[2024] KETAT 164 (KLR)

Impact North Sez (KE) v Commissioner of Legal Services and Board Coordination (Appeal 1320 of 2022) [2024] KETAT 164 (KLR) (9 February 2024) (Judgment)

Neutral citation: [2024] KETAT 164 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 1320 of 2022

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

February 9, 2024

Between

Impact North Sez (KE)

Appellant

and

Commissioner of Legal Services and Board Coordination

Respondent

Judgment

Background 1. The Appellant (formerly known as Impact North (KE)) is a private Company incorporated in Kenya under the Companies Act No. 17 of 2015. It carried out the construction of an Industrial Park in Kiambu County.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 of Kenya’s laws. 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 provisions of the written laws as set out in Part 1 & 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. In 2017, the Appellant was desirous of constructing an industrial park on a piece of land measuring about 103 acres in Northland Development in Ruiru Municipality, Kiambu County.

4. At the time, Paragraph 55 of Part I (repealed in 2020) and Paragraph 22 of Part II (repealed in 2020) of the First Schedule to the Value Added Tax Act, No. 35 of 2013 (the ‘VAT Act’) exempted taxable goods and services provided for direct and exclusive use in the construction and infrastructural works of industrial parks of 100 acres or more subject to approval by the Cabinet Secretary National Treasury upon recommendation by the Cabinet Secretary responsible for Industrialization.

5. The Appellant engaged the Ministry of National Treasury and the Ministry of Industry, Trade and Co-operatives through written correspondence from 23rd October 2017 to 30th October 2019 and continually followed up to get the approval but failed.

6. The Appellant went ahead to commence the construction of the park in the period in which it was seeking the approval in the hope that it would be forthcoming in the process of the construction.

7. The Appellant finished the construction and the Cabinet Secretary Industry, Trade and Co-operatives declared the Industrial Park a Special Economic Zone (hereinafter ‘SEZ’) by a Gazette Notice dated 4th October 2019. Hence the Land known as Land Reference Number 10902/19 on which the Appellant constructed the Industrial Park was designated as a SEZ.

8. The Appellant also acquired an Enterprise License dated 5th October 2021 which allowed the Appellant to sell or lease space and provide utility services to SEZ end users.

9. On 8th June 2022, the Respondent sent the Appellant an electronic mail notifying it of a VAT Credit Verification exercise for the period of April 2018 to April 2022. The Appellant availed some documents to aid the Respondent in this exercise.

10. On 30th June 2022, the Respondent issued its VAT Credit Validation findings in which the Respondent informed the Appellant that its input VAT of Kshs. 339,896,231. 00, and Kshs.36,011,163. 00 were disallowed. The Respondent also found as payable Kshs. 29,570,682. 00 which was the VAT output the Appellant had declared.

11. The Appellant objected to the findings via a letter dated 26th July 2022 to which the Respondent gave its objection decision dated 22nd September 2022.

12. Aggrieved by the Respondent’s objection decision, the Appellant lodged a Notice of Appeal dated and filed on 19th October 2022.

The Appeal 13. The Appellant’s Appeal was premised on the following grounds as indicated in the Memorandum of Appeal dated 4th November 2022 and filed on even date:a.That the Respondent erred in law by disallowing input VAT of Kshs. 339,896,231. 00 incurred by the Appellant on the taxable goods and services procured for the construction of the Nairobi Gate Industrial Park.b.That the Respondent erred in law by failing to consider the express provisions of Paragraph 55 of Part I (repealed) and Paragraph 22 of Part II (repealed) of the First Schedule to the VAT Act No. 35 of 2013 (hereinafter ‘VAT Act’) exempted the supply taxable goods and services provided for direct and exclusive use in the construction and infrastructural works of industrial parks of 100 acres or more subject to approval by the Cabinet Secretary National Treasury upon recommendation by the Cabinet Secretary responsible for Industrialization.c.That the Respondent erred in law by failing to consider that the VAT exemption provided in the law on construction of industrial parks was not automatic and the Appellant had to first obtain a recommendation from the Cabinet Secretary responsible for industrialization and thereafter obtain the VAT exemption from the Cabinet Secretary responsible for the National Treasury.d.That the Respondent erred in fact and in law by ignoring the fact that the Appellant had applied for approval of the industrial park and expended a lot of effort trying to obtain the VAT exemption from the Cabinet Secretary responsible for the National Treasury to no avail.e.That the Respondent misdirected itself by disallowing the input VAT claimed by the Appellant yet it was legally entitled to claim as it had been charged VAT by its suppliers.f.That the Respondent erred in law and fact by disallowing the input VAT of Kshs. 36,011,163. 00 claimed by the Appellant on the taxable goods and services it procured after being licensed as an SEZ enterprise.g.That the Respondent erred in law and fact by failing to appreciate that the Appellant would not be able to prevent third party suppliers from charging VAT on their supplies to the Appellant and that the Appellant had to obtain approval to deregister its VAT obligation.h.That the Respondent erred in demanding output VAT of Kshs. 29,570,682. 00 yet the Appellant was entitled to adjust input VAT from any output VAT incurred.i.That the Respondent erred in law and in fact in totally disregarding the objection raised by the Appellant and its decision was therefore unconstitutional, illegal, unreasonable, wrong in law and unjust in effect.

