[2024] KETAT 717 (KLR)

Kenya General Industries Limited v Commissioner of Domestic Taxes (Tax Appeal E643 of 2023) [2024] KETAT 717 (KLR) (17 May 2024) (Judgment)

Neutral citation: [2024] KETAT 717 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E643 of 2023

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, T Vikiru & AK Kiprotich, Members

May 17, 2024

Between

Kenya General Industries Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated under the Companies Act and whose principal activity is the manufacture of G.C.I sheets for roofing.

2. The Respondent is a principal officer appointed under section 13 of the Kenya Revenue Authority Act. The Kenya Revenue Authority is an agency of the Government of Kenya mandated with the duty of collection and receipting of all tax revenue, and the administration and enforcement of all tax laws set out in Parts 1& 2 of the First Schedule to the Act, for purposes of assessing, collecting, and accounting for all tax revenues in accordance with those laws.

3. The issue in dispute in this Appeal arose when the Appellant applied for Withholding VAT (WHVAT) refund from where the Respondent opted to conduct a validation exercise to confirm the WHVAT refund. That before the validation exercise was completed, the Respondent issued the Appellant with credit adjustment vouchers putting the Appellant in a continuous credit position.

4. Aggrieved by the Respondent’s inaction the Appellant lodged its Appeal seeking the intervention of the Tribunal vide a Notice of Appeal dated 29th September 2023 and filed on 2nd October 2023.

The Appeal 5. The Appellant set out its Appeal in its Memorandum of Appeal dated 29th September 2023 and filed on 2nd October 2023 wherein it lay the following grounds of appeal:a.That the Respondent erred in law and fact by misinterpreting and misapplying Section 17(5) of the VAT Act, 2013, particularly by failing to appreciate that where an input/output analysis places the taxpayer in a VAT credit position, the VAT credits accrued should be first utilized to offset the tax liability in the next tax period, prior to utilization of Withholding VAT (WHVAT).b.That the Respondent erred in law and fact in declining to utilize the credits brought forward as input tax deductible in the next tax period, as intended by Section 17(5) of the Value Added Tax Act 2013. c.That the Respondent erred in fact and law by utilizing WHVAT credits to offset VAT payable instead of utilizing the accrued input tax carried forward, thus denying the Appellant an opportunity to rightfully claim its Withholding VAT refund.d.That the Respondent erred in law and fact by failing to respond to the Appellant's letter dated 31st May 2023, requesting for the Respondent's basis for the utilization of Withholding VAT credits as approved to input tax credits carried forward in line with Section 17(5) of the Value Added Tax Act, 2013. e.That the Respondent erred in law and fact by issuing credit adjustment vouchers to the outstanding Withholding VAT refund amounts and subsequently refusing to explain its actions to the Appellant.f.That the Respondent’s iTax systems are similarly erroneously configured to offset the WHVAT first before considering the input tax brought forward. This is despite the law setting that the input tax (input tax for the month and input brought forward) be offset against the output in the determination of the tax payable for the month.g.That the Respondent erred in law and fact by failing to appreciate that its actions and decisions constitute a breach of the Appellant’s right to fair administrative action as enshrined under Article 47 of the Constitution of Kenya 2010. h.That the Respondent’s application of Section 17 (5) for the VAT Act 2013 is unlawful and is based on questionable facts of the law.

Appellant’s Case 6. The Appellant’s case is premised on its Statement of Facts dated 29th September 2023 and filed on 2nd October 2023 and written submissions dated and filed on 30th January 2024.

7. The Appellant stated that it applied for a WHVAT refund following which the Respondent conducted a validation exercise to confirm the WHVAT amount available for refund.

8. That before the validation exercise was completed the Respondent issued it with credit adjustment vouchers thus putting it in a continuous credit position.

9. It further averred that vide an email dated 28th March 2023 the Respondent informed it that it could re-apply for the refund, however an analysis of its ledger indicated that most of its credits had already been utilised.

10. That subsequent hereto the parties held several meetings and also exchanged several correspondences but no formal decision was issued regarding its WHVAT refund application.

