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1526 of 2022

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

April 19, 2024

Between

Hotpoint Appliances Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company duly incorporated in Kenya. Its principal business activity is the sale of electronics and household appliances.

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 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) it is mandated to administer and enforce all provisions of the Written laws as set out in Parts 1 & 2 of the First Schedule to the Act for the purposes of assessing collecting and accounting for all revenue in accordance with those laws.

3. The Appellant applied for refund of VAT of Kshs 61,855,285. 86 vide a manual application dated March 2019 for period January 2016 to July 2017 vide its letter dated 23rd August 2022. This was in regards to bad debts owed to Nakumatt Holdings Limited. The Respondent partially approved the claim of Kshs 6,958,881. 00 and rejected Kshs 54,896,504. 00.

4. The Appellant objected to the Respondent’s decision through its letter dated 9th September, 2022.

5. The Respondent rejected the objection vide its letter dated 2nd November, 2022 conveying to the Appellant the statement of findings.

6. Aggrieved by the Respondent’s decision, the Appellant filed its Notice of Appeal dated 1st December, 2022 on 15th December. 2022.

The Appeal 7. The Appeal is premised on the following Appellant’s grounds of Appeal as stated in its Memorandum of Appeal dated 13th December, 2022 and filed on 15th December, 2022:a.That the Respondent erred in law and in fact by the wrongful interpretation of Section 31 (1) of the Value Added Tax Act No. 35 of 2013 (hereinafter ‘VAT Act’) by disallowing the bad debts claimed under the said section.b.That the Respondent erred in fact by failing to acknowledge that Nakumatt Holdings Limited is legally insolvent and placed under administration through a Court Order dated 22nd January, 2018. c.That the Respondent erred in law and fact by rendering a decision contrary to the Fair Administrative Action Act No. 4 of 2015 (hereinafter ‘FAA’).d.That the Respondent erred in law and fact by unfairly and unjustly administering its mandate contrary to the provisions of Article 27 of the Constitution of Kenya,2010 (hereinafter ‘the Constitution’) and all enabling provisions by negating a cultivated legitimate expectation.

Appellant’s Case 8. The Appellant’s case is premised on the Statement of Facts dated 13th December 2022 and filed on 15th December 2022 wherein the Appellant averred as outlined below:

9. The Appellant contended that the Respondent rejected part of the refund claim on the basis that the requirement under Section 31 of the VAT Act that the claim should be lodged three years from the date of supply and that any claim lodged for the period after 10th March 2016 would not qualify for the refund. However, Section 31 of the VAT Act provides that a bad debt may only be claimed if three years has lapsed from the date the supply was made, and no payment for the same was received, or if the person liable to pay was declared legally insolvent.

10. The Appellant emphasized the fact that the Section used the word “or” which expression is frequently encountered in the VAT Act, however although not defined, it is trite that the word is an ordinary word and must therefore be construed in its meaning which is “used to connect words, phrases or clauses representing alternatives”. This has the implication that the taxpayer would be required to fulfil either of the conditions set out, but not all.

11. The Appellant relied on the oft cited finding of “in a taxing act one has to merely look at what is stated. there is no presumption as to tax” …. and argued that by the provisions of Section 31 of VAT the Respondent may allow the refund should the Appellant satisfy either of the conditions set forth under subsection (1) of that Section and that it should not alter or change their interpretation to unfairly and unjustly deny the Appellant’s rightful refund claim. It contended that the Respondent failed to acknowledge the fact that the claim arose from Nakumatt Holding Limited (hereinafter ‘NHL’) being declared insolvent, therefore the Appellant has met one of the conditions.

12. The Appellant relied on the following cases to buttress its argument:a.Cape Brandy Syndicate vs Inland Revenue Commissioner (1921) 1 KB64. b.Republic vs Kenya Revenue Authority & another Ex- parte Fontana Ltd (2014) eKLR.c.Keroche Industries Ltd vs Kenya Revenue Authority & 5 others (2007) eKLR.