The Appellant’s Case 14. The Appellant’s case is premised in its Statement of Facts dated 4th November 2022 and filed on even date:

15. That the Appellant claimed input VAT which was disallowed by the Respondent as follows:a.Input VAT of Kshs. 339,896,231. 00 for periods prior to October 2021 was disallowed as it related to VAT exempt supplies for construction of an industrial park of at least 100 acres; andb.Input VAT of Kshs. 36,011,163. 00 for periods between October 2021 and June 2022 was disallowed on the basis that the Appellant had been licensed as an SEZ enterprise.

16. That the Respondent further demanded output VAT of Kshs. 29,570,682. 00 after adjusting for withholding VAT.Disallowed Input VAT of Kshs. 339,896,231. 00 incurred in Construction of the Industrial Park

17. The Appellant averred that the VAT exemptions provided under Paragraph 55 of Part I (repealed) and Paragraph 22 of Part II (repealed) of the First Schedule to the VAT Act were not automatic as they required approval by the Cabinet Secretary National Treasury upon recommendation by the Cabinet Secretary responsible for Industrialization. The Appellant further noted that despite its best efforts, there was prolonged delay by the Cabinet Secretary responsible for Industrialization as well as the Cabinet Secretary National Treasury to issue the VAT exemption and this was beyond the control of the Appellant.

18. The Appellant submitted that in April 2020 the provision for the grant of the VAT exemption on taxable goods and services supplied for the construction of an industrial park was repealed and it therefore had no alternative but to incur the VAT cost on the procurement of taxable supplies for the construction of the industrial park.

19. The Appellant stated that it was legally entitled to deduct the input VAT incurred pursuant to Section 17 of the VAT Act which provides as follows:“Subject to the provisions of this section 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.”

20. Based on the above, the Appellant contended that the Respondent’s decision to disallow the input VAT is unfair, illegal and prejudicial to the Appellant since the deduction of input VAT is permitted in law.Disallowed Input VAT of Kshs. 36,011,163. 00 incurred from supplies made to the Appellant in the SEZ.

21. The Appellant averred that it was licensed as an SEZ enterprise on 5th October 2021 and pursuant to Paragraph 12 of Part A of the Second Schedule to the VAT Act:“the supply of taxable goods and services to an SEZ enterprise is zero-rated.”

22. The Appellant submitted that the above provision notwithstanding, some of its suppliers were reluctant to zero-rate taxable supplies to the Appellant due to lack of a supporting letter from the Respondent and therefore continued to charge VAT. On this account, the Appellant incurred input VAT amounting to Kshs. 36,011,163. 00

23. To resolve this issue, the Appellant stated that it sought a private ruling from the Respondent vide its letter dated 17th November 2021 on the treatment of taxable supplies provided to an SEZ enterprise. The Respondent confirmed the Appellant’s understanding of the VAT treatment vide its letter dated 9th February 2022.

24. Upon licensing as an SEZ enterprise, the Appellant on 9th November 2021 further applied to the Respondent for VAT deregistration and this was only approved on 17th August 2022 after the issues in dispute had already arisen. The Appellant averred that had the VAT deregistration been expedited by the Respondent, the input VAT incurred post SEZ enterprise licensing would not have arisen.