11. That it is this failure to obtain a response to its letter and its confusion on how the Respondent had applied its available credits refund which precipitated this Appeal.

12. The Appellant posited that it had noted that:a.In September 2017, the Respondent issued a credit adjustment voucher and transferred the Withholding VAT credits to the following month of August 2018 and October 2018. b.In August 2018, the Appellant was in a credit position for both normal credits and WHVAT credits. That it was thus not necessary to transfer WHVAT paid from September 2017 to August 2018. c.In October 2018 the Appellant was in a payable (output-input) position of Kshs. 5,089,671. 81. That the WHVAT in the same month was Kshs. 5,554,360. 00 thus the company ended up being in a credit position for the month.

13. The Appellant took the position that it did not understand the basis upon which the Respondent had issued credit adjustment vouchers for the periods September 2017 to December 2017, January 2018 to October 2018, June 2019, September 2019, October 2019 and November 2019.

14. That this adjustments were done even though the Appellant was in normal VAT credit for February 2018, April 2018, May 2018, October 2018, June 2019, September 2019, October 2019 and November 2019.

15. It was thus its view that these credit voucher adjustments were unjustifiable and issued in months when it was in a credit position.

16. The Appellant stated that its understanding and interpretation of Section 17(5) of the VAT Act is that input tax credit brought forward from a previous period becomes input tax of the current month and should be deducted from the output tax together with the input tax of the current month before utilizing the WHVAT for the month.

17. That the Respondent had acted in contravention of the law by misinterpreting and misapplying Section 17(5) of the VAT Act, 2013 by utilizing WHVAT credits to offset VAT payable instead of utilizing accrued input tax credits brought forward, thus denying it the opportunity to rightfully claim its withholding VAT refund.

18. The Appellant stated that it was in a net WHVAT credit/refund position amounting to Ksh.125,705,977. 27. That this amount is however not available for refund as provided by the VAT Act due to the erroneous utilization of the WHVAT before the deduction of input tax credit brought forward by the Respondent.

19. That furthermore, the Respondent had failed to respond to its letter dated 31st May 2023, requesting the Respondent's basis for utilizing withholding VAT credits as opposed to input tax credits carried forward in line with section 17(5) for the Value Added Tax Act 2013.

20. That contrary to its right to fair administrative action, the Respondent has been reluctant to provide its basis for deviating from the requirements for Section 17(5) of the VAT Act, 2013 and Sections 3 and 4 of the Fair Administrative Act, 2015.

21. The Appellant stated that it was its understanding that any administrative action that is devoid of justice, fairness and is oppressive should not be allowed to stand. That the Respondent's decision did not address the issues raised in its letter of 31st May 2002 in contravention to the the tenets of justice.

22. The Appellant was of the view that the Respondent erred by utilizing WHVAT credits to offset VAT payable instead of utilizing accrued input tax credits carried forward as provided under Section 17(5) of the VAT Act thereby denying it the opportunity to rightfully claim its withholding VAT refund contrary to Article 47 of the Constitution, Sections 3 and 4 of the Fair Administrative Action Act and Section 17(5) of the VAT Act.

23. The Appellant also identified the following as the main issues for determination in this Appeal:a.Whether the Respondent breached the Appellant's right to fair administration action.b.Whether the Respondent correctly interpreted the provisions of Section 17(5) of the VATR Act, 2013. c.Whether the Appellant's claim is unfounded on the basis that it did not Appeal against the Credit Adjustments Vouchers issue by ITAX.d.Whether there is uncertainty and ambiguity in the interpretation of Section 17(5) of the VAT Act, 2013

a. Whether the Respondent breached the Appellant's right to fair administration action. 24. The Appellant submitted that the Respondent was obliged to process its WHVAT refunds promptly as was explained in the case of Tata Chemicals Magadi Limited v Commissioner of Domestic Taxes (Large taxpayers) (2014) eKLR.

25. That the Respondent’s action constitutes an unreasonable delay in meeting its statutory obligation, thereby constituting a significant breach of the Appellant’s Constitutional right to fair administrative action. That this prolonged delay has inflicted considerable prejudice upon its working capital which has remained tied up throughout the entirety of this period.