13. It was the Appellant’s assertion that in its decision, the Respondent completely failed to acknowledge that the claim arose from NHL being declared insolvent which the Appellant clearly stated in its application for refund. It asserted further that even the administrator of NHL vide his letter dated 11th July 2018 also confirmed that the debt is owed to the Appellant and that NHL had no property that would allow a distribution to its creditors and therefore unlikely that the Appellant would recover the sums owed. This fact was also stated in the Administrator’s letter of 28th September, 2022.

14. The Appellant stated that according to the Administrator’s report issued on 31st December, 2019 the Administrator proposed to sell off NHL’s assets so as to pay off the debts, bearing in mind that any preferential and secured creditors will have a financial charge to the realized sale of assets, leaving the unsecured creditors like the Appellant with no other means of resolve other than to write off these amounts. It also stated that the Administrator’s report indicated that NHL did not have sufficient assets to settle its debts. It therefore argued that it has satisfied the condition under Section 31 (1) of the VAT Act that for a claim for bad debts to be made, the person liable to pay must be legally insolvent.

15. The Appellant averred that it lodged its refund application dated 11th March, 2019 on 13th March, 2019. However the Respondent rendered its decision on 2nd November, 2022, over three and a half years from the date the application was lodged contrary to Section 47(1) of the FAA which provides that, “every person has the right to administrative action which is expeditious efficient, lawful reasonable and procedurally fair”. It stated that Section 31(1) of the VAT Act has a caveat setting the upper limit for the time in which an application for a refund can be made.

16. It therefore averred that the Respondent’s unreasonable delay in rendering a decision had now unfairly and unjustly prevented the Appellant from re-applying for the refund, given that the refunds relate to supplies made between the period January 2016 to July 2017. It contended that the Respondent’s behaviour and decision is contrary to the provisions of Section 7 (2) (e) of the FAA which suggests that the Respondent’s action and decision was taken with an ulterior motive or purpose calculated to prejudice the legal rights of the Appellant.

17. The Appellant averred that the Respondent failed to acknowledge that the Appellant’s application for a refund was based on the insolvency of NHL instead it simply stated that the amounts claimed did not meet the three-year threshold which is not only unfair but also ultra vires and unreasonable, given that it made a determination on facts not even pleaded by the Appellant.

18. The Appellant asserted that there must be equality before the law and that it is trite that a different set of rules cannot apply to individual taxpayers in similar circumstances as this would result in a fundamental breach of the Constitution which is what would occur if the Respondent’s decision to dismiss the Appellant’s objection stands.

19. The Appellant stated that it was aware that the Respondent issued a private ruling sought by an interested party on the treatment of bad debts in relation to NHL. However, this application was done so in the context of administration which affected all the various creditors of NHL which is the reason it was publicly shared with all interested creditors.

20. It contended that by disallowing the refund claim, the Respondent was admitting that although the stakeholders had the same interests and were enjoined in the same case in relation to an order of administration against NHL, the treatment of some was at the discriminatory discretion of the Respondent. It averred that the treatment of the NHL bad debts is in principle the same and the same ruling ought to be applied to other stakeholders as the facts have not changed and there is therefore no justification given by the Respondent to prove otherwise. The Appellant contended further that as a public body, the Respondent should apply Article 47 of the Constitution in conducting its affairs.

21. It was the Appellant’s assertion that the Respondent cannot apply the principle of VAT refunds of bad debts of NHL to some taxpayers and shift the goal post to other taxpayers. It therefore averred that all taxpayers must be treated equally as contravening this would be prejudicial and unconstitutional. The Respondent is therefore expected to exercise its powers fairly, reasonably lawfully, efficiently and expeditiously.