25. The Appellant further averred that it was entitled to claim the input VAT incurred from the procurement of taxable goods and services pursuant to Section 17(1) of the VAT Act.

26. The Appellant therefore contended that the Respondent’s decision to disallow the input VAT incurred as a result of the third-party suppliers declining to zero-rate their supplies was in breach of its legitimate expectation and contrary to the express provisions of Section 17(1) of the VAT Act.

The demanded output VAT of Kshs. 29,570,682. 00. 27. The Appellant contended that given the significant amount of input VAT incurred, it did not have any output VAT payable. This was on the basis that input VAT incurred should be adjusted from the output VAT charged by the Appellant and the resultant position was that there would be no output VAT payable.

28. The Appellant therefore averred that the Respondent’s demand for output VAT was moot.

Appellant’s Prayers 29. In view the foregoing the Appellant prayed as follows:a.That the Respondent’s objection decision dated 22nd September 2022 be set aside.b.That an order be issued restraining the Respondent from disallowing the total input VAT of Kshs. 375,907,394. 00 and enforcing and/or collecting the output VAT of Kshs. 29,570,682. 00. c.Costs of the Appeal be borne by the Respondent.d.Any other remedies.

The Respondent’s Case 30. The Respondent’s case is premised on its Statement of Facts dated and filed on 30th November 2022. Disallowed Input VAT of KShs. 339,896,231. 00 incurred in Construction of the Industrial Park

31. The Respondent acknowledged that under the applicable VAT Act, goods and services supplied for direct and exclusive use in constructing of industrial parks were exempted from VAT. The Respondent further submitted that it was the Appellant’s duty to seek the approval of the National Treasury before embarking on the construction. The Respondent submitted that even though the Appellant began to request for the approval in October 2017, it was in August 2018 that the Appellant actually had a Bill of Quantities showing the estimated costs and estimated input VAT that would be incurred.

32. The Respondent claimed that the Appellant started the project on 3rd October 2018 without a recommendation letter being issued as it clearly stated in its letter dated 24th October 2018. The Respondent noted that this confusion ultimately led to the Ministry of Industry, Trade and Cooperatives granting a qualified recommendation on 30th October 2019 advising the National Treasury that only goods and services supplied after the letter was issued should be exempted.

33. The Respondent stated that the Appellant can only impose VAT on taxable supplies where a taxable supply is defined under Section 2 of the VAT Act in the following terms:“taxable supply” means a supply, other than an exempt supply, made in Kenya by a person in the course or furtherance of a business carried on by the person, including a supply made in connection with the commencement or termination of a business.”

34. The Respondent further stated that VAT is structured in such a way that a taxpayer collects the VAT it charges after adding it to the consideration it receives in the course of supplying goods or services.

35. The Respondent averred that the Appellant should therefore have obtained the approval and communicated to its suppliers that the construction, architectural, electrical and engineering services should be charged net of VAT as they were being used directly and exclusively for construction of an industrial park on a piece of land measuring more than one hundred (100) acres. The Respondent noted that it was the Appellant which was in direct contact with its suppliers and as a purchaser of the services they were offering had the right to inform them that they were offering services that were not taxable by law.

36. The Respondent further stated that there were guidelines issued by the National Treasury titled ‘Guidelines/Framework for Requesting, Processing and Granting Tax Exemption/Waiver/Variation/Remission on a National Tax, a Fee or a Charge’ (hereinafter “the Guidelines”) on 24th October 2018 during the period in which the Appellant was seeking for the exemption.

37. The Respondent averred that Guidelines provided a well laid out procedure for applying for exemption and the Appellant should have delayed the construction and then communicated to the Accounting Officer of the Ministry of Trade to apply to the National Treasury, after which the National Treasury would have processed the application and sent it to the Respondent confirming that the services were VAT exempt. The Respondent further noted that the Appellant should have provided the invoices, contracts and quotation of the service providers to facilitate the processing of the application.

38. The Respondent therefore contended that the Appellant neglected following the laid out process and endeavored to undertake construction without first getting the exemption or acquainting itself with the correct procedure of getting the exemption.

39. The Respondent submitted that pursuant to Section 17 of the VAT Act input VAT can only be claimed by registered persons who incurred such input VAT on the course of providing taxable supplies. According to the Respondent, Section 17(1) of the VAT Act provides that a person claiming input VAT must be a supplier of taxable goods or services and such a claimant is then in turn expected to have charged output VAT on the supplies it makes to others.