26. The Appellant affirmed that a delay of two years in processing its claim contravened Article 47 of the Constitution and principles of fair administrative action as was discussed in the Court of Appeal case of Judicial Service Commission v Mbuku Matava & another (2015) eKLR.

27. The Appellant submitted that the Respondent indeed violated its right to fair administrative action through the following actions:a.Unnecessarily delaying for over 2 years in responding to its refund application.b.Determining the WHVAT refundable credits to be non-refundable and converting them into credits carried forward to subsequent tax periods and transferring them to other months without lawful reasons, thereby denying the Appellant’s right to refund payment.c.Advising the Appellant to consult the Large Taxpayers Office for explanations and reasons for the credit whether and subsequently failing to provide any response after the consultations.

b. Whether the Respondent correctly interpreted the provisions of Section 17(5) of the VAT Act, 2013. 28. Under this issue, the Appellant submitted that the Appelant’s claim that 17(5) of the VAT Act 2013 does not prescribe a specific order or priority for utilizing credits when a taxpayer possesses both withholding VAT credits certificates from the current month and credits brought forward from previous periods is illogical and inconsistent with the actions taken in this Appeal because the Respondent has in this instance determined that withholding VAT Credits should be utilized before credit brought forward from previous months.

29. That the line of argument by the Respondent that only "transactions' for the month are considered first has no basis in law because Section 17(2) of the VAT Act allows for claiming of inputs in any month before the expiry of six months from the time the supply occurred. That no restriction is provided in law on what the Respondent described as “transactions for the month”.

30. The Appellant stated that law under Section 17(5) of the VAT Act is very clear on the order of utilization for input tax credit brought forward and WHVAT credits. That it is different from the Respondent's position that: WHVAT credits therefore have priority over credit brought forward from previous period in computation of tax liability for the respective month.

31. The Appellant affirmed that the excess input tax credit brought forward from the previous month and the input tax incurred from the purchases of the current month are all input tax credits deductible from the output tax of the current month without any discrimination or preferential treatment of any of them as asserted by the Respondent.

32. That its understanding and interpretation of Section 17(5) of the VAT is that a credit position arises when the input tax exceeds the output tax. That therefore, the input tax credit brought down from a previous period becomes the input tax credit brought forward for the current month and should be deducted from the output tax together with the input tax of the current month before utilizing the WHVAT for the month.

33. The Appellant stated that its understanding of Section 17(5) of the VAT Act which reads as follows “shall be carried forward as input was deductible ion the next tax period”, was that the excess input tax credit from the previous month to be input tax of the subsequent month and together with the input tax from the purchases incurred in that subsequent month from the input tax of that month to be deducted from the output in that month before any other adjustment or deferment of the total amount of the two.

34. That this meant that Section 17 of the VAT Act, 2013 does not contemplate a situation where the excess credit will be refunded unless the excess tax was accrued from zero-rated sales, or if the excess tax arose from tax withheld by the appointed withholding agents.

35. That once it was in a position of withholding VAT then it was required to apply for a refund within 24 months from the commencement date.

36. That the Respondent misinterpreted Section 17(5) of the VAT Act by utilising WHVAT credits to offset VAT payable thus denying the Appellant the right to lawfully claim its WHVAT refunds.

37. The Appellant opined that the Respondent’s unlawful action had the impact of denying it its rightful refund that had been accrued and accumulated from WHVAT.

38. The Appellant stated that the Respondent’s action in prioritizing the utilization of refundable withholding tax (WHVAT) to offset output VAT or payable VAT was unlawful and solely intended to deprive it of the payment of its refunds arising from the WHVAT as provided in law.

39. That the provisions of the law on refunds are couched in mandatory terms using the word ‘shall’ which carries the weight of a clear command or mandate. That the Respondent should therefore apply the provisions of Section 17(5) of the VAT Act 2013 as intended in the law by treating input tax credit brought forward from a previous period as input tax of the current month and deducting it from the output tax together with the input tax from the purchases of the current month before utilizing the WHVAT for the month.

c. Whether the Appellant's claim is unfounded on the basis that it did not appeal against the Credit Adjustments Vouchers issued by Itax 40. The Appellant propounded that certain adjustment vouchers were not accompanied by rejection orders, but were accompanied by a message explicitly stating that “Please consult LTO tax office for any queries”. That it continuously engaged LTO tax office and refund office without getting a satisfactory response to the basis of the credit adjustment vouchers or rejection orders.

