https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/206

 REPUBLIC OF KENYA IN THE TRIBUNAL OF KENYA AT NAIROBI COUNTY COURT NAME: TAX APPEALS TRIBUNAL CASE NUMBER: TATC/E728/2025 LOWAK SUPPLIES LIMITED 1st Appellant - Versus - Kenya Revenue Authority 1st Respondent JUDGMENT # BACKGROUND 1. The Appellant, is a Limited Liability Company Duly Incorporated in Kenya whose business involves the supply of various goods and services. 2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws (hereinafter “the Act”). Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws. 3. The Respondent on 4th February 2025 commenced a compliance check the Appellants tax affairs for December 2024 relating to Value Added Tax and subsequently issued an additional VAT assessment of Kshs. 28,200,716.00 plus Penalties and Interest via iTax dated 28th March 2025, disallowing all input VAT for that period in entirety. Respondent thereafter issued a demand notice dated 1st April 2025, which was received on 10th April 2025. 1. The Appellant the lodged an objection to both the assessment and the demand notice through a letter dated 28th April 2025. 2. The Respondent upon review, it issued final compliance review findings on 1st April 2025 through a notice of tax assessment and subsequently confirmed the Assessment. through an Objection Decision dated 18th June 2025. 3. Dissatisfied with the Respondent’s tax decision, the Appellant filed a notice of appeal dated 26th June and filed on 10th July 2025. # THE APPEAL 1. The Appellant lodged its Memorandum of appeal dated 10th July, 2025 filed on even date raising the following grounds of appeal; 1. **THAT** the Respondent erred in fact and law disallowing all genuine VAT inputs 2. **THAT** the Respondent erred in fact and law by contravening the provisions of Section 17(1)(2) of VAT Act 2013 3. **THAT** based on the above mentioned grounds, the appellant appeals against the respondent's Notice of Assessment and the subsequence Objection Decision dated 29th February 2025 in its totality and further plea that the unfounded assessment that is not only bad in law but lacks merits be set aside with the cost to the respondent. # THE APPELLANT’S CASE 1. The Appellant case was premised on its Statement of facts dated on 10th July, 2025 and filed on even date. 2. The Appellant stated that the Respondent commenced a compliance check on its tax affairs for December 2024 relating to Value Added Tax and subsequently issued an additional VAT assessment via iTax dated 28th March 2025, disallowing all input VAT for that period in entirety thereafter issued a demand notice dated 1st April 2025, which was received on 10th April 2025. 1. The Appellant stated that upon realizing that the additional assessment had been issued on iTax without prior notice, and that a demand notice had followed, it lodged an objection to both the assessment and the demand notice through a letter dated 28th April 2025. 2. The Appellant stated that it filed the notice of objection on valid grounds, detailing errors of omission and commission by the Respondent in issuing the additional assessment. 3. The Appellant stated that after review of the objection, despite the objection being validly lodged and meritorious, the Respondent issued an objection decision dated 18th June 2025 confirming the additional assessment in full without any adjustments. 4. The Appellant stated that the Commissioner erred in law and fact by failing to consider genuine VAT inputs incurred, without providing explanations as to why the supporting invoices were disregarded. 5. The Appellant stated that all input VAT claimed was genuine and authentic, and that the Commissioner had the mandate to verify the same from vendors using invoice details but failed to do so and instead disallowed all invoices. 6. The Appellant stated that the invoices in question were eTIMS invoices, implying that the vendors had reported the sales since the invoices were auto- populated on the iTax system, and relied on judicial authority to argue that tax enforcement should not unjustifiably harm businesses. 7. The Appellant stated that the Respondent contravened the provisions of Section 17(1) and (2) of the VAT Act 2013 regarding the allowability of input tax deductions. 8. The Appellant stated that despite providing copies of input VAT claims, the Respondent failed to allow any invoices on the basis that there was no proof of payment. 9. The Appellant stated that the Respondent failed to recognize the accrual principle under Generally Accepted Accounting Principles, which recognizes revenues and expenses when incurred rather than when payment is made. 10. The Appellant stated that business operations may involve different modes of payment including cash, cheque, or bank transfer depending on circumstances. 