40. The Respondent further submitted that it is thereafter that the input claimed is deducted from the output that the claimant charged on its supplies and at the moment the Appellant incurred the input VAT for the construction of the industrial park, it was not rightly offering taxable supplies.

41. The Respondent averred that not everyone who incurred VAT was allowed to claim input VAT and that the final consumers of vatable supplies incur VAT but are not allowed to claim any input. The Respondent therefore contended that the Appellant should have proved that it was providing taxable supplies when it incurred the input VAT before it could claim the amounts incurred and that these incurred amounts related directly to taxable supplies it was making.

42. The Respondent submitted that to make taxable supplies, then one must be registered for purposes of VAT as provided under Section 5(1) of the VAT Act:“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; andc.a supply of imported taxable services [emphasis added].”

43. The Respondent stated that the Appellant from 5th October 2021 was licensed as an enterprise in a SEZ and that persons trading in SEZ’S are not registered persons for purposes of VAT pursuant to Section 2 of the VAT Act which defines registered persons as follows:“registered person" means any person registered under section 34, but does not include an export processing zone enterprise or a special economic.”

44. The Respondent therefore averred that the Appellant could not claim the input VAT incurred from the construction of the industrial park as it should have obtained the VAT exemption first before embarking on the construction and that as an enterprise operating in a SEZ it was not a registered person capable of making taxable supplies and claiming input VAT.Disallowed Input VAT of Kshs. 36,011,163. 00 incurred from Supplies Made to the Appellant in the Special Economic Zone

45. The Respondent submitted that it did not dispute that every supply that was made to the Appellant as an enterprise in the SEZ was zero rated pursuant to Paragraph 12 of Part A of the Second Schedule to the VAT Act which provides as follows:“Where the following supplies, excluding hotel accommodation, restaurant or entertainment services where applicable, take place in the course of a registered person’s business, they shall be zero rated in accordance with the provisions of section 7—The supply of goods or taxable services to a special economic zone enterprise.”

46. The Respondent therefore contended that the above provision is in very certain terms and the Appellant should not have therefore allowed its suppliers to charge VAT on services and goods they were providing to the Appellant after it was issued with the SEZ enterprise license on 30th October 2021 and as such any input VAT incurred by Appellant was done so contrary to the express wording of the law.

47. The Respondent further contended that it should not be blamed for the input VAT that the Appellant incurred wrongly but voluntarily and further that the Appellant as a purchaser was entitled, of its own volition, to choose the suppliers it transacted with and had other legal means of contesting the prices it is charged.

48. According to the Respondent, if the law clearly states supplies are zero rated, the purchaser of such supplies has the right to demand that the suppliers adjust the prices accordingly after receiving the invoice and the Appellant cannot therefore claim input VAT which by law it should not have allowed to be charged.

The demanded output VAT of Kshs. 29,570,682. 00. 49. The Respondent claimed that the Appellant’s claims for input having been rejected, the output VAT it charged and declared is due and payable and there is no law which requires that in all instances, output VAT is only payable when there is an input VAT claim allowed.

50. The Respondent further claimed that input VAT can be disallowed for several reasons for example for lack of supporting documents but it does not mean the output VAT will then not be payable.

51. On this basis, the Respondent contended that output VAT would have been offset against the input VAT amounts had they been allowed.Alternative means of claiming the input VAT incurred in the construction of the Industrial Park

52. The Respondent averred that in the spirit of fairness it suggested a way for the Appellant to avoid remitting the disallowed input VAT it incurred in the construction of the industrial park.

53. The Respondent claimed that it advised the Appellant to request it to permit capitalization of the disallowed input VAT and it therefore in essence presented the Appellant with the opportunity to have the disallowed input to be treated as part of an asset in its statement of financial position. The Respondent submitted that consequently, the Appellant would not be required to remit the disallowed input VAT that was incurred in the construction of the industrial park.

54. The Respondent therefore averred that it was aware that the Appellant would suffer a loss for the disallowed input VAT and was considerate enough to suggest a legal way in which the matter could be handled.

55. On this basis, the Respondent contended that it did not disregard the Appellant’s objection and further it did not set out to bring an unjust effect.