22. To buttress its argument, the Appellant also relied on the following cases:a.Primrose Management Ltd & 3 others vs Nakumatt Holdings Limited &another (2018) eKLR.b.Republic vs Public Procurement Administrative Review Board & 2 others (2019) eKLR.c.De Smith, Woolf & Jowell “Judicial Review of Administrative Action” 6th Edition Sweet & Maxwell page 609d.Republic vs Kenya Revenue Authority Ex-Parte M-Kopa Kenya Ltd (2018)e.Doody vs the Home Secretary of State 119931 1 ALL ER 151. f.Dry Associates Ltd vs Capital Market Authority and Another Nairobi Petition No 328 of 2011.

Appellant’s Prayers 23. The Appellant prayed that this Tribunal would:a.Allow the instant Appeal.b.Annuls the Respondent’s decision and allows the refund claim in full based on the grounds above as well as the information contained in the Statement of Facts; andc.Award costs of this Appeal to the Appellant.

The Respondent’s Case 24. The Respondent’s Statement of Facts dated and filed on 20th January, 2023 responded to the Appellant’s grounds of appeal the genesis of which was the Respondent’s decision to disallow the Appellant’s VAT refund claim of Kshs 54,896,504. 00.

25. It averred that the debt expensed by the Appellant did not meet the criteria under Section 31 of the Value Added Tax Act since the Appellant’s application was based on the fact that Nakumatt was declared insolvent and not on the three-year threshold rule. It contended that it allowed the refund claim on the invoices from December 2015 to 10th March 2016 which partially met the requirement of lodging the claim after three years from the date of supply.

26. The Respondent averred that Section 31(1) of VAT Act provides that one may lodge a refund claim either on the three-year rule or on the grounds of insolvency. It argued that since the Appellant had applied for refund on the grounds of insolvency, it had not met the threshold to qualify for a refund.

27. The Respondent asserted that Section 31 of the VAT Act allows for refund of bad debts when a debtor is confirmed to be legally insolvent while in this case the debt owed by Nakumatt supermarkets was still under litigation and as such the debtor had not been declared legally insolvent by the court. It contended therefore that the Appellant could not claim a refund on bad debts on the basis that the debtor had been declared insolvent.

28. The Respondent asserted that the Tribunal does not have the jurisdiction to entertain matters regarding administrative action and that it has been fair in administering its mandate guided by law. Further that Section 31 of the VAT Act has sufficiently provided for refund of tax on bad debts which it adhered to.

29. The Respondent averred that Section 65 of the Tax Procedures Act, No. 29 of 2015 (hereinafter ‘TPA’) provides for binding of private rulings and that the private ruling does not confer rights upon the Appellant therefore it cannot rely on the ruling issued to seek for refund on the grounds of insolvency.

30. It contended that it is trite that the Respondent’s determination of tax deficiencies is presumptively correct and the presumption remains so until the Appellant produces competent and relevant evidence to support its position arguing that the audit findings were limited to the documents examined and the conclusions drawn from them.

31. The Respondent reiterated that the Appellant had failed to discharge its burden of proof in proving that the Respondent’s tax decision is incorrect as per the provisions of Section 56(1) of the TPA, hence the Appellant’s allegations as laid out in its Memorandum of Appeal and Statement of Facts were unfounded in law and not supported by evidence.

Respondent’s Prayers 32. The Respondent prayed that the Tribunal finds that:a.The Respondent’s objection decision issued on 2nd November, 2022 disallowing Value Added Tax refund claim amounting to Kshs 54,896,504. 00 as properly issued and uphold the same.b.This Appeal be dismissed with costs.

Submissions of the Parties 33. The Appellant’s identified Four (4) issues for determination in its Written Submissions dated 4th July, 2023 and filed on 5th July, 2023 which it analysed as follows:

(a) Whether the Respondent misinterpreted Section 31(1) of the VAT Act. 34. The Appellant submitted that Section 31(1) of the VAT Act allows a taxpayer to apply for a refund of VAT paid on a bad debt if either three years have lapsed from the date of supply or where the recipient of the supply has become legally insolvent. This in essence means a taxpayer only needs to demonstrate either insolvency or lapse of three years to qualify for refund. However, it submitted that the Respondent disallowed the bad debts refund claim on the basis that three years had not lapsed from the date of that supply and failed to examine whether the refund application met the insolvency test.