41. That additionally, other rejection orders indicated that: “Claim rejected since assessment/objection has been initiated and is under progress,” created the impression that the verification process was still ongoing and a final decision on rejection or approval would be made upon completion.

42. The Appellant stated that the Respondent rejected its claim after an extended period of two years, citing the reason. "Claim rejected since assessment /objection has been initiated and is under progress.” That this is contrary to its Statement of Facts which states that the Appellant had not objected to the credit adjustment vouchers issued by the Respondent and yet the said objection is in the Respondent’s iTax system.

43. That the credit adjustment voucher did not address the issue of refund, it instead directed the Appellant to handle its pending issues with LTO offices and other offices for clarification.

44. That the only communication from the Respondent which was close to addressing the issue under contention was the letter dated 31st October 2023 which was written after the Appellant had filed its Appeal on 29th September 2023.

45. That this reactive and delayed response underscored a lack of sincerity from the Respondent and solely intended to defeat its claim. It supported its assertion with the unreferenced case of Gulf Energy Ltd vs Commissioner of Legal Devices & Board Coordination.

46. The Appellant propounded that the Respondent had no reason or power to determine that WHVAT credit will not be paid as a refund but will be turned into credit to be continuously carried forward to subsequent tax period thus denying the Appellant cash capital for its business.

d. Whether there is uncertainty in law and ambiguity in the interpretation of 17(5) of the VAT Act, 2013 47. The Appellant stated that it is a fundamental and essential aspect of a taxation system that the tax laws of a Country ought to be clear, certain and devoid of ambiguity as was stated in the case of Waweru &3 others (sung as officials of Kitengela Bar Owners Association) & another v National Assembly &2 others, Institute of Certified Public Accountants of Kenya (ICPAK) & 2 Others (Interested parties) Constitutional Position E005 &E001(consolidated) of 2021) (2021) KEHC 58 (KLR).

48. That the law on WHVAT refunds is neither uncertain, indeterminate, or ambiguous and should thus be interpreted in its favour as was held in the case of Republic v Kenya Revenue Authority Ex parte Camper K-Brands Limited (2006) eKLR, Keroche Industries Lrd v KRA & 5 others (2007) eKLR, Commissioner of Income Tax v Westmont Power (K) Ltd (2006) eKLR.

49. It postulated that the Respondent’s justification of its action on the huge taxpayers that it deals with does not address the crux of the dispute at hand which is whether the allegation that the Respondent's tax calculation violates Section 17(5) of the VAT Act is correct. That neither the number of taxpayers affected nor the duration of this practice can substantiate its correctness, as the accuracy hinges solely on the proper interpretations of the relevant statutory provision.

50. The Appellant affirmed that it had demonstrated that:a.That the Appellant's Appeal to this Honourable Tribunal is neither premature nor untenable as the Appellant severally objected to the Respondent’s basis for utilizing the withholding VAT credits as opposed to the input tax credits carried forward.b.That the Respondent’s claim that the Appellant did not object to the rejection of its refund application is, therefore, misleading. That its letter dated 31st May 2023 and the numerous emails sent to the Respondent explicitly and categorically expressed its disagreement with the way the Respondent processed its refund application claim.c.That the Respondent erred by failing to appreciate that its actions and decision constitute a breach of the Appellant's right to fair administrative action as enshrined under Article 47 of the Constitution of Kenya.d.That the Respondent misinterpreted and misapplied Section 17(5) of the VAT Act, 2013 by failing to appreciate that where after an input/output analysis places the taxpayer in a VAT payable position, the VAT credits accrued should be first utilized to offset the tax liability before utilization of withholding VAT (WHVAT).