Respondent’s Prayers 56. The Respondent’s Prayers were for: -a.That the Respondent’s decision to disallow the input VAT amounting to a total of Kshs. 375,907,394. 00 was proper in law and conformed with VAT Act and all other applicable laws.b.That the Respondent’s decision to demand the output VAT amounting to Kshs. 29,570,682. 00 as was declared by the Appellant as the output it charged conformed to the VAT Act and all other applicable laws.c.That this Appeal be hereby dismissed with costs to the Respondent as the same is without merit.

Parties’ Written Submissions 57. The Tribunal notes that Appellant was to file its written submission by the 27th of June 2023 while the Respondent was to file and serve its submission by the 11th of July 2023, neither of the parties observed the timelines provided. Therefore, the Appellant’s written submissions dated and filed 30th June 2023 and the Respondent’s Written submission dated 14th July 2023 and filed on 19th July 2023 have not been considered by the Tribunal and are hereby accordingly expunged from the record.

Issues for Determination 58. The Tribunal having carefully considered the parties’ pleadings notes that there are three issues that call for its determination as follows:i.Whether the Appellant was entitled to claim input VAT of Kshs. 339,896,231. 00 incurred in the construction of the Industrial Park.ii.Whether the Appellant was entitled to claim input VAT of Kshs. 36,011,163. 00 incurred after it was licensed as a SEZ enterprise.iii.Whether the Respondent is entitled to demand output VAT of Kshs. 29,570,682. 00.

Analysis and Determination 59. Having established the issues for determination, the Tribunal proceeds to analyze the same as follows:i.Whether the Appellant was entitled to claim input VAT of KShs. 339,896,231. 00 incurred in the construction of the Industrial Park.

60. The Tribunal notes that it is not disputed that the Appellant was involved in the construction of an industrial park of more than 100 acres in the period under dispute and therefore qualified for input VAT exemption for goods and services procured during the construction pursuant to Paragraph 55 of Part I (repealed) and Paragraph 22 of Part II (repealed) of the First Schedule to the VAT Act which provided as follows:Paragraph 55, Part I, First Schedule to the VAT Act stated as follows:“The supply or importation of the following goods shall be exempt supplies-Taxable goods purchased or imported for direct and exclusive use in the construction and infrastructural works in industrial parks of one hundred acres or more including those outside special economic zones approved by the Cabinet Secretary for the National Treasury.”Paragraph 22, Part II, First Schedule to the VAT Act stated as follows:“The supply of the following services shall be exempt supplies-Taxable services provided for direct and exclusive use in the construction and infrastructural parks of one hundred acres or more including those outside special economic zones approved by the Cabinet Secretary for the National Treasury.”

61. The Tribunal observes that pre-approval by the Cabinet Secretary for the National Treasury was required to effect the provisions of Paragraph 55 of Part I (repealed) and Paragraph 22 of Part II (repealed) of the First Schedule to the VAT Act and that exemption was therefore not automatically granted to taxpayers.

62. The Tribunal notes that in the instant Appeal, the Appellant submitted its application for recommendation and approval of the VAT exemption on 17th October 2017 from the Cabinet Secretary responsible for Industrialization as well as the Cabinet Secretary for National Treasury.

63. The Tribunal notes that there was a delay in issuing of the VAT exemption from 17th October 2017 when it made the application until 30th October 2019 when the approval was finally provided. The Tribunal further notes that in the intervening period, the Appellant proceeded with the construction of the industrial park without the VAT exemption approval and therefore incurred the impugned input VAT of Kshs. 339,896,231. 00.

64. The Tribunal observes that the Respondent’s position was that the delay was occasioned by failure by the Appellant to follow the laid-out procedure for application for the VAT exemption while the Appellant contended that it was entitled to claim the input VAT incurred during the construction phase of the industrial park pursuant to the provisions of Section 17(1) of the VAT Act which provides as follows:“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.”

65. The Tribunal therefore notes that the pursuant to Paragraph 55 of Part I (repealed) and Paragraph 22 of Part II (repealed) of the First Schedule to the VAT Act, the service of construction provided to the Appellant would have become exempt upon the granting of an approval by the Cabinet Secretary to the National Treasury.