35. It was the Appellant’s submission that the Respondent had no power in law to restrict the application of the insolvency rule at its convenience therefore it erred in law by claiming that a refund under Section 31 of the VAT Act could only apply to bad debts that are older than three years.

(b) Whether Nakumatt Holding was legally insolvent at the time the Appellant applied for a refund of VAT on bad debts and whether the Appellant was entitled to the refund of the same. 36. The Appellant highlighted that on 22nd January 2018, the High Court in Kenya in the case of Primrose Management Limited & 3 others vs Nakumatt Holdings Limited & another (2018) eKLR expressly noted the fact that Nakumatt was insolvent in the following terms:“88. In so holding, I am not overlooking the fact that currently the company is insolvent. In fact, I have taken note of the sub-heading of Part VIII of the Insolvency Act which deals with the “Administration of Insolvent Companies89. Therefore I recognize that a company which was solvent cannot be placed under administration.104. Accordingly, I now order that Peter Obondo Kahibe appointed as the Administrator of Nakumatt Holdilngs Limitedforthwith.”

37. The Appellant submitted that the Respondent, in its letter dated 21st March, 2018 unequivocally confirmed that it was aware that Nakumatt had been declared legally insolvent and confirmed that VAT on Nakumatt bad debts were refundable. The said letter stated in part:-“This is to confirm your understanding that Bad debts write off are allowable for Tax deduction in the books and Tax returns of suppliers to Nakumatt Holdings Ltd subject to the Guidelines prescribed in the Legal Notice No.37 of 2011 and as provided for under section 15 (2) (a) of the Act. The VAT Act 2013, Section 31 further allows refunds of VAT with respect to Bad Debts Written off as a result of Nakumatt Holdings Ltd status being confirmed to be legally insolvent.”

38. The Appellant stated that it was over a year after the High Court established that Nakumatt was insolvent, that it applied for a refund of VAT on bad debts which the Respondent admitted to at paragraph 5 of its Statement of Facts where it stated that the Appellant’s refund claim for Nakumatt bad debts was made on 19th March, 2019. It therefore follows that at the time it lodged its refund application, Nakumatt was legally insolvent and the Respondent was fully aware of this insolvency.

39. The Appellant submitted that its refund is payable for the following reasons:i.It supplied goods to Nakumatt.ii.It paid VAT on the aforementioned supplies.iii.Nakumatt was declared insolvent on 22nd January 2018. iv.The Respondent confirmed its awareness of the insolvency.v.The Respondent confirmed that the VAT was refundable.vi.The Appellant applied for the refund over a year after Nakumatt was declared insolvent.

(c) Whether the Respondent violated legitimate expectation it had created. 40. It was the Appellant’s submission that Section 65(4) of the TPA empowers the Respondent to issue rulings that are binding on itself and not taxpayers. Further that on 19th March, 2018, PKF Taxation Services Ltd applied to the Respondent for a ruling on VAT pertaining to bad debts to Nakumatt insolvency. The said letter was to make it clear that the ruling was for the purpose of disseminating the correct tax position to the general public. In response to the letter by PKF, dated 19th March, 2018, the Respondent issued its Ruling vide its letter dated 21st March 2018 wherein it made specific reference to the very court dispute that declared Nakumatt insolvent.

41. The Appellant submitted that the Respondent created legitimate expectation for the following reasons:i.The Respondent made an express, clear and unambiguous promise that VAT on bad debts pertaining to supplies made to Nakumatt were refundable.ii.The expectation was reasonable as it was common knowledge that Nakumatt was insolvent and bad debts ought to be allowable and refundable.iii.The Respondent was empowered to make such a promise under the TPA; andiv.The Respondent’s promise did not violate the Constitution or any other law.