Appellant’s Prayer 51. The Appellant’s prayer to the Tribunal was for Orders:-a.That the Appeal be allowed.b.That an order be issued declaring that the credit adjustment vouchers issued for the periods September 2017 to December 2017, January 2018 - October 2018, June 2009 September 2009, October 2019 and November 2009 be reversed, as the Appellant was in a credit position and the credit adjustments were necessary.c.That the Respondent be compelled to apply Section 17 (5) of the VAT Act correctly by utilizing accrued input tax credits carried forward first to offset VAT payable instead of utilizing WHVAT credits.d.That the Respondent revises its workings in the Appellant’s ITax ledger to enable them to claim the available WHVAT credits refund.e.That the Tribunal grants such other orders as it may deem fit.

Respondent’s Case 52. The Respondent defended this Appeal vide its Statement of Facts dated and filed on the 1st November 2023 and written submissions dated 29th January 2024 and filed on 30th January 2024.

53. The Respondent stated that:a.The Appellant lodged WHVAT refunds for September 2017 to May 2018. b.That refunds for July of Kshs 8,472,645 and September 2018 of Kshs 739,024 were approved for payment.c.That the claims for other periods were rejected and the Appellant was issued with credit adjustment vouchers.d.The claims for February 2018 and March 2018 were rejected after the system detected inconsistencies.e.The WTVAT credits for the other periods have been fully utilised to offset the liabilities incurred in the subsequent periods.

54. That it lawfully made adjustments to the credit brought forward in arriving at the net tax payable or credit carried forward appropriately for each period.

55. The Respondent asserted that once utilised, WHVAT credits become unavailable for refund application. That this is the reason why the WHVAT credits for September 2017 to May 2018 were unavailable.

56. That the Appellant should have appealed against the rejection adjustment sent by iTax within the prescribed timelines and not on a non-existent decision.

57. The Respondent identified the following issues for determination in its submissions.a.Whether the Appellant’s appeal is prematureb.Whether the Respondent erred in holding that the Appellant had utilized the Withholding VAT claims for the period of September 2017 to May 2018.

a. Whether the Appellant’s appeal is premature. 58. The Respondent submitted that the Appellant's Appeal was premature because it had not issued a refund decision. That it had requested the Appellant to wait for its refund decision but the Appellant proceeded to lodge an Appeal without a refund decision and against a non-existent decision.

59. It is the Respondent’s case that credit adjustment vouchers are issued when a claim is rejected to restore credits removed from the Appellants ledger during refund application. That credit adjustments vouchers therefore result from claim rejection which is the refund decision.

60. That when a claim is rejected, the iTax system automatically sends a rejection order with reasons thereof to the claimant's email address. That the reasons/explanations for claim rejection are therefore contained in the rejection order and not the credit adjustment voucher.

61. The Respondent hence argued that the Appellant ought to have objected or appealed against the rejection or refund decision (or credit Adjustment Vouchers) within the timelines provided in Section 47 of the Tax Procedures Act. It supported this argument on timelines with the case of Tax Appeals Tribunal Case of 911 of 2022 Build Venture Enterprise Limited v. Commissioner of Domestic Taxes.

b. Whether the Respondent erred in holding that the Appellant had fully utilized the withholding VAT claims for the period of September 2017 to May 2018. 62. The Respondent submitted that input tax is defined in Section 2 of the VAT Act, 2013 and that the definition does not include credit brought forward from the previous period.

63. It was its view that it applied Section 17(5) of the VAT Act 2013 correctly because the Section does not dictate or specify the order or priority of utilization credits when a taxpayer has both withholding VAT and WHVAT credits from certificates issued in a month, and credit brought forward from the previous month. That the Section only clarifies the nature of excess credit that is eligible for a refund given that not all credits are refundable.

64. The Respondent stated further that VAT is a monthly tax and in computing it, transactions of a particular month are considered first including WHVAT credits from certificates issued in that month before any adjustments are made in respect of credit brought forward from the previous period.

65. That visual demonstration, system intelligence and logic allow it to first utilize available credits against liability to ensure that the Appellant does not pay tax while having un-exhausted credits.