11. The Appellant stated that in its line of business involving scrap metals, most transactions are conducted in cash upon delivery of goods and that in such cash transactions, it is extremely difficult to prove payment to specific vendors at specific times unless supported by exceptional evidence such as witness affidavits. 1. The Appellant stated that costs should not only be justified upon payment, as accounting practices recognize trade payables and business transactions even where payment has not been made by the end of the financial year. 2. The Appellant stated that it has no legal obligation to ensure that vendors declare their sales or account for taxes when due and that the Respondent has the statutory mandate to enforce compliance and ensure accurate and timely tax declarations by taxpayers. 3. The Appellant stated that the Commissioner erred in law and fact by disallowing all costs on grounds of lack of proof of payment and alleged non- declaration by vendors. 4. The Appellant stated that the Respondent violated Section 15(1) of the Income Tax Act by failing to allow expenses wholly and exclusively incurred in generating taxable income. 5. The Appellant stated that the Respondent further contravened Section 3(2)(a) of the Income Tax Act which defines chargeable income as gains or profits from business and other sources and that the law recognizes that income tax is chargeable only on profits after deducting allowable expenses. 6. The Appellant stated that disallowance of input VAT would effectively result in corporation tax being charged on gross income, rendering the assessment defective from the outset and that the requirement for proof of payment as a basis for allowing costs should be found unjust. # The Appellant prayed: 1. That the Objection decision dated 18th June be set aside with costs. 2. That the prove of payment to justify cost was incurred be found unjust. 3. The faulty assessment be struck out and restore the taxpayer’s dignity of patriotism as a law biding taxpayer. # THE RESPONDENT’S CASE 1. In response to the appeal, the Respondent filed its Statement of facts dated and filed 8th September, 2025 and written submissions dated 10th march, 2026 and filed on even date. 1. The Respondent stated that it flagged the Appellant for a compliance review after examining its tax declarations and noting that the Appellant had claimed input VAT for December 2024 which appeared non-compliant according to Section 17(3) of the VAT Act. 2. The Respondent stated that it notified the Appellant on 4th February 2025 of its intention to conduct a compliance review and requested documents and information relating to input tax claimed for December 2024. 3. The Respondent stated that on 19th February 2025, the Appellant requested the lifting of VAT deactivation which had been effected after the Appellant failed to respond to earlier inquiries regarding the input tax claims. 4. The Respondent stated that on 25th February 2025, it requested the Appellant to provide supporting documents including purchase invoices, bank statements, and other relevant information to facilitate review. 5. The Respondent stated that the Appellant failed to provide all requested documentation and only submitted ten invoices, attributing the omission to the absence of its accountant. 6. The Respondent stated that upon reviewing the limited documentation and available data, it issued final compliance review findings on 1st April 2025 through a notice of tax assessment. 7. The Respondent stated that under the VAT review, the Appellant had claimed input tax amounting to Kshs. 163,857,456 with a revenue implication of Kshs. 26,057,195 for December 2024. 8. The Respondent stated that the Appellant’s claimed purchases and input tax originated from two suppliers, namely Five Star Agencies Limited and Adede Dan Otieno and that upon examining VAT returns of the said suppliers, it established that neither had declared sales to the Appellant for December 2024. 9. The Respondent stated that despite requests, the Appellant failed to provide additional supporting documentation beyond the ten invoices. 10. The Respondent stated that it therefore concluded that the Appellant failed to support its input VAT claims and proceeded to disallow the same and issue an assessment.and that based on these findings, it assessed VAT for December 2024 at Kshs. 28,200,716 inclusive of penalties and interest and issued an amended assessment on 1st April 2025 pursuant to Section 31 of the Tax Procedures Act. 11. The Respondent stated that the Appellant lodged a notice of objection on 28th April 2025 through iTax and by letter.and that upon reviewing the objection, it contacted the Appellant on 8th May 2025 and held a physical meeting on 12th May 2025 where further documentation was requested. 