[2024] KETAT 101 (KLR)

Kenya Nut Company Limited v Commissioner of Domestic Taxes (Tax Appeal 1278 of 2022) [2024] KETAT 101 (KLR) (2 February 2024) (Judgment)

Neutral citation: [2024] KETAT 101 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1278 of 2022

RM Mutuma, Chair, W Ongeti, EN Njeru, M Makau & BK Terer, Members

February 2, 2024

Between

Kenya Nut Company Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited liability company incorporated in Kenya under the Companies Act. Its main form of business is in the growing, processing, and selling, inter alia, both locally and internationally of macadamia and cashew nuts.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5 (2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 & 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Appellant lodged a refund claim of excess input tax of Kshs. 15,240,681. 00 resulting from dealing in zero rated supplies for January to April 2020.

4. The Respondent via a letter dated 4th May 2021 communicated to the Appellant regarding an incorrect classification of goods that was communicated to it vide a letter dated 6th December 2013 which led to a delay of the VAT refund.

5. On 10th August 2022, the Respondent approved Kshs. 9,9968,722. 00 and denied the rest based on a Private Ruling it issued on 6th December 2013 in which various products were classified as exempt.

6. The Appellant, vide a letter dated 2nd September 2022 lodged a notice of objection on the VAT refund claim for the period January to April 2020. The Respondent issued its refund rejection decision to the Appellant vide a letter dated 27th September 2022.

7. Aggrieved by the decision, the Appellant filed the instant Appeal with the Tribunal.

The Appeal 8. The Appeal is premised on the following grounds listed in the Memorandum of Appeal dated 26th October 2022 and filed on 28th October 2022:-a.The Appellant is dissatisfied with the Respondent’s letter dated 27th September 2022 issued by the Respondent under the provisions of the Tax Procedures Act, 2015 in response to the Appellant’s notice of objection dated 2nd September 2022 which challenged the VAT refund approval order dated 10th August 2022. b.The Respondent, having attempted to recant its previous position, is estopped, by the provisions of Section 120 of the Evidence Act, from resiling from its rulings dated 5th August 2003, 1st August 2006, and 6th December 2013 upon which the Appellant has placed reliance for numerous years.c.By retrospectively revoking the private ruling dated 6th December 2013, the Respondent was in violation of the provisions of Article 47 of the Constitution of Kenya, 2010 as the administrative action taken was leisurely, inefficient, unlawful, unreasonable, and procedurally unfair.d.The retrospective revocation of the private ruling by the Respondent is also an outright violation of Section 4(1) of the Fair Administrative Actions Act in that the substance of the impugned decision is neither expeditious, efficient, lawful, reasonable nor procedurally fair.e.The Respondent's basis for disallowing the amount claimed as refunds following the reclassification of the VAT status of the company’s sales is inequitable as the said decision was drawn from a retrospective administrative action of revoking an earlier issued private ruling upon which reliance was placed by the Appellant in good faith.f.The Respondent’s objection decision is immature as the dispute regarding the retrospective revocation of the private ruling issued on 6th December 2013 is currently still under consideration by this Tribunal in TAT 547/2021-Kenya Nut Company Limited vs. Commissioner of Domestic Taxes, TAT 322/2022 – Kenya Nut Company Limited vs. Commissioner of Domestic Taxes AND TAT 575/2022 - Kenya Nut Company Limited vs. Commissioner of Domestic Taxes and the same are yet to be determined.g.A private ruling is binding on the Commissioner where the taxpayer has made complete and accurate disclosure of the transaction by virtue of the provisions of Section 58 of the Value Added Tax Act, 2013 (now repealed) and Section 65 of the Tax Procedure Act (TPA).h.The withdrawal of the private ruling by the Respondent and the decision to apply it retrospectively was arbitrary as the transaction had already occurred and VAT was not remitted to KRA at that time.i.The Respondent’s administrative action of partially approving the Appellant’s refund claim while applying the rest of the claim to settle VAT now claimed as being due from products that were previously exempted, based on prior guidance from the Respondent, is not in contravention of the canons of taxation but also a grave misinterpretation of tax laws.j.As a registered person, the Appellant is an agent of the Respondent and the incidence of tax should not fall on it as a registered person. Therefore, where it legitimately did not collect VAT, it cannot be penalized years later.k.The export of exempted goods entitled the Appellant to claim VAT refunds, from the Respondent, on the input tax incurred towards export sales and it is unreasonable for the Appellant’s VAT refund claimed to now be reduced, so significantly, to its detriment and contrary to its legitimate expectation.l.The Respondent’s objection decision dated 27th September 2022 is unlawful to the extent that Section 68 (4) (a) of the Tax Procedure Act 2015 expressly precludes the review of a ruling from operating retrospectively.m.It is an abuse of the Respondent's powers in executing its statutory duty to arbitrarily alter its position, bring to charge VAT retrospectively on the Appellant's products, and deprive the Appellant of its validly lodged VAT refund claims.n.The Respondent's alleged mistake in issuing the Ruling dated 6th December 2013 is not a mutual mistake and is thus not binding on the Appellant.o.The Respondent's objection decision dated 27th September 2022 is irrational, unreasonable, capricious and unlawful; Substantially unfair and amounts to abuse in excess of the powers and discretion conferred by statute; an unlawful breach of the Appellant's legitimate expectation; Not intended to secure any legitimate overriding public interest or statutory objective and is thus for an improper motive and purpose; and a frustration of the legislative purpose codified in Section 68 (4) (a) of the Tax Procedures Act, 2015 which expressly precludes the review of a ruling from operating retrospectively.