42. It therefore submitted that despite having created a legitimate expectation that VAT on the bad debt was refundable, the Respondent violated the expectation by rejecting the Appellant’s refund application therefore violating the legitimate expectation it had created.

(d) Whether this Tribunal has jurisdiction to entertain matters regarding administrative action. 43. The Appellant submitted that contrary to the Respondent’s claim at paragraph 19 of its Statement of Facts that the Tribunal lacks jurisdiction to review administrative decisions, it asserted that Section 7(1) b & (2) of the FAA grants the Tribunal the jurisdiction to handle tax appeals as well as jurisdiction to review administrative actions taken by the Respondent that gave rise to this Appeal hence the Respondent’s challenge to this Tribunal’s jurisdiction is without basis.

44. In its written submissions dated 18th August, 2023 and filed on 21st August 2023 the Respondent identified two issues for determination which it analysed as hereinunder:-

(a) Whether the Respondent erred in disallowing the Appellant’s claim for bad debts against supplies to Nakumatt Holdings Limited. 45. The Respondent submitted that Section 31 (1) of the VAT Act permits for expensing of bad debts for purposes of claiming deductions in Income Tax Act, however the same law requires the Appellant to provide reasons to the satisfaction of the Respondent that the expenses were indeed deductible as bad debts. It therefore argued that the Income Tax Act, Cap 470 of the laws of Kenya (hereinafter ‘ITA’) empowered the Respondent to draft guidelines on the allowability of bad debts which brought in Legal Notice No.37 of 2011 which goes into detail on the allowability of bad debts for purposes of claiming deductions in input taxes.

46. The Respondent submitted that the Legal Notice No 37 of 2011 and the guidelines provide in detail what is considered a bad debt and collectable debt and that the key word in the clauses is that a bad debt must be proven to the satisfaction of the Respondent. This it argued has the implication that if the Respondent is not satisfied that the said debt is not bad, the same ought to be disallowed and that it is well within its discretion to disallow the alleged bad debt.

47. It was the Respondent’s argument that the Appellant needed to determine to the Respondent’s satisfaction that it lost contractual rights between itself and NHL through a court order; and that the debtor was adjudged insolvent or bankrupt by a court of law and that the Appellant has not extensively demonstrated its efforts in collection of the debts owed by NHL. It argued further that the Appellant should have moved to court and obtained judgement in its favour which it could have enforced against any person who was owing NHL or for consideration when the other creditors were being considered.

48. The Respondent asserted that the Appellant sat on its right and allowed other creditors to be given priority over them and cannot therefore turn around to blame the Respondent for disallowing the deductions. It asserted further that the Appellant has not provided a report demonstrating that after carrying out its due diligence the cost of all the recovery mechanisms open to them would far outweigh the amount owed.

49. The Respondent submitted that the Appellant was granted several opportunities to present its documents but failed to do so therefore it did not satisfy the Respondent that it exhausted all the avenues available to it. The Respondent referred to the Appellant’s Ugandan case where it argued that the Appellant only filed a suit in Uganda but has not demonstrated that it pursued the same to its logical conclusion by obtaining judgement and enforcing the decree. The Respondent submitted that the Appellant also failed to produce any evidence before the Tribunal to demonstrate that it participated in the creditors’ meetings.

50. The Respondent argued that the Appellant bore the burden of proving that it had applied for insolvency proceedings and had received a court order in its favour that would have enabled it to claim from NHL in a similar capacity as the secured creditors, a burden it failed to discharge.

51. It was the Respondent’s submission that when the Appellant claimed for the deductions, Nakumatt Holdings was placed under administration by the High Court. Further that contrary to the Appellant’s assertion that when a company is placed under administration it had been rendered insolvent, it maintained that when a company is placed into administration, the appointed insolvency practitioner will immediately assume control of the company in their role as administrator. The administrator would be required to assess whether the company has a viable future and if so how this would be achieved. It maintained that administration does not automatically translate to insolvency, but is meant to improve its management status and probably even revive the same.