1. The Respondent stated that despite reminders and follow-ups, the Appellant failed to provide the requested documents, leading to issuance of an objection decision on 18th June 2025 disallowing the objection under Section 51(8) of the Tax Procedures Act and the Appellant subsequently filed an appeal dated 26th June 2025 but failed to serve the Respondent with the Notice of Appeal. 2. The Respondent stated that it became aware of the appeal through a Mention Notice issued by the Tribunal in August 2025 and retrieved the appeal documents from the Tribunal’s e-filing system. 3. The Respondent stated that the Appellant had still not effected service of the appeal documents as required under the law and the statutory timeline for filing its response began running from 15th August 2025. 4. The Respondent stated that it did not err in disallowing the Appellant’s input VAT claims nor contravene Section 17(1) and (2) of the VAT Act and it relied on earlier averments to rebut the Appellant’s claims and maintained that the Appellant failed to provide sufficient documentation. 5. The Respondent stated that although the Appellant alleged submission of invoices, only ten invoices were produced against a larger number of disallowed invoices, rendering the documentation insufficient and the Appellant failed to comply with statutory obligations under the VAT Act and Tax Procedures Act by not maintaining and producing required records. 6. The Respondent stated that the ten invoices provided were not verifiable as they were neither reflected in the eTIMS system nor in the iTax invoice checker.and the invoices could not therefore be relied upon to support input tax claims. 7. The Respondent stated that verification of supplier returns showed no sales declared to the Appellant by the alleged suppliers and the alleged invoices were not supported by system data and were inconsistent with supplier records. 8. The Respondent stated that there was a mismatch between the nature of goods allegedly supplied and the supplier’s declared business activities.and this inconsistency rendered the authenticity and source of the invoices doubtful. 9. The Respondent stated that it followed due process in issuing the assessment and that the Appellant failed to maintain proper records and the Appellant failed to discharge the burden of proof required to challenge the assessment. 10. The Respondent stated that inconsistencies between supplier declarations and the Appellant’s claims justified disallowance of input VAT and Appellant’s claims were contrary to Section 17(1) and (2) of the VAT Act as there were no corresponding supplier declarations. 11. The Respondent stated that the Appellant did not possess documentation compliant with section 17(3) of the VAT Act and repeated failure by the Appellant to provide requested documents confirmed lack of supporting evidence. 12. The Respondent stated that the Appellant’s failure to produce records even before the Tribunal further confirmed the correctness of the assessment and proof of payment was necessary to establish whether transactions occurred. 13. The Respondent stated that delivery notes and supplier confirmations were required to verify actual supply and delivery of goods and absence of such evidence justified disallowance of input VAT claims. 14. The Respondent stated that the Appellant introduced a new issue at appeal stage regarding scrap metal business and cash transactions without leave and that such new allegations were contrary to provisions of the Tax Procedures Act and Tax Appeals Tribunal Act. 15. The Respondent stated that regardless of payment mode, the Appellant was obligated to prove that transactions occurred and while the Appellant is not responsible for vendor compliance, it must maintain proper records and produce them when required. 16. The Respondent stated that the Appellant failed to keep proper records and could not support its input VAT claims and therefore stated that the Appellant failed to discharge the legal burden of proof. 17. The Respondent stated that the dispute before the Tribunal concerns VAT and not income tax and therefore references to provisions of the Income Tax Act by the Appellant are irrelevant to determination of input VAT entitlement. 18. The Respondent stated that the Appellant failed to discharge the burden of proof under the Tax Procedures Act, the Tax Appeals Tribunal Act, and the Evidence Act and that its decision is valid in law and submitted that the Appellant seeks to have the objection decision dated 18th June 2025 set aside and to have the requirement for proof of payment declared unjust. 19. The Respondent submitted that it opposes the appeal on grounds that it lacks merit due to insufficient documentary evidence and failure by the Appellant to discharge the burden of proof. 