The Appellant’s Case 9. The Appellant’s case was premised on its:a.Statement of Facts dated 25th October 2022 and filed on 28th October 2022. b.Written submissions dated 30th January 2023 and filed on 31st January 2023.

10. The Appellant stated that the Respondent, having attempted to recant its previous position, is estopped, by the provisions of Section 120 of the Evidence Act, from resiling from its rulings dated 5th August 2003, 1st August 2006 and 6th December 2013 upon which the Appellant had placed reliance for numerous years.

11. The Appellant averred that by retrospectively revoking the Private Ruling dated 6th December 2013, the Respondent violated the provisions of Article 47 of the Constitution of Kenya, 2010 as the administrative action taken was leisurely, inefficient, unlawful, unreasonable, and procedurally unfair.

12. It contended that the retrospective revocation of the Private Ruling by the Respondent is also an outright violation of Section 4 (1) of the Fair Administrative Actions Act in that the substance of the impugned decision is neither expeditious, efficient, lawful, reasonable nor procedurally fair.

13. The Appellant averred that the Respondent's basis for disallowing the amounts claimed as refunds following the reclassification of the VAT status of the company's sales is inequitable as the said decision was drawn from a retrospective administrative action of revoking an earlier issued private ruling upon which reliance was placed in good faith.

14. It stated that the Respondent's objection decision is immature as the dispute regarding a retrospective revocation of the private ruling issued on 6th December 2013 is currently still under consideration by this Tribunal TAT 547/202 Nut Company Limited vs. Commissioner of Domestic Taxes, TAT 322/2021 Kenya Nut Company Limited vs. Commissioner of Domestic Taxes and TAT 575/2021 -Kenya Nut Company Limited vs. Commissioner of Domestic Taxes and the same are yet to be determined.

15. The Appellant averred that a private ruling is binding on the Commissioner where the taxpayer has made complete and accurate disclosure of the transaction by the provisions of Section 58 of the Value Added Tax Act, 2013 (now repealed) and Section 65 of the Tax Procedures Act (TPA).

16. The Appellant asserted that the withdrawal of the private ruling by the Respondent and the decision to apply it retrospectively was arbitrary as the transaction had already occurred and VAT was not remitted to the Respondent at that time.

17. The Appellant contended that the Respondent's administrative action of partially approving the Appellant's refund claim while applying the rest of the claim to settle VAT now claimed as being due from products that were previously exempted, based on prior guidance from the Respondent, is not only in contravention of the canons of taxation but also a grave misinterpretation of the tax laws.

18. It further contended that as a registered person, the Appellant is an agent of the Respondent, and the incidence of tax should not fall on it as a registered person. Therefore, where it legitimately did not collect VAT, it cannot be penalized years later.

19. It stated that the export of exempted goods entitled the Appellant to claim VAT refunds, from the Respondent, on the input tax incurred towards export sales and it is unreasonable for the Appellant's VAT refund claims to now be reduced, so significantly, to its detriment and contrary to its legitimate expectation.

20. The Appellant reiterated that the Respondent's objection decision dated 27th September 2022 is unlawful to the extent that Section 68 (4) (a) of the Tax Procedures Act, 2015 expressly precludes the review of a ruling from operating retrospectively.