66. The Respondent submitted that once utilized, the WHVAT credits become unavailable for refund application hence “the lack of opportunity for the appellant to apply”. That its iTax system is designed to block applications in respect to utilized/unavailable WHVAT credits to bar taxpayers from enjoying double benefits from the same credit, being used against liability owing and similarly paid towards refund applications.

67. The Respondent further submitted that the ITax system is configured correctly to apply a correct interpretation of the law in processing data declared in taxpayers' returns. That WHVAT credits originate in specific months and hence form part of transactions for those months for tax computations before any adjustments can be made in respect of credit brought forward.

68. That its interpretation and application of Section 17(5) of the VAT Act, 2013 is based on law administered to thousands of VAT-registered taxpayers. That credits brought forward from previous periods have always been treated as adjustments after determining the difference between each period’s output tax and input tax since the inception of VAT in Kenya in 1990.

69. The Respondent submitted that the Appellant failed to lodge the Objection and was therefore guilty of offending the doctrine exhaustion. That the Appellant’s application is incompetent and premature and the same should be dismissed with costs.

Respondent’s prayer 70. The Respondent’s prayer to the Tribunal was for orders that:a.The matter be referred back to the Commissioner to issue a refund decision.b.The Appeal be dismissed with costs..

Issues For Determination 71. The issues that have presented themselves for determination from the evidence submitted by the parties before the Tribunal are:a.Whether there was an appealable decision in this Appeal.b.Whether the Respondent erred by utilising the Appelant’s WHVAT credits

Analysis And Determination 72. The Tribunal having identified the issues falling for its determination proceeds to analyze the same separately as hereunder.

a) Whether there was an appealable decision in this Appeal. 73. The Respondent argued that the Appeal herein was premature because it had not issued a refund decision and that if there was a refund decision then the Appeal herein has been filed outside the prescribed statutory time limit.

74. The Appellant on its part, argued that it was issued with credit adjustment vouchers which were not accompanied by rejection orders. That its Appeal was based on the fact that its application for refund of its WHVAT credits had not been considered and a decision issued thereon as at the time of filing this Appeal.

75. It is not in dispute that the Respondent applied the Appellant’s WHVAT credits to offset its tax liabilities. This was done by the issuance of credit adjustment vouchers to utilize the Appellant’s WHVAT credits.

76. The Tribunal thus finds that the Respondent’s decision to proceed with enforcement decision by offsetting the Appellant’s WHVAT credits against its VAT liabilities amounted to a positive action which crystallized into a decision of the Commissioner from which an Appeal could be filed before the Tribunal as is provided in Section 12 of the TAT Act which reads as follows:“A person who disputes the decision of the Commissioner on any matter arising under the provisions of any tax law may, subject to the provisions of the relevant tax law, upon giving notice in writing to the Commissioner, appeal to the Tribunal.”

77. The upshot of the above analysis is that the Tribunal finds and holds that the Commssioner’s action in this dipsute amounted to an appellable decision which could be heard and determined by the Tribunal.

b) Whether the Respondent erred by utilising the Appelant’s WHVAT credits 78. The Appellant argued that the Respondent misinterpreted the provisions of Section 17(5) of the VAT Act when it utilised WHVAT credits to offset VAT payable instead of utilising accrued input tax credits carried forward thus denying it the opportunity to claim its withholding VAT refunds.

79. The Respondent responded that Section 17(5) of the VAT Act does not specify the priority of utilising credits when a taxpayer has both WHVAT credits and credits brought forward from previous months.

80. The relevant Section of the TPA that deals with refund of overpaid tax is Section 47 (1) to (3) which provides as follows:“(1)Where a taxpayer has overpaid a tax under any tax law, the taxpayer may apply to the Commissioner, in the prescribed form—(a)to offset the overpaid tax against the taxpayer's future tax liabilities; or(b)for a refund of the overpaid tax within five years, or six months in the case of value-added tax, after the date on which the tax was overpaid.2. The Commissioner shall ascertain and determine an application under subsection (1) within ninety days and where the Commissioner ascertains that there was an overpayment of tax—a.in the case of an application under subsection (l)(a), apply the overpaid tax to such future tax liability; andb.in the case of an application under subsection (l)(b), refund the overpaid tax within two years from the date of the application.(3)Where the Commissioner fails to ascertain and determine an application under subsection (1) within ninety days, the same shall be deemed ascertained and approved.”