52. The Respondent maintained that contrary to the Appellant’s assertion that the assets of NHL available were Kshs 3,868, 348,851. 00 against secured creditors of Kshs 5,967,039,867. 00 the Respondent submitted that at paragraph 4 of the ruling, the report tabled before the court showed that the administrator had been able to raise Kshs 5,218,737,409. 00 out of which an amount in excess of Kshs 3,05 billion was paid to creditors.

53. The Respondent submitted that the Appellant had neither provided any evidence to demonstrate that the secured creditors were given priority over unsecured creditors nor demonstrated any other effort to try and recover the outstanding debt before writing off. Further, that the Administrator is a just a change of business management and does not dictate whose debt takes precedence over the other. As such the Appellant’s ground has no merit.

(b) Whether the Respondent erred in unfairly and unjustly administering its mandate contrary to the provisions of Article 27 of the Constitution. 54. The Respondent submitted that contrary to the Appellant’s assertion that it treated the suppliers differently, it argued that the Application (PKF) was very clear that the certification sought was for purposes of disseminating the correct tax position to their clients. It averred that an application for a private ruling requires each supplier to make their own specific applications with appropriate disclosures to the Respondent before issuance of private rulings, hence the Appellant cannot claim there was any form of discrimination from the Respondent.

55. The Respondent stated that failure by the Appellant to apply for a private ruling and the absence of material disclosures from the Appellant meant that it was not in a position to verify the claim for the same to be allowed. It submitted that the refunds were subject to Nakumatt being rendered insolvent which decision had not been rendered to date.

56. To buttress its case, the Respondent relied on the following cases:a.Republic vs Commissioner for Income Tax & another Ex-Parte Stockman Rozen (K) Limited (2015) eKLR.b.Republic vs The Registrar of Trademarks exp Sony Holdings Ltd & Anor. Misc Appl. No 165 of 2012.

Issues for Determination 57. Having considered the parties’ pleadings, documentation and submissions, the Tribunal is of the view that this Appeal raises a single issue for determination.

Whether the Respondent erred in disallowing the Appellant’s refund application. Analysis and Findings 58. The Tribunal will proceed to analyse the single issue for determination that it has identified hereinunder.

59. This Appeal arose from the Respondent’s action of disallowing the Appellant’s refund claim of Kshs 54, 896, 504. 00 claiming that the rejected amount was applied for before the lapse of 3 years from the date of supply and that it did not meet the threshold as set out under Section 31(1) of the VAT Act.

60. The Tribunal notes that both parties have referred to Section 31 (1) of the VAT Act to argue their case. The Appellant argued that it met the threshold of Section 31(1) in that the NHL had been declared insolvent and that it made its refund application one year after the declaration of insolvency. The Respondent on its part argued that NHL had not been declared insolvent and that the matter was still pending in court. Further that the Appellant failed to satisfy the Respondent that it exhausted all available avenues in pursuit of its debt with NHL.

61. The Tribunal also notes that the provisions of Section 31 (1) of the VAT Act are specific on the conditions to be met when applying for a refund of tax on bad debts. It provides as follows:“(1)Where a registered person has made a supply and has accounted for and paid tax on that supply but has not received from the person liable to pay the tax on that supply and that person –(a)has not received any payment from the person liable to pay the tax, he may after a period of three years from the date of the supply or(b)a person to whom the supply was made has been placed under statutory management through the appointment of an administrator, receiver or liquidator;He may apply to the Commissioner for refund of the tax involved provided that; -(a)no application for refund shall be made under this section after the expiring of ten years from the date of supply;(b)The refund shall be made in compliance with section 47(5) of the Tax Procedures Act…”(c)the amounts may be credited to the taxpayer’s record for use against future value added tax liabilities.(d)Where the tax refunded under subsection 1& 2 is subsequently recovered from the recipient of the supply, the registered person shall refund the tax to the Commissioner within sixty days of the date of recovery.(e)If the payment is not made within the time specified under subsection 1 and 2, an interest of two percent per month or part thereof of the tax refunded shall forthwith be due and payable and the interest shall not exceed one hundred percent of the refunded amount.”