21. It averred that it is an abuse of the Respondent's powers in executing its statutory duty to want to arbitrarily alter its position, bring to charge VAT retrospectively on the Appellant's products, and deprive the Appellant of its validly lodged VAT refund claims.

22. The Appellant stated that the Respondent's alleged mistake in issuing the Ruling dated 6th December 2013 is not mutual and is thus not binding on the Appellant.

23. The Appellant submitted that the revocation of the Ruling dated 6th December 2013 by the Respondent was in total disregard to the fact that the VAT refund claims lodged by the Appellant were about the products that the Appellant had already sold as VAT exempt since it had relied on the Ruling of 6th December 2013.

24. The Appellant submitted that the Respondent, having attempted to recant its previous position, is estopped, by the provisions of Section 120 of the Evidence Act, from resiling from its rulings dated 5th August 2003, 1st August 2006 and 6th December 2013 upon which the Appellant has placed reliance for numerous years.

25. It cited the case of Jack Ogola Ogolla vs. George Onyango Nyamor [2021] eKLR where the Tribunal relied on Lord Denman CJ in the English case, Pickard vs. Sears 112 E.R. 179 and the case of Serah Njeri Mwobi vs. John Kimani Njoroge [2013] eKLR and argued that having acted on the declaration stated in the Ruling of 6th December 2013 for all those years, the Respondent is now estopped from denying and or revoking the contents of the said ruling.

26. It further argued that by retrospectively revoking the Private Ruling dated 6th December 2013, the Respondent was in violation of the provisions of Article 47 of the Constitution of Kenya, 2010 as the administrative action taken was leisurely, inefficient, unlawful, unreasonable, and procedurally unfair.

27. It maintained that the retrospective revocation of the private ruling by the Respondent is also an outright violation of Section 4 (1) of the Fair Administrative Actions Act which gives every person the right to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair.

28. It was the Appellant's submission that the Respondent being an administrative body acted in a manner that violated the Appellant's right to fair and administrative action and that fair procedure was not followed thus this Tribunal is bound to come to the assistance of the Appellant irrespective of the merits of the allegations.

29. It cited the case of Commissioner of Income Tax vs. Pan African Paper Mills (E.A) Limited [2018] eKLR where the court was guided by the case of Yew Bon Tew vs. Kenderaan Bas Mara [1982] 3 All ER 833 and argued that the law should work prospectively, and should only be applied to the future events or transactions. It reiterated that in the instance case, the letter of revocation of 4th May 2021 ought not to have affected previous transactions/actions by the Appellant, and the same (if legal) should only have affected future transactions/actions of the Appellant in line with Section 68 (4) the Tax Procedures Act.

30. It further cited the case of Mary Kasiwa vs. Scorpio Enterprises Limited [2013] eKLR to buttress its position that the Respondent's basis for disallowing the amounts claimed as refunds following the reclassification of the VAT status of the company's sales is inequitable as the said decision was drawn from a retrospective administrative action of revoking an earlier issued private ruling upon which reliance was placed by the Appellant in good faith.

31. It argued that there was a legitimate expectation on the part of the Appellant since the application of the private ruling on 6th December 2013 clearly explained the anticipated VAT status of the various supplies and the understanding of the products that were declared VAT exempt.

32. It relied on the case of The Kenya Revenue Authority vs. Export Trading Company Limited (Petition 20 of 2020) [2022] KESC 31 (KLR) (Civ) (17th June 2022) (Judgment), and asserted that the Respondent had the authority to issue the Ruling as mandated by Section 68 (1) of the Tax Procedures Act, and by doing so, the Appellant relied on it in all its transactions from when it was issued on 6th December 2013 to 4th May 2021 when the Respondent sought to revoke the same. It added that for more than 9 years the Appellant carried on its business fully bound and relying on the said ruling and hence the revocation of the same cannot be construed to be an error or a mistake on the part of the Respondent.

33. It argued that it is impractical to have an error or a misdeclaration that has been implemented for more than 9 years without any question, and it is incomprehensible how the Appellant should be made to suffer the consequences of the actions of the Respondent of failing to issue a decision that conforms with the law.

34. It submitted that the Respondent gave an indication through the Ruling of 6th December 2013 that the listed products were VAT exempt relying on Section 64 (4) of the VAT Act which allows the Respondent to withdraw its private ruling.