20. The Respondent submitted that the detailed facts of the case are contained in its Statement of Facts but summarized that it conducted a review of the Appellant’s VAT declarations after noting inconsistencies with Section 17(3) of the Value Added Tax Act. 1. The Respondent submitted that the Appellant had claimed input VAT amounting to Kshs. 162,857,456 in its VAT returns for the relevant period. It submitted that upon interrogating the VAT returns, it established that the Appellant claimed input tax from Five Star Agencies Limited and Adede Dan Otieno, but the Appellant did not appear in the suppliers’ VAT declarations. 2. The Respondent submitted that despite requesting supporting records, the Appellant only provided ten invoices which did not substantiate the full claim, leading to disallowance of the entire input tax and assessment of VAT amounting to Kshs. 28,200,716. 3. The Respondent submitted that following the assessment, the Appellant lodged an objection which was reviewed and found unsubstantiated, leading to confirmation of the assessment. 4. The Respondent submitted that the Appellant thereafter filed an appeal but failed to serve the Respondent with the Notice of Appeal as required under Section 13(5) of the Tax Appeals Tribunal Act and Rule 11 of the Tax Appeals Tribunal (Procedure) Rules, 2015. 5. The Respondent submitted that the dispute raises two issues, namely whether the Respondent erred in disallowing the input VAT claim and whether the Appellant discharged the burden of proof. 6. The Respondent submitted that the dispute concerns disallowed input VAT of Kshs. 162,857,456 and that the Appellant alleges error in disallowance despite providing invoices. 7. The Respondent submitted that contrary to the Appellant’s claims, the input tax did not comply with Section 17(1)–(3) of the Value Added Tax Act due to lack of proof that taxable supplies were made. 8. The Respondent submitted that input VAT is only allowable where the supply was acquired for taxable purposes and where the taxpayer holds proper documentation as required by Section 17 of the Value Added Tax Act. 9. The Respondent submitted that judicial authority affirms that entitlement to input VAT depends on compliance with statutory conditions including possession of valid documentation. 10. The Respondent submitted that similar principles were affirmed in ***Commissioner Investigations and Enforcement v Sangyug Enterprises (K)*** ***Limited [2022] KEHC 59 (KLR)*** regarding the necessity of proper documentation for input VAT claims. 1. The Respondent submitted that the Appellant failed to meet the statutory threshold as it only produced ten invoices out of fifty-nine disallowed invoices, leaving a significant portion unsupported. 2. The Respondent submitted that the ten invoices produced were not compliant with eTIMS and were not verifiable through the iTax system. 3. The Respondent submitted that the alleged suppliers did not declare any sales to the Appellant, thereby undermining the validity of the claimed transactions. 4. The Respondent submitted that there was a mismatch between the goods allegedly supplied and the suppliers’ declared business activities, casting doubt on the authenticity of the invoices. 5. The Respondent submitted that based on these inconsistencies, the Appellant’s claim failed to meet the requirements of Section 17 of the Value Added Tax Act. 6. The Respondent submitted that the Appellant’s claim for input VAT was not incurred on taxable supplies, was not properly deducted, and lacked the requisite documentation. 7. The Respondent submitted that the invoices relied upon were unverifiable and could not support a lawful claim for input VAT. 8. The Respondent submitted that it was incumbent upon the Appellant to furnish documentary proof of transactions as required under Section 17 of the Value Added Tax Act. 9. The Respondent submitted that its request for documentation was grounded in Section 59 of the Tax Procedures Act and Section 43 of the Value Added Tax Act which empower the Commissioner to demand records. 10. The Respondent submitted that the law obligates taxpayers to maintain accurate records of all transactions for a prescribed period under Section 43 of the Value Added Tax Act. 11. The Respondent submitted that despite repeated requests, the Appellant failed to provide the necessary documents and the available invoices could not be verified through official systems. 12. The Respondent submitted that failure to produce documentation demonstrates that the Appellant did not possess the required records. It submitted that this position is supported by judicial precedents which affirms the necessity of documentation and record keeping. 1. The Respondent submitted that in the absence of valid documentation and proof of transactions, the Appellant was not entitled to deduct input VAT and therefore the disallowance was proper in law. 2. The Respondent submitted that the burden of proof lies with the taxpayer to demonstrate that an assessment is excessive or incorrect as provided under Section 56 of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act. 3. The Respondent submitted that judicial authority confirms that where authenticity of documents is challenged, the burden shifts back to the taxpayer. 