81. A plain reading of the above provision of the law makes it apparent that:a.A taxpayer is at liberty to apply for a refund of overpaid tax within five years, or six months in the case of Value-Added Tax, after the date on which the tax was overpaid.b.In case of a refund, the Commissioner is required to refund the overpaid tax within two years from the date of the application.c.If the Commissioner does not issue its decision for refund within 90 days then the same shall be deemed to be ascertained and approved.

82. There was no dispute as to whether the application for a refund was made in time from the date on which it was overpaid. The Tribunal shall thus proceed on the presumption that both parties are in agreement that the application for refund was made in time.

83. Section 47(3) dictates that the Respondent must issue its refund decision within 90 days from the date of receipt of an application failure to which the same shall be deemed ascertained and approved.

84. The Appellant made its refund application on 6th November 2020. It follows that the Respondent was thus required to issue its refund decision by the 5th of January 2021. Its failure to issue the said refund decision meant that the refund application stood allowed on the 5th of February 2023.

85. The plain reading of Section 47(3) of the TPA anticipates that the Respondent is required to issue a decision to the Appellant’s application. Such a decision must be clear that it is a response to the Appellant’s refund application. That decision cannot be camouflaged in a credit adjustment voucher. It has to be a clear and express decision addressed to the Appellant and stating in plain terms whether the refund application has been allowed, and if it has been declined the reasons for such refusal ought to be provided.

86. The decision to effect credit adjustments and other similar offset measures can only be enforced by the Respondent after it has issued its formal refund decision.

87. Upon the grant of the refund decision by dint of Section 47(3) of the TPA, the Respondent was required to commence the refund process of the Appellant’s refund application. It instead opted to utilise the Appellant’s WHVAT credits to offset VAT payable in a manner that the Appellant contends is contrary to Section 17 of the VAT Act.

88. A conditional refund decision would have thus made the Appellant aware of the conditional grant of its refund application. It would have also afforded the Appellant the opportunity and right of Appeal if it was not agreeable with that refund decision.

89. That was not the case in this Appeal. As it is, the default refund decision was made without any conditions attached to it. It was thus unlawful and irregular for the Respondent to attach conditions to a refund decision that was unconditional after the decision had been made.

90. The Respondent’s attempt to go around the unconditional default refund decision by introducing new conditions which included off-setting the Appellant’s credit from its tax liabilities was unlawful.

91. The provisions of Section 17 of the VAT on how excess credits can be applied to offset tax liability which have been discussed in detail by both parties was thus not available for consideration and application by the Respondent. The provision of Section 17 of the VAT Act would only have been available if the Respondent had issued a conditional refund decision prescribing that a portion of the Appellant’s credits would be offset against its existing tax liabilities.

92. The Tribunal thus finds and holds that the Respondent acted in error when it opted to utilise the Appellant’s WHVAT credit refunding processing the Appellant’s refund as commanded by Section 47(3) of the TPA.

Final Decision 93. On the basis of the foregoing analysis the Tribunal finds that this Appeal has merit and accordingly proceeds to make the following Orders;a.The Appeal be and is hereby allowed.b.The Respondent‘s decision to utilize the Appellant’s WHVAT credits to offset its VAT payables be and is hereby set aside.c.The Respondent is directed to reverse all the credit adjustments for the periods September 2017 to December 2017, January 2018 to October 2018, June 2019, September 2019, October 2019 and November 2019 within Ninety (90) days from the date of delivery of this Judgment.d.The Respondent is directed to process and pay the Appellant’s WHVAT refunds within 90 days from the date of delivery of this Judgment.e.Each party to bear its own costs.

94. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 17TH DAY OF MAY, 2024ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERDR. RODNEY O. OLUOCH - MEMBERTIMOTHY B. VIKIRU - MEMBERABRAHAM K. KIPROTICH - MEMBER