35. It reiterated that the revoked Ruling of 6th December 2013 should apply to all the transactions of VAT refund claims that commenced before the letter of revocation of 4th May 2021.

36. It maintained that the legitimate expectation arose when the Respondent processed previous VAT claim refunds, applying the said Ruling of 6th December 2013 when the Appellant applied for VAT refund claim for the period January to April 2020.

37. It relied on the case of The Kenya Revenue Authority vs. Export Trading Company Limited (Petition 20 of 2020) [2022] KESC 31 (KLR) (Civ) (17th June 2022) (Judgment) (supra) and asserted that the Respondent has continued to issue immature rejection decisions relating to various VAT refund claims that were submitted by the Appellant between January to April 2020 even after this matter has been filed before this Tribunal, in total disregard to the fact that the revoked Ruling of 6th December 2013 is under consideration before this Tribunal.

38. It submitted that a private ruling is binding on the Respondent where the taxpayer has made complete and accurate disclosure of the transaction by virtue of the provisions of Section 58 of the Value Added Tax Act, 2013 (now repealed) and Section 65 of the Tax Procedures Act (TPA).

39. It argued that the withdrawal of the private ruling by the Respondent and the decision to apply it retrospectively was arbitrary as the transaction had already occurred and VAT was not remitted to the Respondent at that time adding that the same is in total contravention of Section 68 (4) of the Tax Procedures Act which allows a revoked ruling to apply in the transactions that commenced before revocation of the said ruling.

40. It contended that the Respondent's administrative action of partially approving the Appellant's refund claim while applying the rest of the claim to settle VAT now claimed as being due from products previously exempted based on prior guidance from the Respondent is not only in contravention of the canons of taxation but also a grave misinterpretation of the tax laws.

41. It asserted that it is an abuse of the Respondent's powers in executing its statutory duty to want to arbitrarily alter its position, bring to charge VAT retrospectively on the Appellant's products, and deprive the Appellant of its validly lodged VAT refund claims.

The Appellant’s Prayers 42. The Appellant prayed to this Tribunal to;a.Allow the Appeal.b.Set aside the Respondent’s objection decision dated 27th September 2022. c.Award the Appellant the costs of this Appeal.

The Respondent’s Case 43. The Respondent’s case is premised on its;a.Statement of Facts dated and filed on 23rd November 2022. b.Written Submissions dated and filed on 21st February 2023.

44. The Respondent stated that the Appellant lodged a refund claim of excess input tax resulting in dealing in zero-rated supplies for the period January 2020 to April 2020.

45. It averred that vide a letter dated 4th May 2021 it communicated to the Appellant regarding an incorrect classification of goods that was communicated to it vide a letter dated 6th December 2013 which led to delay of the VAT refund.

46. The Respondent contended that the Appellant had misclassified honey-coated macadamia nuts and honey-coated cashew nuts as exempt which were taxable at the time of filing as per the VAT Act 2013 since they fall under HS Code 2008. 19. 00.

47. The Respondent reiterated that honey-coated macadamia nuts and honey-coated cashew nuts are not part of those listed in the First Schedule, Part 1, Section A, Paragraph 24 of the VAT Act 2013.

48. The Respondent stated that it explained that the letter dated 6th December 2013 cannot be binding as it would amount to an illegality and went ahead to revoke the same.

49. The Respondent averred that the VAT Act was enacted as provided for by the Constitution of Kenya and therefore any law or act of omission that contravenes this Act cannot be binding as provided in Article 2 Sub Article 4 of the Constitution of Kenya.

50. The Respondent contended that the letter of 6th December 2013 contravened the law and therefore cannot be said to be applied retrospectively thus right from the beginning it was applied erroneously. It added that the refunds could not be accepted and processed using a letter that contravenes the law but are processed using statutes of the law and not a letter issued by a Commissioner, therefore, there is no retrospective application of the VAT classification.

51. The Respondent reiterated that the Appellant's VAT refund claim amounts to Kshs. 15,240,681. 00 whereas the Respondent approved Kshs. 9,968,722. 00 on 10th August 2022.

52. It stated that the sales were reclassified, and VAT charged at the general rate.

53. The Respondent averred that the letter of 6th December 2013 is not binding to the Respondent and therefore the Credit Adjustment Vouchers of Kshs. 5,271,960. 00 were issued correctly.