66. The Tribunal is guided by the finding of Lenaola, J (as he then was) in Pharmaceutical Manufacturing (K) Co. Ltd and Others vs Commissioner General of the Kenya Revenue Authority and 2 Others [2014] eKLR when he stated as follows:“…exemption from paying taxes may as well be there but the same has to be from proper approvals being obtained and it is upon the applicant to show that it has been exempted from tax…”

67. The Tribunal notes that that the Appellant in this case did not obtain the approval for the VAT exemption and could therefore not claim the input VAT incurred as the services provided to it qualified for exemption. The Tribunal notes that had the Appellant waited for approval of the exemption it would not have been charged the impugned VAT by its suppliers.

68. Additionally, it is not lost to the Tribunal that the Respondent suggested to the Appellant an alternative means of claiming the Input VAT incurred during the construction of the industrial park. The Tribunal notes that the Respondent advised the Appellant to follow a procedure that allowed the Appellant to capitalize the disallowed input VAT. The Tribunal notes that this would have presented the Appellant with an opportunity to have the disallowed input VAT treated as part of an asset in its financial statements so that the Appellant would not have been required to remit the disallowed input VAT.

69. Based on the foregoing, the Tribunal finds that the Appellant is not entitled to claim input VAT of Kshs. 339,896,231. 00 on that basis that it did not secure approval before incurring the expenses inclusive of VAT.ii.Whether the Appellant was entitled to claim input VAT of Kshs. 36,011,163. 00 incurred after it was licensed as a SEZ enterprise.

70. The Tribunal notes that the Appellant obtained an SEZ enterprise license on 5th October 2021 long after completing construction.

71. The Tribunal notes that as an SEZ enterprise, the Appellant’s supplies were zero rated pursuant to Paragraph 12 of Part A of the Second Schedule to the VAT Act, which provides as follows:“Where the following supplies, excluding hotel accommodation, restaurant or entertainment services where applicable, take place in the course of a registered person’s business, they shall be zero rated in accordance with the provisions of section 7—The supply of goods or taxable services to a special economic zone enterprise.”

72. It is not in dispute that the Appellant applied for a private ruling to the Respondent to confirm its VAT position vide a letter dated 17th November 2021 and the Respondent confirmed the correct position vide a letter dated 9th February 2022. The Tribunal notes that the Appellant having transitioned to SEZ status also applied to the Respondent to be deregistered for VAT vide a letter dated 9th November 2021 and the Respondent approved deregistration from its VAT obligation on 17th August 2022.

73. The Tribunal notes that during this period, the Appellant’s suppliers continued to charge VAT on the services and goods supplied and therefore, the Appellant incurred the impugned input VAT of Kshs. 36,011,163. 00.

74. The Respondent is of the view that the Appellant incurred the VAT wrongly but voluntarily and that as a purchaser it ought to have asked its suppliers not to charge VAT as it had other legal means to challenge the prices charged.

75. It is not in dispute that the impugned input VAT was incurred by the Appellant. The issue in dispute was whether the Appellant was entitled to claim the input VAT since the law provided that its inputs qualified for zero-rating.

76. It is the view of the Tribunal that whereas the supplies procured by the Appellant qualified for VAT zero-rating, the same could only be applied upon the Appellant being granted approval to do so from the National Treasury.

77. The Tribunal notes that the Appellant did not have approval from the National Treasury at the time of incurring the expenses, it was therefore not entitled to claim input VAT of Kshs. 36,011,163. 00 after it was licensed as a SEZ enterprise.

iii. Whether the Respondent is entitled to demand output VAT of Kshs. 29,570,682. 78. The Tribunal having determined that the Appellant was not entitled to claim the input VAT in the two instances above, output VAT is due.

79. On this basis, the Tribunal finds that the Respondent is entitled to demand output VAT of Kshs. 29,570,682. 00.

Final Decision 80. The upshot of the foregoing is that the Appeal fails and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby dismissed.b.That the Respondent’s objection decision dated 22nd September 2022 be and is hereby upheld.c.Each party to bear its own costs.

81. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 9TH DAY OF FEBRUARY, 2024ERIC NYONGESA WAFULA - CHAIRMANDELILAH K. NGALA - MEMBERCHRISTINE A. MUGA - MEMBERGEORGE KASHINDI - MEMBERABDULLAHI M. DIRIYE - MEMBERSPENCER S. OLOLCHIKE - MEMBER