62. From the above provisions of Section 31(1) of the VAT Act the Appellant must satisfy either of the two conditions specified for it to qualify for the tax refund. The Tribunal notes that the Appellant made refund application on 11th March 2019 for the period January 2016 to July 2017 where the Respondent issued its decision to reject the Application on 2nd November 2022. During the period under review, the Section 31(1) of the VAT Act provided as follows:“Where a registered person has made a supply and has accounted for and paid tax on that supply but has not received any payment from the person liable to pay the tax, he may after a period of three years from the date of that supply or where that person has become legally insolvent, apply to the Commissioner for a refund of the tax involved and subject to the regulations, the Commissioner may refund the tax….”

63. The declaration of insolvency in the matter of NHL was pronounced in the case of Primrose Management Ltd & 3 others vs Nakumatt Holdings Limited & another (2018) cited above. The Tribunal has also cited the Administrator’s letter dated 28th September 2022 to the Appellant on its debt with NHL (UA) which states in part:“We also wish to confirm that Hotpoint Appliances Limited is among the unsecured creditors of Nakumatt Holdings Limited (UA). Having also confirmed the belief that the company has no property that will allow a distribution to its creditors and as we work on winding up the affairs of the company, it is unlikely that Hotpoint Appliances Limited will recover the monies owed…..”Further, the Administrator’s letter dated 11th July, 2018 states in part:“Debts owed by Nakumatt even where they fall short of 3 years from the date of supply qualify for tax refund by virtue of the current state of insolvency as per the Court Order….”

64. It is the Tribunal’s considered view that the finding in the case cited above and the confirmation by the Administrator that the company has no property that will allow distribution to its creditors is adequate grounds that the company is insolvent. According to the Black’s Law Dictionary, insolvency is defined as:“the inability to pay one’s debts; or lack of means to pay one’s debt. It defines further that a debtor is said to be insolvent when “a debtor who cannot satisfy the claims of all of his creditors may be sequestrated (declared insolvent) by the court.”

65. The Tribunal is of the considered view that the matter of insolvency of NHL has been proven beyond reasonable doubt and that on this limb alone, the Appellant satisfies the threshold of Section 31 (1) of the VAT Act. It is worth noting that even in its letter to PKF Taxation Services Limited dated 21st March, 2018, the Respondent acknowledged Nakumatt’s insolvency by stating in part at paragraph 3 as follows:-“The VAT Act 2013, Section 31 further allows refunds to VAT with respect to Bad Debts written - off as a result of Nakumatt Holdings Ltd status being confirmed to be legally insolvent…”

66. The Tribunal notes that the Respondent has fronted extraneous reasons to justify its rejection of the Appellant’s application. However, the law is very clear on the conditions to be fulfilled for one to claim a tax refund on bad debts and that the taxpayer would be required to fulfil either of the conditions as set out under Section 31(1) of the VAT Act which in this case the Appellant has done so.

67. The Tribunal seeks reliance in the Case of Cape Brandy Syndicate vs Inland Revenue Commission (1921) 1 KB 64 where the court held that:“In a taxing Act one has to look at what is clearly stated. There is no room for intendment. There is no equity about tax. There is no presumption as to tax. Nothing is to be read in nothing is to be implied. One can only, look fairly at the language used…”

68. In view of the foregoing, the Tribunal finds that the Respondent erred in disallowing the Appellant’s refund application.

Final Decision 69. The upshot of the foregoing is that the Appeal succeeds and the Tribunal accordingly proceeds to make the following final Orders:-a.The Appeal be and is hereby allowed.b.The Respondent’s decision dated 2nd November 2022 be and is hereby set aside.c.Each party to bear its own costs.

70. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF APRIL, 2024. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERDELILAH K NGALA - MEMBERGEORGE KASHINDI - MEMBERSPENCER S. OLOLCHIKE - MEMBER