54. It asserted that on 2nd September 2022, the Appellant vide a letter lodged its notice of objection on the VAT refund claim applications for the period January 2020 to April 2020 and vide a letter dated 27th September 2022 the Respondent communicated its objection decision to the Appellant which is proper in law and the Respondent did not error when it revoked the tariff Ruling dated 6th December 2013.

55. On whether the Respondent erred in revoking the private ruling that was contra-statute and applying the correct tariff on the products manufactured by the Appellant, the Respondent submitted that the Appellant made an application for refunds following the supply of zero-rated products and after the Respondent conducted an in-depth audit to establish the Appellant's refund position before settling the same, it noted that the Appellant had been misclassifying its products by classifying them as exempt instead of applying VAT at the rate of 16%.

56. It reiterated that upon realizing that the misclassification arose from a Ruling issued to the Appellant in 2013, it revoked the said Ruling vide letter dated 4th May 2021 and advised the Appellant on the correct position and established that the Appellant was only entitled to a refund of Kshs. 2,817,742. 00 and not Kshs. 15,240,681. 00 as alleged by the Appellant.

57. The Respondent submitted that contrary to the Appellant's allegations when the Appellant made the application for a private ruling on its products, it failed to make material disclosure on some of its products that some roasted macadamia were coated with sweeteners such as honey.

58. The Respondent submitted that based on the information available at the time, it issued a Ruling but when an audit was conducted, it noted the Appellant's products had been misclassified and immediately notified the Appellant of the same advising on the correct tariff classification and therefore cannot be accused of flouting the provisions of the Constitution and the Fair Administrative Actions Act.

59. It maintained that it followed the proper procedure in revoking the private ruling as it notified the Appellant in writing and promptly, relying on Section 5 (2) of the Kenya Revenue Authority Act.

60. The Respondent submitted that the honey-coated nuts did not fall under Chapter 8 of the Harmonized System of classifying goods but were properly classified under Chapter 20 adding that Tariff Classification of a product is based on the material information available at the material time as corroborated by several precedent-setting cases.

61. The Respondent submitted that the Appellant’s product had a VAT implication of 16% and was not exempt as earlier misclassified.

62. It relied on Section 107 (1) of the Evidence Act, and Section 56 (1) of the Tax Procedures Act, 2015 and reiterated that the burden of proof was on the Appellant to demonstrate that the subject products are indeed exempt and not vatable at 16% as communicated by the Respondent which it failed to do.

63. It was guided by the decision in Republic vs. Kenya Revenue Authority Ex-parte Bata Shoe Company (Kenya) Limited [2014] eKLR and contended that this being a claim for a refund, the Respondent had a duty to undertake an in-depth audit to ensure the Appellant pays that which it ought to have paid and only get a refund on the correct amount.

64. It cited Section 32 (1) of the Tax Procedures Act, 2015 and reiterated that having noted that there was misclassification of the Appellant's products and there were taxes due from the Appellant, it couldn't refund the entire amount yet there were taxes imposed and collectible under the law.

65. The Respondent relied on the case of Doshi Ironmongers vs. Commissioner for Domestic Taxes & Another [2009] eKLR and asserted that during the audit it was apparent that there were taxes due and payable by the Appellant and that has a higher duty to rectify any errors made to safeguard the revenue and should not be punished for setting the record straight.

66. The Respondent further relied on Article 210 of the Constitution of Kenya and Section 67 (5) of the Tax Procedures Act, 2015 and maintained that the letter of 6th December 2013 contained the officer's opinion and could not waive or vary the express provisions of the law and EAC External Tariff guidelines as alleged by the Appellant.

67. In buttressing its assertion, The Respondent relied on the case of Niazons (K) Ltd. vs. China Road & Bridge Corporation (K) Civil Appeal No. 187 of 1999, where the court held that; there is no waiver, estoppel or acquiescence of or against a statute or the law.

68. The Respondent contended that it had the responsibility to set the record straight and advise the Appellant on the correct position of the law in a case where its officers had issued misleading information or opinion in the name of a private ruling.

69. The Respondent further submitted that it is within the law for it to correct an erroneous interpretation of any law that it administers and advise the Appellant on the correct position as it did on 4th May 2021. To buttress its case, the Respondent relied on the two decided cases of Tarmal Industries Ltd vs. Commissioner of Customs and Excise and Commissioner of Customs and Others vs. Amit Ashok Doshi & 2 Others Mombasa Civil Appeal No. 157 of 2007.