4. The Respondent submitted that the Appellant failed to discharge this burden by not providing key documents including purchase ledgers, invoices, proof of payment, supplier confirmations, and delivery notes. 5. The Respondent submitted that the invoices produced were not from recognized systems and were reasonably questioned on bona fide grounds. 6. The Respondent submitted that the Appellant failed to establish a prima facie case and therefore the burden of proof did not shift to the Respondent. 7. The Respondent submitted that the burden remained with the Appellant to disprove the assessment and justify its claims. 8. The Respondent submitted that having failed to substantiate its case, the Appellant did not discharge the burden of proof as required by law. Its further submitted that the appeal lacks merit and ought to be dismissed with costs. 9. The Respondent submitted that it amended assessment dated 1st April 2025 as confirmed in the objection decision dated 18th June 2025 should be upheld as validly issued. 10. The Respondent prayed for the Tribunal to uphold the amended assessment of 1st April 2025 as confirmed in the objection decision of 18th June 2025. # Respondent’s Prayers 1. The Respondent prayed that: 2. This Honorable Tribunal upholds the amended assessment dated 1st April 2025 as confirmed in the Objection Decision letter dated 18th June as valid and in conformity of the law. 3. The Tribunal finds that the Appeal lacks and dismiss it with costs to the Respondent. # ISSUE FOR DETERMINATION The Tribunal has considered the parties’ pleadings and submissions, and has identified the following issues for determination: **Whether the Appellant** # discharged their burden of proving that the Objection decision **was erroneous.** **ANALYSIS AND FINDINGS** 1. Having identified the issue for determination, the Tribunal proceeds to analyse the same as hereunder: - # Whether the Appellant discharged their burden of proving that the Objection decision was erroneous. 1. The Tribunal has reviewed the context of the dispute following chronology of events leading up to the determinations, On 4th February 2025, the Respondent notified the Appellant of its intention to conduct a compliance review on the Appellant’s VAT returns for December 2024 and requested supporting documentation. 2. On 19th February 2025, the Appellant requested lifting of VAT deactivation imposed due to non response, prompting a further request by the Respondent on 25th February 2025 for documents including invoices and bank statements. The Appellant only partially complied by providing ten (10) invoices. Consequently, on 28th March 2025 the Respondent issued an additional VAT assessment via iTax disallowing input VAT, and on 1st April 2025 issued a formal assessment and demand for Kshs. 28,200,716. 3. The Appellant lodged a Notice of Objection on 28th April 2025, after which the Respondent sought further documentation through communication on 8th May 2025 and a meeting held on 12th May 2025, but the Appellant failed to provide additional records. 4. The Tribunal finds that the Respondent specifically requested the Appellant to furnish documents necessary to verify and authenticate the impugned input VAT claims arising from the fifty-nine (59) disallowed invoices amounting to Kshs. 163,857,275.99 with input VAT of Kshs. 26,217,164.15. The Tribunal notes that under Section 17(1), (2) and (3) of the Value Added Tax Act, 2013, a taxpayer seeking deduction of input VAT must demonstrate that the purchases were incurred for purposes of making taxable supplies and must possess valid supporting documentation including tax invoices and related records. The Tribunal further notes that Section 43 of the VAT Act obligates every registered person to maintain proper records for purposes of verification by the Commissioner. 1. The Tribunal further finds that despite numerous requests through emails, telephone follow ups and meetings during the objection review stage, the Appellant only submitted ten (10) invoices and failed to provide the remainder of the requested supporting documentation. The Tribunal notes that the Respondent specifically requested the Appellant to provide: 2. Disallowed purchases ledger; 3. Disallowed invoices, ETR receipts and eTIMS receipts; 4. Proof of payment for the disallowed purchases; 5. Supplier confirmations; 6. Delivery notes; and 7. Any other supporting records in support of the grounds of objection. 