70. The Respondent also cited the decision in the cases of TAT NO. 462 OF 2020 - Promasidor Kenya Limited vs. Commissioner of Customs & Border Control and Republic vs. Kenya Revenue Authority Ex Parte Aberdare Freight Services Ltd & 2 Others [2004] 2 KLR 530 to buttress its position that it did not have any powers to exempt the said products from VAT and was required to implement the law as it was which did not exempt the Appellant's products in dispute.

71. On whether the Respondent erred by disallowing the Appellant's refund claim, the Respondent submitted that it is mandated under Section 49 of the Tax Procedures Act, 2015 to provide reasons for the refusal of a taxpayer's application, and in two instances, it declined the Appellant's application for refund of VAT with clearly stated reasons.

72. It explained that in the first instance, it issued the letter dated 4th May 2021 with the reason that the private ruling in question was contrary to the express provisions of the law and thus could not be binding to that extent as it would amount to an illegality. It added that in the second instance, it issued the objection decision dated 27th September 2022 with the reason that the Appellant failed to provide sufficient support for the claim in question.

73. The Respondent argued that the above decisions are not only stated but backed up by reasons for the decisions; this alone qualifies the Respondent's decision to refuse the Appellant's claim for a refund of VAT.

74. It reiterated that the general rule in the assessment and collection of taxes and revenue is that the Respondent cannot release funds to the Appellant based on a refund claim when the records indicate that the Appellant owes taxes which are collectable. It added that Value Added Tax (VAT) is an agency tax which is collected by the Appellant on behalf of the Respondent and the same must be collected first before processing any refund.

75. The Respondent submitted that the Appellant has not discharged the burden of demonstrating the losses it has incurred due to the Respondent's action of partially declining the claim for refund.

76. On whether the Respondent was in breach of the Appellant's legitimate expectation, the Respondent cited the case of Communication Commission of Kenya & 5 others vs. Royal Media Services & 5 others S. C. Petition Nos. 14, 14 A, 14 B and 14 C of 2014 and submitted that there is nowhere in the Ruling where the Respondent committed or gave assurance that it will never withdraw the Ruling.

77. It further cited Section 68 (1) of the Tax Procedures Act and the cases of Republic vs. Kenya Revenue Authority & Another ex parte Krone Les Centre East Africa limited [2012] eKLR, Pharmaceutical Manufacturing (K) Co Ltd & 3 others vs. Commissioner General of Kenya Revenue Authority & 2 others [2017] eKLR; Appeal No. 114 of 2018 CMC Di Ravena-Kenya Branch vs. Commission of Domestic Taxes and argued that legitimate expectation cannot be addressed where a private ruling is inconsistent with a clear provision of the law.

78. The Respondent asserted that the ruling was not a representation of fact but of law and therefore cannot amount to estoppel. It relied on the case of Niazons (K) Ltd, vs. China Road & Bridge Corporation (K) Civil Appeal No. 187 of 1999 where the court held that; there is no waiver, estoppel or acquiescence of or against a statute or the law.

79. To buttress its position, the Respondent relied on the case of Republic vs. Kenya Revenue Authority Ex-Parte: Cosmos Limited [2016] eKLR and asserted that the Appellant's products in contention were never exempt from VAT neither were they zero-rated and in those circumstances the Appellant could not benefit from the doctrine of estoppel, which in any case cannot apply against the Government as was held in the case of Commissioner of Customs and Others vs. Amit Ashok Doshi and 2 Others, Msa Civil Appeal No. 157 of 2007 supra. It added that in any event, the Appellant has not demonstrated that it has suffered any losses on its part due to the partial rejection of its claim for refund.

80. The Respondent maintained that it cannot confer a right that is not in existence under the law vide a private ruling.

The Respondent’s prayers 81. The Respondent prayed that:a.The Objection decision be upheld.b.The Appellant be found liable to pay the tax due.c.This Appeal be dismissed with costs to the Respondent as the same is without merit.

Issues For Determination 82. After perusing the Memorandum of Appeal and parties' Statements of Facts together with their submissions and documentation attached therewith, the following issue presents itself for the Tribunal’s determination:Whether the Respondent was justified in Rejecting the Appellant’s Refund Application for VAT.

Analysis And Findings 83. The Appellant sought guidance on the applicable tariff classification and VAT rates on various dates from the Respondent who issued its Rulings vide its letters also on varying dates between 2nd August 2003 and 6th December 2013.

84. Section 67 (2) of the Tax Procedures Act, 2015 mandates the Respondent to make a private ruling. It provides as follows:“The Commissioner may make a private ruling based on assumptions about a future event or any other appropriate ground.”

85. The Tribunal in the instant case is drawn to the effect of a private ruling issued to a taxpayer in case the taxpayer places reliance on the same. Section 67 (4) of the Tax Procedures Act provides as thus:-“A Private Ruling shall take effect when the applicant is served with written notice of the ruling and the ruling shall remain in force until it is withdrawn.”

86. The Appellant argued that the Respondent created a legitimate expectation by its private ruling of 6th December 2013 which the Appellant relied on for almost 9 years in its business transactions. Therefore, where it legitimately did not collect VAT, it cannot be penalized years later.

87. Section 68 (4) of the Tax Procedures Act states as follows with regard to withdrawal of private rulings: -“A Private Ruling that has been withdrawn:a.Shall continue to apply to a transaction by the applicant commenced before the ruling was withdrawn; andb.Shall not apply to a transaction of the applicant that commenced after the ruling was withdrawn to the extent the ruling is withdrawn”

88. From the foregoing Section, it is opined by the Tribunal that the law should work prospectively and should only apply to future events or transactions. For 9 years, the Appellant relied on the Private Ruling of 6th December, 2013. The revocation of the Ruling on 4th May 2021 ought not to have affected previous transactions by dint of Section 68 (4) of the Tax Procedures Act.

89. Whereas the Tribunal is in concurrence with the Respondent’s contention that it had the responsibility to set the record straight and advise the Appellant on the correct position of the law where its officers had issued misleading information or opinions in the name of a private ruling (see Section 68 (1) of the Tax Procedures Act), the same cannot be arbitrarily revoked and set to take effect on transactions that informed the misinformation years before the record was set straight.

90. The Tribunal is guided by the decision in the case of Ecobank Kenya Limited vs. Commissioner of Domestic Taxes [2012] eKLR where Judge E.K.O Ogola held as follows.“In the English decision of Council Of Civil Services Unions V Minister For Civil Service 1985 AC 374 Lord Fraser stated as follows: - “A legitimate expectation may arise -either from an express promise given on behalf of a public authority or from the existence of a regular practice which the claimant can reasonably expect to continue.”In the instant case, the waiver was expressly given on behalf of a public authority, which is the Kenya Revenue Authority, by the Respondent herein. Furthermore, for over 25 years, the Respondent did not raise an issue with the Appellant as regards the preparation of sub accounts or computing rental income for tax separately. Therefore, the Appellant was entitled to reasonably expect that the practice would continue until communicated otherwise. In the circumstances, it is clear that there was a legitimate expectation on the Appellant’s part as a result of the waiver set out in the letter dated 7th February 1979. ”

91. The Respondent became aware of its mistake which it allowed to take effect for 9 years before the same was corrected. It cannot therefore punish the Appellant for the actions the Appellant took in reliance on the same mistake by trying to reset the clock and undue its mistakes.

92. The best thing that the Respondent can do at this time is to revoke its private ruling, which it has the right and mandate to do and did, inform the taxpayer of the revocation, which in the instant case it did, then effect the revocation of the ruling on transactions that take place after the said revocation and notification.

93. To that extent, it is the Tribunal’s finding that had the revocation been effected on imports made after 4th May 2021, then the taxes accruing therein would be considered just and fair to the taxpayer. Any tax accruing for similar imports made before 4th May 2021 seeking to effect the Respondent’s revocation of the same is unfair to the Appellant. The Appellant’s refund claims on the said goods accruing from the period before 4th May 2021 are thus justified and owed to it.

Final Decision 94. The upshot to the foregoing is that the Appeal has merit and the Tribunal consequently makes the following Orders; -a.The Appeal be and is hereby allowed.b.The Respondent’s refund rejection decision dated 27th September 2022 be and is hereby set aside.c.The Respondent to process the disallowed VAT refund claim within Ninety (90) days of the date of delivery of this Judgment.d.Each party bears its own costs.

95. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 2ND DAY OF FEBRUARY, 2024ROBERT M. MUTUMA - CHAIRPERSONDR. WALTER ONGETI - MEMBERELISHAH N. NJERU - MEMBERMUTISO MAKAU - MEMBER