8. The Tribunal finds that none of the foregoing documents, save for the ten invoices produced, were availed by the Appellant. The Tribunal further finds that even the ten invoices submitted were incapable of verification through the iTax invoice checker and other KRA systems and were not supported by corresponding supplier declarations in iTax. 9. The Tribunal is guided by Section 59(1) of the Tax Procedures Act, which grants the Commissioner power to require production of records for purposes of ascertaining tax liability. The Tribunal further relies on ***Commissioner of Investigations and Enforcement v Pearl Industries Limited [2022] KEHC 51 (KLR)***, where the High Court pronounced itself as follows: *“A taxpayer is under a statutory obligation to maintain and avail records to support its tax position and failure to do so entitles the Commissioner to make assessments based on the information available.”* 1. The Tribunal finds the foregoing pronouncement applicable in the present Appeal as the Appellant failed to avail critical primary records necessary to support the impugned input VAT claims despite repeated requests by the Respondent. 2. The Tribunal further notes that under Section 17(2)(a) and (b) of the VAT Act, 2013, input VAT shall not be allowable where the taxpayer does not hold the requisite documentation or where the registered supplier has not declared the corresponding sales invoice in a return. The Tribunal finds that the Respondent established through iTax records that the alleged suppliers did not declare the impugned sales to the Appellant during the relevant period. The Tribunal further finds that the invoices relied upon by the Appellant were not verifiable through eTIMS or the iTax invoice checker. 1. In this regard, the Tribunal is persuaded by the holding in ***Tarua Scrap Metal Dealers Limited v Commissioner for Domestic Taxes [2024] KETAT 355 (KLR)***, where the Tribunal stated: *“The entitlement to input VAT is not automatic upon presentation of invoices. A taxpayer must demonstrate through verifiable records that the transactions actually occurred and that the statutory conditions under Section 17 of the VAT Act have been satisfied.”* 1. The Tribunal finds the circumstances of the present Appeal substantially similar, particularly because the Appellant failed to produce delivery notes, proof of payment, supplier confirmations or reconciled purchase ledgers. 2. The Tribunal further takes judicial notice of the Appellant’s conduct throughout the pendency of the Appeal. The record reflects repeated nonappearance by the Appellant on 9th September 2025, 8th October 2025, 6th November 2025, 11th December 2025, 27th January 2026, 10th March 2026 and ultimately on 1st April 2026 when the matter proceeded for hearing. The Tribunal further notes the Appellant failed to file written submissions and failed to actively prosecute its own Appeal. 3. The Tribunal further notes that under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, the burden of proving that a tax assessment is excessive or incorrect lies upon the taxpayer. The Tribunal finds that the Appellant failed to discharge this burden as it did not provide credible documentation linking the alleged purchases to genuine taxable business transactions. 4. The Tribunal is fortified in this finding by ***Commissioner of Domestic Taxes v Trical and Hard Limited [2022] KEHC 9927 (KLR)***, where the High Court stated, *“Once the Commissioner raises legitimate questions regarding authenticity of transactions, the evidentiary burden shifts to the taxpayer to provide credible and verifiable documentation.”* The Court further pronounced itself that: *“Tax disputes are resolved on the basis of evidence and not mere assertions.”* 1. Consequently, the Tribunal finds and holds that the Appellant failed to discharge its statutory burden of proving that the impugned purchases constituted genuine taxable supplies acquired for purposes of making taxable supplies as contemplated under Section 17 of the VAT Act, 2013. The Respondent was therefore justified in disallowing the input VAT claims for want of sufficient supporting documentation, verification and proof of genuine transactions. 1. Based on the foregoing the Tribunal therefore finds and holds that the Appellant did not discharged their burden of proving that the Objection decision was erroneous. # FINAL DECISION 1. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal fails and makes the following Orders: 2. The Appeal be and is hereby dismissed; 3. The Respondent’s Objection Decision on 18 th June, 2025 be and is hereby upheld; 4. Each party to bear its own cost. 5. It is so ordered # DATED AND DELIVERED AT NAIROBI ON THIS 3RD OF JUNE 2026. SIGNED BY/FOR: **★ TH E JUDICIAR Y O F KENY A ★** **HON. ROBERT MUGAMBI MUTUMA (CHAIRPERSON) HON. EUNICE NJERI NGANGA HON. BONIFACE KIBIY TERER DOMINIC KIPKEMOI RONO HON. BILLY GRAHAM OKUMU MIJUNGU** Tax Appeals Tribunal Tribunal Date: 2026-06-03 15:45:03